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VOICE OVER INTERNET PROTOCOL (VoIP) PUBLIC CONSULTATION/

CONSULTATION PUBLIQUE SUR LES SERVICES DE

COMMUNICATION VOCALE SUR PROTOCOLE INTERNET

HELD AT: TENUE À:

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Portage IV Portage IV

140 Promenade du Portage 140, promenade du Portage

Gatineau, Quebec Gatineau (Québec)

September 21, 2004 Le 21 septembre 2004

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

BEFORE / DEVANT:

Charles Dalfen Chairperson of the CRTC /

Le président du CRTC

Andrée Wylie Vice-chairperson /

Vice-présidente

David Colville Vice-chairperson /

Vice-présidente

Andrée Noël Commissioner / Conseillère

Ronald Williams Commissioner / Conseillier

Joan Pennefather Commissioner / Conseillère

Barbara Cram Commissioner / Conseillère

Jean-Marc Demers Commissioner / Conseillier

Stuart Langford Commissioner / Conseillier

ALSO PRESENT / AUSSI PRÉSENTS:

Marielle Girard Secretary / Secrétaire

Carolyn Pinsky Legal Counsel /

James Murdock Conseillers juridiques

Chris Seidl Commission Staff /

Gestionnaire

HELD AT: TENUE À:

Conference Centre Centre de conférences

Outaouais Room Salle Outaouais

Portage IV Portage IV

140 Promenade du Portage 140, promenade du Portage

Gatineau, Quebec Gatineau (Québec)

September 21, 2004 Le 21 septembre 2004

PAGE / PARA

PRESENTATION BY / PRÉSENTATION PAR:

Primus Telecommunications Canada Inc. 8 / 41

Vonage Holdings Corp. 45 / 244

Comwave Telecommunication Inc. 85 / 443

The Companies: 114 / 598

Aliant Telecom Inc.

Bell Canada

Saskatchewan Telecommunications

Société en commandite Télébec

TELUS Communications Inc. 228 / 1175

Northwestel Inc. 302 / 1518

B.C. Public Interest Advocacy Centre 339 / 1710

Public Interest Advocacy Centre 369 / 1817

Gatineau, Quebec / Gatineau (Québec)

--- Upon commencing on Tuesday, September 21, 2004

at 0930 / L'audience débute le mardi 21 septembre

2004 à 0930

1 THE CHAIRPERSON: Bonjour, good morning, ladies and gentlemen, and welcome.

2 My name is Charles Dalfen and I am chairman of the CRTC.

3 With me on the panel are David Colville, to my right, the Commission's vice-chair, Telecommunications and commissioner, Atlantic Region;

to my immediate left, Andrée Wylie, vice-présidente de la radio diffusion; to her left, Barbara Cram, the commissioner for Manitoba and Saskatchewan; to Barbara's left, Joan Pennefather; and to Joan's left, Jean-Marc Demers, conseiller; to David's right, Stuart Langford; to Stuart's right, Ronald Williams, the commissioner for Alberta and Northwest Territories; and to Ron's right, Andrée Noël, regional commissioner for Quebec.

4 We have a number of Commission staff here, as well. Seated at the staff table, in the front row, our consultation secretary, Marielle Girard; Commission counsel, Carolyn Pinsky and James Murdock; and Commission staffer from the Telecom Branch, Chris Seidl.

5 We recognize that we have a lot of ground to cover, so please do not hesitate to contact Madam Girard or Commission counsel if you have any questions.

6 As you know, in Telecom Public Notice 2004-2, the Commission initiated a public proceeding for determining the appropriate regulatory framework for voice communication services using Internet Protocol.

7 The Commission asked for comment on its preliminary views, as well as on any other issue that may be pertinent to the regulatory framework for such services.

8 In the public notice, the Commission noted two principal categories of voice communication services using Internet protocol: peer-to-peer services, that do not connect to the PSTN, and voice communication services using Internet Protocol that provide access to or from the public switch telephone network and use numbers that conform with the North American Numbering Plan. We referred to this latter category as VoIP services.

9 In the public notice, the Commission stated its preliminary view that VoIP services should be subject to the existing regulatory framework. Accordingly, the regulatory requirements imposed on VoIP service providers would depend on the class of the service provider and the type of service being provided.

10 The principal issue in this proceeding will be whether this preliminary view should be adopted or whether a different approach is warranted.

11 Quelques parties ont appuyé l'avis préliminaire du Conseil, mais certaines ont proposé d'autres façons de catégoriser les services. VoIP est, par le fait même, d'autres façons de réglementer ou ne pas réglementer, selon les cas, les fournisseurs de VoIP.

12 Tout au long de l'instance, nous nous interrogerons également sur certaines questions précises, telles que :

13 - Les services VoIP qui permettent aux abonnés de loger ou de recevoir des appels qui se terminent dans une circonscription ou une zone d'appel local devraient-ils être considérés aux fins de la réglementation comme des services locaux ?

14 - Les fournisseurs de services VoIP devraient-ils avoir l'obligation de fournir les services 9-1-1 et 1-9-1-1, des mesures de protection du consommateur et un SRT ?

15 In addition to these issues, parties have raised a number of other issues that are being explored in this proceeding.

16 We note that there are a large number of parties participating in the consultation representing a wide diversity of interests. We are looking forward to hearing your views on this important subject.

17 Bien entendu, les 31 parties à cette consultation de trois jours mettront à l'épreuve notre capacité de respecter l'horaire que nous nous sommes fixé.

18 Nous sollicitons donc votre coopération pour que nous puissions utiliser efficacement le temps qui nous est imparti.

19 Nous rappelons à toutes les parties qu'elles doivent surveiller le déroulement de la consultation afin d'être prêtes à faire leur présentation lorsque leur tour arrivera.

20 Unless otherwise indicted in the organization and conduction letter of July 28th, parties will be allotted a maximum of 20 minutes to make their presentation.

21 The consultation secretary will advise you by holding up a card when you have five minutes remaining. As the number of participants is large, it's imperative that parties adhere to their allotted time in order to maintain the schedule.

22 Parties are reminded that cross-examination by other parties in audio-visual presentations will not form part of this consultation.

23 Generally, commissioners' questions, as well as questions by Commission counsel, if any, will come after each party has completed its presentation.

24 Si vous avez d'autres questions sur le déroulement de la consultation, je vous demanderais de vous adresser à madame Girard.

25 Maintenant, j'inviterais la secrétaire de l'audience, madame Girard, à revoir avec vous certaines questions d'ordre administrative.

26 LA SECRÉTAIRE : Merci, Monsieur le Président.

27 Avant de procéder, seulement quelques mises au point qui contribueront au bon déroulement de cette consultation publique.

28 First, we would ask you to please turn off your cell phones and beepers while you are in the hearing room, as they tend to be an unwelcome distraction for participants and panel members. We are counting on your cooperation in this regard throughout the hearing.

29 Next, as indicated in the organization and conduct letter issued on July 28th, 2004, we proposed to sit from 9:30 a.m. to 6 p.m. each day. We will take a 90-minute lunch break, as well as a 15-minute mid-morning and mid-afternoon break. While we do not anticipate sitting into the evenings, it may be necessary if the consultation falls behind schedule.

30 Also, the order of appearance for this consultation was set out in Schedule A to the Commission's July 28th organization and conduct letter and appears on the consultation agenda. If you do not have a copy of this schedule with you, a copy of the agenda is posted at the reception.

31 Additional copies are also posted in the Papineau Room, which will serve as the public examination room for this consultation. The room is open to all parties and to the public for the duration of the consultation and contains a complete copy of the record for this proceeding.

32 Furthermore, please leave at the reception table 25 copies of the text of your oral presentation for the Commission's use and one copy for each of the 31 other parties presenting at the consultation.

33 For ease of distribution to the other parties, the 31 copies will be placed on the table marked "Oral Presentations", at the back at this room. Parties are reminded that copies of their oral presentation are being provided for convenience only and do not form a part of the public record for this proceeding.

34 Also, parties will be asked to come forward when making their presentation. Spokespersons will be required to present themselves, their team members and to proceed with their presentation within the prescribed time frame.

35 Finally, in order to ensure the court reporters are able to produce an accurate transcript, please, make sure your microphone is turned on when speaking. A copy of this transcript will be made available to the public on the Commission's web site shortly after conclusion of this consultation.

36 Parties who purchase same-day or other services from StenoTran Services should deal with them directly.

37 Maintenant, Monsieur le Président, nous allons poursuivre avec les comparutions.

38 LE PRÉSIDENT: Je vous en prie.

39 THE SECRETARY: I will call on Primus Telecommunications Canada Inc. to make its presentation.

40 Gentlemen, please, introduce yourselves and proceed with your 20-minutes presentation.

PRESENTATION / PRÉSENTATION

41 MR. CHISLETT: Thank you and good morning, Mr. Chairman, and good morning to the other members of the Commission panel.

42 My name is Ted Chislett and I am the president and chief operating officer of Primus Canada.

43 Appearing with me today, from Primus, on my right is Mr. Matthew Stein, vice-president, New Technologies and Services; and on my left is Mr. Jonathan Holmes, director of Regulatory Affairs.

44 It gives us great pleasure to lead off this round of comments in this current proceeding and we look forward to concluding this round by closing statements in a few days from now.

45 As you know, Primus Canada has been operating in Canada since 1997. Primus Canada has a significant stake in Canada, having invested in more than $80 million in our Canadian network infrastructure. This is in addition to investing more than $200 million in acquiring businesses and customer bases in Canada.

46 We purchase more than $150 million a year in Canadian goods and service, we employ more than 900 Canadians across the country, including internal development teams for new services, network planning and system development, and we operate nationally and have more than a million customers.

47 Earlier this year, Primus Canada launched TalkBroadband. For the first time, TalkBroadband allowed Canadians to place and receive calls over the Internet just like they do from their home phone. This significant innovation was designed in Canada by Canadians.

48 Today, our service continues to be run in Canada by a Canadian team. Primus is committed to Canada and Primus is committed to continuing development, innovation and investment in Canada and to provide Canadian consumers with attractive new services.

49 The launch of this service in January of this year began a new era in telecommunications. Until that time, the same services offered by Primus' TalkBroadband were the exclusive purview of facilities-based providers.

50 The incumbents, traditionally, have controlled what services would be offered to both business and residential consumers. Service providers who did not control the access component of the service could not independently offer features like call waiting or call display.

51 Resellers and other service providers, using the networks of facilities-based service providers, were limited to the functionalities available through these networks and offered on a resale basis. Now, with the shift in intelligence from the network to the edge, a service provider such as Primus can innovate, develop integrated features and offer consumers greater choice.

52 This shift allows a far broader base of innovation and development, independent of the major carriers' networks. This opens up the telecommunications industry to the same forces of innovation and choice which have shaped the Internet and the WorldWideWeb.

53 It is in the public interest to encourage and promote these capabilities in order to maximize innovation and development and to provide a greater choice for Canadians.

54 In order to encourage this and maximize innovation and choice, it is necessary to ensure that customers and service providers can obtain nondiscriminatory access to the high-speed access networks of ILECs and cable companies.

55 This means that to the extent access improvements, such as quality of service, stand-by power, et cetera, are available to the access provider, either cable company or ILECs, they should be made available to other service providers on a reasonable basis.

56 This will ensure that all service providers can develop and innovate new services and features without fear that the cable companies or ILECs will give themselves undue preference on these capabilities.

57 Initially TalkBroadband was directed at the residential market, but we have since launched a commercial offering as well. Both of these services offer number portability in the major population centres of British Columbia, Alberta, Manitoba, Ontario, Quebec and Nova Scotia. However, customers from anywhere, both inside and outside Canada, can in fact sign up for this Canadian service. Primus Canada's VoIP customers use broadband interconnections from all the major ISPs in Canada, as well as many from around the world.

58 Business is going well. In fact, we are ahead of our internal sales forecasts in both the residential and business markets.

59 We should take a moment to locate TalkBroadband in the context of the discussions that have taken place so far in this proceeding. Our service will operate over high-speed Internet access connections, regardless of the access method, be it DSL or cable modem service. Our service is access independent, using TELUS' characterization, and it is a Category 2 service using Bell's categories.

60 From our perspective, however, there is no need to differentiate between an access independent Category 2 VoIP service and an access dependent Category 3 VoIP service, as defined by Bell and TELUS, unless the service providers are intending to grant themselves undue or unjust preference. If everyone can purchase the same quality of service access connection, access independent and access dependent services would have the same characteristics to the end user. If non-discriminatory access is a requirement of those who control bottleneck facilities, no such distinction would be needed.

61 It concerns Primus that the two largest ILECs are drawing this distinction because it suggests that they may be intending to provide undue preference for their own service offerings.

62 Our customers' use of TalkBroadband varies, but what we are seeing is that customers are typically using it as a substitute for their primary exchange service, both in the primary and in the second-line configuration. Because of the features and capabilities, Primus believes that VoIP services are a substitute for primary exchange service and should be regulated as such by the Commission. Our customers' use of TalkBroadband bears this out.

63 MR. HOLMES: Before proceeding, we would like to mention that your decision to issue your preliminary view on how and when to regulate VoIP services has been of great assistance to us. It has enabled us to focus our comments on the existing legislative and regulatory regime in Canada, and to see if and how the provision of VoIP services can be governed through it.

64 Primus believes that the current legislative and regulatory framework can be used to regulate VoIP services. However, the infrastructure supporting VoIP opens up the possibility of discriminatory treatment to the detriment of competing service providers. The regulatory regime must deal with this threat to competition.

65 Primus believes that the Commission is absolutely correct in its position that it is the service, not the technology that the Commission regulates. Whether local phone service is provided by the incumbents using copper, fibre or VoIP, it is the characteristics of the service and the dominance of the incumbents, both in the local phone market and in the access network, that dictate that ILECs providing VoIP service need to be regulated.

66 VoIP has demonstrated that it can have the same characteristics as local phone service, both from a features perspective as well as a price perspective, and that it can be a replacement for local line service. In fact, the tariff offerings by the incumbents for VoIP Centrex replacement service demonstrate that they also believe that VoIP can be a replacement for their existing tariff services. As such, until the time when the Commission determines that there is sufficient sustainable competition in the local market, ILEC offerings of VoIP services should be regulated.

67 As mentioned earlier, Primus looks at VoIP from a service and customer perspective. From that viewpoint, it is clear that VoIP is equivalent to a primary exchange service. Others, notably Bell and TELUS, seem to focus on the facility over which the service is offered, which is like saying that the lobster you ordered from the east coast is no longer a lobster because it came by truck as opposed to air.

68 In fact, if non-discriminatory access to facilities were a requirement, there would be no reasonable distinction between access dependent and access independent services, as defined by Bell and TELUS.

69 It is worthy of mention that the utility companies made the case in their submission that the introduction of VoIP is much like the introduction of digital switching in Canada. It changed how the service was delivered and enriched the feature set available, but it did not alter the fact that the telephone companies were still offering a local voice service.

70 Accordingly, we believe that any access dependent VoIP services that the ILECs may offer, such as Bell Canada's Managed Internet Protocol Service, filed as Tariff Notice 68-13, and any access independent VoIP services offered in-territory by an ILEC should be subject to tariff regulation.

71 We believe that it is possible to develop reasonable criteria that can be used to identify whether access independent VoIP services qualify as in-territory.

72 However, we don't believe that peer-to-peer services that allow calls to be completed between individuals using their computers exclusively over the Internet should be regulated.

73 In Canada, access is a duopoly. There are only two widespread access networks in Canada and they should have the same regulatory rules governing access. In fact, we believe that the ILEC and cable companies' access networks both represent bottleneck access facilities and that the regulatory treatment regarding access should be the same.

74 We believe that the Commission must continue to regulate access to such underlying bottle-neck access services and that the pricing for access services should reflect the very limited supply or the near essential nature of these bottleneck services.

75 We also believe that the ILECs' retail DSL services should be completely unbundled from the provision of voice service on a copper loop and should be available for purchase on a standalone basis by resellers. This should be reflected in each of the ILECs' wholesale DSL tariff offerings as well.

76 At this point in time, the fact that Primus cannot purchase a DSL service independent of an associated voice service makes it unable to offer a bundle of high-speed Internet and TalkBroadband services.

77 We are concerned about the prospect of the major cable companies entering the local market and offering the classic triple-play bundle of local voice, high-speed Internet access and broadcast services using IP with an unfair advantage due to their effectively exclusive access to their widespread installed networks, which were largely deployed under a monopoly mandate.

78 While TPIA has been introduced, the rates charged for TPIA were unworkable for us. There are situations where wholesale access tariff prices are higher than retail rates. The cost studies which have been filed for TPIA require serious scrutiny, as we have noted in a letter to the Commission dated August 27th of this year. Until that scrutiny is completed and the CRTC has decided on fair rates for TPIA, the cable companies would have an unfair advantage if they were allowed to offer a VoIP service over those bottle-neck facilities.

79 Another example of inappropriate access inequality can be found in the restriction preventing the use of TPIA for voice access. Such restrictions stifle innovation. There is no restriction on voice carriage and wholesale DSL tariffs, and there should be no such restrictions on the use of TPIA to carry voice. The regulatory regime for bottleneck access facilities should encourage innovation, not contain it.

80 MR. STEIN: The nature of VoIP services and their dependency on the quality of underlying packet delivery mechanisms raises other new issues regarding undue preference for service providers using the broadband access networks of incumbent service providers.

81 An issue we would like to focus on this morning is the appropriate treatment of IP packets associated with voice traffic.

82 We note that YAK Communications has proposed a VoIP access condition which would ensure that ILECs and cable companies could not restrict a broadband customer from dealing with the VoIP service provider of the customer's choice, and that these companies should not provide a lower quality of broadband service to customers that obtain VoIP services from a competitor.

83 This VoIP access condition also provides that packet carriage priority for voice services providers must be made available to competitors if carriers offer it to their own customers, and that win-back rules should apply in a VoIP market.

84 Primus believes that a VoIP access condition will ensure that all service providers can develop and innovate new services and features while having the assurance that the cable companies and ILECs will not give themselves an undue preference on these capabilities. New service providers have enough challenges from both cable and ILEC incumbents who are able to bundle services unavailable to competitors and/or realize economic savings by combining cable modems or video CPE with VoIP terminal adapters.

85 We believe that the Commission should adopt this VoIP access condition, but should take it one step further. In addition to the local win-back rules that should apply to local VoIP services, Primus would like to see a section 24 Condition of Service against intentional packet dropping or any other method specifically designed to degrade the attainable service level of a product. We believe that this issue needs to be addressed specifically by the Commission.

86 We raised this issue in our initial submission, and now we see that the record of this proceeding provides some conflicting evidence on the likelihood of this occurring.

87 The CCTA has said that packet monitoring is not practical. For its part, Rogers has said that it doesn't intend to provide inferior services to any of its high-speed Internet access customers that subscribe to an Internet telephony service.

88 We are glad to hear that, but, on the other hand, Nortel Networks is on the record describing how the ILECs and cable companies' networks are currently undergoing a transformation process which will give them the ability to monitor and inspect packet flows on their networks.

89 Nortel states that while this technology is not in place today, it will be employed to inspect and thwart illicit communications, including viruses, spam and spyware.

90 To monitor these threats carriers will have to inspect packet flows. In our response to one of your interrogatories, we identified a start-up company called PQ, recently purchased by Cisco Systems, that offers a service which cable and phone companies are using, presumably only in the U.S. right now, to identify third party VoIP traffic on broadband networks.

91 So if, as everyone believes to be the case, telecommunications networks are migrating toward an IP infrastructure, this monitoring functionality is coming and competitors will need the protection offered by our requested section 24 Condition of Service.

92 The final issue we would like to discuss while we are before you this morning relates to the provision of 9-1-1 services to customers of the new VoIP offerings.

93 As things stand right now, TalkBroadband customers' registered service addresses match the NPA-NXX exchange and they are able to make 9-1-1 calls, and the correct information is presented to the right Public Safety Answering Point, or PSAP, right away.

94 If the customer uses TalkBroadband outside these parameters, either in a nomadic fashion or if the customer's telephone number is not native to the telephone exchange where they reside, the call will be completed, but the customer will contact the PSAP associated with his or her TalkBroadband NPA-NXX without the typical ALI information being provided to the PSAP.

95 While TalkBroadband's capabilities are greater than most other VoIP service providers out there, this issue is an industry-wide problem with 9-1-1 on a number of fronts. Primus is currently engaged in tests with its LEC service providers and a number of PSAPs across the country.

96 Primus agrees with the Commission's preliminary view that the CISC Emergency Services Working Group is the appropriate place for an investigation into possible solutions to the 9-1-1 puzzle. Primus is involved in the Emergency Services Working Group as well.

97 However, Primus would like to quickly give the Commission its perspective on the major players in the 9-1-1 system and where the final pieces of the puzzle are likely to be found.

98 First of all, the ILECs own and manage the infrastructure used to route calls to the PSAPs and transmit customer data in a format that the PSAPs can ultimately use to ensure a quick response to emergencies. But ILEC functionality goes beyond the simple routing of calls. During any typical 9-1-1 call the ILEC receives the calling phone number via the PSTN, links it with the customer's location and other information contained in internal databases and turns around and presents this information to the PSAP in a manner the PSAP is accustomed to. No other company has that capability.

99 The PSAPs, on the other hand, have been typically created by municipal or regional governments and are largely dependent on funding from these governments to operate and modernize their systems. The PSAPs are focused on handling incoming calls as quickly and efficiently as possible, so that their related police, fire and ambulance services can be quickly dispatched.

100 Currently, the ILECs' 9-1-1 networks are the only practical and, as the PSAPs have told us, the only acceptable method of routing 9-1-1 calls. Indeed, the PSAP from the Greater Vancouver Regional District has stated that its call handling computer systems cannot be modified to accommodate more than one feed from the outside.

101 The PSAPs' predicament and the fact that the ILECs exclusively own and manage the 9-1-1 network in their respective operating territory suggest to us that in the Canadian market the ILECs are the key to solving the nomadic VoIP 9-1-1 puzzle.

102 We believe that viable alternatives may require the ILECs to unbundle components and functionality of their existing 9-1-1 networks. We are not going to make suggestions here today about how to do that because, along with you, we believe that the Emergency Services Working Group is the right forum for those discussions.

103 However, as reports are issued by this committee, be they consensus or non-consensus, we would ask you to focus your attention on the capabilities of the 9-1-1 network and also on the control that the ILECs exercise over their 9-1-1 networks. We would then ask you to favourably consider any changes to those networks in order to solve the VoIP 9-1-1 puzzle.

104 MR. CHISLETT: In conclusion, please let us reiterate a few points. VoIP can be equivalent to primary exchange service and should be governed by the same regulatory regime.

105 After ILEC market dominance has been reduced, then they can apply for forbearance from tariff regulations.

106 Non-discriminatory access to high-speed access via ILEC and cable companies should be mandated and enforced whether cable or DSL alike.

107 A level playing field for access, acceptable rates and without artificial restrictions is essential to stimulate and encourage innovation by all service providers.

108 That concludes our presentation this morning and we look forward to any questions you may have.

109 THE CHAIRPERSON: Thank you very much, Mr. Chislett, gentlemen.

110 Commissioner Langford.

111 COMMISSIONER LANGFORD: Thank you, Mr. Chairman. Thank you, gentlemen.

112 I want to try to be brief because we have a lot of folks waiting for their turn, but I don't want to cut any corners. Your submissions are very clear; your submissions here this morning were clear so I think I am just going to focus on one theme which seems to be fear.

113 You folks have fears and some folks have some fears about you and maybe we can quickly go through them. Why don't we start at the end, at 9-1-1 since it is the freshest in everyone's mind. With respect, you have kind of tossed it back to us and tossed it back to the ILECs and said you will do your best, which may be the right answer, I'm not sure, but let's look at it.

114 If you do toss it back to the ILECs and to CISC and carry on as you are now, what percentage of your customers now, roughly speaking, would not have access to the sort of 9-1-1 service most of us are accustomed to?

115 MR. CHISLETT: All of our customers who use a phone number local to the exchange where they are located in a stationary manner will have access to 9-1-1 exactly as it is today. It would be that portion of our customer base which uses a nomadic basis and moves around or have chosen a foreign non-native NPA.

116 The exact numbers, the nomadic ones are something we don't know the answer to, what percentage that one is today. Non-native NPAs I think are probably in the 25-30 per cent of our customers. Some of those are second lines so it wouldn't affect them directly.

117 COMMISSIONER LANGFORD: So 25 to 35 per cent plus the nomads?

118 MR. STEIN: No, that 25 to 30 per cent would include the typical nomads, the occasional person who would pick up their device and travel with it is far less than that in fact.

119 In that case where they are secondary lines or they are out of NPA and out of region, typically they already have another line and therefore their access isn't being limited to 9-1-1.

120 COMMISSIONER LANGFORD: But if they got rid of the other line you have problems.

121 MR. STEIN: If they did, that's true. However, in those cases typically they look to LMP those numbers and if they do, then obviously we do...

122 COMMISSIONER LANGFORD: You must be aware, because you people read these records pretty carefully I assume, that there are some consumer advocates who don't think the answer you have given us today, nor the preliminary view that we have put on the table, by the way, to be fair, is good enough and that folks like you shouldn't be offering this service unless you can offer all the bells and whistles for security and privacy, but we are dealing with 9-1-1 here.

123 How long? Do you have any sense? It is one thing to say: Okay, ILECs, you fund it and CISC, you figure it out. But you must be looking at this long and hard too. You are aware of the problem. How far away are we from a workable solution that gives your VoIP customers something like what the average phone user has today?

124 MR. CHISLETT: We need to have the cooperation of the ILECs and the existing PSAP infrastructure in order to work to try and do that. We don't have any control as to when that will occur.

125 COMMISSIONER LANGFORD: Do you think that is good enough? I'm not trying to -- yes, I guess I am trying to put you on the spot. This is our one chance.

126 What happens if some babysitter -- relative stranger to one of your subscriber homes, one of the 25 or 30 per cent that don't have the kind of access to 9-1-1 we think of as usual -- has a problem and reaches for the phone? What kind of comfort do we give this person?

127 The fact that you say -- and following from our preliminary view -- again, I want to make that clear. I'm not trying to hang you folks out to dry, but I am looking for a solution here.

128 It is cold comfort to this person to find out later that your subscriber was informed and you did your part. Is there something more?

129 What access would this person have? They would reach a PSAP, but maybe in Vancouver.

130 MR. STEIN: That's true. They may reach the wrong PSAP in a case where that happens.

131 However, we have gone very far with 9-1-1, in fact we have gone farther than most other VoIP providers out there. We have been working on this before launch, we have work on this tirelessly since launch, we have a dedicated group of people who are working on it and continue to. I can't speculate today and tell you when this will be solved because it is something that we can't solve alone.

132 Our intent here today was not to throw this back, as you put it. It was to in fact say: We need help. We can't work this ourselves. We have gone as far as we can without the cooperation of the ILECs.

133 We believe that the CISC is making progress and we support it and continue to work with them.

134 COMMISSIONER LANGFORD: I don't want to be over dramatic, but if you were selling cars and you told us they didn't have brakes yet but you were giving it your best shot, we would be nervous. This isn't perhaps in that category, but it could be in certain circumstances I think you will agree.

135 Why don't we do some specifics. Assuming the preliminary view holds sway and we carry on with something like what we have put in the 9-1-1 area, how would you contemplate informing, both literate and illiterate subscribers, and how would you contemplate ensuring that they had been informed?

136 MR. STEIN: Today provisions surrounding 9-1-1, explanation of how it works as well as all the other services are on our Web site, they are in our terms and conditions, customers are informed about them on the Web site when they come to order via the Web, and they are informed verbally by our representatives on the phone who are taking the order. So we certainly do inform them in as much way as possible.

137 COMMISSIONER LANGFORD: Do they have to agree?

138 MR. STEIN: Yes.

139 COMMISSIONER LANGFORD: And if they don't agree?

140 MR. STEIN: We wouldn't take their order.

141 COMMISSIONER LANGFORD: Okay.

142 MR. STEIN: We basically said are you aware and at that point we just told them.

143 COMMISSIONER LANGFORD: When you talk about it being available on the Web site, I mean that makes sense in a way because they are all Web users, these people. But would you contemplate advertising as well in the sense of when you advertise your products out there -- we have all received some of your flyers and we have all seen your ads in the newspaper and whatnot -- would you contemplate stating clearly that this was one of the conditions of subscribing to your service?

144 MR. CHISLETT: Certainly that could easily be done.

145 When we first launched, before we had all the 9-1-1 connections in place, on the top of every box we installed there was a sticker there that said that 9-1-1 did not work from this box.

146 As we developed and have it work in the native application, where it works and the number is local to your phone company, that has been taken away and we have relied on things like the Web site and other material. But I don't think we have a problem putting it in flyers to indicate that to people.

147 COMMISSIONER LANGFORD: What about funding? You have stated this morning, as I understand it, that basically it is sort of up to the PSAPs and it's up to the ILECs to get this done and you are standing by to help and to give advice, you haven't just thrown them the ball, but still it sounds to me like they are carrying the load on this at this point.

148 Have you given any thought to how you might assist them, at least in funding if not in actually carrying out the changes that need to be done?

149 MR. HOLMES: I think our thinking so far kind of revolves around the ILECs unbundling parts of their 9-1-1 network and at some kind of tariffed rates. So we would essentially buy service or buy components from them at the tariffed rate. But that is, I think, the extent so far.

150 COMMISSIONER LANGFORD: Okay. Let's just talk quickly about some of your fears. Those are the fears of some of the consumer groups and let's get some of yours out on the table.

151 The words I heard a lot about were sort of access, discrimination, preference. Those seem to be the big key words this morning.

152 The cable companies aren't even up yet with this thing and yet I heard them mention quite often this morning, and it is certainly mentioned in your preliminary submission fairly regularly -- do you have any sense for how realistic your fears are? You quoted Rogers as saying that they are going to give access to people and you have less confidence in other quarters, but what do you base this fear on, if I can put it that way.

153 It is logical to plan ahead and say this would be terrible if this happened. That's one thing. But do you have any evidence at this point that they are rolling out some sorts of network or some sort of lack of monitoring that might cut you off or treat your services in some inferior way?

154 MR. CHISLETT: I think we know that the technology is available, as we have seen. We mentioned from PQ. We don't have any firm evidence to day that it is happening to our customers, in fact I think we would be able to detect that if it was. I'm using technology put in place.

155 This is more a matter, I think, of us highlighting that we think that is something which -- it shouldn't be like a censorship, if you will, of what goes down the high-speed access. It should be made available and open and bring it to the attention, I guess, of the Commission today.

156 COMMISSIONER LANGFORD: You are talking about voice priority here.

157 In paragraph 51 of your main submission you talked about anecdotal evidence:

"Primus has already learned anecdotally that this is one tactical option being explored by carriers in an effort to tip the competitive balance in their favour." (As read)

158 Them's fighting words, as they used to say in Hollywood.

159 Can you give me some sense of this anecdotal evidence?

160 MR. CHISLETT: We have heard some off the record comments in passing that people are looking at this, but not that they are planning to implement that. So it is something which is possible, but I can't say that -- we haven't seen it today in Canada.

161 COMMISSIONER LANGFORD: And you haven't experienced anything like it, have you?

162 MR. STEIN: We have not experienced anything.

163 COMMISSIONER LANGFORD: So you have been treated fairly so far?

164 MR. STEIN: Absolutely.

165 COMMISSIONER LANGFORD: That's a good start, isn't it?

166 Wouldn't you agree?

167 MR. STEIN: Yes.

168 COMMISSIONER LANGFORD: Let me look at it from the other side. You are talking about priority for voice. Assuming that could be done, what might the cost be on the non-voice products, if I can put it that way? If the networks have to give priority to your voice products and to all of the other competitor's voice products, and of course their own voice products, is there going to be a cost down the line for non-voice products?

169 MR. STEIN: Thus far what we have been talking about is that when an ILEC or cable company gives priority to their own voice packets, they should do the same for others as well. That is really where we focused.

170 As for where quality of service goes for non-voice services, that is very network dependent. There are a lot of technical sides to that.

171 COMMISSIONER LANGFORD: But if I let Mr. Colville go ahead of me, then I go second. What I'm trying to figure out here is that if voice goes first is there an impact on the other products that go second?

172 I don't pretend to be an engineer and if you don't know the answer, that's fine. But in your view or as you look into the future, might there be a negative impact on the products that go second, if I can put it that way?

173 MR. CHISLETT: Generally speaking there are different types of information streams. One of those is real-time, which is real-time protocol which voice and some screening applications use; and the other is more Internet browsing and different items like that which is pseudo real-time but it is not critical that things arrive in a consistent manner.

174 Typically because the requirements of voice are fairly low as far as the transmission capacity is concerned, it is a pretty negligible impact on the browsing and downloading and things like that going on on the Web from individual residential customers. So it would be pretty minimal impact that someone would see in that regard.

175 But it really comes down to as you look in the future there will be a number of services and there will be potential for people to purchase different priorities for different services. Maybe it is for video monitoring maybe real-time as well as for voice.

176 To the extent that that capability is inherent in the access, if you want to make it open for a lot of customers, a lot of companies to innovate, you need to make that capability available to other people, the access, so that they are encouraged to go ahead and spend the money developing those services.

177 COMMISSIONER LANGFORD: So you would say as between video monitoring and voice, voice should go first?

178 MR. CHISLETT: No. I think that is a question eventually up to the customer as to what they want to purchase. If you have the ability to provide a priority to a certain level of packets and the customer can decide which one they want to have the priority.

179 COMMISSIONER LANGFORD: So essentially all your are saying, then, is: Treat us all the same.

180 MR. CHISLETT: That's correct.

181 COMMISSIONER LANGFORD: All the voice products that same?

182 MR. CHISLETT: That's correct.

183 COMMISSIONER LANGFORD: And you are not going to get into a competition between voice and non-voice?

184 MR. STEIN: Voice products being prioritized doesn't necessarily mean that everything must therefore go slower until there is so much voice on the network that it is starting to drown out other things.

185 As well, quality of service, in this regard, has more to do not with the size of that stream, as much with, if you will, the rhythm of it, so the fact that things arrive in a consistent fashion in the time that they were sent, as opposed to big bursts and so on, which most other Internet traffic is.

186 I don't mean to get too deep into the technology here, so please excuse me, but --

187 COMMISSIONER LANGFORD: I have a funny feeling it's going to happen, so you might as well get your feet wet.

188 MR. STEIN: By prioritizing voice, you don't necessarily have to deprioritize everything else. Browsing doesn't have to become slower, et cetera.

189 COMMISSIONER LANGFORD: As long as there is enough power to drive it all, I suppose.

190 MR. STEIN: That's true. But to echo the previous point, voice takes a very small amount of traffic, when compared to heavy browsing users, sending large e-mail attachments, things like that.

191 So, in fact, it really is not a lot of traffic at all. You would have to have a whole lot of users. In that case, the provider for those many, many users is already sizing their network accordingly. This is just one other type of use of that Internet medium.

192 COMMISSIONER LANGFORD: Thank you very much, Mr. Chairman. Those are my questions.

193 THE CHAIRPERSON: Thank you.

194 Vice-chair Colville.

195 COMMISSIONER COLVILLE: Just one question to follow up on the question that Commissioner Langford, and I guess it was part of your opening statement, related to his issue of unbundling 9-1-1 components and functionality.

196 I guess it has been our experience, since the CISC process started back in 1997, I guess it was, that CISC works best if it has a very clear technical or administrative issue that it has to deal with. If it has to deal with policy issues, we found it can spin its wheels and not come to any conclusion.

197 Would it be your view that the issue of unbundling 9-1-1 components and functionality would be a policy decision that the Commission would have to address before punting this issue to CISC?

198 MR. CHISLETT: I certainly think it would be beneficial and would clarify the situation if that was to occur.

199 Having said that, I believe that most of the participants in the CISC working group all want to solve the problem. We all see it as an issue and all want to work in the most advantageous way to solve that. We have not got down to the details, as I understand it, in that area yet, but if that was already defined it would certainly clarify things.

200 THE CHAIRPERSON: Thank you.

201 Commissioner Cram.

202 COMMISSIONER CRAM: Thank you.

203 If I understood you correctly, in answering Commissioner Langford's questions, there is, therefore -- and I'm terrible at math -- 70 per cent of your subscribers that have access to 9-1-1?

204 MR. CHISLETT: Yes, that is correct.

205 COMMISSIONER CRAM: Do you charge them or do you pay anything towards the PSAP or the setting up of the service?

206 MR. HOLMES: We don't have a charge on our customer invoices for that. As far as contributing, I believe there are some tariffs. We may -- I'm not exactly sure -- contribute some via our elect customer to the 9-1-1 system.

207 MR. CHISLETT: Let me just clarify. Because we buy our access facilities from ILEC, the facilities we purchase from the include charges for 9-1-1 and we pay in that regard because we are a resell.

208 COMMISSIONER CRAM: But you have a competitive advantage over the ILECs because they have to charge their customers for that.

209 MR. CHISLETT: We could decide to charge the customers, as well. We absorb that ourselves.

210 COMMISSIONER CRAM: My second question is: your analogy of VoIP being a voice service and, therefore, there is no real difference and, therefore, the ILECs should be regulated, if I walk that analogy down further, you would be providing a VoIP service yourselves, which is a voice service, so, therefore, it would seem to me, that your revenues would be telecom revenues and, therefore, you would be subject to contributions.

211 MR. CHISLETT: Yes.

212 COMMISSIONER CRAM: Thank you.

213 THE CHAIRPERSON: Thank you.

214 Just to follow up the question, the 70 per cent of your customers having access would be really through you, wouldn't it? Because I think in your earlier answer you suggested that a lot of that custom might be second lines, in which case the customer might already have access to 9-1-1.

215 Is that a fair --

216 MR. CHISLETT: That would be a fair estimate. I mean, it is an estimate. We don't have precise numbers on that, but that would be a fair estimate.

217 THE CHAIRPERSON: Right.

218 MR. STEIN: And to clarify, although 70 per cent would be presenting the appropriate ANI/ALI information, in the other cases they are reaching a PSAP.

219 I just want to clarify that 100 per cent of our customers, if they dial 9-1-1, they do reach a PSAP immediately.

220 THE CHAIRPERSON: Right. I don't want to go over that ground.

221 Just to clarify the issue of percentage of your customers using foreign NPAs, you estimated that in the 25 per cent to 30 per cent range?

222 MR. STEIN: That is around the percentage of customers that have or are using a foreign NPA NSX, either as their number itself or as a secondary number.

223 Our service does allow customers to have a main number in the city they live in and LNP their home phone, for example, and select a couple other numbers from around the country. So that number, that 25 per cent to 30 per cent, includes customers who very well may be using a number, have access to 9-1-1, et cetera, but have an alternate number in another location. The incidents of people who primarily use another location or only use another location is far smaller than that.

224 THE CHAIRPERSON: Do you have an estimate of what that would be?

225 MR. STEIN: I'm sorry, I don't.

226 THE CHAIRPERSON: Right. So you were talking, really, of -- that's 25 per cent to 30 per cent of the numbers you issue, as distinct from the customer?

227 MR. STEIN: Correct. That is by issue numbers.

228 THE CHAIRPERSON: Okay. And you haven't broken it down as to the number of customers who, say, exclusively use the foreign NPA?

229 MR. STEIN: No, I don't have that breakdown.

230 THE CHAIRPERSON: Thank you very much.

231 I believe counsel has a question.

232 MR. MURDOCK: In follow-up to the customers' acknowledgement of the 9-1-1 services that are available to them, you mentioned that both your web site and your customer service representatives make them aware of the limitations of the service in that regard.

233 What form of acknowledgement do you require from the customer? Is there a contract that is signed by the customer, wherein there is a clause where the customer acknowledges the limitations? Or what sort of -- you mentioned that they are aware of it, but what sort of formal acknowledgement do you get from them, if any?

234 MR. CHISLETT: Yes, I don't believe there is anything formal, other than the fact that when they are speaking to our customer agents, they have agreed and want to proceed with the order on the web site, they proceed to the next page, after having read our terms and conditions.

235 MR. STEIN: And it is listed there and described in the terms and conditions.

236 MR. MURDOCK: What, then, would be your view on a Commission-imposed requirement to have customers formally acknowledge in writing that there are limitations associated with its service regarding 9-1-1 capabilities?

237 MR. CHISLETT: I would hate to go to a formal writing, but if it was desired, certainly from a verbal perspective, we could use some of the different recording techniques, like we use. So you can do for pick authorizations and equal access, you know, for that.

238 The web access, again, there's probably other mechanisms that can be done. To try and get people to fax -- residential users to fax contracts in is pretty unworkable in today's world.

239 THE CHAIRPERSON: Thank you.

240 Thank you, gentlemen.

241 Madam la secrétaire.

242 THE SECRETARY: Thank you, Mr. Chairman.

243 I will now call on Vonage Holdings Corp. to make its presentation.

PRESENTATION / PRÉSENTATION

244 MR. RAINEY: Mr. Chairman and committee members, my name is Bill Rainey and I'm the president of Vonage Canada.

245 We are very pleased to participate today in this hearing during a very important time in the telecommunications industry. I would like to introduce, on my left, Bill Wilhelm, who is our regulatory counsel, and on my right, Brooke Schultz, our vice-president, Communications, Vonage Holdings, who will share Vonage Canada's position and recommendations regarding the regulation of Voice over IP.

246 Thank you very much. Brooke.

247 MS SCHULTZ: Thank you.

248 Good morning. Thank you for providing Vonage Holdings the opportunity to appear before you today.

249 My name is Brooke Schultz. I'm the vice-president of Corporate Communications with Vonage Holdings Corp.

250 Vonage is the leading Voice over Internet Protocol provider in North America, with approximately 265,000 line equivalents. I'm here today to address critical matters of policy concerning the treatment of VoIP services within Canada, as well as to answer questions you may have about our Canadian operations.

251 Vonage and its Canadian affiliate, Vonage Canada Corp., are at the forefront of this emerging VoIP market, with approximate half of the half-million-or-so paying VoIP subscribers.

252 VoIP challenges current regulatory models because it does not fit in the tidy boxes within which Legacy telephone service operates. Hence, policy-makers like yourselves are asking us: what is VoIP? Is it like a phone? Or is it more like e-mail or instant messaging or online gaming or replace the traditional switch networks or just be another action for consumers? How can public safety needs be met and improved upon?

253 I submit that the competitive pressure brought by VoIP will result in a more modern, more open and interoperable emergency service infrastructure, more innovation and better features in phone service, and, most importantly, improved service quality and lower prices for consumers, all without having to impose the kind of regulation that was designed for a monopoly service provider environment.

254 For the first time, consumers are experiencing widespread residential, local and national competition. Competition, in turn, lowers prices and improves offerings. Vonage offers customers the ability to replace their existing telephone service with VoIP for as little as $19.99 per month. This also includes 500 minutes of calling throughout the U.S. and Canada with the most popular features, like caller ID with name, call waiting, voice mail and many more, which are all included for free. At the same time, Vonage is meeting public policy goals by supporting universal service, 9-1-1 and law enforcement access.

255 And the good news doesn't stop here. Every day people are upgrading their dial-up connections to get access to this new Killer Application, that offers a better value and new innovative features.

256 Now, as consumers increasingly demand these new services, the capital markets have finally taken notice. This has spurred investment capital to flow into new and exciting companies such as ours, which, in turn, has led to the creation of new jobs and increased capital spending on telecom equipment.

257 But this resurgence is already in jeopardy, under attack by disparate interests, which, for fear of change and lack of understanding, suggests that VoIP must be subject to a full suite of traditional carrier regulation.

258 These disparate groups ignore the technical and functional distinction between VoIP offerings and traditional wire-line networks, maintaining simply that if it quacks like duck, it's a duck. Should you allow improper regulation to take hold, consumers and a telecom industry will suffer greatly, putting Canada at a disadvantage in the global telecommunications marketplace.

259 Vonage is unlike traditional telephony in that its customers use third-party provided broadband connections anywhere in the world to make and receive calls. Regardless of the type of call, a Vonage customer always uses a computer and a broadband Internet connection.

260 Through the use of special software and the Internet, Vonage provides its customers with a new communications tool that offers exciting new features and functionality at a significant cost savings to traditional telephone service.

261 Unlike traditional telephony services, Vonage's service is software-based. As a result, Vonage can quickly develop new features and functions that traditional telephony providers cannot begin to offer.

262 Further, because the Vonage service requires customers to use a broadband Internet connection, many of Vonage's customers now find they have a reason to subscribe to high-speed Internet access. As a result, Internet telephony is a powerful catalyst for broadband deployment, adoption and innovation.

263 The consumer and investor response to the Vonage product has been remarkable. As recently as 2001, Vonage was in research and development phase. The company did not fully launch its service until 2003.

264 Nevertheless, Vonage is already the clear Internet telephony industry leader, commanding a considerable percentage of the market share in the United States, with a North American reach that accounts for more IP telephony subscribers than the entire North American cable industry combined. In fact, just a few months ago Vonage announced that it had activated its 200,000th line equivalent, doubling its customer base in less than six months. Vonage continues to add over 1,000 activations per day to its network and completes over five million calls per week. These statistics are a testament to consumers' desire for alternatives to traditional landline telephone service.

265 While the reaction to Vonage's product has been dramatic and the promise of the technology is exceptional, it is important to consider the fact that VoIP is still in its infancy. Vonage and its competitors together represent less than one-tenth of 1 per cent of the total communications marketplace. Having just scratched the surface of the potential for this technology to revolutionize telecommunications, it is critical that the CRTC create a competitive environment that will foster the growth and innovation this industry can deliver. With so much promise, the matters before the Commission today are of critical importance, not only to providers such as Vonage, but also to Canadian consumers who wish to take advantage of the latest advances in communications technology.

266 Vonage encourages the CRTC to refrain from wedging this promising new service into rigid regulatory categories that would treat the technology as if it were a fixed, facilities-based, wireline telecommunications service. Because VoIP is both functionally and technically different than fixed wireline services, the CRTC must exercise extreme caution in crafting final rules on this matter.

267 One of the primary differentiating factors between VoIP and traditional phone service is VoIP's reliance upon the Internet for delivering voice communications services. For example, unlike traditional telephony, Vonage's service is offered over the public Internet, a network that makes location and geography irrelevant. One of Vonage's key innovations is a non-geographic product; that is, a subscriber can plug in his or her Vonage adapter anywhere in the world, and our network identifies that subscriber only with an IP address. In other words, we know that a particular subscriber is connected to the Internet somewhere, but we have no idea where. It could be within the area code a subscriber has chosen, or it could be a broadband connection on the other side of the planet. As a result, rules that require us to identify where a subscriber is simply don't match the architecture of our service.

268 Furthermore, unlike traditional telephony providers, Vonage does not own the facilities over which the service is delivered. Vonage relies instead upon the efficiencies of the public Internet and third party provided broadband connections. This reliance on public networks makes our service more malleable and functional in a mobile environment.

269 Now that the service is divorced from the facility it is delivered over, the possibilities are endless for the applications of voice services.

270 Perhaps the most significant consideration is that, unlike markets for traditional telecommunications services, Vonage operates in a highly competitive environment. Unlike a traditional carrier, Vonage controls no bottleneck transmission facilities with which we could block competition or reduce consumer choice. As a result, Vonage must constantly innovate and respond to consumer demands and keep pace with competitive market pricing. It is this dynamic environment that obviates the need for many regulations that might arguably be appropriate in less competitive circumstances.

271 As a result of clear distinctions between the VoIP and telecommunications markets, and because telecommunications regulations were not designed with Internet telephony in mind, Vonage expresses a real concern that the wholesale application of common carrier regulations to VoIP would have a chilling effect on competition, innovation and investment. Regulation of Internet communications applications such as VoIP is appropriate only when it is narrowly crafted to achieve a significant public policy goal that would not otherwise be addressed by market forces.

272 For instance, it was Vonage's own initiative, not regulatory requirements, that led the company to invest in improving its emergency calling capabilities and expanding the universal availability and affordability of its service offerings.

273 In the area of 9-1-1, Vonage has demonstrated our commitment to meeting our subscribers' emergency calling needs by becoming the first mobile VoIP provider to adopt a basic 9-1-1 solution, which will soon be available to Canadian customers as it is today to those in the U.S.

274 For example, a New York Vonage subscriber can take their service to California and still get access to emergency services. But the industry is not stopping here. Development is already under way in the U.S. with NENA, NRIC and the FCC to provide advanced E-9-1-1 technical solutions to the VoIP industry.

275 In the future, however, VoIP will enable IP-based "i-9-1-1" systems that would allow for the transmission of medical data, patient history, floor plans and other critical information to emergency field personnel.

276 In Canada, Vonage supports the Commission's preliminary view that the CRTC Interconnection Steering Committee is an appropriate forum to commence a dialogue concerning how these emergency services can uniformly be offered throughout Canada. Because of the technological differences between VoIP and traditional telephony, it is important that the industry be given the opportunity to tackle unique technical challenges such as those related to PSAP interconnection and passing through location information. It is critical that the CRTC not require VoIP providers to adhere to certain obligations that simply do not comport with VoIP architecture.

277 Let me also note that Vonage continues in its commitment to universal service, not only by making its services affordable and widely available, but also by paying indirectly into the Contribution Collection Mechanism, or the CCM. As an end-user of telecommunications services, Vonage purchases telecommunications from contribution-eligible telecommunications carriers. Vonage is no different than many non-contribution eligible services, such as Internet access offered by a traditional ISP.

278 Both Internet access and VoIP must use telecommunications services in order to offer enhanced applications.

279 Like an ISP, Vonage is assessed CCM as an end-user of telecommunications services and it contributes on an indirect basis. Should the CRTC determine that VoIP providers must directly contribute, the CRTC should provide VoIP providers with a resale exemption to ensure there is not double contribution.

280 Having outlined Vonage's view that technological and competitive distinctions between VoIP and traditional telephone markets make traditional regulatory frameworks an ill-fit, let me take a moment to comment on the proposed CRTC framework.

281 Should the CRTC seek to assert jurisdiction over VoIP, Vonage first encourages the Commission to adopt a layered approach to regulation, as described in Vonage's comments. By adopting a layered approach, the Commission can distinguish between rules that would apply to telecommunications facilities without applying them to applications.

282 For example, under such a framework economic regulations would likely remain targeted at the physical layer, a layer that remains subject to control by firms with control over a network that cannot be duplicated.

283 Unlike the physical layer, the application layer is subject to a much greater degree of competition and is not constrained by the permanence of fixed locations. As an application, Vonage's services should generally be subject only to regulations that are necessary to protect significant social goods that market forces fail to provide.

284 If the Commission declines to adopt a layered approach and continues to believe that it must apply its existing regulatory framework, this Commission should identify VoIP services as a separate class of providers that are subject to no greater regulation than are resellers.

285 Because Vonage should not be treated in the same manner as legacy PSTN services, and because Vonage is not a reseller of the facilities or services of other carriers, Vonage should be treated as a distinct class of provider with significantly fewer obligations than would be imposed upon traditional reseller carriers. Such a framework would make great strides in harmonizing Canadian regulations with those in the United States, where services like Internet access and Instant Messaging are expressly exempt from telecommunications regulation at any level.

286 Under this modified framework, non-network VoIP providers, such as Vonage, would be subject to minimal regulation and even some of the rules applicable to resellers would need to be modified to fit the technical realities of VoIP service.

287 One particular area of concern, for example, is the provisioning of 9-1-1. While rules applicable to resellers presume that underlying carriers will be able to provide ALI information, it is not currently feasible to impose traditional PSTN E-9-1-1 obligations on VoIP services.

288 On a cautionary note, if Canada becomes a less favourable environment for VoIP services, domestic innovation will slow, risking this nation's status as a world leader in broadband penetration rates. Not only would it be a loss of this nation's technology base; once providers move offshore, Canadians would have less access to these services, hindering competition. The CRTC would face even greater difficulties addressing goals such as 9-1-1 access, universal service, or law enforcement accessibility if providers were to move offshore.

289 In closing, while this Commission is rightfully inquisitive about how VoIP should be characterized for regulatory purposes, regulation should not be an end unto itself.

290 If the purpose of the CRTC's proposed regulations is to impose various social obligations on the industry, let's first consider whether those goals won't be addressed by the market participants of their own accord.

291 Finally, if this Commission finds that the competitive marketplace has failed to deliver on various social policy issues, and in turn must impose a heightened burden of regulation on VoIP providers, the regulations must acknowledge the unique nature of VoIP and not seek to impose unreasonable or technologically impossible requirements on those innovative services.

292 We look forward to working with the Commission during this exciting time, and I will do my best to answer any questions you might have in the time remaining. Thank you very much.

293 THE CHAIRPERSON: Thank you very much, Ms Schulz.

294 Commissioner Colville.

295 COMMISSIONER COLVILLE: Thank you, Mr. Chairman.

296 Good morning, Ms Schulz, gentlemen. As Commissioner Langford indicated, we have quite a full record on this whole issue, so the questions we have are, I suppose, more by way of clarification and enlightening us a bit on some of the issues that are left outstanding.

297 I was struck that near the end of your presentation here today you said that regulation should not be an end unto itself. I think we would agree with that.

298 If I go back to the first page of your presentation this morning, in the last paragraph you say:

"I submit that competitive pressure brought by VoIP will result in a more modern, more open and interoperable emergency service infrastructure, more innovation and better features..."

299 That could be the paraphrase of a decision that we put out in 1994 describing why this Commission was supporting more competition in the delivery of telephone and other telecommunications services. That has clearly been an objective of this Commission and one that we are continuing to strive for, and for the very reasons that you note at the bottom of page 1.

300 It is interesting, I think, having been around this business for many years, as some others on the panel have been, with all the talk that went on for probably the past five or ten years about what was going to be the killer application that was really going to drive the business, that VoIP should end up, in your view at least, to be the killer application after all of this time.

301 You mention that the Commission should create a competitive environment that will foster growth and innovation in the industry, and that we must exercise extreme caution in crafting the final rules. Then you go on to describe your layered approach. As I read your original brief and listened to your comments this morning, I am not sure how far apart we may be when you describe your layered approach and I look at our existing approach to how we have tried to regulate this business, certainly in terms of local competition, in that we have a regulatory framework, largely price cap, for what have been characterized as the dominant incumbents, and a rather light-handed approach, no rate regulation for the new entrants. And there are the social obligations of 9-1-1, MRS and so on.

302 I am wondering whether my observation that there is little difference, in fact, is true in your view. Is it really necessary that we take this so-called layered approach, or does our approach fit your layered approach in any event?

303 MS SCHULZ: Thank you for the question.

304 I do think, from the company's perspective, that there is a critical difference, being that the facilities -- the services delivered over a traditional PSTN world -- no longer have the bottleneck capabilities in the Voice over IP world.

305 You now have a Voice over IP world, where anyone can offer voice communications, text communications, integrated video and voice communications all over the same IP facility, whether that is a cable modem, a DSL, a wireless connection, or even a satellite connection.

306 I think we are in a new place that requires new thinking with regard to the separation between the facility that the service has traditionally been delivered over and the current environment of today in Voice over IP, where a user can take a computer and make and receive voice calls anywhere in the world over an IP connection.

307 COMMISSIONER COLVILLE: I take your point on that. So would you disagree with the previous group, then, Primus, in terms of the local access issue as being, in their view, a duopoly and that there are or may be constraints and that that level of access needs to be regulated in order to ensure that there is no undue preference.

308 MS SCHULTZ: The company believes that there is the potential for abuse in a duopoly. We have not seen such abuse as yet.

309 I think you need to kind of take a step back and look at broadband similar to the way you do power and water delivery in that someone is a customer of the same water facility or power facility, their neighbour should have the same access to the same level of service that they do. There should be no discrimination. I think that is the key point that we would like to make about broadband Internet access.

310 However, again I would like to highlight that we have not seen any abuse but it is an existing duopoly and until it becomes a more competitive environment there is a risk.

311 That's all.

312 COMMISSIONER COLVILLE: Some of the parties have noted the constraint in the case of cable about third party access and the restriction on the third party access party not providing voice service. Are you familiar with that and do you have a comment on it then?

313 MS SCHULTZ: Can you clarify that a little bit? Can you go a little bit deeper? I'm not clear on the question.

314 COMMISSIONER COLVILLE: In the case of third party access to cable infrastructure, the limitation on providing voice service through that third party access, are you aware of that?

315 MS SCHULTZ: We have not experienced such limitation.

316 COMMISSIONER COLVILLE: Does that mean you are using cable infrastructure and have not experienced the problem or you are not using cable infrastructure?

317 MS SCHULTZ: I'm not sure what you mean by "cable infrastructure". We do have customers that use cable modems, if that is what you mean.

318 COMMISSIONER COLVILLE: Right.

319 MS SCHULTZ: We do have many customers that use cable modems, as well as DSL.

320 COMMISSIONER COLVILLE: The issue was raised earlier this morning and we have talked about it at this layer of whether or not there would be any sort of preferential treatment at this level.

321 It struck me in reading your brief and in today's presentation that you have not addressed the issue about the ILECs position in the marketplace -- the traditional ILECs, the Bell's, Alliance, TELUS's, and so on -- and their provision of traditional telephone service. We regulate that, as you may know, through a form of price cap regulation because they are dominant in that market.

322 What is your view of their provision of service from a pricing point of view of the service, their provision of voice service from a pricing point of view, in terms of regulation? You have argued here that we should essentially step back and let the market prevail.

323 In terms of the circuit switch environment we have seen fit to regulate the prices of the dominant provider. They argue VoIP is a new and different service and we should not price regulate it.

324 I would like to get your view on that issue.

325 MS SCHULTZ: Yes. It is a very difficult conundrum you are faced with. I don't envy you.

326 COMMISSIONER COLVILLE: You are supposed to help us out with it. That's why we are here today.

--- Laughter / Rires

327 MS SCHULTZ: We are helping by introducing competition in the way of Voice over IP offerings here to your citizenry.

328 I think the issue comes back to facilities. The facilities that traditional PSTN services are delivered over are fixed in the ground and there are, in some markets, one or two wires that come into the customer's home and that is the only way to get services into the customer's home.

329 In a broadband environment, that is a bit of a different challenge, where you have an IP facility coming into a customer's home but many different services layered on top of that.

330 So I think you need to view the two marketplaces as distinct and separate, the telecommunications marketplace being monopolized by wires and facilities in the ground that are owned by a company that controls the services that are delivered over that facility, similar to how PSTN services are; and with Voice over IP it is very different. Any one can offer any kind of service over an IP facility. It is not bound by who owns the cable modem or who owns the DSL modem any more. The user defines what services they will use over that service.

331 COMMISSIONER COLVILLE: So long as you have unfettered access to the underlying network elements, the facilities, you don't have a concern about whether the heretofore dominant incumbents in the circuit switch world are price regulated in their provision of VoIP service at the retail level?

332 MS SCHULTZ: Our business is predicated upon our relationship with the end-user customer. We sell our service directly to the citizen, whoever wants to use the service. That is a very different concept than a reseller or a CLEC or some kind of competitive or ILEC facility in the ground. I think you need to view the two again very separately.

333 Whereas we are not a facilities-based carrier so we are in a different realm.

334 COMMISSIONER COLVILLE: You really don't want to answer that question, do you?

335 MS SCHULTZ: I'm trying very hard not to.

--- Laughter / Rires

336 COMMISSIONER COLVILLE: Okay. We will let that go at that, then.

337 Moving on to the issue that has probably turned out to be, I guess, considerably more of concern to a lot of parties than perhaps we may have anticipated, certainly I did, and that is the sole issue of the social issues, 9-1-1, message relay service, and so on.

338 I wonder if you can elaborate a little bit more on what you describe at the bottom of page 5 of your presentation here this morning where you talk about:

"...the New York Vonage subscriber can take their service to California and still get access to emergency services. But the industry is not stopping here. Development is already under way..."

339 Can you (a) describe what you mean by the New York subscriber going to California?

340 As we heard from the previous group, Primus, you will still get a PSAP but it may not be the PSAP that you think you are getting, it may be one across the country, perhaps as you describe here. So I would like you to describe that.

341 Then if you could go on and say when we are talking about industry not stopping here, where are we going? What is the state of the development here. This is something we are keenly interested in, as you can probably guess from the previous questioning.

342 When you talk about the developments under way in the U.S. to provide enhanced E-9-1-1 technical solutions, can you elaborate a little bit on what that is?

343 MS SCHULTZ: Of course.

344 First, how does 9-1-1 work today in a Voice over IP environment is the real question I think. I will give you some clarification about that.

345 In the United States we offer a service called Dialling 9-1-1 and we contract with a service provider, called Entrado that is based in Colorado, to provide a database of local ten-digit access numbers of the PSAPs across the country in the United States.

346 So the way it works is that you have to activate your dialling 9-1-1 service once you get the box that we give you home with you. You have to tell us where you are going to fix that box in the house or in your office. Wherever that location is we have to know because your billing address may be different. So you have to tell us the service address so we can work with Entrado to find the local PSAP for your area. So when you do need to call 9-1-1 the call is routed over the PSTN to the PSAP.

347 COMMISSIONER COLVILLE: Sorry to interrupt, but this would be similar to an 800 database hook-up in the sense that you --

348 MS SCHULTZ: Similar to that, but it is a little bit more secure, obviously, our relationship with Entrado. I also should mention that we actually pioneered the solution. Before this solution did not exist for mobile providers of any kind of Voice over IP service and we innovated it. So there was a lot of testing and it is a secure relationship that we have that works over the Internet with our calling service and Entrado's database. So that is how it basically works.

349 So in the event that you are based in New York and you take your box to California, you need to tell us that you have moved the box and we can update your new local PSAP number for when you dial 9-1-1 so you can get a local California PSAP when you dial 9-1-1.

350 This is really to help our customers gain access to 9-1-1 wherever they are, because we don't know where they are. Again, you have to tell us. Because the service really only works with an IP address and it could be in China, so you need to tell us where your service address is. A very rudimentary solution.

351 COMMISSIONER COLVILLE: So you inform your customers that if they are going to move their box they need to do that if they are going to be secure in terms of access in E-9-1-1.

352 MS SCHULTZ: Right. There are a couple of things that we did --

353 COMMISSIONER COLVILLE: So if I go to California and forget to do it, it is accessing the PSAP in New York?

354 MS SCHULTZ: Yes. There are several ways we inform customers about how the service works. Primarily, on the Web site there is a page that describes in detail how our Dialling 9-1-1 service works.

355 Then, when you go through the subscribe process, you have to acknowledge that traditional or E-9-1-1 service is not available. You have to actually check the box. If you don't check the box, you can't sign up for the service.

356 We also include a terms of service in the box when we ship it to you. So there are three different notifications that we give the customer of how this works, how it is different. In addition to when you are actually activating the Dialling 9-1-1 service, we e-mail you several times saying "This is different than your traditional E-9-1-1 service. You need to understand that and understand how it works and that you will be routed to a local PSAP over a PSTN line.

357 COMMISSIONER COLVILLE: So just to be clear, if they don't check the box they don't get service?

358 MS SCHULTZ: No.

359 COMMISSIONER COLVILLE: Okay. So that is question 1.

360 MS SCHULTZ: Okay. So question 2 is: Where are we going?

361 This is a very, very exciting time. Actually, I would like to reverse that a little bit and answer the development question first, because that is more indicative of where we are today.

362 In two states in the United States we are actually testing an E-9-1-1 service, with the State of Rhode Island and the King County in Washington.

363 These are two different technical solutions that we have employed where the local PSAP administrator, and the local LEC in the case of Washington, is quite cooperative in unbundling the access to the elements we need to deliver a true E-9-1-1 or E-9-1-1-like service. This has taken about a year of development and work to get to a testing phase.

364 In Rhode Island there is no incumbent LEC that owns the facilities for their 9-1-1 system so we are working directly with the PSAP in creating an E-9-1-1 solution there. The testing is going well. All of the calls have been successful that have been made thus far. If the trials go according to plan they will become permanent for customers in those areas.

365 So that is what we call an I-9-1-1 solution that is here today. Where we gain access to the local incumbent facilities where the LECs are quite cooperative and the PSAP administrators are interested in offering E-9-1-1 to their constituency, we have had great success.

366 Unfortunately, as mentioned by Primus, what a very localized service 9-1-1 is and you have to work directly with the local PSAP administrators all over the country to gain access to these various facilities. But we are willing to work with them.

367 COMMISSIONER COLVILLE: Would I take it, then, that you would share their view that is a necessary precondition in order to be able to -- whether it is ordered by some sort of regulation or whether the carriers agree to do it, it would be a necessary precondition in order to have effective E-9-1-1 operating here, that is unbundling those 9-1-1 elements?

368 MS SCHULTZ: Can you clarify the question? Are you asking if I agree with --

369 COMMISSIONER COLVILLE: You just mentioned that in Rhode Island you have managed to get access to these unbundled 9-1-1 elements. On a more universal basis do you think that this unbundling is a necessary precondition in order to be able to have this work effectively for VoIP?

370 MS SCHULTZ: It is critical. Without it there is no access to E-9-1-1 services.

371 COMMISSIONER COLVILLE: Is it your experience in the U.S. that that may, even there, have to be a regulated requirement in some areas?

372 MS SCHULTZ: I would like to wait for the competitive environment to have a little bit more time to work that out. I think that we have had good progress thus far. As we get these trials off the ground and make them aware in the PSAP community that these trials are working, I think that we will see much more people at the table willing to discuss this concept of unbundling.

373 But I would like to see the competitive market first work.

374 COMMISSIONER COLVILLE: Well, in this case you said that you are working with NENA and NRIC and FCC. Has their presence been a stimulant, shall we say, to having all of the parties agree on this unbundling issue?

375 MS SCHULTZ: Actually, I think Vonage takes a different view, that it's in our business interest to work directly with these various groups. We have been invited, because we are the pioneer, to work with NENA and NRIC before the FCC was even involved. We started working with NENA on a technical basis, I believe almost two years ago, a year-and-a-half ago, to get these E-9-1-1 solutions into the marketplace because we believe it's in our business interest and we believe in working directly with the parties.

376 COMMISSIONER COLVILLE: Oh, I understand that NENA and the FCC would. What isn't necessarily clear to me is whether the incumbents would see it to be in their advantage to unbundle those elements to your advantage.

377 MS SCHULTZ: We have had a good experience with Quest, in the United States.

378 COMMISSIONER COLVILLE: There are others.

379 MS SCHULTZ: Yes, there are.

380 COMMISSIONER COLVILLE: Okay, you answered my question.

381 And then the last part, then?

382 MS SCHULTZ: Where are we going? I think this is the most compelling question because this is very, very exciting for us, as a company.

383 We envision a day, not too far in the future where you can send -- for example, if there is an IP-enabled PSAP, this relies on upgrades at the PSAP level, to have more data connectivity in their terminals than they have today, to be able to get different streams of data along with the call that's coming in.

384 Right now, it's restricted to voice, as you are aware, and ALI and ANI information. In the future, we envision a time where the PSAPs have full interactive capabilities, where they can receive not only medical records, for example, if you are a diabetic, you can't dial 9-1-1, you have a smart chip embedded in a bracelet and you punch a button, the phone will dial 9-1-1 automatically and say, "Hey, Joe, he's a diabetic. He's having insulin shock right now. That's what's happening. Please send help right away", informing the agent what's happening.

385 I think there is a lot more development that could happen around information exchange between PSAP administrators and the operators of the calls and the field personnel, as well. We envision a day where, for example, if a call comes into a PSAP over an I-9-1-1 call, they can actually send and receive for a fire, for example, a floor plan telling the fire department, "This stairwell has collapsed. There is a fire here. You have to go around to the back stairwell" or "People live in the back of the house, not the front of the house", different things, I think, that can be truly enhanced in an environment where there is more interactive communication between the PSAP, the network, the end devices that you are using, whether it a be a phone, a computer, any kind of device mechanism we haven't even seen yet and the field personnel. It's going to make conference calling and video-conferencing look antiquated, I think.

386 COMMISSIONER COLVILLE: So it's your view that we don't need to mandate E-9-1-1 and related services because you do it anyway and you won't even provide service to your customers. But I suppose, conversely, then, you really wouldn't really have a problem with it, would you?

387 MS SCHULTZ: We do believe that it is premature, in a sense, to say that the competitive environment hasn't worked. We do believe that the competitive environment will deliver these services to consumers.

388 COMMISSIONER COLVILLE: I guess it's not a case, on our part, of necessarily reaching that conclusion that competitive does not work, it's just kind of a safety net, from the consumer point of view, to ensure that it's there, and you are arguing that you don't need that.

389 MS SCHULTZ: Again, I would like to just take it back to undue regulation, where we would like to see the competitive marketplace work first. Wherever it fails, we think regulation needs to be evaluated.

390 COMMISSIONER COLVILLE: Okay. On page 6, you have said:

"It is critical that the CRTC not require VoIP providers to adhere to certain obligations that simply do not comport with VoIP architecture."

We have talked about E-9-1-1, and you have mentioned I-9-1-1 and so on. What are these "certain obligations" that you are talking about here?

391 MS SCHULTZ: Paper billing. I think, generally, paper billing and other various regulations are not necessary in an IP environment. I think the end-user customer should choose a lot of the various ways that they interact with the service. I think that they are not restricted in the way that they are with the PST environment. Let them choose, let the customer choose.

392 COMMISSIONER COLVILLE: So, for example, how do you handle visually impaired, in terms of billing?

393 MS SCHULTZ: They interact with the web site. We have a secure web site and if they have a software application that can read the data back to them --

394 COMMISSIONER COLVILLE: As an audio?

395 MS SCHULTZ: Yes.

396 COMMISSIONER COLVILLE: Okay. You raised the issue of contribution in your presentation, and again this morning. Essentially, you don't want to pay any more. You argue that you are paying through the underlying facilities that you acquire, as the case may be.

397 And then you note, at the bottom of page 6:

"Should the CRTC determine that VoIP providers must directly contribute, the CRTC should provide VoIP providers with a resale exemption to ensure this is not double contribution."

398 Now, I think you are aware of the $10-million cut-off and then the netting out of carrier payments and then the 1.1 per cent -- I think we are down to 1.1 per cent now -- on the balance. Is that a problem financially for Vonage?

399 I see some shaking heads. Are you simply not aware of the details?

400 MS SCHULTZ: I'm consulting with my attorney, thank you.

401 I would like to say that we just want to make sure that we are treated equitably in this environment.

402 COMMISSIONER COLVILLE: So would I take that to be a "yes", it would not be a major problem, if you were treated that way and that was equitable?

--- Laughter / Rires

403 MS SCHULTZ: Of course.

404 COMMISSIONER COLVILLE: Okay.

405 I think those are all my questions. Yes, I think so.

406 Thank you. Thank you very much.

407 Thanks, Mr. Chairman.

408 THE CHAIRPERSON: Counsel.

409 MS PINSKY: Thank you, Mr. Chairman.

410 I just had two points I wanted to clarify. Excuse me, I have this terrible cough.

411 In your presentation, you mentioned that the basic 9-1-1 solution would be available soon in Canada. I was wondering if you could give us a more specific time frame.

412 MS SCHULTZ: Before the end of this year.

413 MS PINSKY: Also, just to clarify, you were discussing the I-9-1-1 solution that's here in the course of developing. Would that remove the requirement for customers to update by themselves their location where they existed?

414 MS SCHULTZ: Very good question. It's a very complicated issue with regard to whether or not the network, itself, will be able to identify location information.

415 Currently, IP networks are based on IP addresses that really have no physical place in this world, with regard to the way they work. They can be in China, they can be in the United States. The network only knows its IP address. So if you are in an environment where the networks are able to communicate location information, yes, that is possible; however, that would take quite a bit of development. But it is theoretically possible.

416 MS PINSKY: Is it a specific objective of Vonage in developing this version?

417 MS SCHULTZ: Ideally, we would like to be able to receive -- our end points, we would like to have them be able to receive location information, yes -- ideally. But I believe that we are a bit of a ways off from that.

418 MS PINSKY: Okay. Thank you. Those are all my questions.

419 THE CHAIRPERSON: Chair Wylie.

420 COMMISSIONER WYLIE: Thank you, Mr. Chairman.

421 When you talk about social obligations, you believe that the competitive environment should be tried first and that mandating any requirements should only be instituted when and if they look like they are necessary.

422 To follow on your original comment that we seem to have said, "Well, if it quacks like a duck and looks like a duck, regulate it like a duck", would it be fair to say that your attitude here is to say, "Let's wait and see if and when it becomes an ugly ducking before we regulate with regard to social obligations"?

423 MS SCHULTZ: Yes.

424 COMMISSIONER WYLIE: At paragraph 53 of your original comment, the very last sentence, which I read now:

"There is a real concern that transport providers with market power can use that power to the detriment of unaffiliated service providers who rely on..."

-- and I emphasize --

"...unfettered access to transport." (As read)

425 Would your view about waiting for the duckling to look ugly also carry here? Or do you think there should be mandated "unfettered and equitable access" to the underlying transport facility?

426 MS SCHULTZ: I think it's a very difficult question to answer because we are in such a premature environment, where we haven't seen any abuse yet. So it's difficult for me to say perspectively what I think we should do.

427 Again, I'm glad I'm not in your seat.

428 COMMISSIONER WYLIE: Would it also be fair to say that with regard to economic regulations, you don't have any concern that that pillar -- if you have a social obligation pillar, the transport pillar or equitable access pillar and the economic regulation pillar, you have no concern that without economic regulation it could turn into an ugly duckling?

429 MS SCHULTZ: Again, it all comes back to the facilities. If your services tie directly to your facility and there is only one facility coming into your house, i.e. a phone line, then you are subject to the whims of the carrier that's offering you those services, as a consumer.

430 COMMISSIONER WYLIE: That's the access pillar. I take it you don't want to answer the economic pillar.

431 MS SCHULTZ: I think in a Voice over IP environment, getting back to Vonage and Vonage's service, we have to react dynamically to the competitive environment and competitive pricing.

432 COMMISSIONER WYLIE: But with regard to that pillar, you are more assured that it will be a swan?

433 MS SCHULTZ: Potentially. It's difficult to say. I mean, these are very difficult questions. This is what you have been struggling with for going on 10 years.

434 COMMISSIONER WYLIE: Thank you.

435 Thank you, Mr. Chairman.

436 THE CHAIRPERSON: Thank you.

437 Thank you very much, Ms Schultz and gentlemen.

438 We will break now for 15 minutes and resume at 11:30 sharp, please. Thank you.

439 Nous reprendrons à 11 h 30.

--- Upon recessing at 1115 / Suspension à 1115

--- Upon resuming at 1130 / Reprise à 1130

440 THE CHAIR: Order please. À l'ordre, s'il vous plaît.

441 Madam Secretary, would you call the next item please.

442 THE SECRETARY: Thank you, Mr. Chairman. I will now call on Comwave Telecommunication Inc. to make its presentation.

PRESENTATION / PRÉSENTATION

443 MR. YUVAL BARZAKAY: Thank you. I would first like to thank the members of the Commission for permitting me today to attend this hearing. This is my first time at a CRTC public hearing and it is quite exciting to be involved in the process that will help shape--

444 THE CHAIR: Sir, could you just introduce yourself and your colleague?

445 MR. YUVAL BARZAKAY: Yes, sir.

446 THE CHAIR: Thank you.

447 MR. YUVAL BARZAKAY: I apologize. Like I said, this is my first time. I am Yuval Barzakay, President of Comwave Telecom. And, to my left, is Mark Lewis, Corporate Telecom Counsel for Comwave.

448 Comwave is a long distance company providing Canadians with discount long distance services. We operate in every province through a dial-around calling program. We have both post-paid and pre-paid service. We service our customers through our VoIP facilities network in Toronto, Montreal, Vancouver, Edmonton, Calgary, Winnipeg and New York City. We also operate facilities in the Middle East, Israel and India. Over the past two years we have succeeded in marketing to niche markets across Canada by appealing to distinct ethnic groups.

449 In June of this year we launched Comwave iPhone, a residential/business voice over IP local phone service.

450 Over the next few days you will be hearing from various interested parties, each with its own corporate agenda to ensure the viability of success of their business. I will be discussing what we consider as the ILEC hype, what we view as the new incumbents vis-à-vis the cable companies, CLECs and resellers, and obviously 9-1-1.

451 I don't mean to insult anybody here today, but one thing all of us need reconcile with is that true competition in Canada is predicated on the loss in incumbent market share. Depending on who you talk to, the incumbents own close to 97 per cent or even higher of market share and they are fighting like true monopolies to keep every percentage.

452 You will hear from ILECs that they are worried about the impact that CLECs and resellers will make with VoIP, and therefore we will be arguing for a laissez-faire approach and pretty much let them go wild and unfettered in an unregulated VoIP market.

453 That is not surprising coming from monopolies that also control most of the Internet access. They know that they can pretty much snuff away all competition except the large cable operators, which in our view represent another issue altogether.

454 They will attempt to persuade you on how disruptive VoIP will be to their market share. Comwave will argue that is pure nonsense and, at best, highly speculative at this time. Factually, the market share of the incumbents has not eroded at all in the past 15 years, even with various alternatives that were touted as destructive once before For now, it's just hype.

455 By CLECs, on the other hand, have taken the position that ILECs need to be regulated as they are now, but also they argue that resellers like Comwave and Primus need to be regulated or categorized as CLECs. At Comwave we agree with the preliminary view of the Commission with respect to resellers. It is evident to all of us here today, except maybe the ILECs, that very little competition actually exists in the local phone line business.

456 The CLECs were supposed to help energize competition in Canada and within the acronym "CLEC" the key operative word is "competitive", but the CLECs have still not managed to muster any kind of noticeable market share in the local phone business since their inception.

457 The Decision 97-8 was intended to foster rapid proliferation of resellers, albeit the Commission conceded that margins would be slim. VoIP allows resellers to deliver the services at cost-effective manner, thereby creating sustainable margins. Now more than ever the Commission will see that resellers will finally emerge.

458 Therefore, we agree with the Commission's preliminary view with respect to resellers.

459 Now, 9-1-1. There is no doubt that public safety is important to all of us here today. We therefore agree with the Commission's preliminary review with respect to 9-1-1 and Comwave is a contributing member of CISC.

460 I will be discussing what Comwave is doing to ensure public safety, which in our opinion is far more comprehensive than what we have heard today. I want to caution, however, that there were so many different technological approaches to VoIP service than imposition of a single administrative or technological framework for providing 9-1-1 is not realistic. Imposition of a single one-size-fits-all 9-1-1 solution at this time would fetter and destroy new VoIP competitors and only favour ILECs which have an existing 9-1-1 structure, which was permanently designed for voice services delivered through their existing PSTN networks.

461 Now I am going to start with the ILEC hype.

462 We agree with the Commission's preliminary view the VoIP service for them should not be an unregulated product offering. This is not the time in Canada to deregulate VoIP services. We find it absurd that given their undeniable market share that they would ask the Commission to give them a blank cheque to control a new voice delivery method that has the potential to finally create consumer choice and competition.

463 The fact is, nobody knows if VoIP can or will replace traditional circuit switch phone service in Canada or how disruptive it actually will be to the ILEC market share, but we can look at the mobile phone story in Canada.

464 With over 13 million handsets sold, their high quality of service features low price point, 9-1-1. Still, consumers have not opted to replace their traditional phone service. Will they do so with VoIP? Will it meet their high standards and reliability?

465 Nobody knows for certain, but we have all heard of different technology hypes in the past that were supposed to change the Canadian communication landscape. Where are they now?

466 In incumbents, like true monopolies, quote research numbers to support VoIPs potential. That is exactly what it is, just potential. I say: How about we let competition first start in Canada before we worry about Bell and Telus going out of business.

467 Aside from our position that ILECs need to be regulated when it comes to VoIP, we have also addressed another key issue. At Comwave we view ILECs as gatekeepers and, contrary to their claims, they do control the Internet access. Comwave must use public Internet to deliver VoIP services, but ILECs and cable companies will deliver VoIP services on a private network. There is a clear distinction.

468 On public Internet, the quality of service cannot be assured and is directly linked to the Internet service being provided by the ILEC. They control what content comes out of the home to the Internet and therefore can easily block Comwave calls.

469 Although the Commission's preliminary review is to continue regulating ILECs, the Commission must put in place guidelines to hold the ILECs accountable so they are not allowed to prioritize the packets or contents on the Internet so as to disadvantage competitors and their subscribers.

470 To use the analogy, it would be similar to blocking access to a Rogers Web site or Web portal on a Sympatico subscriber DSL service, although with VoIP technologies exist which can make this manipulation more subtle.

471 With this fear in mind, Comwave has invested in equipment to sniff out this type of conduct. Although some recourse exists for Comwave under the present regime, we believe that a Part VII would be too lengthy a process and will undermine small companies like Comwave.

472 Now I am going to get to the cable companies.

473 We respectfully disagree with the Commission's preliminary view that cable companies should be classified as CLECs. We view them as ILECs with a potential duopoly in play.

474 At the outset of my presentation I briefly described the cable companies as new ILECs. The information that Rogers has provided to the Commission in this proceeding with respect to the Internet-based voice service has only solidified our thinking.

475 Cable operators are also gatekeepers to the Internet, just like the incumbent telephone companies. They control subscribers Internet access and thereby can undertake packet manipulation. They own a private coaxial network right to millions of homes and control 80 per cent or more of the cable television marketplace within their licensed territories and as high as 50 per cent or more of the broadband business in Canada.

476 They will deliver PSTN services on a private network without providing access to competitors to the coax. Public Internet is not used. Their service is targeting a direct replacement for traditional phone service on a robust private IP network, as they call it.

477 Quite frankly, they are a bigger threat, in our opinion, than the incumbent phone companies since they do not provide equal access to their private cable networks.

478 Given the scope of the cable companies' networks, access to millions of existing customers, their huge broadband market and success in bundling, there is no doubt that they will leverage these relationships and create an unfair competitive advantage.

479 Comwave submits that never in Canadian telecom history has a new CLEC emerged with such size, scope and direct access to millions of customers. A telephony launched by Rogers and Shaw will mot certainly create a duopoly in Canada and dwarf all previous CLECs offerings.

480 The Commission is now at a juncture and has the ability to create true competition in Canada, companies like Comwave, Primus and YAK are finally able to offer consumers with alternative choice. To allow cable companies, who are the gatekeepers just like the ILECs, to operate unregulated and without access to their networks by competitors is destructive to competition, especially with the potential bundling of high-speed Internet, cable television, video-on-demand and services and now voice.

481 Let's just think about that. The choice will be clearer to consumer when they can get their high-speed Internet, cable TV, digital video-on-demand, private VoIP service from one supplier. Consumers may be hesitant to choose a third party VoIP provider given that the quality of service cannot be assured and, moreover, cable companies may engage in conduct to give transmission priority to their service.

482 This is not a level playing field and, we submit, until such time as cable companies provide true and economical access to their cable networks, that they not be allowed to launch VoIP services.

483 In the alternative, there should be regulation concerning bundling by cable companies, thereby creating a triple play, and special regulation to ensure they cannot prioritize transmission of their subscriber's VoIP data over another competitors.

484 Now with respect to the CLECs. We argue that CLECs have had a difficult time operating their business in Canada, have had very little headway in penetrating local market and they have gone in and out of receivership more than once. They have heavily invested in existing facilities and are not prepared to abandon them, but VoIP is available to them too.

485 We agree with the Commission's preliminary review with respect to CLECs, however, the CLECs have a different opinion and have advocated that resellers be regulated like CLECs.

486 Well, leasing lines and phone numbers from LEC, selling them to customers over the Internet certainly does not classify resellers as CLECs.

487 We do not have access to the North American Numbering Plan; no access to 9-1-1 tandems; no access to self-populate the ANI ALI databases; we pay contribution and do not enjoy any financial gains from them; we leave phone lines, we don't own them. We completely and utterly rely on LEC relationships to offer every bit of our service.

488 Becoming a CLEC in Canada is a choice, not an obligation and is supported by the Commission. The Commission's Decision 97-8 with respect to resellers obligation should not be modified, as it was created to help foster rapid proliferation of resellers. This has not happened yet.

489 In this proceeding, FCI Broadband speculates, and I quote:

"VoIP services, it seems clear, will be here for the long term, with, potentially, extremely high penetration rates."

490 I say: Let's wait to see where competition will be in five years. We believe there is always time to remove or add regulation as needed to create an outcome, but certainly not at the infancy stage where more than ever we need to foster competition.

491 Finally, 9-1-1 service. At Comwave we take customer emergencies very seriously. We are strong contributors to CISC and have also implemented what, in our opinion, is the most robust Voice over IP 9-1-1 offering of its kind.

492 All 9-1-1 calls today go to the Comwave 9-1-1 centre -- this is a third party. We actually use two different parties -- emergency response centre with expertise in responding to emergency situations. Our centre is linked to the Comwave network and we populate their computer screens with the name and address of the 9-1-1 caller regardless of their telephone number.

493 Additionally, we provide three emergency contact numbers in the event that callers cannot speak. The centre then manages the emergency and reroutes the call to the appropriate emergency agency in the geographic location of the caller.

494 The reason we have implemented this procedure is to eliminate terrible emergency situations where 9-1-1 calls go to the wrong PSAP office.

495 Prior to us utilizing our 9-1-1 centre we experienced a situation where a family member removed their iPhone without telling us from their Toronto home. They had a 416 number and took it on holidays to Arizona. In turn, someone at the vacation home picked up the phone and dialled 9-1-1 and obviously they got the PSAP office in Toronto.

496 The call was obviously taken care of and there was no damages that actually happened from it, but with respect to that we are doing our best to create a better outcome.

497 With VoIP the rationale of area code matching to a single geographic location should be abandoned. Customer location has absolutely nothing to do with a phone number and we must assume that all voice is mobile for now.

In fact, this customer here is a VoIP device and I have a laptop right here. I have a 416 number and I am sitting here in Gatineau with an 819 area code.

498 I have also been in every province in the past month with my laptop, and although I may represent a very small but growing segment of VoIP users, but the fact is, we never know when and where a user will be and where and when they will relocate. Old wire line 9-1-1 concepts should not be applied to this dynamic product.

499 To accurately determine the location of 9-1-1 callers, Comwave believes that there are other solutions and we are discussing them with CISC.

500 One particular solution that hasn't gained a lot of popularity yet but has merit we believe is involving the ISPs because they play an integral role in the access. Every call is originated on an IP address that is known to the Voice over IP provider. Through a cross reference of the IP address, the ISP can be determined and therefore so can the physical address of every call.

501 We submit that this location method is by far more accurate than the process currently used by the mobile phone companies, who can only locate the call to the nearest tower.

502 In conclusion, Comwave believes that this Commission's preliminary view with respect to ILECs, CLECs, resellers and 9-1-1 is conducive to competition and the public interest at this time. The regulatory framework is logical and, given adequate time and additional safeguards, will foster sustainable competition and a high degree of innovation.

503 How do we ensure that all this materializes?

504 By ensuring that cable companies do not create a duopoly. This is our time to fix this;

505 regulating the cable companies and treating them as ILECs, not CLECs;

506 ensuring that gatekeepers to the Internet, i.e. the ILECs and cable companies do not block or manipulate IP access to third party VoIP providers; and

507 by close supervision of VoIP bundling by ILECs and cable companies so as not to undermine the Commission's regulatory policy.

508 I would like to thank the Commission for hearing and taking the time.

509 THE CHAIRPERSON: Thank you very much.

510 Commissioner Demers.

511 COMMISSIONER DEMERS: Thank you, Mr. Chairman.

512 Good morning, gentlemen. I will start with two questions on 9-1-1, as you just left it.

513 What is your 9-1-1 service at the moment? It seems that at the end of your presentation you have indicated what a future 9-1-1 could be, should be and how it should be discussed, but at the moment what do you offer to your customers?

514 MR. BARZAKAY: As of right now every 9-1-1 caller goes to the Comwave 9-1-1 centre which handles the emergency and is given the information that a traditional PSAP office would have, the address, the name, the precise location, as well as three emergency contacts. In the event that the person is incapacitated, can't speak we have a name of the closest relative, and so on.

515 COMMISSIONER DEMERS: So if it is considered an emergency it goes to a PSAP and is there a time lag or what is your opinion of the service you provide?

516 MR. BARZAKAY: These parties that handle our service, these emergency responders, are pros at what they do. They are traditionally the likes of companies like Chubb and ADT. They handle medical emergencies all the time across North America.

517 True, there is a lag, but we believe that determining Voice over IP location is more important and connecting the call to the appropriate PSAP is paramount.

518 COMMISSIONER DEMERS: Thank you.

519 In approaching your customers, is it very clear for them? Do you make a difference between what you offer and what 9-1-1 traditionally was known to be?

520 MR. BARZAKAY: Absolutely. Actually, within our software our agents have to -- before they take the activation they have to go through a completely separate screen called the 9-1-1 screen where they have to manually populate the information. So they will ask the customer: In the event of an emergency where do you want to be contacted? Who is the next of kin? Everything.

521 And we encourage our customers to keep that information accurate. They can log on line and change that address if they like. New technologies will allow us to actually get location of the IP address without customer intervention in the future.

522 COMMISSIONER DEMERS: So at the moment a customer or a future customer of yours has to prompt an answer that they understand what is the service you are offering?

523 Would you consider including, or maybe you do, in your company advertisements information on the nature and terms of your local VoIP service that you offer?

524 MR. BARZAKAY: Sure. Actually, aside from standard terms and conditions, we also -- every iPhone is shipped to the customer through a local courier and there is a fairly large sticker and a user manual and right on the front it says "How we handle 9-1-1", so it is very clear.

525 COMMISSIONER DEMERS: You will have, I'm sure, gong through other memos and submissions to this hearing, and one of them is from the Ontario 9-1-1 Advisory Board, which expresses a view that:

"Canadian carriers have knowingly disregarded their existing 9-1-1 obligations by selling to VoIP companies." (As read)

526 They go on and specifically request that:

"The CRTC order all LECs to cease and desist from selling VoIP services to ISPs until such time as viable 9-1-1 solutions can be established." (As read)

527 In its submission the City of Calgary also agree with that.

528 Could you please comment on such a statement?

529 MR. BARZAKAY: Sure. At this moment the only companies that can offer 9-1-1 are the ILECs. What we are offering is a quasi-Comwave 9-1-1 and we believe that we have gone beyond what is expected of us as resellers to provide safety for our customers, knowing full well that this is a mobile product and there is no immediate solution.

530 To more directly answer your question, if the CLECs or the LECs were not going to sell a service, unless there was a viable 9-1-1 solution, Voice over IP would be dead today.

531 With no clear path or unified path of how to solve the 9-1-1 puzzle, companies are encouraged to provide their customers with some kind of safety net. I think that above and beyond all Voice over IP providers in Canada -- there are not that many today, you can count them on your hand -- but Comwave has taken a completely different approach.

532 We have seen Primus' approach where they send the call to the PSAP base purely on the phone number. That may be good for them, but we have taken that one step further. We have put another layer in there and putting a series of very professional people that can manage the situation better. Because the caller may not be in Toronto or in Montreal, they may be in Arizona as the situation happened already.

533 COMMISSIONER DEMERS: Thank you.

534 On another point, you will no doubt have read or taken into account the presentation by Telus concerning access independent and access dependent.

535 Do you consider that there are any differences between access dependent VoIP services and access independent VoIP services bundled or offered jointly with high-speed Internet access?

536 MR. BARZAKAY: To be honest with you, I wasn't completely clear on the access dependent or independent. Maybe you can clear that up for me.

537 If I am to understand this, Comwave's services today are completely independent of who is providing the service, but the fact of the matter is there are only two sides on this equation and there are only a small -- well, two major companies providing access, or four major companies providing access, so inherently we are dependent on them.

538 Although we are independent of the type of service, we are dependent on the ILECs and cable companies to provide our service. They can just as easily decide, through a bundling regime or a terms and conditions agreement within their contract, that no other voice service can ride the Rogers way or the ILEC Sympatico wave. That could be a detriment.

539 I hope I have answered your question.

540 COMMISSIONER DEMERS: Thank you. I have no further questions. If at the end of the hearing you want to come back to that point, please do. Thank you.

541 Thank you, Mr. Chairman.

542 THE CHAIRPERSON: Merci. Commissioner Cram.

543 COMMISSIONER CRAM: Thank you.

544 I wanted to talk about this third party emergency response centre. I take it that the cost of this is not prohibitive. As a percentage of your revenues, how much does it cost?

545 MR. BARZAKAY: It is definitely not cost prohibitive. It is so minuscule that it is a service as a small company we decided to tackle and absorb.

546 COMMISSIONER CRAM: It adds that other layer and do I understand you correctly that they then phone directly to the fire or the police, they don't even go via the PSAP at all?

547 MR. BARZAKAY: No. They handle the emergency as best they can, so they will route the call to the PSAP if needed.

548 I'm not privy to all the procedures that they use, but they are Canada's preeminent emergency response companies and they have direct relationships with these parties.

549 COMMISSIONER CRAM: So when you talk about not imposing a single solution on 9-1-1, what you would be envisaging is that we would say something like: Every person who has a number should have 9-1-1 capacity that does A, B, C, D, E, F, G.

550 Would there be a response time in that or something? Is that the kind of thing you are thinking about?

551 MR. BARZAKAY: No. I think that for now -- I know you have talked about this once before -- the emergency working group at the CISC is a great forum to start, although I have some reservations on what is happening within the working group. I think there needs to be a little bit more guidance. I can help shed some light on what type of guidance.

552 Right now we are in a working group where there is the VoIP IP providers on one side and the municipalities on the other. I think, without raising any eyebrows, the municipalities are in a position that: We are not prepared to change, and that's it. Work around us.

553 If we are going to continue to work within that environment, there is little going to happen at CISC. So there has to be a little bit more guidance from the Commission and directing the CISC to come up with better solutions.

554 COMMISSIONER CRAM: Thank you. Thank you, Mr. Chair.

555 THE CHAIRPERSON: Thank you very much.

556 Vice-Chair Wylie.

557 COMMISSIONER WYLIE: Help me understand your position vis-à-vis cable co's. You spent a fair amount of time, both in your presentation this morning and certainly in your written submission, about what you perceived to be the problems inherent in the cable co's in-territory market power and that you are concerned that the marketplace may become distorted as a result.

558 I suspect you would also be concerned about what I have characterized, for better or for worse, as one of the pillars of our concerns which is unfettered, undiscriminatory access.

559 In fact, you go far further and you clearly say that -- I am reading at page 3 of your oral presentation this morning and I quote:

"We respectfully disagree with the Commission's preliminary view that Cable companies should be classified as CLECs. We view them as new ILECs with a potential duopoly in place."

560 On the very last page, in your conclusion, at No. 2 you say:

"Regulating the Cable Companies and treat them as ILECs".

561 What is less clear is whether you are advocating economic regulation for VoIP services provided in-territory by cable companies.

562 Can you help me with that, since you have clearly said you agree with the Commission's position about tariffing in-territory VoIP services offered by ILECs? Now you say that cable should be treated as ILECs. What is your position with regard to the tariffing, then, of in-territory VoIP provided by cable companies which you say should be treated like ILECs?

563 MR. BARZAKAY: What I am referring to is treating them like ILECs in-territory where they operate. So wherever they have access to their coaxial right to the home of the customer, just like in Ontario we have Bell with copper to the home, well, we have Rogers with cable to the home. That territory within that right, they are both ILECs. They are the only ones that control that access.

564 With the ILECs at least we have access to that copper through equal access. With the cable companies, on the other hand, we don't even have that.

565 COMMISSIONER WYLIE: I understand the parallel you are drawing quite well, but question is: Would that lead then to tariffing them the same way that you say that the ILECs should be tariffed in-territory?

566 MR. LEWIS: I think, Commissioner Wylie, that we are seeking your wise consideration of the problem. The on ramp --

567 COMMISSIONER WILLIAMS: You have no problem agreeing with us on some parts.

568 MR. LEWIS: We agree with you, but I think that the ability of the cable industry to control the on ramp, not provide -- at the present time the way the market is structured, the ability for Comwave to effectively sell broadband service and VoIP to a cable subscriber potentially puts Comwave and other what I would call VoIP, one-product companies, at great risk.

569 Because we see a number of anti-competitive scenarios occurring, which we went through this morning and I won't go over that, including the packet issue.

570 We see the ability of cable to include VoIP at some cost that isn't really reflective of the cost of providing the service, in other words, $39.95 for high-speed Internet, $40.95 for VoIP and high-speed Internet and being able to use their competitive advantage with bundling as well to basically shut out smaller companies or smaller upstart companies.

571 When you control, as we have observed, 50 per cent of the high-speed Internet marketplace, it is a huge market share. That market share could very quickly be translated into local telephone service, and that is what worries us.

572 COMMISSIONER WYLIE: I am now looking more specifically at paragraph 20 of your written submission where you speak about this problem with relation to VoIP services bundled with Internet services at less than cost.

573 What you then advocate is that we ensure that ILECs -- and now I take it that ILECs include cable co's for this comment -- could not engage in predatory practices, especially to offer bundles with some services at less than cost.

574 Can you clarify for me how you perceive the ability to control that without tariffs?

575 MR. LEWIS: Madam Wylie, we think that tariffs may be necessary, but we can't give you any concrete example of what the tariffs are.

576 I guess what we are dealing with here is, we are speculating that this is the way the market may develop. There is no product on the street yet. We are at a hearing where we are looking forward as to a new regulatory regime and we just see very clearly some potential for abuse in the marketplace.

577 If the Commission's goal -- and we think it is -- is to have a variety of resellers with a lot of technical, logical innovation in the nature of the services that they are providing to the home, cable has to be one of the major areas that must be under regulatory scrutiny because it can become an incumbent over night.

578 MR. BARZAKAY: If I could just add one thing to that.

579 In reference to bundling, we have already seen examples of ILECs bundling long distance services. There is plenty of competition in the long distance business, so it is not of a grave concern to Comwave, but they had no problem selling unlimited or long distance for $5.00. I argue that that is below cost.

580 How did they do that? Well, you had to be with them for a certain number of months; you had to have three services or more. So bundling is not out of the question. It is a fear for companies like Comwave and should be or any new upstart.

581 COMMISSIONER WYLIE: Thank you.

582 Thank you, Mr. Chairman.

583 THE CHAIRPERSON: Thank you.

584 Commissioner Pennefather.

585 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.

586 I didn't hear you mentioned MRS and I wondered if you could just clarify for me that your service is available to disabled Canadians.

587 MR. BARZAKAY: At this time Comwave is working on it. We don't support MRS.

588 COMMISSIONER PENNEFATHER: Is that a technological reason or is there some reason for that that you can explain?

589 MR. BARZAKAY: I'm just not adept to explaining the technological side of things on the network side. I do believe it is purely technology and the way we route our calls and how the calls are compressed, from what I understand.

590 We are definitely working on it. Comwave we believe, as I think we have demonstrated, is at the leading edge of providing safety to our customers and I am sure MRS is not far behind.

591 COMMISSIONER PENNEFATHER: Thank you.

592 Thank you, Mr. Chairman.

593 THE CHAIRPERSON: Thank you. Thank you very much, gentlemen.

594 Madame la secrétaire.

595 LA SECRÉTAIRE: Merci, monsieur le président.

596 I will now call on The Companies: Aliant Telecom Inc., Bell Canada, Saskatchewan Telecommunications and Société en commandite Télébec.

597 Ladies and gentlemen, please introduce yourselves. You have 40 minutes for your presentation.

PRESENTATION / PRÉSENTATION

598 M. BIBIC: Bonjour, Monsieur le Président, chers conseillers.

599 Je suis Mirko Bibic, chef des Affaires réglementaires, Bell Canada.

600 Permettez-moi de vous présenter notre délégation.

601 À ma gauche, le chef de notre délégation, Lawson Hunter, vice-président exécutif, Bell Canada et BCE.

602 À sa gauche, Charlotte Burke, première vice-présidente, Services Internet, Bell Canada.

603 À ma droite, John Meldrum, vice-président, chef du Service juridique et questions de réglementation, SaskTel.

604 Derrière John, Candice Molnar, directrice générale, Questions de réglementation, SaskTel.

605 Derrière moi, Rick Stephen, directeur, Questions de réglementation, Alliant.

Enfin, Bill Crago, premier chef divisionnaire, Technologie, Bell Canada.

606 Notre présentation, ce matin, commencera par des exposés de Lawson et de Charlotte qui seront suivis d'une intervention de John. Ensuite, le groupe en entier sera disponible pour répondre à vos questions et commentaires.

607 Avant de céder la parole à Lawson, j'aimerais vous remercier pour cette occasion d'aborder une question d'une importance aussi fondamentale.

608 Sans plus tarder, je cède la parole à Lawson.

609 MR. HUNTER: Thank you, Mirko.

610 Commissioners, colleagues, ladies and gentlemen, this is not Telecom as usual;

611 not when cable and telephony platforms, each with multiple products and respected brands, are preparing to include VoIP services as part of their head-to-head competition across the country;

612 not when VoIP technology is enabling new competitors, from AOL Canada to Skype and Vonage, to build viable voice businesses in Canada and around the world with minimal investment;

613 not when smart phones and game boxes are being delivered VoIP-ready today;

614 not when software giants and portal providers are laying VoIP into instant messaging; and

615 not when customers have unprecedented options from which to choose, not only an array of suppliers, but also a broader and richer suite of services which will make their lives simpler and their businesses more competition.

616 No, this is not telecom as usual, and that is a good thing, for the VoIP world is one of richer services and virtually unlimited customer choice as entry barriers truly disappear.

617 Distinguished Harvard professor Clayton Christensen describes it as a world where the disruptive nature of new technology reshapes the market to such a degree that incumbents almost always lose; a world where the demand side of the market supplants the supply side of the industry; where the market place will determine who wins and who doesn't; and where the customers' voice will set the direction for the industry.

618 This world is our new reality -- today. The profound change being driven by Internet Protocol provides the Commission with a formidable opportunity. To put it bluntly, failure to embrace change now will inevitably harm Canada and its economy.

619 Getting the regulatory framework right requires vision, a willingness to step outside the familiar world, away from traditional ways of thinking about the telecommunications industry. It requires a willingness to challenge old assumptions, as the Commission did in letting the market set the prices for wireless services when they were introduced, and as you did with respect to new media five years ago.

620 Those actions involved decisiveness and a conscious choice to break new ground, to recognize that in a vibrant, highly competitive environment, customers can best be served with minimal regulation.

621 We ask that the Commission apply those lessons today with similar vision and insight. We are encouraged that Chairman Dalfen, in his public remarks, has cited the work of Professor Christensen on disruptive technologies and we commend the Commission for its commitment to tackle the issues raised by one of those disruptive technologies -- VoIP.

622 That said, we do not support the preliminary view set out in the public notice on the need for economic regulation of the ILECs' VoIP services. Proceeding down that path will seriously harm Canada and Canadians for a generation or more, putting at risk Canada's productivity, our country's ability to innovate and create high tech jobs, our competitiveness and, ultimately, our quality of life.

623 The preliminary view in the public notice is focused too much on wireline telephony, on traditional regulatory models and on protecting some competitors, and too little on ensuring Canadian customers get the most from VoIP as soon as possible.

624 No question there is a legitimate role for the regulation of minimum standards for social issues such as public safety and privacy, as long as the regulations are imposed equally across all participants in the market.

625 However, our fundamental belief is that the economic regulatory framework for VoIP must be built on principles that allow open, dynamic competition to continue to flourish. That is the critical precondition for a productive milieu of experimentation and innovation that will produce the most diverse range of applications and services for Canadians.

626 Such an environment may appear chaotic. Its unpredictability will leave some competitors open to failure, including us, but that unpredictability must not deter you from proceeding with vision, because it is an environment that, if allowed to flourish, will do two critically important things:

627 One, it will ensure that Canadian customers get the best possible, as soon as possible; and

628 Two, not insignificantly, it will enable the Canadian telecom industry to continue as an exemplar for the world. You have it in your power to enable such an environment.

629 Now, before I turn to a more detailed summary of our position vis-à-vis the Commission's preliminary view, I will ask Charlotte to speak about her perspective on the reality of doing business in an Internet-based world.

630 Charlotte.

631 MS BURKE: Thank you, Lawson and good morning everyone.

632 This is the first time I have met most of you so I would like to provide a little context. Essentially, I grew up in the computer business, starting my career as employee No. 10 at Compaq Canada. People laughed at our ambitions, to disrupt IBM by offering value at a tenth the cost.

633 That was not so long ago. Safe to say, business models in that industry have changed dramatically because of the Compaqs and Dells of the world who took advantage of what was then a disruptive technology, the microprocessor.

634 My introduction to telecommunications was in Bell's wireless subsidiary. At the time, wireless was still an emerging market. With the advent of digital wireless we experienced an explosion in innovation.

635 New services emerged that changed the way Canadians work and play and Bell Mobility leaned to thrive in this highly competitive and largely unregulated environment. At Bell Mobility, we lived and breathed competition, and so did our competitors.

636 The very real presence of strong competitors pushed us all to relentlessly deliver to customers the latest and greatest and then to do it all over again, working to stay ahead, to catch up to the competition.

637 As a result, customers across Canada continue to enjoy significant choice and value from their wireless providers.

638 I now spend my time running Bell's consumer Internet business and new services development. Again, in this largely unregulated environment we are driven to deliver for the consumer. We are well aware that we have to earn our customers' business every day.

639 Today Canadians enjoy some of the lowest broadband prices in the world, and as a country we have one of the highest levels of adoption. Canadians lead in the use of always on broadband applications. As Canadians become more connected, the demand has grown for wireless home networks, better security and applications that make it easier to stay connected at home and away. We have clearly seen the lines blurring between mobile, home and work.

640 IP services, of which VoIP is just one, create the opportunity to seamlessly integrate and simplify communication. We must stop thinking of VoIP replacing voice. That is just one of the many applications that keep people connected.

641 Just as we have seen in the mobile and Internet, there will be tremendous innovation and competition within the world of IP services. It is this Commission, acting with leadership, that set the framework for the wireless and Internet industries to flourish.

642 In the context of VoIP Lawson has mentioned Vonage and Skype. You know the names of the other players who are commonly referred to, Primus, babyTEL, YAK, CallNet, and so on. But these companies are only the beginning. The Canadian cable companies have all announced plans to offer VoIP services. Rogers, Shaw, Cogeco and Videotron say they will all be in the game before the end of 2005.

643 These are not start-ups with little or no brand recognition. Cable networks pass by 97 per cent of homes in Canada, of which 88 per cent have access to high-speed Internet.

644 Given the importance of bundling it is significant that the cable companies serve the great majority of subscription TV customers in multi-dwelling units. In Ontario for example, over 90 per cent; and in major urban centres apartment residents account for more than 40 per cent of the population.

645 So the cable co's are strongly positioned to deliver on the true promise of IP services where new applications are developed that integrate IP voice data and video. We will have mobile phones we can watch, PCs that talk and TV delivered over telephone lines; competition that comes from every direction, big players and small, competition that blurs all distinctions; an environment that when looked at as a whole is impossible to carve into neat regulatory boxes; and environment that goes well beyond cable co's and telco's, beyond the VoIP pure play entrance.

646 We are getting ready for a second and third wave of players who bring trusted brands, broad distribution capabilities, call centres and heavy Web traffic. In short, everything they need to grab a share of the IP application market.

647 Most of these names are household. Internet software companies like Microsoft, Yahoo and AOL, combined they have over 16 million instant messaging accounts in Canada. It is an environment that is rapidly evolving to enable consumers to place voice calls using peer-to-peer, PC-to-PSTN and PSTN-to-PC.

648 In a few short years Yahoo broadband in Japan attracted 4 million broadband voice subscribers and is making the service available in North America.

649 But it is not just software brands, it is the big hardware brands like HP, Dell, Sony, Samsung and even Apple.

650 Look at what Apple has done with the iPod. Who would have thought two years ago that Apple would be the number one on-line provider of paid for music services? They are outselling Sony in portable music devices -- outselling Sony, who not only dominated the walkman business or 25 years, they invented it. That is what a disruptive technology does.

651 Look at game boxes. Microsoft Xbox Live has 750,000 paying customers, logging millions of hours of playing every day, with the ability to chat with rivals using VoIP, and Sony and Nintendo are following.

652 So both Apple and Microsoft have already shown they can deliver paid for IP services, not just hardware and software, and there is still more, much more. Look at the mobile world. Hewlett Packard's new iPAQ hand-held is VoIP ready. It can work as a hand-held or a phone.

653 Just this summer the leading GSM providers, including Rogers, announced they are working together to establish interoperability standards for cellular with Wi-Fi that enables Voice over IP.

654 This means a consumer can have a single phone to use when they are home, when they are mobile or when they are in the office. The service will be the same whether the person is grabbing a coffee at Tim Horton's or sipping a scotch in the den. They won't have to know, nor will they care, what technology is delivering the call

655 How can regulation unravel these integrated services? And why, when the Internet and wireless are already forborne.

656 IP applications are disruptive to old business models and so too to old regulatory models. IP is pervasive. We are arriving at a time when you will not be able to buy a device, a computer, a TV, a game box, a cell phone or even a home phone, that is not VoIP ready.

657 And it will be delivered to consumers by a host of providers, traditional service providers, voice only providers, hardware and software companies and many more. Some players are new, but most are big, well-positioned companies with products and services in the market today. They are more than capable of leveraging their presence in the retail environment and on the Web to make VoIP business more dynamic.

658 For all these firms VoIP is not another way to deliver telephony, rather they see VoIP simply as an application distinct from transport, an application that can ride on the Internet. That is what is driving this proliferation of market entrants, because VoIP services are decoupled from the transport and ride on existing networks.

659 The costs of setting up a VoIP business are significantly reduced. Barriers to entry are virtually removed. No need to invest billions to build a network or maintain it. Vonage, who spoke earlier, for instance spent about $30 million U.S. to introduce a nation-wide service in America. Did they need a regulatory leg-up on establishing telcos? Does anyone?

660 This is ultimately the point: VoIP is just part of the IP picture and VoIP is not just cable versus telco, not just Vonage, Primus and YAK.

661 I know there are those who are rolling their eyes and saying, "We have heard this all before and this too will pass." But it is a reality my team faces every day, and it is the reality driving change in our company.

662 We have had, as you know, very successful business models, but I can testify that we are completely focused on the need to transform our business for the new IP world. We are doing it because we must do it.

663 Why? For one thing, history is full of stories about companies that rest on their past achievements, that fail to see the changing times and adapt.

664 For another, we are remaking our companies because we believe there is a world of opportunity ahead, opportunity based on what the industry can deliver to consumers.

665 Simplicity, access to a full range of communication services, integrating voice, data, video applications in a single platform, integration; the creation of personalized services and features that follow me wherever I go on any device, because some people like to talk, some people like to send messages, and some interact best when they can see who they are talking to.

666 And choice, a multitude of devices. Some people like their cell phone, others love their Blackberry. The choice is theirs and a full range of suppliers competing flat out in a dynamic market.

667 We are already seeing the promise of IP technology for Canadians: students collaborating on research with professors and their peers from other countries; surgeons operating tele-robotically on patients hundreds of kilometres away; talking PCs that can read to the blind, and instant voice-to-text that lets the deaf read what is being said.

668 This is powerful stuff, real life benefits of the integration of voice data and video applications, delivering solutions that are truly unique that were not possible before.

669 Where we go from here is open to our imaginations and ingenuity. Surely this is a multimedia future we wanted to deliver to Canadians as soon as possible. To do that, we need a regulatory environment that lets innovation flourish, not one that is based on a flawed premise linking voice to the old primary exchange service model, but rather one that enables a fully competitive environment where all the players have an economic incentive to partner, develop and deliver those solutions quickly.

670 Innovation is an uncertain business, full of experimentation. Companies need to get products to market, adjust pricing features as they go and as market conditions dictate. Those conditions change quickly and often in the world of IP.

671 In our real world experience, Internet features change regularly. Just in the last six months alone we have had to make more than 20 changes to our Internet service offering. In the Voice over IP world we have seen pricing change virtually every week driven by competitors and new entrants.

672 Would my competitors move so swiftly if they knew that I faced a couple of months delay before I could respond? No, not in my world. Features, pricing, they change quickly; no lag time to prepare tariff filings; no waiting for approval -- the players just do it. The customer benefits from unfettered competition.

673 So the regulatory delay inherent in the Commission's preliminary view of Voice over IP is one significant customer affecting flaw. What's more, if the ILECs were singled out by regulation, we would be forced to tip our hand by way of public tariff filing. Our competition could then plan accordingly. If we wanted to respond to their actions by changing our offer or adding a feature, we would have to start the tariff process all over.

674 IP technology enables service providers to rapidly alter service offerings and partner with others to create compelling market offerings.

675 In summary, the competition is here today. There are no meaningful barriers to entry, no big capital infrastructure spending. IP is everywhere and producing customer benefits from every direction. It is a world we must let innovation flourish, driven by unfettered competition. In short, the best possible world for the consumer.

676 Thank you. Lawson.

677 MR. HUNTER: Thank you, Charlotte.

678 Now let me turn to the specific issues we have with the Commission's preliminary view on price regulation and VoIP.

679 We see three broad areas of contention in the Commission's proposed approach:

680 First, it applies a definition of VoIP that does not fit the facts;

681 Second, it relies too heavily on functional equivalents to the exclusion of market conditions; and

682 Third, it underestimates the cost of regulatory where it is not needed or warranted.

683 I will take them in order, beginning with the definition of VoIP.

684 In our June 18th submission we said there were at least four categories of VoiP services. The Commission's preliminary view does not recognize these distinctions or their dynamic nature.

685 The four categories differ in important respects. For instance, the Commission's preliminary view ignores the fact that those services in Category 2, which are basically access independent, are Internet applications, as are e-mail and instant messaging, and they are already forborne.

686 Those VoIP services we have placed in Categories 1, 2 and 4 de-link the services from the transport layers, enabling the entirely new competitive dynamic of which Charlotte speaks. In some cases, rather than building or leasing network facilities, providers need only provide the application that will run over facilities already used by their customers.

687 In other cases, such as Category 3 where the service and transport layers are not separate, providers can use facilities already in place to deliver their IP-based VoIP services.

688 Other differences between categories and the treatment of certain elements of them are covered in our submission. Suffice it to say, the Commission's approach does not recognize the breadth of voice application.

689 Our second point concerns the reliance on functional equivalents as the basis for the Commission's preliminary view.

690 The Commission gives primacy to functional equivalents to the exclusion of market conditions. What is more, its conclusions rest on a narrow consideration of only two factors, namely the ability to reach all customers through the use of telephone numbers and access to and from the PSTN.

691 VoIP services are not just clones of circuit switch telephony. Although VoIP provides voice communication, it does so in a way that brings flexibility and features that have not been experienced by consumers of traditional phone service, and VoIP does much more.

692 Our June 18th submission contains numerous distinctions between the two, but let me highlight just a few.

693 First, unlike in a primary exchange world VoIP telephone numbers are not related to specific geographic locations. This blurs the distinction between local and long distance. For instance, it is quite possible that a call from Vancouver to St. John's could be local, not long distance, depending on which telephone numbers the customer uses. The numbers are merely aliases, used only to allow access to and from the PSTN.

694 As well, customers can change their location without changing their phone number, as often as they want. Their services and features, customized for their needs, follow them. This nomadic portability means that all customers have to do is plug into the network wherever they are, again not possible in the primary exchange world.

695 So to us it is crystal clear: local and long distance distinctions are being blurred. In fact, the use of telephone numbers in VoIP services is so vastly different that rather than demonstrating functional equivalent it does exactly the opposite.

696 A second key distinction is that VoIP allows users to integrate their communication needs by combining voice with data and video applications in an integrated real-time multimedia offering. In fact, integrated voice and video in the instant messaging space has already been launched by Yahoo and Microsoft version is imminent.

697 Mitel is developing an IP home phone with a video screen, enabling you to see clips and photographs of your grandchildren at Disney World and then check tomorrow's weather for your own trip to Vancouver, again not available in the primary exchange world.

698 A third key distinction. In the VoIP world the customer needs a broadband connection. So VoIP is clearly not functionally equivalent to the wireline primary exchange service.

699 As well, we are confident that upon further reflection and analysis the Commission will agree that the regulatory framework for VoIP should not be based solely on the two factors identified in the pubic notice.

700 If these two factors were reasonable preconditions then presumably the wireless industry and long distance services would also be regulated, for they both depend on phone numbers and access to the traditional wireline network. But clearly the Commission has forborne these services.

701 Why did the Commission forebear in wireless? Because it asked the simple question: Is regulation necessary to protect the interest of customers or do market conditions provide sufficient protection? The answer: No, the competitive market provides sufficient protection.

702 Nor reliance on the fact that wireless dips into the number pool two, or accesses the PSTN, rather a clear view of the market conditions. This approach has benefited both consumers and the industry.

703 Canadians have their pick from a range of competitors. It is important to note that in wireless, unless the VoIP world, the costs of entry are significant, both to build new networks and acquire spectrum.

704 In the case of new media, the market was, in the Commission's words, vibrant, highly competitive and successful without regulation. In our view, that is the salient point, the market conditions, not functional equivalence.

705 We have the same opportunity with VoIP, the chance to create a dynamic competitive environment that will best protect the interests of consumers. It is already clear that the VoIP business will be characterized by many service providers able to operate sustainable business models and influence prices. At the most fundamental level we submit that the regulatory regime should not treat some players within a dynamically competitive market in a different way than others because then regulation will distort the market outcome.

706 The Commission has consistently and repeatedly found that different treatment can only be justified if one player has market power. As we have detailed in our submission, the VoIP business is now and will continue to be characterized by multiple strong competitors, with no dominant companies.

707 Ultimately the regulatory regime that the Commission puts in place must withstand scrutiny over time. It must be a framework that remains robust and principled as VoIP services continue to evolve.

708 Finally, our third point, the cost of regulation. Regulation is needed to protect the interests of consumers when market forces cannot do so. But regulation also has its costs, among them delaying the introduction of new services and delaying or even stifling the investment needed to ensure a steady stream of innovation.

709 If regulation forces some market participants to obtain tariff approval before introducing new services or improving existing ones, there is a strong disincentive to take risks and invest, and that affects the level of innovation and associated job creation.

710 In this context I make special reference to the work of Neil Quigley and Margaret Sanderson in Appendix 1 of our June 18th submission. These economists believe the ILECs will not have market power in VoIP services. As a result, they say that economic regulation of the ILECs' VoIP services is unnecessary and will decrease the incentive to invest by all players. To quote them: "(R)ival firms...will not seek to introduce new products or services as quickly because there will be less competitive pressure to do so."

711 In such a scenario, the losers are Canadian consumers and the Canadian high-tech sector -- slower technology evolution, fewer and less rich services with which to communicate and compete.

712 The wireless industry today is an apt example of successful forbearance on price regulation, not only in terms of benefits to consumers, but also in the development of Canadian entrepreneurs and the creation of jobs. Out of the dynamic, competitive wireless market, Canadian suppliers such as Research in Motion and Sierra Wireless were born and evolved into world-leading businesses that thrive here at home.

713 We have every reason to want to replicate those kinds of stories in the VoIP environment. Our strongest advice is not to disrupt the disruption. Let open competition in the marketplace do what it does best: discipline the players and stimulate innovation.

714 Canadians count on our industry, and on policy makers, to ensure that they have world-leading access to the people around the globe with whom they communicate and compete. We cannot let them down. In a very real sense, they are us.

715 We are not asking for special favours; quite the opposite, just the ability to compete under the same regulatory rules and the opportunity to continue to provide Canadians with the best in communications services, no matter how the services evolve.

716 I want to emphasize one additional thing: we are not seeking through this proceeding forbearance of primary exchange services. Rather, our request is clear. Where VoIP services are involved, the Commission should rule that: Category 1, as you agree, is forborne; Category 2, contrary to the Commission's preliminary view, is already forborne and should remain that way; Categories 3 and 4 should be forborne.

717 You have a great responsibility today. The right decision will help establish a virtuous cycle of competition, innovation and investment that will keep Canada and its citizens at the cutting edge of communications. A wrong one will slow the rate of change and investment and allow other countries to leapfrog the great successes that Canada's regulatory policies have enabled.

718 You demonstrated great insight when wireless and new media on the Internet emerged. We urge you to be neither complacent, nor risk averse in this case.

719 Choose opportunity. Don't apply the old wireline paradigm to the new IP world.

720 We must all look forward and act accordingly.

721 We are changing our companies to better serve our customers. We expect a regulatory framework that lets dynamic competition flourish to better serve Canadians. Thank you.

722 MR. MELDRUM: Good afternoon. For the record, I am John Meldrum, SaskTel's Vice President, Corporate Counsel and Regulatory Affairs. On behalf of SaskTel, I would like to thank the Commission for the opportunity to appear and provide SaskTel's views on this important and urgent regulatory matter.

723 While I think of it, while we are appearing with Bell, I want to stress that they don't own us and we are not for sale.

--- Laughter / Rires

724 I would like to take the time provided us today to focus on what is described in the companies' comments as Category 2 services, also known as access independent VoIP, since that is the service that SaskTel has launched in the residential and small business market. It is known as WebCall and is similar to those launched by Vonage and Primus.

725 In focusing on SaskTel's WebCall service, I would like to leave you with two key messages. Firstly, that Category 2 services are appropriately considered Internet services and are forborne from regulation and, in any event, the market for these services continues to satisfy all of the criteria necessary for the Commission to maintain that forbearance determination.

726 Secondly, that imposing the Commission's preliminary views on the Category 2 services is fundamentally unfair and has immediate consequences for SaskTel.

727 Let me briefly describe to you our firsthand experience with our WebCall service.

728 SaskTel introduced its access independent VoIP service earlier this year in Alberta and British Columbia through our affiliate Navigata Communications. I believe that SaskTel is the only ILEC that currently offers a VoIP service targeted toward the residential and small business market -- either within or beyond its incumbent serving territory.

729 Here is a summary of our experience with WebCall.

730 WebCall's introduction was relatively straightforward. It took about two months, including a two-week delay at the last minute to modify our rates to respond to changes in competitors' service offerings.

731 WebCall was implemented from a single service platform, which provided us an available market of some 1.8 million households, just within the original eight gateway communities.

732 Sign-up is over the Internet and is very easy.

733 Although provided in confidence, by virtually any scale, our investment required to launch WebCall would be considered small.

734 An interesting thing about these Category 2 services is that the home phone doesn't need to stay at home. The customer is in touch with WebCall from a broadband Internet access service anywhere in the world where broadband facilities are available. This clearly is not a capability available to the subscriber to wireline local exchange service, and draws one of the major distinctions between these two classes of service.

735 WebCall is not local exchange service. Nor is WebCall designed or marketed to replace local services. Subscribers are, in fact, encouraged by SaskTel to retain their local exchange service.

736 Based on our firsthand experience, WebCall is, without a doubt, an Internet application.

737 SaskTel, Bell Canada and Aliant agree that Category 2 VoIP services such as WebCall are retail Internet services and have been forborne.

738 The Commission has recognized for some time now that voice communications provided over the Internet warrant different regulatory treatment than wireline telephony. We respectfully submit that the preliminary views on VoIP are a step backward, not forward.

739 Furthermore, these access independent services continue to demonstrate all the characteristics that have led the Commission to forbear from regulating Internet services in the first place.

740 Here again the evidence is ample. SaskTel's WebCall is just one of a growing number of competitive VoIP services, a list which grows weekly. If any party has a dominant position in the Canadian market, it certainly is not the ILECs. Rapid innovation will make it difficult for any party to establish market power. The financial impediments to provide Category 2 services like WebCall are low. The underlying network elements are available from a variety of sources, including the ILECs. The costs to consumers to choose or change a supplier are minimal or non-existent.

741 In other words, market conditions present great benefits to the consumer and opportunities for the service provider, and are such that the Commission can continue to refrain from regulating Category 2 VoIP services.

742 SaskTel has grave concerns with the Commission's preliminary views. My colleagues at this table have discussed some of the unnecessary and unreasonable impediments that would be faced by an ILEC offering Category 2 services in-territory, if those services were to be regarded as a local exchange service. These include tariff delays, bundling restrictions, and restrictions on promotions and win-back activity. All of these would greatly restrict SaskTel's ability to market WebCall effectively.

743 These are among the reasons we have so far chosen not to introduce WebCall in Saskatchewan. In essence, the uncertainty created by the preliminary views in the Public Notice has chilled our investment in our own province.

744 As a crown corporation, SaskTel has a mandate to provide the residents and businesses of Saskatchewan with high quality and innovative services. We have had many firsts in telecommunications, most recently our extensive roll-out of broadband services and high-speed Internet access services. But WebCall is the only instance where we have developed a product within the province and then felt compelled to first introduce the new, innovative service outside Saskatchewan.

745 This doesn't mean that we will never market WebCall to Saskatchewan residents. In fact, we may ultimately be required to reconsider our initial decision, a decision which will be influenced by the regulatory rules in place and the developments in the marketplace.

746 The regulatory restrictions associated with the Commission's preliminary views are not only unnecessary, they are also unfair. As I noted earlier, there is no dominance in the supply of VoIP services. There is no reason to discipline SaskTel's supply of WebCall in Saskatchewan when any other party is able to enter the market at little cost, with little or no local market presence.

747 Unlike SaskTel, companies such as Primus, Vonage, TELUS and even Bell Canada could market and promote their VoIP services in Saskatchewan without regulatory intervention. Such an inequity in regulation would provide unreasonable and undue advantages to SaskTel's competitors. This regulatory imbalance would also unreasonably hinder SaskTel's delivery of the benefits of innovative VoIP services to its customers and jeopardize the important role that SaskTel plays in the province's economy.

748 In a recent interview discussing regulatory treatment, Chairman Dalfen noted that "equal treatment of equal competitors is just, while equal treatment of unequal competitors is unjust. The principle...is fairness, not symmetry." We submit that restricting SaskTel while it competes against companies that are 10 times or 20 times its size cannot reasonably be considered fair or just.

749 SaskTel's customers agree.

750 We have submitted the results of a recent survey of Saskatchewan residents along with our supplementary comments. These results indicate overwhelming customer support for regulatory parity among competitors.

751 For example, 85 per cent of respondents reported that they agree or strongly agree with the following statement: "All competitors - including SaskTel - should have the same rules when operating in the Saskatchewan market."

752 Eighty-two per cent of the respondents indicated that they disagree or strongly disagree with the statement: "In order to create greater competition, competitors should be given an advantage over SaskTel when operating in the Saskatchewan market."

753 It is our view that the application of the Commission's preliminary views to the regulation of VoIP services is not only unnecessary given the conditions of the marketplace, it is contrary to the principle of fairness and is opposed by Saskatchewan consumers.

754 Once again, thank you for the opportunity to participate in this hearing and share SaskTel's views. This concludes our oral presentation, and the panel will be happy to answer any questions you may have.

755 THE CHAIRPERSON: Thank you very much for your information and that of the other participants.

756 We will question until about 1:00 p.m., and then break for lunch and continue with questioning after that. Our aim today is to go through the first 11 presentations, down through the Coalition for Competitive Telecommunications Pricing. As we are at item No. 4, it could be a longer day than the secretary originally indicated.

757 That is our plan right now, but, again, we will go by the pace of the questions and answers.

758 Again, I should say generally -- and a number of commissioners have mentioned this -- that when commissioners and counsel address specific issues, it isn't that they haven't read or understood the other issues. The aim of the consultation is to seek as much clarification as possible of the various parties' positions, so questioning in certain areas doesn't imply either a lack of interest or anything else in other areas, it simply means that we think we understand your position in those other areas.

759 I will begin before lunch, Mr. Hunter, with reviewing your categories, to be clear on them -- the categories of what we are all increasingly calling VoIP services.

760 I think I understand your Category 1, which is the same as our P2P category.

761 MR. HUNTER: That's correct.

762 THE CHAIRPERSON: I am going to also ask you, if you can help me out. I think either another commissioner or I will ask the same question of TELUS. I'm trying to correlate your structure to theirs, as you understand it, to see if you can help us.

763 Would you say, first of all, that your Category 2 service is what TELUS refers to as "access independent"?

764 MR. HUNTER: That's correct.

765 THE CHAIRPERSON: That would be correct.

766 From the end users' perspective, in your view, what are the differences from primary exchange service that an end user would experience when using Category 2 VoIP service?

767 MR. HUNTER: I think if you look, we provided a table in our evidence. I don't know whether you have access to that table. Page 29, I believe, of our evidence.

768 If I quickly run down the issues which we say distinguish it from the primary exchange services, 9-1-1, we have already talked about. We said that -- obviously, on wire-line PES service you get 9-1-1. We said perhaps. I would like to clarify that a bit.

769 I think our view of 9-1-1 is that there is a type of 9-1-1 that will be available or could be available on VoIP, but that it is unlikely to be functionally exactly the same as the high quality service you get in PES. And I think you have heard this morning some of the reason why it may be more difficult.

770 Portability: obviously, there is no portability with your wire-line phone; whereas, in Category 2 service, you can take it anywhere you want. I guess one point I would make about that, and maybe the third point here on, the phone number is independent from the customer location. Again, that is obviously not possible in the PES world and it is exactly a distinguishing and very important feature of the Category 2 services and other VoIP-type services.

771 In some ways, and certainly when you think about it geographically, the advent of VoIP services, which means that they can be provided anywhere in Canada, basically, from anywhere in the world, makes VoIP -- now, let me put it this way. Geographically speaking -- and I want to be clear about the qualification I'm making -- geographically speaking, VoIP services are to primary exchange services as satellite video is to cable.

772 In other words, it is a possibility for a new technology to enter into geographic areas from anywhere in the world ubiquitously. That's, of course, what we have seen. We have seen Primus and Vonages and others very, very rapidly providing numbers and service throughout the country. So portability of the device and the independence from location are, obviously, very important distinguishing features.

773 Local calling features: there is, obviously, a standard set in PES and there are additional features likely, certainly, from what we have seen, already in the market, and likely many, many more.

774 There is certainly customized voice mail, there are alternate numbers, there was some real-time accounting information, there was ability to change your number at will -- you can have up to three numbers with the same device. All of these things, obviously, are not possible in the primary exchange world.

775 The next one on our list is integrate with instant messaging. I don't know whether we corrected that yesterday or not, but, basically, you can integrate instant messaging with VoIP services, and some providers are already doing that. Obviously, that's not possible in the PES world.

776 It works in Internet outage. PES clearly works when the power is out. That's not true with Category 2 services.

777 It doesn't work when the power is out at the customer location: PES, obviously, yes. Category 2, no.

778 Now, there may be ways to provide back-up power, battery-type power, but that is not the same. I think is an important distinguishing feature between the two services.

779 Uses household inside telephone wiring: obviously, PES does. In the Category 2, it depends on who your high-speed Internet provider is. So, obviously, not always.

780 Local long distance distinction: that's clearly built into PES. And, as I mentioned in our presentation, that is clearly not as distinguishable in the Category 2 world or the VoIP world.

781 Telephone numbers in the directory: yes, in PES. Category 2 depends on the provider.

782 Message relay service: PES, yes. VoIP, so far, no.

783 Operator services: PES, yes. Category 2 services, depends on your provided.

784 Secure, i.e., not susceptible to hacking: PES, yes. Category 2, no, because you are riding over the public Internet.

785 Guaranteed service quality: yes, on PES. Again, not so in the VoIP world because you are riding on the public Internet and are far more software dependent.

786 Connection to PSTN, obviously, is similar.

787 Potential customers: PES, obviously, all customers and, with VoIP services, it depends on high-speed Internet connection.

788 And distinction for billing purposes between on- and off-network calls: that's not possible in the PES world and, yes, it may be possible in the Category 2 world.

789 THE CHAIRPERSON: Thank you.

790 Picking up on a couple of those, on service quality, you say, no, since services uses public Internet in respect of Category 2 VoIP.

791 But I wonder whether an offering would come on stream that would allow for quality enhancement, either through packet prioritization or through some form of management of pathways, still using the Internet, that would enhance the quality of the service-dependent levels.

792 MR. HUNTER: And I will turn to Mr. Bibic, and maybe Mr. Graco, to answer that question.

793 I think in the Category 2 service, it may be possible -- and this may largely depend on the Internet service provider, it won't depend on anything we are doing. It will be whether they, in their service, are providing packet prioritization.

794 But I will as Mirko and Bill about this area, to expand on that.

795 MR. BIBIC: On the question of packet prioritization, Mr. Chairman, it's, ultimately -- currently, there is no prioritization being undertaken in the network that prioritizes voice packets over data packets. Basically, the way it works today, whichever packet comes first gets delivered first.

796 When we talk about packet prioritization, another reason why it's important to distinguish between the types of services being offered in these various categories, as Lawson mentioned in his opening remarks, when we talk about Category 2 services, the prioritization, if it were to occur -- and it doesn't occur today -- would occur within the network. So it's the ISP that would be providing that functionality, not the service provider.

797 So it can be done. It would be take time. It would take money. You would need to make some hardware and software changes within the network. But let's say it were done, the ISP would offer that service to the subscriber. So if a subscriber wanted to pay more, for example -- he may not have to, but if a subscriber wanted that enhancement, the subscriber would subscribe to that ISP's service.

798 Now, with that type of prioritization, it wouldn't matter which Voice over IP application they subscribed to, that application would get the benefit of voice packet prioritization over data prioritization.

799 So, yes, that kind of prioritization would be possible. Now, would it be the same type of service quality as PES? I can turn to Mr. Graco, I don't know, but, ultimately, if the Internet went down, so would the service, and that's not the same with PES.

800 Now, there are different issues at play with Category 3, which I could go into, if you like.

801 THE CHAIRPERSON: No, I follow that point.

802 MR. BIBIC: Okay.

803 THE CHAIRPERSON: So what you are saying is that it's in the hands of the high-speed Internet access provider, in this case, as to what the prioritization will be or not. You are saying that the Category 2 service provider, the access independent service provider, couldn't utilize software that would, without the network owner's agreement, so to speak, trigger prioritization?

804 MR. BIBIC: I believe that's the case.

805 MR. GRACO: There are two different ways to do -- or two parts of the prioritization problem. One would be on the upstream, which the customer could do on their own, through the purchase of generally available equipment, or provided by the VoIP service provider to that customer. That prioritization would happen on the upstream.

806 Downstream prioritization could only be provided by the ISP in question.

807 THE CHAIRPERSON: Thank you.

808 So then, an offering that would consist of the same company providing both levels, so to speak, both the high-speed access and the Category 2 independent access VoIP service, that package, I suppose, could be offered in which both the upstream and the downstream prioritization could be included, would it not and it would still be in your Category 2? I'm just trying to understand your categories.

809 MR. BIBIC: In Category 2, if the ISP had made the changes within the network to allow for prioritization, and also offer a Category 2 voice service, that is correct, that the voice packets will be prioritized over data packets. But if that subscriber chose to purchase a Vonage service, the Vonage -- the voice packets would also be prioritized.

810 Now, at the consumer end, my understanding is the consumer, regardless of which packet and service provider they subscribe to, you would obtain an ATA and the modem and the router and, as a consumer, you can choose to say to the box: whenever I make a voice call, prioritize my voice packet over my data packet. So if your child is downloading music and you are picking up the phone, your voice call goes in priority to your child's request to download music. And that's the customer's choice to make.

811 THE CHAIRPERSON: Right, I see that. That's on the upstream case.

812 And the upstream capability, you say, would be offered to the end user, as distinct, say, from a competitor who was seeking to offer -- a Vonage, for example -- seeking to offer the service and wanting to have that enhancement, that upstream enhancement to, in turn, offer to its end user customer.

813 MR. GRACO: I think what Mirko was saying was that if this subscriber of the Internet access service subscribed to a service that prioritized packets, voice packets, in particular, then that subscriber could take advantage of that.

814 The access providers would have to build and operate and manage such a network, but that is when that Category 2 scenario -- a customer of a Category 2 service could take advantage of packet prioritization, if the access providers make that available.

815 MR. BIBIC: Just if I may clarify, Vonage today, or any service provider today, could ship to a customer the equipment necessary that they could obtain from CISCO, for example, that would allow the subscriber -- when a subscriber initiates a call, for that subscriber voice packets to be prioritized over data packets. So that's upstream.

816 Downstream, in order for voice calls that are made to you, for those packets to be prioritized over data packets, changes would have to be made within an ISP's infrastructure. That is not currently available today.

817 THE CHAIRPERSON: Okay. Thank you. I think I have that.

818 Turning to Category 3 service, this, again, looking at TELUS's paradigm, would be equivalent to broadband -- to access dependent service?

819 MR. HUNTER: That's correct. Because our Category 3 says that it includes both the application and the access in one product that cannot be purchased separately.

820 THE CHAIRPERSON: Right. Now, I think in your evidence -- I can't recall exactly where you said that this isn't offered today, this particular service. Is that correct?

821 MR. HUNTER: I think it is not offered today. There seemed to be some indications that the cable industry may be offering this product and that that is their intention, but today it is not being offered.

822 Of course, in our situation, or others, it may depend on what facilities you own and what the regulatory rules are about us being required to either unbundle or provide access to components.

823 THE CHAIRPERSON: What do you think that the advantage to the user would be of a Category 3 service, rather than a Category 2?

824 MR. HUNTER: Well, I think it's more -- it may be, if there are advantages in the sense that you have one service provider, that they are a better operating quality of service, that the provider may say, "I can provide you if there is no decoupling or delinking of these things" and it may be simply a marketing advantage.

825 MR. BIBIC: If I may add to that, the consumer will ultimately choose what type of service they want. If they want the portability feature, it may be that Category 2 is what they want. If Category 3 is more expensive, they may say, "I will keep PES and I will take Category 2".

826 In the value propositions that are possible here that a customer will ultimately choose and service providers will decide which segment of the market they want to be in. They may want to be in all or some.

827 THE CHAIRPERSON: You have presumably read the brief of Rogers in this proceeding, and in that brief they indicate that:

"The simple installation of a VoIP DSL box at the side of the house and a media gateway at the central office can transform any wireline primary exchange service into an IP telephone service. In other words, for the incumbent phone companies IP telephony may not be a service at all but merely a change in transport technology for existing primary exchange service." (As read)

828 You can comment generally on that if you like, but if that is correct -- first of all, do you agree that that is correct?

829 MR. HUNTER: No, we do not agree that that is correct.

830 THE CHAIRPERSON: Go ahead.

831 MR. HUNTER: First of all, in order to attach a device to somebody's house and tap into their electrical supply system, which it would require because they need to be powered, it requires the consent of the consumer. We can't stealthily around the middle of the night go up and start plugging things into people's homes and it is just simply not going to be that easy.

832 Of course, apart from the fact that we would have to inform the customer, we would have to get the customer's consent, we would also have to explain the differences in the nature of the service that was being provided given our ongoing obligations to you folks as well as to our customers.

833 So I think that is a straw dog that doesn't bark.

834 THE CHAIRPERSON: To mix metaphors.

--- Laughter / Rires

835 UNIDENTIFIED SPEAKER: But does it quack like a duck?

836 MR. HUNTER: It doesn't do that either.

837 THE CHAIRPERSON: But assuming you got the consent to do that and did that, would you then be -- I am trying to understand, would that then amount to a Category 3 service?

838 MR. HUNTER: I guess I find it hard to believe that if you went to the consumer and said, "Listen, I can attach this ATA to the side of your box and it sticks there and you can't move it anywhere. On the other hand, you can have exactly the same service and it will be sitting beside your PC and when you want to go somewhere you can pick it up and take it somewhere else. Why would any consumer make that choice?

839 THE CHAIRPERSON: But then the question is: What is the attraction of Category 3 service? As Mr. Bibic just mentioned, if you want portability you won't seek a Category 3 service.

840 I am only now trying to categorize here and ask how would that differ, presuming you got all the consents and didn't traipse over the rose garden, and so on, and you plugged your box in, how would that then differ from your Category 3 service, if at all?

841 MR. HUNTER: I guess again, it is one integrated service. There may be more control from the service provider in the quality of that, that there is no ability to tamper with it in the sense that kids and other people, including people like me, can take ATAs and do bad things to them. This would be a service that provides you the end-to-end service without that sort of interference from the customer level, which they may want and which may provide a higher degree of reliability than you otherwise might have I suppose.

842 THE CHAIRPERSON: Right. All I'm asking is: Is that an example of a Category 3 service?

843 MR. HUNTER: If it were integrated, yes, it would be.

844 THE CHAIRPERSON: Thank you. I think I follow the -- I was going to ask one or two questions, but I think your answers covered that.

845 An example of a Category 4 service. Am I correct, first of all, in assuming that the reason you broke out Category 4 was that it is effectively business-oriented and that it could be either a Category 2 or 3 otherwise, or am I not reading that correctly?

846 MR. BIBIC: We did break it out because it is targeted to large enterprises and as a result of that it is our view that market conditions may be different than they are for Category 2 or Category 4.

847 The way we provision our hosted IP service to large enterprises that are Category 4 service, it is access independent. The customer brings its own wide area network and the MIPT service connects through the wide area network. So in that sense it is access independent and it would fall into Category 2, but the market conditions are different because of the --

848 MR. HUNTER: But there is one other important distinction, that Category 2 and Category 3 services would ride over the public Internet. Category 4 services, again, security is a very, very important feature to large business and that is why it is a hosted environment which provides more security and certainly touching the public Internet always raises security-type issues.

849 So it is a service that is designed to deal with the requirements of those large customers where they may have their own wide area networks and can be just entirely on us, if you will, in the use of the service. So I think it is really quite a different service.

850 I think we wanted to present it because we wanted to show the range of IP telephony-type services that will be offered.

851 THE CHAIRPERSON: So are you saying that Category 4 service would not travel across the Internet?

852 MR. HUNTER: I think in most, if not all, instances it would not.

853 MR. CRAGO: It wouldn't necessarily travel only over VPNs. It could travel over the Internet.

854 THE CHAIRPERSON: It could, but -- sorry.

855 MR. CRAGO: Just as an example, so obviously we all take our business home with us at night and you would still have access over your broadband connection, but that connection if over a VPN which makes you virtually within your corporate network. That is how you gain access to that service which is actually a corporate or VPN resource.

856 THE CHAIRPERSON: Right. But it doesn't travel -- it has access to the Internet potentially, as many VPNs.

857 MR. CRAGO: It would use the Internet as a transportation mechanism to allow the VPN to connect to the corporate enterprise service.

858 THE CHAIRPERSON: To connect. I see.

859 I guess both Categories 3 and 4 would be managed network solutions, would they not?

860 MR. HUNTER: Three would not necessarily be.

861 MR. CRAGO: Category 4 would.

862 MR. HUNTER: I always like to understand what the term "managed" means in your --

863 THE CHAIRPERSON: I would hope that you would help me with that.

--- Laughter / Rires

864 THE CHAIRPERSON: What I think I mean is essentially access to the Internet, using the Internet. It goes into the -- call it the ocean, a cloud, whatever image you want to use, and then is navigated to the other end by whoever it is who runs the Internet, that amorphous creature, as distinct from managing, call it the VPN itself as a specific end-to-end task for the customer.

865 That is how I understand it. You can correct that image if you don't agree with it.

866 MR. CRAGO: All networks are managed and those who say that the Internet is not managed, we spend a lot of time not managing that network.

--- Laughter / Rires

867 MR. CRAGO: I think VPNs are generally regarded as managed IP networks where there is more attention paid to the quality and what is happening on the network in a VPN or an enterprise network versus what goes on in the Internet.

868 THE CHAIRPERSON: Right. I guess we are looking at it not from a technical point of view as much as from both a customer point of view and a functional point of view here and I guess in answer to previous questions the reasons for it going to a Category 3, and I assume a Category 4, are to get more management and control of the network, the transmission paths, and so on, that provide security.

869 MR. CRAGO: Yes. So usually "managed" in that context refers to the use of prioritization of voice or streamed data rather than regular data.

870 THE CHAIRPERSON: Okay. Thank you for that.

871 In terms of quality of service, you mentioned guaranteed quality versus public Internet quality, taken as it comes, so to speak. Do you see a difference in quality a between Category 3 and Category 4?

872 MR. HUNTER: Three and 4 you say?

873 THE CHAIRPERSON: Yes.

874 MR. HUNTER: Bill.

875 MR. CRAGO: It would depend on the service provider of the underlying infrastructure of the Category 4, or the infrastructure that the Category 4 service is on versus whatever the offering is by the Category 3 service provider.

876 THE CHAIRPERSON: Okay. I am going to basically stop the questioning here, but just the next area that I am going to want to examine is, you are essentially saying that in your view Category 2 has been forborne. That is your position?

877 MR. HUNTER: That's right.

878 THE CHAIRPERSON: And that Category 3 and 4 should be forborne.

879 MR. HUNTER: That is our position, yes.

880 THE CHAIRPERSON: So we will address those next when we come back from lunch.

881 We will resume at -- it is 1:15 -- 2:45 sharp, if we could.

882 Nous reprendrons à 14 h 45.

--- Upon recessing at 1315 / Suspension à 1315

--- Upon resuming at 1445 / Reprise à 1445

883 MR. HUNTER: Mr. Chairman.

884 THE CHAIRPERSON: Yes.

885 MR. HUNTER: There is one additional comment I would like to make following up the conversation we had this morning about Category 2 and Category 3. I made reference to the fact that I thought some of the cable companies were talking about offering a particular type of service.

886 Over the lunch hour I looked at the Rogers submission and in paragraph 10 of their submission they make the following statements:

"While the current services offered by Vonage and Primus require a customer to have a high speed Internet service from a cable modem or DSL connection, this need not necessarily be true for the services offered by phone companies and cable companies. An IP phone service must of necessity ride on the IP platform but there is no requirement whatsoever for the customer to subscribe to high speed Internet service. Rogers, for example, will sell the service to customers that do not have high speed Internet service or even cable television service from Rogers." (As read)

887 That very clearly is a Category 3 service and it doesn't require a high speed retail Internet access. They are saying, we'll use our coax cable to provide just a VoIP application, and that would be a Category 3 service.

888 THE CHAIRPERSON: Right. You are not responding to a question. You are just -- I am not sure which question you are responding to.

889 MR. HUNTER: I think we were trying to figure out -- you said to me, is there anyone offering a Category 3 service. I am saying this is a Category 3 service.

890 THE CHAIRPERSON: I see now what you are responding to. Okay. Thank you.

891 I want to move to your statement, and I guess it is at -- let's start with paragraph 111 of your brief in regard to you are saying that the companies consider that Category 2 VoIP services are forborne retail Internet applications. When I look for the rationale for that I basically read the following paragraphs but get to the point where at paragraph 126 you effectively quote the new media public notice and because IP telephony is included in that list you somehow conclude that it is forborne, or am I oversimplifying your argument here?

892 MR. BIBIC: I believe that is a bit of an oversimplification.

893 THE CHAIRPERSON: Perhaps you could run through how you got there.

894 MR. BIBIC: Okay. Certainly.

895 Before I even get into kind of the legal discussion, I will take a step back. If I were to search the Internet or surf the net and go on a music download site, I don't think there would be any debate in this room that that is an Internet application and that it's forborne. The reason is I have got an Internet connection and I am able to download music.

896 I don't think there would be debate in this room that e-mail is an Internet application. I need a retail Internet connection to use it, but it is a forborne application, the same thing with instant messaging.

897 This Category 2 VoIP service is no different than that. You need a retail Internet connection and it is an application that rides over that connection, just like Vonage this morning stated as well. So that is kind of at a high level.

898 In terms of the Commission' previous forbearance decisions and the legal analysis, I mean we also rely in our submission on Order 99-592, where the Commission forbore from retail end user Internet services. For the reasons I have just stated we believe that Category 2 VoIP services are retail end user Internet services.

899 Of course there is further support in our submission as you pointed out for that view where the Commission we believe has confirmed that position in the new media decision, as well I think, and importantly, in the Commission's last monitoring report in November 2003, which we refer to at paragraph 131 where the Commission considers in there VoIP, Voice over IP, on page 48 at the very top of our submission, to be an Internet application.

900 You say at the beginning of the quote there:

"Internet applications include a growing number of services which piggyback on the Internet connectivity services..." (As read)

901 There are several references to specific applications just like Category 2.

902 THE CHAIRPERSON: Do you find the definition of "retail Internet service" anywhere in the Commission's orders or decisions?

903 MR. BIBIC: I think paragraph 31 in the Commission's own report gives a definition of what an Internet application can be. You have audio and video --

904 THE CHAIRPERSON: No. I'm asking about the term "retail Internet service".

905 MR. BIBIC: As used in Order 99-592, for example?

906 THE CHAIRPERSON: Yes. Right.

907 MR. BIBIC: In those orders there are no specific definitions for those terms, which is the reason I started my response with there is no --

908 THE CHAIRPERSON: But there is in Order 2001-220 a definition of "retail Internet service" for purposes of that order. Right? You are familiar with that.

909 MR. BIBIC: Which is the specific order?

910 THE CHAIRPERSON: Order 2001-220 respecting contribution where "retail Internet service" is defined as:

"...includes all Internet services (IS) independent of speed and the facilities over which the services are carried. For greater certainty retail IS includes but is not limited to all IS but permit the users of those services to upload and/or download information from the Internet and to use applications such as electronic mail, but it does not include public switch telephone network (PSTN) voice services or other contribution eligible telecommunication services." (As read)

911 And then in the next paragraph:

"For the purposes of this definition, PSTN voice services refer to real time voice communication via the Internet to or from a telephone set or other equipment." (As read)

912 You don't include that in your search for the meaning of "retail Internet service" and here is the one time where the Commission has actually defined it and excluded the PSTN voice. Wouldn't you conclude from that that this analysis as to whether or not the service is forborne should examine this definition and exclusion as well?

913 MR. BIBIC: We believe, Mr. Chairman, that the definition that you refer to in that order is a definition to be used only for the purposes of contribution. There is, in our view, a very specific reason why the definition in that order defined Voice over IP services which interconnect to the PSTN. That was to make sure that those types of services would not be exempt for contribution purposes. In our view, that is the only reason that definition is drafted the way it is.

914 We do not believe that definition detracts from the fact that Category 2 VoIP services are forborne or are retail Internet services as that term is used in the other orders we referred to specifically in our submission.

915 THE CHAIRPERSON: I must be missing something in your argument. I understand your point. You are claiming this is a retail Internet service and since retail Internet services are forborne that is the logic and this is also forborne. But you can't point me to any determination where the Commission excluded PSTN voice services as defined in the order I referred to, and I guess I am -- as a matter simply of interpreting our decisions and documents, why the one instance where there is a focus on that exclusion wouldn't be part of your analysis.

916 MR. BIBIC: Again, there is a specific reason for the focus in that definition, and that was to get around the contribution problem.

917 Now, in terms of the other orders and definitions we point to in our submission, I don't think that there is any debate that Order 99-592, for example, granted forbearance to things like dial-up Internet access services, which incidentally did use a PSTN for purposes of connectivity.

918 E-mail is without a doubt forborne and it uses, did use, PSTN connectivity in order to work.

919 So the forbearance orders are fairly clear in our view and did forbear from other Internet applications that use the PSTN.

920 THE CHAIRPERSON: Okay. I think I have that point. Again, you would take reference to IP telephony in a list of products, diverse products and services. Is there any reason why you didn't include the introductory words in paragraph 126, the definition really, the way it is expressed, says "The term `new media' can refer to" -- and then it picks up a diverse range, as you have it in there.

921 Is there any reason why you excluded the introductory words?

922 MR. BIBIC: No specific reason, Mr. Chairman.

923 THE CHAIRPERSON: On the basis of that listing, along with video games and e-mail and so forth as part of what could be included in new media, you are using that as support for why the kind of Voice over IP services, the ones you are categorizing as Categories 2 and 3 and 4, presumably, are excluded. That is in support of that conclusion.

924 The other support is found in the orders in paragraph 127, I think it was, the CRTC decisions, which you argue encompass it, even though there is no express reference to the voice services.

925 MR. BIBIC: There is no specific references. You are correct. Those orders referred to in paragraph 127, although the other quotes that we provide in paragraphs 126 and 131 clearly show in our view that the Commission considered at the time they drafted those reports that Voice over IP are Internet applications just like other Internet applications and the fact that there is a slightly different definition in the contribution decisions ought not to displace that, Mr. Chairman,.

926 THE CHAIRPERSON: Okay. I think I have that.

927 Now turning to the issue of forbearance in respect of Category 3, I guess we are embarked here on a classification exercise. I assume you would agree with that. I am basing that on the analysis on paragraph 110, which I agree with, where you say:

"VoIP services, when provided by Canadian carriers constitute telecommunication services under the Act and are therefore subject to regulation unless forborne." (As read)

928 That is basically the argument and I agree with that analysis.

929 When you turn to the issue of forbearance, I am interested in what you would consider to be the class. I ask that because you use the Categories 1, 2, 3 and 4 within VoIP. You say, in your view, Category 2 is forborne, Categories 3 and 4 are not because you are asking that they be forborne and so those are subcategories of VoIP.

930 You referred in your introductory statement at various times to -- I caught it a few times but one is on page 3 at the bottom where you talk about participants in "the market". It is at the bottom of the page. So we are moving from subcategories to something known as "the market".

931 Then if we go to paragraph 57 of your brief, you speak of something called the residential local communications services market which you say includes Categories 1, 2 and 3 VoIP services, full range of wire line local exchange services, wireless services, Internet data services such as instant messaging are included in "the market" as their usage is often a substitute for making a voice communication.

932 I guess I am trying to get a sense of what we are referring to. You are asking for the forbearance of categories within VoIP services, you are referring to I suppose VoIP marketing in your statement and then you are referring to a broader notion of the residential local communications services market in paragraph 57.

933 I guess a good deal turns on that in that obviously the pertinent section of our Act that you cite speaks of services or classes of services. If we loosely use market or the notion of the relevant market as a proxy for that, I am trying to understand what your relevant market is for these purposes.

934 MR. HUNTER: I think what we are saying is that there is a larger economic market for what we described and I think is the definition advanced in the Aliant forbearance application for residential communications services.

935 But as you say, when you look at your forbearance powers, they turn on the question of service. The question there is whether for a particular service that there is sufficient -- that you would meet the criteria for that service to forbear for that service alone, which might be part of a larger economic product market.

936 Of course one of the things that seems to me was evident in the discussions this morning and you will recall is that we created four categories here but we said at least. In our view there are going to be so many variations on VoIP type services that it is going to be very, very difficult to categorize all of them and say that is a separate service.

937 That is a challenge for you I think, to come up with some categorization. That is why in our sense in the retail Internet decision, where you have consistently found that there the barriers to entry are low, there are all kinds of applications being added to retail Internet service all the time, which no one has ever questioned were not forborne, that if this is truly just an application on a retail Internet service then it does fall within that definition.

938 But coming back to how we would argue a Category 3 forbearance, for example, I think you do have to define somehow the service that is involved and then assess the market, and let's take Category 2, because there of course we would say, in going through an analysis, if you had to do it, which we say you do, and whether it is forborne, that you would look at all of those factors, the ease of entry, the rivalrous behaviour and we already know that there are already many, many players in that market and the entry barriers are low and switching costs are low, so when you look at that service that it meets the criteria.

939 THE CHAIRPERSON: In coming to the conclusions you come to in paragraph 57 regarding the residential local communications services market, what factors did you use to determine that all of these different services were part of a given market?

940 MR. HUNTER: I think, from an economic point of view, that you are looking at both the supply and demand side of the market. You are looking at whether these things are more or less substitutable. That is clearly a question. And they are, some of them, more or less.

941 But I would say that another way to look at it -- and I guess it is a way that I think we think about it inside the company -- is: do these services have an economic impact on other services that we are offering, such that we have to take that into account in deciding how we price the product, what service features we need to have. If the answer to that is yes, then clearly they are relevant to the state of competition.

942 That is how we came to that view, that you couldn't exclude these other services in deciding in that economic product market the degree of competition.

943 THE CHAIRPERSON: The exercise here, as you say, is to determine whether this particular second category in our Public Notice, the VoIP services, or your three latter categories, are or are not classifiable as a retail Internet service or as a local exchange service for the purposes of regulation. That is the classification exercise we are involved in.

944 MR. HUNTER: Yes, I guess it is. Although our view, as you know, is that they are not a local exchange service.

945 THE CHAIRPERSON: I understand that, but I guess I am wondering, in light of that view, what we should conclude from paragraph 57, where you, in effect, bring them back into that larger market and say that this can be determined to be a market, the residential local communications services market.

946 You mentioned supply and demand factors, substitutability and the like, which would, if anything, move in the direction of deeming them to be part of the market you yourselves have termed.

947 MR. HUNTER: I think that we do think they are part of that larger market, but we don't think that means that you have to consider that larger market in deciding whether a particular service should be forborne. We are saying that if you look at services that we think the characteristics of -- take a Category 2 -- are pretty obvious in the market today, even though they are blurry, in the sense that there are some people who offer different features than others, and if you look at the market conditions relating to that particular aspect, that is a highly competitive market and, therefore, should be forborne.

948 THE CHAIRPERSON: Right. In the Commission's analysis in 94-19, which a number of submissions alluded to, defining the relevant market is really seen as a proxy for determining the services or classes of services that should be eligible for forbearance. So, in effect, you can't separate the two in doing the forbearance analysis, you have to look at whether the services comprise a relevant market and then go on to the other analysis.

949 MR. HUNTER: No, I don't think economically that is correct. I think you can have broader product markets that have sub-markets within them that have quite different demand elasticities, and that doesn't mean that they can't be looked at separately.

950 THE CHAIRPERSON: But whether you call them markets or sub-markets -- I mean, are Category 2 services a sub-market?

951 MR. HUNTER: What we are saying is, as a service, if you look at the competitive conditions related to that service, and ease of entry -- all of the factors you would look at -- it is obvious that for that particular service the characteristics of it are that it will be a highly competitive market and, therefore, we say already forborne.

952 Certainly, we think that if you did another analysis of it, you couldn't come to a rational conclusion that didn't say that it met all of the types of characteristics in all of the retail Internet services that you have forborne.

953 THE CHAIRPERSON: Right. Assuming that we disagree with your legal point that it has been forborne, you are still making the point, as I think TELUS does explicitly, that if it isn't forborne, then please forbear it, in the alternative.

954 They are making that point. That isn't the point you are making.

955 MR. HUNTER: They are making that point. That's not our point.

956 THE CHAIRPERSON: But presumably that would be your point if we disagreed with you about whether or not it has been forborne, would it not?

957 MR. HUNTER: What I am saying is that I don't think you can do an assessment of the characteristics of the Category 2 Internet application service and come to any conclusion other than it is a highly competitive market and meets all of the criteria for forbearance.

958 THE CHAIRPERSON: It's a market.

959 MR. HUNTER: A highly competitive service.

960 THE CHAIRPERSON: I am not trying to trap you, believe me. I am just trying to show that, essentially, as the Commission said a decade ago, the analysis involves defining a relevant market. So whether it is Category 2 or Category 3 or Category 4, as you say, you will come to the conclusion that you have to look at market characteristics. You say so in your brief.

961 MR. HUNTER: Yes.

962 THE CHAIRPERSON: Going back the other way, I am saying that when you presented this initially you talked about this broader local telecommunications services market. So I think it is fair to draw the conclusion that you found enough similarities, so to speak, to call them all a market, and I was asking you what some of those were, and you have outlined a few of them -- supply and demand characteristics, substitutability and the like.

963 I don't know whether you have anything more to add as to why you consider them -- because, naturally, if you go in that direction of similarities, then I suppose you are lending support to one type of classification. The narrower you make that product market into the sub-categories, the more you are arguing for their being different, in effect, from local exchange voice.

964 MR. HUNTER: They are different, in our view, and they have very different functional characteristics. That does not mean that they don't have a competitive impact on that other product. I think that is our point. When you look at that larger market, you have to look at all of the services available to consumers and service providers that would have an impact in competition in that particular product.

965 THE CHAIRPERSON: Thank you.

966 I have one final question, and it is in regard to the TELUS brief. I think it was your position before that your Category 3 service was similar to their access dependent category.

967 MR. HUNTER: I think that's fair.

968 THE CHAIRPERSON: They suggest that that category should be subject to regulation. You are suggesting that that category should be forborne.

969 Is that correct?

970 MR. HUNTER: That is correct. We think that if you do the same analysis for Category 3 as we say you do for Category 2, with the factors, you will find that entry barriers will be low, there will be rivalous behaviour.

971 We have seen that Rogers says that they can and intend to offer such a service.

972 I suppose it is possible that if we didn't offer the service -- and, as I say, on our platform today, given the obligations we have to unbundle, others could provide that service, too, by using leased facilities from us. That seems unlikely today with the cable platform, but if that didn't happen, I suppose that maybe they would be the dominant player in Category 3.

973 THE CHAIRPERSON: Thank you. Those are my questions for the moment.

974 Commissioner Langford.

975 COMMISSIONER LANGFORD: Thank you, Mr. Chairman.

976 My questions will be a little diverse because a lot of the basic ground has been covered. I will try to pick a few little spots, so excuse me if my questions seem a little haphazard, but there doesn't seem to be any point in going through everything that I saw when most of the questions have been answered already in the brief.

977 I want to refer to the MTS Allstream submission, and in particular paragraph 80 of their submission, where they speak of the dangers of proprietary designs of services. The example they used is Bell's Managed Internet Protocol Telephone Service as possibly being a proprietary design which, by its very nature, might exclude other users. We have had that sort of fear raised, you will recall, in interconnection applications, particularly on cable, that they were using proprietary modems. Certain carriers -- we couldn't get in. We are all set to go, and even though we have an access right, we can't get in.

978 I assume that is talking about the same sort of thing. We haven't had a chance to examine them yet.

979 I wonder if you could comment on that particular fear, or particular allegation, and then comment, as well, on the problem of ensuring open network standards, generally, and what your position would be on that.

980 MR. BIBIC: Commissioner Langford, the MIPT service, really, is a software application. It provides voice telephony capability, it provides features like Instant Messaging, Point-to-Point Video. You can push documents to each other and work share between individuals within an organization. Things like that.

981 It's a software application. Anyone can develop a software application. The key point is, what is the access infrastructure.

982 As I mentioned earlier this morning, the access infrastructure in the case of a service like that is a customer's wide area network, which can be obtained in the competitive marketplace.

983 So I think that we would disagree with MTS' characterization of what that service is and can do, and whether or not others can be excluded from providing the same type of service.

984 COMMISSIONER LANGFORD: The general problem of proprietary design services, of services that would perhaps exclude competitors?

985 MR. HUNTER: Again, you would have to do the same sort of market analysis.

986 I think you heard this morning -- let's take 9-1-1 -- I think it was Vonage. They think that the market is going to be sufficiently competitive on types of solutions there, and maybe some of those will be proprietary. I would assume that you wouldn't think that that is necessarily a bad thing, because, as you know, proprietary solutions, in most markets, are a way in which people compete, and government policy doesn't oblige everyone to make access to their proprietary products available to everyone else. That would defeat the purpose.

987 The only issue, I would have thought, is whether there are bottleneck or essential facilities at some point that one person has that require that the Commission take some action.

988 To use the word proprietary -- as you know in the patent world --

989 COMMISSIONER LANGFORD: I may not know, so go slowly.

--- Laughter / Rires

990 MR. HUNTER: In the patent world, the whole purpose of that is exclusivity. The whole purpose of getting the patent is to give yourself some protection for the effort you have put into inventing something new. The whole design of the public policy that lies behind the Patent Act is to give you that protection and not to force you to resell it.

991 As you, I am sure, will recall, there were many debates in Canada over the pharmaceutical patent business because the government had a compulsory licensing program, which they ultimately changed.

992 There is nothing wrong with proprietary systems. In fact, most public policy in the country, I think, encourages that. So the question from a regulator's point of view, to me, is at what point -- and, by the way, that is another thing which the competition laws, for example, recognize, that a patent is not a market necessarily. It could be, but it isn't necessarily a market. So the fact that you have a proprietary technology about a particular thing doesn't mean that you are not in competition with some other product that somebody else may have a proprietary technology over.

993 I think you want to be careful that there is something bad about people having proprietary products. In fact, most of the time it is exactly the opposite, it is what public policy encourages.

994 COMMISSIONER LANGFORD: I always try to be careful, but I thank you for that advice.

995 It is MTS' submission, not mine, but it seems to me --

996 MR. HUNTER: I didn't mean to put words in your mouth.

997 COMMISSIONER LANGFORD: People do it all the time, it doesn't offend me. I have children, so I'm used to it.

--- Laughter / Rires

998 Let's take it a step farther. It seems to me -- and we will have a chance to examine MTS' views on this front in the fullness of time, if we survive -- it seems to me, reading between the lines, that the fear is that somehow you people, and perhaps by extension cable companies, have such a facilities-based edge and such an historical and traditional edge in certain territories that if you could also design some of these bottlenecks, or design services in such a way that it would be very difficult to get through the bottlenecks, even more difficult than it may be, that that would be something we should be looking at very carefully. I suppose it is that general concern that I would ask you to respond to.

999 MR. HUNTER: Again, it is hard to think about these things hypothetically.

1000 When I think of the word "proprietary", as I say, it means some notion of intellectual property, as opposed to anything else. I don't think we have any particular advantage over them, and certainly not over where most of this is likely to come from, which will be either from the equipment or the software side, because we are not an equipment manufacturer, we are not a major software provider. So we are, basically, in a sense, becoming an aggregater of other people's proprietary technology.

1001 I'm not sure exactly what they were talking about, but it strikes me that -- it would certainly concern me, if it were an attempt on their part to extend a concern over control over a bottleneck infrastructure, which, in our view, clearly, in most of these markets, is disappearing with the advent of the coax infrastructure, which will compete with ours, but to extend the concern over the historical so called bottleneck facilities that we had down into the product market because somehow there was some functionality that was attached to that, which we decided, for our purposes, we wanted to compete with, as long as they have access to whatever the facilities they need and which you should give them access to, because, as you know, that's not everything, and shouldn't be, then they can compete in the proprietary world, too, by adding on their proprietary features and --

1002 COMMISSIONER LANGFORD: But you are asking us to take quite a leap of faith here. I mean, let's strip down your request to some pretty basic bones.

1003 You are saying, "Look, we have had this huge historic edge, but it's fading fast", or will with this, as you call it, "disruptive technology". Cable's accomin' down the road. They are not here, though, so it's a big leap of faith. I mean, they may run out of money and not do it.

1004 I mean, you are asking us today, "Forebear on this stuff on the grounds that cable is just around the corner" and I'm saying to you that we don't have that big duopoly yet, that you seem to feel should give us some comfort, along with all the other competitors that may or may not come nipping in on their heels. We don't have even that yet. We have statements that it's coming, but we don't have it.

1005 And now we have another ILEC/CLEC in MTS Allstream, which is saying, "There are other possibilities out there that might make these bottlenecks even more constrictive". So don't you think it's reasonable for us to worry about these things, in the sense of the leap of faith you are trying to have us make here?

1006 MR. HUNTER: It is reasonable for you to worry about them. It is not a leap of faith. I certainly don't think that the fact that Mr. Rogers has decided to spend $3.2 billion in the last two or three days to buy other businesses and, therefore, doesn't have enough left to get into VoIPs, should be in any way factored into your decision. They are perfectly capable of entering this market. We know they are perfectly capable of entering it.

1007 COMMISSIONER LANGFORD: But they are not there.

1008 MR. HUNTER: But also, do you think that we are not, today, getting ready for their entry into this market? They are having an impact on the market today. Again, it's a mistake to assess the state of competition based simply on market share. It absolutely is.

1009 I will also, just with the nature of these services -- and I think if you look around the world at what's happening, both in the financial community and how they are assessing the impact of these technologies -- and it's not only VoIP, as you know, because wireless is going to be a very disruptive technology, as well, to the Legacy system -- but if you look at OFFCOM, for example, which on September made their decision, their preliminary decision, on VoIP -- and their conclusion is, "We should get out of the way", in fact, I will read you a quote:

"Broadband voice services are a new and emerging market. Our first task, as regulator, is to keep out of the way." (As read)

1010 That's an exact quote.

1011 COMMISSIONER LANGFORD: That's them and --

1012 MR. HUNTER: I know.

1013 COMMISSIONER LANGFORD:  -- and we are us.

1014 MR. HUNTER: I'm just saying that others are looking at this around the world and they are saying that these are new markets that, if you look at their analysis, they say the entry barriers are very low, that it's going to be good for customers, they say it is not like local exchanger service and they say in that sort of market, just as we say the Commission did in wireless and on new media, you kept out of the way and what happened --

1015 COMMISSIONER LANGFORD: We didn't keep out of the way day one on wireless and new media.

1016 MR. HUNTER: No, I realize --

1017 COMMISSIONER LANGFORD: We didn't keep out of the way on wireless and new media at the same point and nascent stage that you are asking us to keep out of the way today.

1018 MR. HUNTER: Well, I beg to differ on the nascent side of it.

1019 COMMISSIONER LANGFORD: You can differ all you like, but the facts are clear, we didn't.

1020 MR. HUNTER: Well, you didn't, in part, in 1984, because there was no forbearance power in the act. But every time there was a tariff filing after that, they were approved, and they were approved quickly and none of them were turned down. That, to me, was basically getting out of the way.

1021 But to say that this is a nascent market, when we already have -- I don't know how many we have offering this service in Canada already today -- and the price, by the way, of VoIP services in Canada, last week, dropped more than 30 per cent.

1022 COMMISSIONER LANGFORD: At one time we had dozens of people offering long distance in these markets, too, and most of them are gone. So it seems to me you are asking us -- anyway, you have your case in front of us and it's clear, and we can move onto to some other questions, but it still seems to me that I would find it difficult to describe this market in any other way at this point than "emerging", "nascent", whatever you want to call it.

1023 You folks and the companies still have a very large section of the subscriber base in this country. You have a huge market share. I mean, surely you can't argue that point.

1024 You are saying other forces are coming, some forces are already here and the big ones are coming, but that's a pretty futuristic view.

1025 MR. HUNTER: But what we are also saying, and I made it very clear in our presentation, we are not asking for forbearance in this proceeding of primary exchange service. You will continue to regulate that probably longer than I would like and you will provide protection for consumers for that service. There are those who argue already that one of the reasons we haven't seen more wireless substitutions, or maybe even we haven't seen more VoIP providers in this country, is the low price of residential access service already, which you have put in place to protect consumers. But I think it is very clearly where this market is going. We have many service providers. They are not all going to succeed, I'm not denying that, but it's not role, surely, to try to pick the winners here.

1026 COMMISSIONER LANGFORD: Well, no one is speaking about picking winners.

1027 MR. HUNTER: Well, the implication of what you are saying is that we tried this in long distance and some of them failed. Well, that's the implication of that, to me.

1028 COMMISSIONER LANGFORD: I'm talking about timing. I'm saying, is this the time?

1029 MR. HUNTER: Well, I'm saying if you look, just like you did in new media and retail Internet services, at that time we had no idea the breadth, the range, the innovation that was going to happen to retail Internet service and your forbore. It was a very insightful, visionary, forward-looking right decision.

--- Laughter / Rires

1030 COMMISSIONER LANGFORD: I agree that we are often insightful and visionary, forward thinking and right, but I disagree that the cases are comparable.

1031 Let's look at your statement, if I may, that you have just made recently, before your laudatory words, all of which I agree with --

1032 MR. HUNTER: Then check. We got an award for it.

1033 COMMISSIONER LANGFORD:  -- that we would still have control, regulatory control, over the public switch telephone network. I read with interest -- and I'm sure you have, too -- the statements of concern by the Telecommunications Workers Union, in their submissions, on that very point.

1034 I'm going by memory, but I think they were paragraphs 22 and 23, where they speak about the possible -- and, again, they are doing their visioning in their way, just as you do it in yours -- the possible outcome on the PSTN, the impact, in the sense that it would be beggared because yet another sort of aspect of what is now in the PSTN would be stripped away from it, possibly, if we were to accept your views of forbearance on what you call Category 3 and Category 4, possibly losing some very, very large revenue-producing corporate clients from the public PSTN over to the new VoIP world, depending on how it rolls out, and leaving that network in very, very bad economic shape, where the few users left, which would probably be, you know, everyone's mom and dad, or something like that, carrying a heavy economic burden because the big revenue producers would have been stripped away, what's your response to that sort of visioning?

1035 MR. HUNTER: You have neatly -- or they have neatly -- not to put words in your mouth again --

1036 COMMISSIONER LANGFORD: Thank you for that.

1037 MR. HUNTER:  -- they have neatly encapsulated the fundamental problem of all ILECs around the world: how are we going to maintain these Legacy networks, where we have obligations to serve, when there will be declining uses on those networks? We spend, at Bell Canada, about $3 billion a year in capital expenditures. About $1 billion of that is spent on maintaining the Legacy Network. We know that usage of that network is going to decline and so the fundamental issue for us is: how do we transform this business, recognizing that inevitably the costs of that network are too high, its usage is going to decline, we have to invest in the new products?

1038 And I remember when I first went into the Competition Bureau, which some of you know I was in at one point, and a very wise person there said to me, in competitive markets prices determine costs; costs don't determine prices. So if we can't get our costs in line and below what the market will bear in retail prices, then we will not be successful, and that is an enormous challenge for us. And we are not alone. Every ILEC in the world faces that problem.

1039 COMMISSIONER LANGFORD: It doesn't really answer the concerns of the telecom workers, in a way. I mean, it tells us that you are concerned, too, that you have a problem, other people have a similar problem, but it doesn't answer their concern, which is that if we forebear, particularly at this stage, and you strip away -- you and the other ILECs strip away from what is now the PSTN, yet another revenue producer -- long distance gone, mobility gone -- another cash cow stripped away, that you will impoverish the very PSTN that you said to me earlier, "Don't worry, you have still got that".

1040 And by impoverishing it, there's only two ways to go, isn't there? I mean, you have to raise rates or you have to reduce services or you have to do both. Well, there's three.

1041 MR. HUNTER: Well, I don't know what they exactly want us to do. I mean, there's obviously -- I suppose they might think, in the short run, their job security is better security if we don't enter any new lower cost products and we somehow try to maintain that. But in the long run, I think that's a very mistaken strategy on their part.

1042 I know, from our own people, our own technical people, they are clamouring for us to train them in IP because they know that's the future, and they know --

1043 COMMISSIONER LANGFORD: I don't think just -- I had better interrupt here, and I try not to interrupt, but I don't think job security was mentioned once in their brief, or at least certainly not in this issue. What was at issue here was the very future of the PSTN and the burden on the reduced numbers of subscribers using it if we were to forebear from this, yet another one stripped away. And I ask you to respond to that. I mean --

1044 MR. HUNTER: Well, I guess my response to that is that, as long as you are regulating us on that Legacy PSTN, we will have to maintain that network, and to your quality of standards. I think we currently have 19 different quality of standards that you have imposed on us. We will have to continue to do that.

1045 Presumably, at some point, you will realize that there is lots of competition out there and that the market is going to determine the quality of service that customers provide, and, therefore, that may relieve us of some of those obligations.

1046 But in the meantime, that's the crux of our problem, is that we are regulated in those services, they impose costs on us, yet we are going to see declining use of those networks.

1047 Also, one of our concerns, of course, is that the variable costs of declining usage are not continuous. I mean, they are going to be in step function. It's going to be a challenge. That should be something you should be worried about, too. It is a challenge.

1048 COMMISSIONER LANGFORD: Maybe one solution is to keep it altogether, keep it all in the family, you know, not strip it away.

1049 Let me ask you one last question. I was surprised not to find a fallback position. I mean, you have a very energetic submission. You have one point to make, really. I mean, when you strip it all down, there's one point to make: forebear, let us go. It's a natural.

1050 But what's the fallback? What if we say to you, "We have listened to you and we have listened to all these other folks that have come to us", and it will be about six weeks from now we will be finished, I assume -- I see the chairman getting itchy every peripherally -- but it seems to me now is the time to ask this question: why isn't there a fallback?

1051 You had a fallback, for example, in the most recent price cap, where you said, "Look, let's set a test similar to what you have in the cable industry. When we meet that test, let's declare there's competition and forebear".

1052 Why don't you have some -- since people like me seem to believe this is nascent, since other parties to this process believe that we are at still an early stage, this may be a bit of a leap of faith, why wouldn't you have a fallback saying, "Well, okay, if you can't do it now, here's some indicia of when you should do it in the future"?

1053 MR. HUNTER: I guess that is because we do believe very strongly in our position. I don't know why we would negotiate with ourselves. We feel very strongly about this. We think it is a very competitive market today, it is going to become increasingly so, that we have to transform our businesses, that we are not immune from failure and that we are in a situation that puts us at a disadvantage because of our legacy. Therefore, we need to find a way out of that. We feel very strongly about this.

1054 COMMISSIONER LANGFORD: Did you discuss fallbacks?

1055 MR. BIBIC: With Category 2 there is no fallback, Commissioner Langford. It is forborne. There is no fallback from forbearance.

1056 COMMISSIONER LANGFORD: Excuse me. It is your view that it is forborne.

1057 MR. BIBIC: Well, we believe it is forborne.

1058 COMMISSIONER LANGFORD: Usually it is forborne.

1059 MR. BIBIC: It is forborne on that.

1060 COMMISSIONER LANGFORD: They believe it is forborne.

1061 MR. BIBIC: In any event, let me --

1062 COMMISSIONER LANGFORD: We are not making decisions today. We are just hearing -- the decisions come in the fullness of time.

1063 MR. HUNTER: We considered what we considered in putting our position forward and our position is as stated.

1064 COMMISSIONER LANGFORD: So it is all or nothing? A roll of the dice, as the former Prime Minister would have said.

1065 MR. HUNTER: In our view, the facts of the analysis support our submissions. That is our view. We unfortunately don't have to make the decision.

1066 COMMISSIONER LANGFORD: It is a lot of fun actually. I enjoy it. Thank you very much.

1067 THE CHAIRPERSON: Thank you.

1068 Commissioner Cram.

1069 COMMISSIONER CRAM: Thank you, Mr. Chair.

1070 I was interested, Mr. Meldrum, in paragraph 9 of what you were talking about today in your summary when you said WebCall is not a local exchange server nor is it designed or marketed to replace local service. I wrote beside that, behind each of the sentences, "now".

1071 Is it eventually meant to be a replacement of local service or is it a second line?

1072 MR. MELDRUM: It certainly may get to that point, but today, as we look at the service in terms of its qualities, we are not trying to sell it as a replacement of primary exchange service. You know, 911 doesn't work all that great. There is supposed to be problems there. There are some things that the Commissioners are going to be determining. So, no, we don't sell it in terms of the way we market it.

1073 Some customers may take it that way. They may choose to get rid of their local service, but that is not the way we try and sell it.

1074 In the future, yes, I think it will there.

1075 COMMISSIONER CRAM: Mr. Hunter, is it possible that there is no submarket of what I will call first line residential voice services from your residential market in paragraph 57? Essentially, what Mr. Meldrum is saying is that right now, without 911 and the concomitant maybe redundancy and issues like that, WebCall is a second line service and not your substitute that you would call, not a substitute, so that when we are just starting now, if we looked at the market or a submarket as first line residential voice services, maybe that is the way we should be looking at it for now versus the larger residential substitutability but not comparable market that you have in paragraph 57?

1076 MR. HUNTER: I think you have to think through the practical implications of that. I mean, I think to define a market as a second line market, I am not sure how one would make sure that -- how you would know when any consumer was using it as a first or second line. I think there might be --

1077 COMMISSIONER CRAM: Well, you can't. You could tell how many people are using cell phones as a first line.

1078 MR. HUNTER: As you know, in the VoIP world, certainly with the services that are out there now, you can have three numbers so you maybe only have one account but you have three numbers, so which one are they using as a second line. Is it the first one or the second one? Is it the one where they live or the one they use nomadically or is it the one where their kids live? I think there could be sort of administrative problems with that.

1079 But I think beyond that --

1080 COMMISSIONER CRAM: Yes. But we know how many people have residential services from you.

1081 MR. HUNTER: We know how many people have our primary exchange service.

1082 COMMISSIONER CRAM: Yes. We have to assume that is probably their first line because it has 911 capability and all of the other attributes that at present VoIP doesn't have.

1083 MR. HUNTER: But also people have second lines from us too --

1084 COMMISSIONER CRAM: That's true. Yes.

1085 MR. HUNTER:  -- and those are regulated in the same way. That is declining as we know largely again because of the Internet and the fact that people use their Internet connection and e-mail as an alternate means of communication.

1086 I would worry that if you -- it is an interesting idea to see if it could be done. I just think that when you got into it you would find there might be administrative problems. Plus I think the characteristics, you somehow have to confine the characteristics of the product or service. In our view, a neat way to do that certainly for Category 2 is just to say this is simply an Internet application, regardless of what the functionality is. Once you get in that application world, just as Vonage said, then in your separating application from transport then there is no real public policy reason to regulate.

1087 COMMISSIONER CRAM: I tell you, I have two problems and I would like you to help me with them. They are flashbacks from price cap two.

1088 One is the incumbency issue. I recall Mr. Talbot, who I think was your witness with RBC Dominion Securities, talking about your bedrock of residential subscribers, and I think the number was 7 million. If I am to hope that there would be competition in residential phone, how can I get myself past your bedrock? You know, the incumbency --

1089 MR. HUNTER: Advantage or whatever.

1090 COMMISSIONER CRAM: I was going to say monopoly position, but we certainly are living in a competitive world. How can you get me past that?

1091 MR. HUNTER: I will offer two thoughts about it. First of all, although they are not here yet with a VoIP product, we know what EastLink has done in Atlantic Canada and we know what has happened in the United States when the cable businesses entered the local voice market, that they rather quickly increased their market share to 20 per cent to 30 per cent. Those folks, as we said in our submission, the cable companies, have just as ubiquitous networks as we do.

1092 In fact, we stated in our submission that they now, and this is the CCTA number, pass 97 per cent of all homes in Canada. I suspect that we might not be much higher than that if even that high because we are certainly seeing what we call vacant Nas where Nas lines are not keeping pace with housing starts, and that is the first time that has ever happened.

1093 But those folks have the same contact with the customers as we do, they pass the same number of homes. Their network now provides the capability of high speed access to 88 per cent of those customers. We at Bell are about 80. We hope to get to 90. We think that, in other words, we are behind them. We think that we are probably ahead of most of the other ILECs in Canada in how far our DSL network has moved out.

1094 So you have another competing platform that has the same ubiquitousness, has the same brand strength, has the same access to consumers. They are going to compete with that.

1095 On the other side, we have the new players entering the market just as I could give you other analogies of disruptive technologies. Look what happened to the airline business where the Southwest and the WestJet model truly disrupted those businesses. You could have said there again that -- and I remember very well what happened to Air Canada after they acquired Canadian: oh, they were going to be the terrible monopoly. Their market share now is below 60 per cent domestically. That has happened in the space of two years. The government imposed restraints on them which, in my view, encouraged the decline of Air Canada.

1096 WestJet, quite capably, has entered that market very successfully and they just announced today that they are expanding their network in the United States.

1097 So markets work. Markets work. It is better to let markets work because they will pick the winners and the losers. They will result in the innovation. Markets will result in investment.

1098 As we also said, and I made reference to it in a submission, I don't know whether you have had an opportunity to read Professor Christianson's writings, but in his book called Innovative Solutions he has a chart that says, if you are moving up a sustaining technology path incumbents almost always win. When you are in a disruptive technology, incumbents almost always lose.

1099 If that is what has happened, and you can think of lots of analogies, Kodak, digital photography, they are nowhere, and they have made terrible mistakes in my view in how they address the competitive impact of digital photography.

1100 There are many, many examples he uses and incumbents do not have an advantage in that world. That is a very, very important point here.

1101 COMMISSIONER CRAM: For the Canadian experience we should use EastLink, because I don't remember -- Mr. Stevens, I read the forbearance application, but after about four years they have a market share of 10 per cent in those Nas.

1102 MR. STEVENS: In the areas they serve. In the forbearance application we indicated that in total it was 21 per cent. In various exchanges it would have been higher than that.

1103 COMMISSIONER CRAM: They have been in the market since -- I think it has been '99, haven't they?

1104 MR. STEVENS: That's correct.

1105 MR. HUNTER: By the way, that is not an IP service.

1106 COMMISSIONER CRAM: Yes, I know. It is circuit as is Cox in the States and I think their initial -- Cox initially switched, but also their coax penetration isn't -- I think it is still a low number. You know, it is not a number that -- so if we use the Canadian analogy of EastLink in a couple of years we can expect that you would lose a 20 per cent share?

1107 MR. HUNTER: Another example in the States, again it depends on the vigour, the service offering, the capabilities of the business involved -- what is the city that Warren Buffet lives in? Omaha -- in Omaha, Nebraska now ComCast is the largest provider of local telephone service. They are now larger than the RBOC in that city.

1108 So you can't predict the outcome of how competition will unfold in particular geographic areas. The important thing is that people are able to compete and that they will have to strive either through innovation, quality, price, whatever, to win the business of consumers. It's that rivalry is what you want. It is not some magical market share number.

1109 COMMISSIONER CRAM: My second problem -- my two "i" problems, incumbency and inertia. Again, I go back to price cap and 10 years after competition, rivalrous competition in long distance, you still had 12 per cent of your subscription, your subsub on the default long distance plan, which of course was more expensive than anything else.

1110 So there is the issue of consumer inertia. There is, I mean, you know, certainly not very much that we can do about that, but when you are sitting with the incumbency of 7 million, the bedrock, and then the issue of inertia, it seems to me that inertia compounds the incumbency issue. Can you help me with that one?

1111 MR. HUNTER: I don't deny that there is inertia in many markets. I for one, for very I'm sure not very sensible or rational reasons, don't use WestJet. I certainly could. Other members of my family do and they find it a very acceptable service and they also find it cheaper than I do.

1112 I guess I want to waste a little money, I don't know, but I'm loyal to Air Canada. Maybe it is their frequent flyer program, I don't know what it is, but I haven't moved. I have the choice. I know it's out there. It is my decision. That is I think how you have to look at this inertia problem.

1113 If there are segments of the populations that aren't well informed about their choices, then maybe we need the consumers groups, or as you have done recently, forced us to tell consumers about the choice. But to go beyond that, other than educating people and making sure they have the choice, for you to somehow try to dictate that or, in our case, prevent us from competing because of a decision that the consumer didn't make, I think that is not a proper role for the Commission and it is not a proper role for public policy.

1114 Education I agree is an important thing, though.

1115 COMMISSIONER CRAM: If after 10 years and rigorous competition we haven't gotten to over one-tenth of the population, then what that says to me is that something has to be done if we are going to overcome that issue.

1116 MR. HUNTER: I guess I am at pains to think what you might do, though.

1117 COMMISSIONER CRAM: Thank you. Thank you, Mr. Chair.

1118 THE CHAIRPERSON: Counsel.

1119 MS PINSKY: Thank you, Mr. Chairman. I just have a few questions of clarification primarily relating to a few of your responses to interrogatories. I will mention them. I don't know if you necessarily need to get them out because they are sort of general statements.

1120 The first I will be referring to is the Companies(CCTA)-16 July 04-7. This relates to eligibility of VoIP services to receive contribution.

1121 In your response, the company stated that Category 2 services would not be eligible as they just provide the VoIP service and not the underlying access component, whereas Category 3 services would be eligible.

1122 What I would ask you to clarify is, in a situation where the Category 2 VoIP service provider is also the underlying Internet access provider, in that situation would you consider that that provider should be eligible to receive contributions?

1123 MR. BIBIC: We would not because in that case the access would not have to be obtained from that particular ISP.

1124 Just to clarify, on Category 3 the response suggests that some Category 3 services may be eligible. It is not necessarily the case that all would be.

1125 MS PINSKY: Actually, I am just going to jump to follow up on a matter that has been raised this morning by a number of parties who have suggested that it will be necessary for the companies to unbundle their 911 service in order for VoIP service providers to be in a position to offer essentially effective and efficient 911 service. I would ask if you could comment on that.

1126 MR. HUNTER: As I said this morning, obviously 911 is an important question here. We ourselves think that a VoIP service we would want to offer would have some element of 911.

1127 We have been cooperative throughout the 911 exercise and I think we would provide also access to our 911 current service today, I am not sure that everyone does, but there clearly are going to be challenges for the Commission here.

1128 I think one of the questions you are going to have to decide, and I think Vonage maybe raised it this morning, is that again it can be a differentiating feature in a competitive marketplace and so there is a question about whether you should let the market see what happens here or not. Our own view is that we would intend -- we think it is an important question and we intend to continue to be cooperative through the CISC process. Whether that means that there needs to be unbundling, I'm not convinced that is true.

1129 MS PINSKY: Okay.

1130 Now, I will turn to the interrogatory of the Companies(Cybersurf)-16 July 04-1. This relates to the various CLEC obligations and the ability to meet them in a VoIP world.

1131 With respect to directory listings in particular the company stated:

"It may be difficult to determine which directory constitutes the customer's local directory and basically in the context where the customer's 10-digit number does not correspond to the customer's location." (As read)

1132 So the companies were indicating that it may be difficult to include directory listings in some instances. I was wondering if you could expand on what the difficulties were.

1133 MR. HUNTER: I assume, and I will check with my friend Crago in the back here, that is due to the fact that the number is an alias. The number has no bearing to where the customer may be. If you have a directory that has a 604 area code but the customer is actually really in St. John's, Newfoundland, then what is the point of putting in the 604 area code?

1134 I think OFFCOM again, and I need to be a little bit careful here, but I think they are setting up a different set of numbers that would be used in the VoIP service for nomadic use. I suppose if you think about it that way, then you could have some sort of directory that allowed some directory of people in that world. I don't know. I just think it is because the number really has no connection to where you are that it presents a bit of a problem.

1135 MR. BIBIC: Another issue I believe is that you can change phone numbers all the time, so the one, two or three phone numbers you have today with a Voice over IP service may not be the same number as you have tomorrow.

1136 MS PINSKY: As I understand it then, there is no practical or administrative difficulties. You are saying it is a question of usefulness.

1137 MR. BIBIC: I think it is a question of practicality. If you don't know what phone number a particular subscriber has from one day to the next, it becomes difficult to prepare a directory with the phone number linked to that person and their address.

1138 MS PINSKY: Assuming that the VoIP provider provides the number to the ILEC. You will have the information if you don't know the number. Right?

1139 MR. BIBIC: I guess what I am trying to say is I could be a Voner subscriber and have a 604 number today and I may choose to change that 604 number tomorrow. I may choose to go to a 416 phone number tomorrow and it may be a different 416 phone number the next month. That is all possible.

1140 MS PINSKY: So it wouldn't be up to date.

1141 MR. BIBIC: I believe that is the case.

1142 MS PINSKY: Then in response to an interrogatory relating to the issue of the restriction imposed by the Commission on the use by DSL service providers of co-location and unbundled loop services, the companies responded, and I will just read it for the purpose of making sure the question is clear:

"The companies stated that they understand the restriction and question relates to the Commission's ruling of 21 September 2000 in which it stated that DSL SPs that are not CLECs may not use the companies' tariffs for unbundled loops and connecting links to provide switched local voice services as outlined in the companies' comments. VoIP service offerings are not switched local voice services." (As read)

1143 I just wanted to clarify whether the companies are considering that this restriction applies only to local voice services that use exclusively circuit switched as opposed to, for example, packet switched.

1144 MR. BIBIC: If we can respond to that subsequently in writing, I think that would probably be the best course of action.

1145 MS PINSKY: Perhaps you can respond to that either at the oral reply stage or in your written reply comments.

1146 MR. BIBIC: Absolutely. Thank you.

1147 MS PINSKY: We have mentioned this possibility earlier in questions to other parties so I will ask you as well.

1148 Could you comment on whether it would be appropriate for the Commission to acquire VoIP providers to obtain positive acknowledgements from customers with regard to limitations on the VoIP service, for example, relating to 911?

1149 MR. HUNTER: I think again the whole 911 issue has lots of problems and the question of notifying customers of limitations I think makes sense to me.

1150 MR. BIBIC: I would echo the comments, I believe they were from Primus, that if it were a question of having to get a written contract signed or a written acknowledgement, that could pose a difficulty, but we have no problems advising them through web interfaces and the like.

1151 MR. HUNTER: I guess that again points out one of the great benefits of a VoIP service is that everything is going to be online so that you are going to be able to talk to the customer online and they are going to be able to change the number online instantaneously, so it is going to be very easy to communicate with them about the limitations of 911. It is much, much easier than dealing with the primary exchange system where you are waiting for our customer service reps to pick up the phone which sometimes they don't do as quickly as we would like.

1152 MS PINSKY: It would be easier not only to notify them of the limitations but also to receive their acknowledgments that they have been notified.

1153 MR. HUNTER: That raises another question, we have had these issues before, about whether notice is sufficient or whether you need positive feedback. It strikes me, if you are making adequate notifications to people and in appropriate size and language just as you would in advertising that you see in the newspapers all the day, that that should be sufficient.

1154 At some point the consumer has to protect themselves.

1155 MR. MELDRUM: Just our web service is designed that when you sign up you can't take the service if you don't acknowledge that the 911 won't function properly.

1156 MS PINSKY: That is on the web site when you --

1157 MR. MELDRUM: Yes. That is the way it is lined up.

1158 MS PINSKY: Okay. Thank you.

1159 Just two last final questions to follow up on a bit of the discussion this morning.

1160 There was a bit of discussion with regard to the ability, the potential ability, of ISPs to offer a feature whereby ISP subscribers could obtain a packet prioritization feature or additional bandwidth to provide a certain level of quality of service. I wanted to ask you whether you had any plans as an ISP to provide this type of feature.

1161 MR. BIBIC: If I may consult.

--- Pause

1162 MR. BIBIC: We do not have any such plans at this time.

1163 MR. MELDRUM: And that is where we areas well, SaskTel.

1164 MS PINSKY: Thank you.

1165 Just finally, I was wondering if you could clarify whether a nomadic feature could be offered along with a Category 3 service.

1166 MR. BIBIC: One could add on any type of feature to a Category 3 service I suppose, so yes one could see -- there would nothing preventing a service provider from offering a Category 3 service provider from giving nomadic capability. That nomadic capability would in fact be a Category 2 type of capability and wouldn't change the nature of the Category 3 service absent the add on.

1167 MS PINSKY: It would not change the nature. Is that what you said?

1168 MR. BIBIC: It would still be a Category 3 service with extra features added on, in this case a Category 2 feature.

1169 MS PINSKY: Okay. Thank you very much. Those are all my questions.

1170 THE CHAIRPERSON: Thank you very much.

1171 Madame la secrétaire.

1172 LA SECRÉTAIRE: Merci, Monsieur le Président.

1173 I will now call on TELUS Communications Inc. to make its presentation.

--- Pause

1174 THE SECRETARY: Lady and gentlemen, please present yourself and proceed with your presentation. You have 20 minutes.

PRESENTATION / PRÉSENTATION

1175 MS YALE: Thank you, Mr. Chairman, Members of the Commission.

1176 Good afternoon. My name is Janet Yale and I am Executive Vice-President, Legal Government and Regulatory Affairs at TELUS Communications Inc.

1177 With me today: to my immediate left is Willie Grieve, Vice-President Telecom Policy and Regulatory Affairs; closest to the panel is Robert Crandall who is a Senior Fellow in Economic Studies at the Brookings Institution; to my right is Ted Woodhead, Director, Regulatory Matters; at the table behind me is Craig McTaggart who is Senior Regulatory Legal Counsel.

1178 Je débuterai en vous présentant une courte introduction, ainsi qu'un aperçu de notre position.

1179 Ce sera ensuite au tour de Willie Grieve et du docteur Crandall de justifier plus en détail la position de notre société.

1180 Nous sommes heureux de pouvoir vous présenter aujourd'hui la perspective de TELUS en ce qui a trait aux propositions préliminaires avancées par le Conseil pour l'établissement d'un cadre de réglementation régissant les services de communication vocale sur protocole Internet.

1181 TELUS is supportive of and endorses many of the preliminary views expressed by the Commission in Public Notice 2004-2. However, there is one notable exception. That exception is the proposed regulatory treatment of what we refer to as access-independent Voice over IP services. Access-independent Voice over IP service is significantly different from the telephone service we have become accustomed to.

1182 In the Voice over IP environment, voice is not a service associated with a particular network infrastructure, it is an application that runs on any high-speed Internet access service. In other words, Internet-based access-independent VoIP service decouples voice service from the underlying access service. This is an important distinction that we will return to throughout our presentation because it ultimately leads to our conclusion that there is no need to apply economic regulation to access-independent Voice over IP.

1183 Bien que la direction adoptée par le Conseil dans son avis public s'avère correcte, nous croyons que ce document repose excessivement sur le modèle utilisé par le passé pour classifier les fournisseurs de services comme USLT, les USLC ou les revendeurs.

1184 L'opinion préliminaire du Conseil repose sur le principe voulant que tous les changements associés à l'avènement des services VoIP sont considérés comme étant des changements à la technologie utilisée pour fournir un service qui, du point de vue fonctionnel, représente le même service de voix.

1185 TELUS does not share that assessment. Voice over IP challenges the service provider classifications we have all used over the last number of years as benchmarks for various types of regulation. With access-independent Voice over IP, the voice service is an Internet application that is decoupled from the access service. An ILEC like TELUS, that wishes to offer an access-independent VoIP service, similar to that provided by Vonage, Primus, Navigata or Yak is on an equal footing with the numerous access-independent providers already offering the service. With access-independent Voice over IP, everyone is a new entrant and there are no incumbents.

1186 More importantly, from a public policy perspective, when access-independent Voice over IP service is assessed objectively using the legal and economic tests that are normally applied by the Commission and other regulators, we believe the Commission has to come to the conclusion that this service should not be subject to economic regulation.

1187 In our presentation today we will address the following two key issues.

1188 First, how is access-independent Voice over IP different from plain old telephone service?

1189 Second, given these differences, is it necessary to regulate access-independent Voice over IP in order to protect the interests of users?

1190 With those comments underpinning our presentation, I will now turn the microphone over to Willie Grieve.

1191 MR. GRIEVE: Thank you, Janet.

1192 Let me begin by addressing the first issue: is access-independent Voice over IP service different from plain old telephone service?

1193 We think it is in a number of important ways.

1194 First, and this is fundamental, the customer makes two separate purchase decision, one decision for the high-speed Internet access service and another for the VoIP application.

1195 Today, customers already have a choice of competitive high-speed Internet access service providers and they have lots of choices for their Voice over IP application provider.

1196 Second, unlike plain old telephone service, and because this is an Internet-based service, the service is not restricted to any one geographic location. Today, Voice over IP customers carry their Voice over IP terminals from location to location anywhere in the world. This allows them to place and receive calls without paying long distance charges and to use the same telephone number through any high-speed Internet access connection anywhere in the world just as though they were at home.

1197 Third, unlike plain old telephone service, and because this is an Internet-based service, regardless of where customers are, they can get telephone numbers with virtually any area codes they choose. Really, they can be local anywhere, and as you heard this morning, they can be local in any number of places at the same time on the same phone.

1198 All this means that a university student from Ottawa, for example, attending UBC in Vancouver can subscribe to an access-independent Voice over IP service such as iPhone from Comwave and place and receive local calls as though they were still located in Ottawa without ever subscribing to telephone service in Vancouver or Ottawa. This is quite a different customer experience and a different service than plain old telephone service.

1199 There are other differences as well. Let me highlight another one.

1200 It is very easy to become an access-independent Voice over IP service provider. Entrants do not need to build their own access network or even provide the access to their customers. The costs of entry are very low. Moreover, the moment high-speed Internet access services turned up, a Voice over IP provider can reach any customer who has high-speed Internet access service to provide that service to them. This is in marked contrast to entry by traditional CLECs who must make decisions to invest and enter virtually on an exchange by exchange basis.

1201 That leads me to the second key issue, namely, is it necessary to regulate access-independent Voice over IP service in order to protect the interests of users?

1202 In TELUS' submission it is not necessary to extend economic regulation to these innovative services for three reasons.

1203 First, this is a vigorously competitive market. Today, there are multiple foreign and Canadian competitors providing access-independent Voice over IP services in Canada. The number of competitors demonstrates the ease of entry for providers of access-independent Voice over IP services. There are currently at least eight service providers, a number that is likely to grow.

1204 Second, and this too is an important consideration, TELUS is not the leading provider of high-speed Internet access either in its ILEC-operating territory in Alberta and British Columbia or out of territory. In territory, TELUS only has about a 40 per cent market share. Shaw has most of the rest, with close to 60 per cent market share.

1205 The Commission has recognized the level of competition in the provision of retail Internet access services in numerous proceedings. Of course, this is precisely why the Commission has forborne from regulating retail Internet services.

1206 Third, there is no way that an ILEC can leverage any remaining market power it may have in the provision of traditional telephone service to gain an advantage in the provision of access-independent Voice over IP services. There is no linkage to incumbency and, in any event, all of the existing rules, safeguards and constraints remain in place until such time as the Commission has determined that sufficient competition exists in the provision of local telephone service to protect the interests of users.

1207 I would like to turn the microphone over to Dr. Crandall to discuss the economic implications of these facts.

1208 However, before I do so, it is worth recalling that the Commission has previously adopted the regulatory approach that we are advocating in this proceeding for a service that also accesses the PSTN and uses North American Numbering Plan numbers; that is mobile wireless service. In that case, the Commission chose to forbear at the outset and its approach has been extremely successful.hi

1209 Dr. Crandall.

1210 DR. CRANDALL: Thank you, Willie.

1211 Good afternoon. I was asked by TELUS to assist in this proceeding and filed a statement appended to TELUS' comments of June 18.

1212 When the interrogatory responses came in, I was asked to look at them and consider whether there were any new arguments or information that might change my analysis of ILEC market power issues in the context of access-independent Voice over Internet services. I must admit, I found no such arguments, nor information.

1213 To the contrary, I stand by my evidence that given the very nature of access-independent Voice over Internet services, there is no opportunity for TELUS, or for that matter any other of the Canadian incumbents, to achieve market dominance in these services. They cannot leverage any market power that they may still retain in traditional PSTN services into access-independent Voice over Internet services because there is no fulcrum for such leverage. Just as they cannot keep their DSL subscribers from accessing their e-mail on any of a number of servers throughout the world, they cannot prevent numerous new entrants from offering Voice over Internet services over their Internet access services, that is, the ILECs' Internet access services, and even more obviously over cable modem services or over wireless broadband services.

1214 The reason for regulating any service, that is, doing economic regulation of any service, is to prevent a dominant firm from exercising market power. TELUS and other Canadian ILECs have no such market dominance in access-independent Voice over Internet services, nor do they have any possibility of obtaining such power.

1215 Further, the ILECs' competitors in the provision of access-independent Voice over Internet services are numerous firms, as Willie Grieve just pointed out, there are eight of them at least in Canada, serving a large number of countries' broadband subscribers, that is, they don't have to be native to Canada. Their subscribers are able to take this service and their assigned numbers with them as they cross international boundaries. European and U.S. subscribers of Vonage, for example, will be able to use their United Kingdom or their United States subscriptions on Canadian DSL, cable modem and wireless broadband lines.

1216 Vonage has announced that it will expand its service to Latin America, this is a recent announcement, and to the Pacific Rim as well. It has only needed to raise $208 million in funding to develop this entire international presence. I believe you heard testimony this morning that to enter the United States market initially it only required them to raise $30 million.

1217 In such an environment, it is impossible to see how TELUS or any ILEC could be dominant in the provision of access-independent Voice over Internet service. Therefore, it is my view that the Commission should be able to quickly forbear from the economic regulation of such service.

1218 In closing, I should note that my recommendation for forbearance from regulating access-independent Voice over Internet services does not turn on such services and traditional PSTN services being substitutes, that is, the definition of the market, whether it includes traditional PSTN services or not, which was much of the discussion for the last panel.

1219 The reason not to regulate access-independent Voice over Internet services is because no one will be able to exert market power in delivering them, not because PSTN services may compete with them.

1220 MR. GRIEVE: Thank you, Dr. Crandall.

1221 Having these facts and Dr. Crandall's expert opinion before you, it is evident that any possible public policy justifications for regulating ILEC access-independent Voice over IP services disappear. That is why we have proposed a modification to the Commission's preliminary view to recognize that access-independent Voice over IP services are different from traditional telephone service and warrant a different regulatory approach.

1222 Let's consider for a moment the implications of the Commission's preliminary view. Under that scenario, TELUS could offer an access-independent Voice over IP service on a forborne basis out of territory. Similarly, TELUS could offer its access-independent Voice over IP service across North America or internationally.

1223 Then consider service in-territory, in British Columbia and Alberta and eastern Quebec. Surely, we should be able to offer access-independent Voice over IP service to Shaw's high-speed Internet customers or, for that matter, the customers of other high-speed Internet service providers on a non-tariffed basis.

1224 So what's left? What's left is our own DSL customers in British Columbia, Alberta and eastern Quebec, a small subset of the total base of high-speed Internet customers in Canada and certainly worldwide.

1225 Frankly, it is hard to understand the concern with TELUS offering an access-independent Voice over IP service to these customers on a non-tariffed basis.

1226 After all, both access-independent Voice over IP services and retail Internet access services are subject to high levels of competition and TELUS is not the leading provider of high-speed Internet access services in its ILEC operating territories. We have two competitive services and to put the two of them together or to offer one of them and to say that it is tariffed just doesn't seem to make any sense to us.

1227 In conclusion, TELUS believes that we should be able to offer customers the advantages of an access-independent Voice over IP service across the country on a non-tariffed basis.

1228 With that, I will turn the microphone back to Janet.

1229 MS YALE: Thank you, Willie.

1230 In conclusion, I am going to address three issues.

1231 First, there is some question about whether there are any Voice over IP services that should be tariffed. In TELUS' view there are. TELUS does not seek to escape local exchange regulation in its traditional incumbent territories merely by changing the technology inside our networks.

1232 Ce n'est pas en remplaçant simplement ses commutateurs de classe 5 par des routeurs par paquets qu'une ESLT pourrait justifier une abstention de réglementation. Il s'agirait uniquement d'une modification de la technologie utilisée.

1233 Tel que le reflète l'opinion préliminaire du Conseil, nous avons fait valoir que les fournisseurs de services VoIP dépendants de l'accès devraient être tenus de se conformer aux obligations imposées par le cadre réglementaire du service local.

1234 Simply put, TELUS is not asking for forbearance from regulation of primary exchange service at this time, whether or not the service is provided using IP technology. However, we do foresee a time when access-dependent Voice over IP services offered by cable companies will provide sufficient competition to justify forbearance for primary exchange service. We think the Commission will very soon find itself engaged in the question of forbearance from regulating prices for primary exchange service in geographic areas also served by the cable companies.

1235 While we would encourage the Commission to delineate in advance a clear and readily measurable threshold at which that would occur, TELUS' proposal for the treatment access-independent Voice over IP offerings by incumbent is not a request for forbearance from rate regulation of traditional local exchange service.

1236 The second issue I would like to address concerns access conditions. We understand the concern on the part of competing access-independent Voice over IP providers that they not be disadvantaged by any deliberate degradation of service by a high-speed Internet access provider. It's not in TELUS' interest to deliberately degrade its service. Simply put, it's better to keep a customer than to drive one away.

1237 Malgré cet impératif commercial, TELUS croit fermement que tous les fournisseurs de services Internet à haute vitesse devraient continuer à respecter leur obligation d'offrir un service non-discriminatoire à leurs abonnés et leurs concurrents.

1238 TELUS reconnaît que certains problèmes d'ordre technique liés à l'assurance et au niveau de la qualité du service devraient être référés au comité directeur de l'interconnection du CRTC afin d'être résolus par l'industrie.

1239 Third and finally, there has been some discussion in this proceeding about whether incumbent telephone companies should be required to offer a fully standalone DSL service. TELUS has been investigating solutions to this over the last few months in order to respond in the market to the current offering of just such a service by our principal competitor, Shaw.

1240 TELUS commits that it will provide DSL to customers who do not take primary exchange service from TELUS or anyone else by early 2005.

1241 In closing, I would like to thank you for the opportunity to present our position to you today and we are now prepared to answer any questions you may have.

1242 Thank you.

1243 THE CHAIRPERSON: Thank you.

1244 Vice-chair Colville.

1245 COMMISSIONER COLVILLE: Thank you, Mr. Chairman.

1246 Good afternoon, Ms Yale, gentlemen.

1247 I guess I just want to start by kind of asking how you came to this approach. You get this public notice from the Commission earlier in the year proposing that we would regulate VoIP, largely pursuant to our existing regulatory framework. Apparently, you and the companies have apoplexy and are concerned that the Commission is going to regulate all of this new service.

1248 Different people come up with different approaches to this, in terms of responding to it. You looked at it and came up with your access-independent/access-dependent, two categories. The company has come up with at least two. Some others have suggested a layered approach. Others have suggested we are bang on.

1249 Take me through the process that you went through when you get this public notice and say, "Well, how are we going to figure out our way through this thing, such that we have the least amount of regulation that we can incur"?

1250 MS YALE: Well, maybe I will start.

1251 We had already been thinking about this issue because the consumer unit at TELUS was starting to think about how, in a world of declining traditional voice revenues -- it's quite public that lines are going down every year. Traditional long distance revenues are going down every year, so every company is looking at business strategies, in terms of how to offset those declines. So looking for applications that ride on the Internet is something we had already been thinking about. The opportunity associated with the decoupling of access and application is something that we were already considering.

1252 COMMISSIONER COLVILLE: But at the same time, all of the companies are thinking about converting their existing network. I mean, you make reference in here to converting your classified switches to packet routers. I presume that TELUS is going to do that at some point in time. I understand you are in the process of doing that now.

1253 So how would you arrive at this access-dependent/access-independent distinction, as your particular approach to this? What kind of led you to it?

1254 MR. GRIEVE: Well, it wasn't that we were led to it. It was, in my mind. When I first read the PN and we first had discussions, it was my view that that was where the PN fell short, was in not recognizing that there is a really big difference between voice carried as an application on the Internet, completely an unmanaged service, and voice carried on a proprietary managed IP network, where you simply replace the router.

1255 That's the fundamental distinction between where we draw the line and various kinds of Voice over IP services, is when they are on the Internet, they are access-independent, yes, but it's an access-independent voice over the Internet service. It's Voice over IP, but it's voice over the public Internet.

1256 Category 3, it seemed to me, and seemed to us, at the time, was just a replacement of the circuit switch with a router. It doesn't connect to the Internet, it's not part of the Internet world, it's a management service end to end, just as primary exchange service is. But what we call access independent voice service isn't.

1257 COMMISSIONER COLVILLE: I pick up on the point you use in the terminology, "managed", as opposed to "unmanaged", and I apologize, I have forgotten the gentlemen's name who was sitting in the back row, but in responding to a question from the chairman, he mentioned all networks are managed, and that would be my understanding, as well -- and I guess we are talking degrees here.

1258 MR. GRIEVE: Well, but we don't -- I mean, when we drop something off onto the Internet, we are dropping it off onto the Internet on a best-efforts basis. We are delivering and our high-speed Internet access service is a best-efforts basis and the Internet is a best-efforts basis.

1259 When buy service, what Bell calls Category 3 service, and what we would call an access-dependent service, you are going to buy it -- one of the reasons you are going to buy it is because you have a better assurance of continuous quality on it than you would over the Internet.

1260 MS YALE: But if I could just add, I mean, I don't think, at the end of the day -- I mean, there may be degrees of managed, but the fundamental distinction we are drawing is whether or not the application in question worked over the high-speed Internet access service of multiple high-speed providers.

1261 It's a pretty simple test. Either the application that is being offered, like Vonage or Primus, works on multiple high-speed Internet offerings or it doesn't. It's that simple, in terms of understanding the difference between where we draw the line as to what constitutes access-independent and what doesn't.

1262 COMMISSIONER COLVILLE: Simple for you. My mind doesn't work quite that simply, I guess.

1263 If I take you to page 11 of your brief, your original brief, and paragraph 19 -- okay? -- Dr. Jackson's second key point is:

"VoIP service can be and are provided independently of the method of access, a DSL, cable modem, wireless, the user employs to connect to the Internet." (As read)

1264 If I was to substitute "copper" for "ADSL" and "coax" for "cable modem and wireless", would it change the sense of what you are getting at here?

1265 MR. WOODHEAD: No, I don't think it would because you are going to Vonage, who doesn't operate a network of any kind for the voice application, and then you are going to your telephone company, cable company, reseller or CLEC for your copper or coax or wireless or WISP, I guess, for your access service.

1266 MS YALE: So, again, the fundamental point -- I mean, at the end of the day, the issue -- I mean, Vonage is not in the access business, they made it clear today. They provide an application and you have to, as a customer, arrange your own access. That's the sense in which it's access-independent: they provide an application and it's agnostic as to which form of high-speed access you use.

1267 It works, and it works the same way, no matter which high-speed service you subscribe to. That's the key differentiator. The decoupling, it's not an end-to-end service any more. You get your access, as a customer, from whoever you choose for your high-speed Internet access, you get your application from whoever you pick that you think offers you the best deal, as far as your voice application is concerned. That's the fundamental distinction.

1268 And if the application, for example, if, in fact, TELUS, for example, offered an application that only worked on it's high-speed service, it wouldn't be access-independent; whereas, the example that we heard from John Meldrum today was that they have developed an application that they, in fact, don't offer over their own infrastructure. They could if the rules were clear, but at the current point in time, they offer it outside of their territory. It's access-independent.

1269 I think Dr. Crandall would like to add a comment.

1270 DR. CRANDALL: I think the point here is that because it is access-independent, any number of entrants can play in this game. It doesn't require much capital commitment, it doesn't require negotiating access agreements with the incumbents, with the cable companies, with the wireless broadband providers. It doesn't even require a presence in Canada. I mean, one could do this in the United States, in the United Kingdom or from the Pacific Rim, for that matter.

1271 So the entry conditions are very easy and a large number of competitors can play in this business. And the ILECs have no particular advantage. Indeed, they may have a disadvantage because they probably have a higher cost structure than these new entrants.

1272 COMMISSIONER COLVILLE: And then you go in paragraph 20:

"The point is the customer does not need to obtain a VoIP service from the same company that provides the customer access service." (As read)

1273 How would that statement differ from the situation of a reseller? In fact, how does this issue really differ from the situation of a resale? And I take Dr. Crandall's point he mentioned just a minute ago about an agreement with the service provider, in a case of a reseller, and you have to get access to that in their line facility through that agreement, but, fundamentally, I'm having difficulty in my own mind -- and I have had this difficulty, frankly, since I have read a lot of these briefs, trying to get this concept in my own mind of how this notion of access-independence/dependence really does differ from our framework and, in particular, in this case, whether it differs that significantly from the reseller situation, in that you could be a reseller anywhere and wouldn't your arguments equally apply that you use here, in terms of access-independence?

1274 MR. GRIEVE: Okay, I will try to take this question, I think, a piece at a time --

1275 COMMISSIONER COLVILLE: I'm setting side, for the sake of discussion here, whether or not there should be regulation. I'm just trying to understand this classification scheme.

1276 MR. GRIEVE: I understand.

1277 Access-independent -- I should start by saying when we use the word "access-independent", it never occurred to us, because we were always thinking about this, it's high-speed Internet access and the application riding on it, so it never occurred to us that someone might say, "Oh, access-independent could mean a different thing". But let me just talk a little bit about the resellers.

1278 Resellers will buy, unlike a Vonage, will come to us and buy, say, an unbundled local loop or they will buy various kinds of transport or they will buy a service. Then, they will turn around and resell that whole service to the customer as their service. They will bill it as their service and there will be some combination of resold elements and some of their own, or, if they were doing Centrex resale, for example, they would probably be all our service.

1279 COMMISSIONER COLVILLE: Or I could enhance it?

1280 MR. GRIEVE: Right, right. In this case, the Voice over IP provider doesn't ever come to us. The customer goes and buys a high-speed Internet access service and then looks around across the Internet for a voice application provider.

1281 To us, that's how we came up with the notion of access-independence is that the customer is doing two different things: it was making that first purchase and then looking around for --

1282 MS YALE: Let me try just one slightly different way.

1283 The reason that I don't like the word "reseller" in the context of the Commission's preliminary view is that Vonage and Primus, they are not really resellers, they are application providers. They are not offering the consumer local service that includes the access over which the application rides, as well as the application. They are saying, "Get your loop, get your access, your loop equivalent, somewhere else because we are not leasing it from anyone and reselling it to you as part of the end-to-end service". You, the consumer -- not the service provider, the consumer -- makes the purchase decision about access, and then makes a separate purchase decision for their voice application.

1284 COMMISSIONER COLVILLE: That may be the case in some situations, I suppose that it may not in others.

1285 MS YALE: That's the only piece of Voice over IP our proposal relates to. That's all we are talking about.

1286 COMMISSIONER COLVILLE: If you offer the service on your own high-speed network -- I presume your own high-speed -- your offering of VoIP telephone service on your own high-speed network is considered access-independent, so you go to the customer and say, "Have I got a deal for you", I might, as a customer, only make one decision. This is where we sort of part --

1287 MS YALE: But if TELUS is doing it, if TELUS chooses to offer a Voice over IP application on a national basis, we would do an offer, say, equivalent to a Vonage or Primus and it would be able to ride on any high-speed infrastructure in Canada and would be available to any customer who chooses to accept the application, whether or not they were our high-speed customer.

1288 In turn, our high-speed customers are free to choose whoever they want for their Voice over IP application, we have guaranteed nondiscriminatory access by our customers to the application provider of their choice. So the customer, say it's a TELUS customer for high-speed service, they may or may not think we are the best deal for Voice over IP and so they would make two separate decisions: who they want for high-speed and who they want for Voice over IP. That's the access-independent version of Voice over IP that we are talking about.

1289 By contrast, you could contemplate a Voice over IP service that only worked over our infrastructure, in other words, we offer an integrated end-to-end Voice over IP service and we say, "It only works on our network", that's not access-independent and we are not suggesting that should be treated any differently from primary exchange service.

1290 COMMISSIONER COLVILLE: And that likely would not be offered on your high-speed service? Or would it?

1291 MR. GRIEVE: It would not. That kind of a service would not be offered over the Internet. That's a Category 3 service. It would be through our NGN network, as it roles out.

1292 COMMISSIONER COLVILLE: Do you expect to offer that?

1293 MR. GRIEVE: Eventually. Change out the network, yes. I don't know when that will be, but eventually I think that's where everything has to go.

1294 COMMISSIONER COLVILLE: Is starting that soon? When do you expect to start selling consumers that kind of service in territory for TELUS?

1295 MR. GRIEVE: Which? What Bell describes as Category 3?

1296 COMMISSIONER COLVILLE: What you have just described as your access-dependent.

1297 MR. GRIEVE: Oh, access-dependent. I don't know. I think we are five years away, at least.

1298 COMMISSIONER COLVILLE: Five years away.

1299 And when would you expect to have your network completely turned over to IP?

1300 MR. GRIEVE: I don't know the answer to that.

1301 COMMISSIONER COLVILLE: A long way off.

1302 MR. GRIEVE: Yes.

1303 MS YALE: Yes.

1304 COMMISSIONER COLVILLE: So getting back to the independent, from a consumer perspective, we have largely two networks going into any home, but I can have a range of service providers who can knock on my door and say, "I can provide you with telephone service". As a consumer, I mean, I probably don't know or even care what happens to that voice once it exits the wall of my house or the back of the set that I'm going to use. I want to buy the capability to talk on the phone to people with a lot of features, perhaps have a number that's a number in some other town, which I could get today on a circuit-switched environment with a foreign exchange line.

1305 So from a consumer perspective, I guess I'm having difficulty having to come to grips. And I guess I'm inclined to look at this from that perspective, as the regulator, and to look at regulating what the consumer perceives is the service they are going to get.

1306 How is the consumer to perceive this difference between access-dependent or access-independent? All I have is TELUS knocking on my door or Vonage knocking on my door or Bell, or whoever, saying, "Have I got a deal for you".

1307 DR. CRANDALL: I don't know why they have to. I mean, all they need to know is what the service delivers. They don't need to know technically how it's delivered.

1308 What they might want to know is: if I buy TELUS' voice over Internet service and decide I would rather switch to Rogers or Shaw, I guess, in their region, cable modem service, can I still use my TELUS VoIP service? And I think the answer is, yes.

1309 COMMISSIONER COLVILLE: Precisely. So from a consumer perspective, what's the difference between access-dependent and access-independent?

1310 DR. CRANDALL: Well, if, in fact, there is no difference, that simply extends the analysis to whether you need to forbear on the access-dependent service.

1311 What I'm saying is that in the access-independent service, there is enough competition that you can forbear from that. And the consumer really doesn't care how you define the service or how technically it's delivered. All he care is: what are his options? And what he knows today is that he no longer just has one option or two options, he has lots of options for this service and, for that reason, he doesn't need any protection through a tariff filing from the CRTC.

1312 COMMISSIONER COLVILLE: I guess I agree with you, Dr. Crandall, that the consumer probably doesn't need to know or care. I guess that's why I'm wondering why we shouldn't care whether there's a difference on the underlying technology that delivers and whether it's access-dependent or independent, that's my problem.

1313 MS YALE: The issue is from a public policy perspective it matters, in a way. It doesn't matter from a consumer perspective. Consumers are going to look and say, "Is this something that I see value in or not?", absolutely right.

1314 The issue is you have drawn lines in your preliminary view between service providers: ILECs, CLECs and what you call resellers, and supposed regulatory treatment of those different categories based on your view of those different service providers.

1315 What you have assumed in that scenario is that any one provider only fits in one category, and what we are saying to you is that what you called the "reseller category" is really an application provider category and we want to play in that space, in addition to whatever we may want to do in our role as ILECs, who may change out the underlying technology and our infrastructure. And in that space, that application provide space, which you called "resellers", there is vigourous competition.

1316 There is no need to regulate, you have recognized that yourself, and we are saying that because of the characteristics of the way it's offered, which is that it's access-independent, there is no need to regulate us if we offer service, as an application provider, separate and apart from whatever we may do on a proprietary basis over our own infrastructure.

1317 COMMISSIONER COLVILLE: I'm not sure that we have come to the conclusion that you say we have, in the sense of that any one provider can only be in one category and that you could be a CLEC in territory and a reseller out of territory.

1318 We have had the situation over the past number of years where the CLECs, through an arm's-length affiliate, have been their own reseller. We have had some problems with that issue from time to time, but for a while it operated with apparently no problems. So we have had this situation where the CLEC could also be a reseller in territory through an arm's-length affiliate --

1319 MS YALE: Fair enough.

1320 COMMISSIONER COLVILLE:  -- which, I presume, may well be the market structure that you might choose to offer service here.

1321 MS YALE: Well, certainly, under the preliminary view, we can be an application provider, your reseller, to use your language, out of territory. The issue is what are we in territory? And under the preliminary view, we are an ILEC.

1322 We are saying we also want to be able to be --

1323 COMMISSIONER COLVILLE: A reseller.

1324 MS YALE:  -- a reseller, to use the language of those silos, because -- because -- and it is different -- in that space, because the application and access are uncoupled, we have no market power.

1325 And in our role as access providers in territory, we have made commitments around nondiscriminatory treatment, as I have outlined today, including the ability of customers to get DSL on a standalone basis and not irrespective of whether or not they take primary exchange service from us, so that we are no different than any other competitor in offering that service, whether it's in territory or out.

1326 COMMISSIONER COLVILLE: And I guess, you know, it raises the question, then -- I mean, we thought, originally, that an ILEC, through an arm's-length affiliate, being its own reseller, probably wouldn't be problematic. There is enough resellers out there in the marketplace. Looks like there is wild west competition. Let's just let it go. And then we found out, oops, it doesn't work that way. Why should we think that this situation would be different?

1327 DR. CRANDALL: Well, the reason it's different is that the competitors of the ILEC VoIP services don't need to negotiate for access with the owners of the networks, be they the ILECs or the cable companies. They simply provide a device that allows people to connect to the Internet through a broadband connection, that they simply plug into that device. There is no negotiation with the cable company or the ILEC, therefore, no need to worry about access to their networks. They have direct access to the customer who plugs in the device.

1328 COMMISSIONER COLVILLE: The chairman has suggested it might be a good time for a break, so I think it --

1329 THE CHAIRPERSON: Nous reprendons dans 15 minutes. We will resume in 15 minutes at five o'clock.

--- Upon recessing at 1645 / Suspension à 1645

--- Upon resuming at 1700 / Reprise à 1700

1330 THE CHAIRPERSON: Order, please.

1331 À l'ordre s'il-vous-plaît.

1332 To give you a sense of timing, we are going to sit until about 9:00 p.m. or finish item 11, which ever is earlier.

--- Laughter / Rires

1333 We will probably resume at about 6:30 p.m. take a break of half an hour to 45 minutes for those of you who need sustenance such as we do, and -- as I say sustenance.

1334 Then, in breaking with a two-and-a-half-year-old Commission tradition, we will start tomorrow morning at 9:00 a.m. instead of 9:30 a.m. So that will hopefully allow us a little more time tomorrow.

1335 But again, it's heavy agenda and we would like to truly try and get through it in the three-day window.

1336 So, I'll turn the microphone back to Commissioner Colville.

1337 COMMISSIONER COLVILLE: Thank you, Mr. Chairman.

1338 Did you know, one of you or any of you, anything, just before we took the break there, I wasn't sure I --

1339 DR. CRANDALL: If invited, I will be happy to --

--- Laughter / Rires

1340 DR. CRANDALL: It seems to me, at this point, given that you have a service here that is access-independent Voice over Internet Service that can be delivered by large numbers of companies inside and outside of Canada to subscribers in Canada.

1341 You have to ask the question, why would you want to regulate anyone of them? I mean, what are you protecting consumers from?

1342 The only thing that economic regulation that is, having to file tariffs, does is to prevent one or more of these companies who are subject to it from adjusting quickly to competitive responses of other carriers. So you actually deny customers of this competitive response.

1343 But I don't see how economic regulation protects customers in any way or why it's needed.

1344 COMMISSIONER COLVILLE: I guess, Dr. Crandall, to take our preliminary view, we would want to regulate only one of them.

1345 You asked, why would you want to regulate any one of them. We don't want to regulate any of them, except one, according to our preliminary view.

1346 DR. CRANDALL: Only one of the incumbents. There are several incumbents --

1347 COMMISSIONER COLVILLE: Only one of the service providers. I'm sorry.

--- Laughter / Rires

1348 COMMISSIONER COLVILLE: We are only going to pick one incumbent. Who is it going to be today?

--- Laughter / Rires

1349 DR. CRANDALL: Again, in that context, I don't see how the incumbents are any different. They are not positioned to behave any differently from the others. They don't have a natural cost advantage. They don't have any fulcrum, as I said, for engaging in anti-competitive behaviour here any more than they do in other competitive markets from which you are forborne.

1350 COMMISSIONER COLVILLE: Would you argue that that is different from the reseller situation?

1351 DR. CRANDALL: My problem is my context of a reseller situation is one of the United States in which the reseller has to obtain its service from the incumbent. That is a different situation. In this case, the seller of the service does not have to negotiate at all with the incumbent.

1352 COMMISSIONER COLVILLE: Right. Let's go to the Canadian experience then. In TELUS territory if TELUS is offering an access-independent service on its own high-speed service, DSL service, you would be forborne under your proposal for the VoIP service and indeed probably any other service that you would be offering on that platform. So through your DSL platform you could offer a bundle of various services, including video, perhaps some other data services, the Internet service itself and voice, and you could price the voice for nothing or a dollar.

1353 MS YALE: But I think Dr. Crandall's point that this is a very competitive market and we have a very competitive DSL market which you have said is sufficiently competitive that it doesn't need to be regulated, and an application market that is sufficiently competitive that it doesn't need to be regulated, generally speaking, the issue is what to do about the ILEC and territory, so how does putting two competitive products together change -- where does the market power come from?

1354 Each of the pieces that are being put together are very competitive. As you know from some of the concerns about pricing, anti-competitive pricing behaviour only makes sense if you have some monopoly power to leverage. In the case we are talking about there isn't any because we are talking about multiple products, each of which is sufficiently competitive that the price is set in the marketplace.

1355 COMMISSIONER COLVILLE: I guess if we go back to the discussion we had before the break where we found a situation which seemed to me at least to be somewhat akin to what you are proposing in the sense of TELUS or Bell being its own reseller, we in fact have found a number of cases where we discovered that pricing was indeed hampering the marketplace, if I can use that term.

1356 MS YALE: But to Dr. Crandall's point, in the context of the resale you are talking about, the service provider, the reseller in this case, was getting underlying access and services that they were in turn reselling to customers. The point that we are making here is the customer is making those separate purchase decisions. Right? There is no resale involved.

1357 COMMISSIONER COLVILLE: I am not getting comforted by this notion that given your proposal TELUS would have clearly the opportunity on all of its DSL lines and its DSL customers to virtually give away local telephone service.

1358 MS YALE: Let me come at it a different way.

1359 We are talking about having a national offer. It is not something that just arrives on our DSL service that we could price it differently for our customers than for other customers. We are talking about a national offer that would be available to any high speed customer in Canada. It would be available to Shaw, cable modem customers to Bell customers to Rogers customers and so on.

1360 The pricing of that service has to reflect the fact that it is being offered to customers of other high-speed providers as well, so on what basis would we be coming up with pricing that is free when it is only offered over our own infrastructure? We are talking about a service in the marketplace that is non-discriminatory to customers, irrespective of who their underlying high-speed provider is.

1361 COMMISSIONER COLVILLE: Sorry. Dr. Crandall is trying to jump in here.

1362 DR. CRANDALL: Let's assume that it does not apply, that is, that they are only offering service within their own territory. Now, this marvellous new service, VoIP, comes along and you say, well, they could give it away or sell it for a dollar.

1363 I presume in your hypothetical they have some costs associated with that, that is, they would lose money on it. I understand why they would do that. I mean, in some situations you might think they would do that in order to drive their rivals out of business and then subsequently raise the price rather substantially.

1364 They are not going to drive Vonage out of business. Vonage is an international company that is fully prepared to dial Canadian numbers and enrol Canadian subscribers as soon as they try to raise the price again. This would be futile behaviour. People do not engage in this kind of predatory behaviour if they can't recoup it at some time in the future.

1365 In a competitive market, with such easy entry conditions, there is no way that TELUS or Bell or any of the incumbents could recoup their losses for behaving in this way. They wouldn't give money away this way.

1366 COMMISSIONER COLVILLE: That's the theory.

1367 MS YALE: But if you look at DSL, you look at wireless, you look at services that are already forborne, that are offered by incumbents in-territory in packages, the pricing behaviour of the forborne services that exist today don't demonstrate that sort of behaviour. Why would it uniquely apply to Voice over IP?

1368 I mean, if you think about the launch of the cellular wireless service. It was forborne from the outset. It was two providers. The prices were set in the marketplace. DSL versus cable modem service; these prices are set in the marketplace.

1369 We don't see that kind of behaviour and I don't really understand why the concern is raised with respect to this particular piece in a way that isn't. These are vigorously competitive marketplaces and the price is set in the marketplace in response to customer demand.

1370 DR. CRANDALL: You also responded that that is the theory. There is evidence on this.

1371 The largest VoIP seller in the world is, not a North American company, Yahoo Broadband. They sell broadband in Japan and they have been growing like mad. They must be up to close to 4 million, 3.5 million subscribers or something like that. They lease loops from NTT, the ILEC, and they sell telephone service, VoIP, in competition with NTT. They sell VoIP to 95 per cent of their broadband customers, and NTT has not been able to win them back at all.

1372 So the most successful VoIP seller in the world is not an ILEC. It is an independent competitor.

1373 COMMISSIONER COLVILLE: We hope the same success will be achieved in Canada.

1374 MR. WOODHEAD: Vice-Chairman, in your resale concern, is that resale of tariff services, tariff and competitive services or retail of just competitive services?

1375 COMMISSIONER COLVILLE: I guess, Mr. Woodhead, I was just using -- it wasn't clear to me how different this access-independent notion was from our resale framework, as we said in our preliminary view. When I read through your brief, as I read through a lot of these statements I thought, well, that looks just like a resell situation that we have struck from a regulatory point of view, and also trying to look at this from the purchaser of the service, not the provider of the service or even the intermediary who may be accessing some of this, but from the ultimate provider of the service.

1376 That is really where I was coming from here, not so much about whether there was a tariff, or access to the underlying facility or not, or whether I can just in effect get that access free, which really is what we are talking about. As access-independent I can get that access free. I just don't have to pay for it. I'm really just reselling some service to people. I happen to be able to get access to the network for free instead of paying you a tariff for it.

1377 Fundamentally, it is the same kind of situation or structure, though. That is why I have had difficulty trying to come to grips with this in the context of our preliminary view and our framework, is trying to understand how you see this distinction between access-dependent and access-independent and all of a sudden the independent gets forborne.

1378 MR. WOODHEAD: Right. As we have sort of gone over, a consumer chooses from a forborne service provider of access and it chooses amongst numerous or many application service providers to ride on top of that access in order to provide the VoIP.

1379 COMMISSIONER COLVILLE: Just as I could choose among any number of resellers right after we opened up the long distance market. As you will recall we probably got over 400 resellers in this country.

1380 MR. WOODHEAD: Right. Exactly.

1381 COMMISSIONER COLVILLE: There was all kinds of competition.

1382 MR. GRIEVE: There is a big difference. Those resellers were reselling, for the most part, one underlying set of facilities. They were reselling the ILEC services. They were either getting interexchange private lines and combining them with their own switches or they were doing any number of things like that.

1383 This is not a resale situation where you have a monopoly, an underlying monopoly network or virtually a monopoly network as long distance was at the beginning other than the long lines. This is a situation where you start with a competitive high-speed Internet access service, two different providers at least and, I think in Ted's last count, 28 in Calgary high-speed Internet access service providers using TELUS' or Shaw's -- probably just TELUS' -- DSL in Calgary.

1384 I mean, there are a lot of people out there providing high-speed Internet access. It is not like it was with resale in the early days of long distance competition where practically everyone was buying services from the incumbents, from the Stentor companies at the time or from Unitel at the time, who had most of the facilities, other facilities.

1385 Also, I know what you are thinking about. You are thinking about the recent reseller issue around Bell Nexxia and you are concerned that maybe this is something similar. In that particular case, what was happening was Bell Nexxia was buying tariff services, not competitive services, it was buying tariff services from Bell Canada, acting as agent or whatever, I don't want to get into the facts. It was a completely different kind of thing going on there. It wasn't sort of buying competitive services to sell them over here.

1386 COMMISSIONER COLVILLE: I guess the issue is, and I am sure Dr. Crandall will point out the error of my ways, should the Commission accept your view and forbear or not regulate the access-independent provision of VoIP services, and in particular that provision by the ILECs, does that provision, combined with the existing power you have with your existing subscriber base, provide you with the opportunity and the incentive to in fact do what you said wouldn't happen, to undercut the market and maintain the 95 plus per cent of telephone subscribers that on average the ILECs have in Canada today and thwart the efforts of other new entrants to get in the business?

1387 To be blunt about it, I guess that is the concern.

1388 DR. CRANDALL: Now you are shifting from the market dominance of an ILEC to the fact that an ILEC is large and has a large customer base. ILECs are not unique in that respect. I mean, anybody could do that. Cable companies can do that, Wal-Marts can do that, electric companies can do that.

1389 In fact, the evidence that the ILECs are superior marketers and can use their size in connection with customers to market all sorts of different services, competitive services, simply doesn't exist. I am not aware that they have been very good at doing that in various countries.

1390 COMMISSIONER COLVILLE: How much are you paying him?

--- Laughter / Rires

1391 MR. GRIEVE: I was just wondering that myself.

--- Laughter / Rires

1392 DR. CRANDALL: Well, maybe you have bought a lot of competitive services from Bell Canada, but I don't know them.

1393 It is not a marketing advantage that I think you need to worry about. If in fact there are economies of marketing, then you certainly don't want to deprive the consumers of the benefits of such economies and what you are going to find is that entrants will offer a multitude of services. I don't hear Vonage saying they have to offer a whole bunch of different services in order to compete with the ILECs. They don't say that in the United States. They are not afraid of Verizon or SBC. They are not asking for the regulation of them and they are not going to get it.

1394 I just don't see what the problem is.

1395 COMMISSIONER COLVILLE: I will finish up on this area. I have a few short questions in a couple of other areas.

1396 You accused us in this paper, I use that term sort of pejoratively I guess, but TELUS submits the Commission should approach VoIP with an eye to the future and not the past, the implication being that we have had an eye to the past in all of this. I think to be fair to us, at the times that we have had an eye to the future we got burned. I am not blaming anybody for that. It is, you know, probably our own mistake.

1397 When we did the local competition decision and the price cap one decision at the same time, we structured that framework in a certain way. For example, we thought we don't have to worry about QofS and we don't have to worry about the price of options and features because we heard through the local competition proceeding from experts like you and others that there is going to be enough competition, we are getting up to 15 per cent in X-number of years -- I can remember the debates in this very room -- and there will be enough competition that the quality of service will take care of itself and options and features pricing you don't have to worry about because of the competition and options and features.

1398 Well, it didn't happen. We did look to the future there. We were hopeful and optimistic that that competitive landscape was going to evolve, such that we wouldn't have to worry about QofS.

1399 Four years later we looked back and QofS went in the tank. Why? Because there wasn't enough competition. The companies took a lot of structure out of the company in order to maximize the productivity gains on the price cap scheme and the quality suffered as a result of it.

1400 Again, I am not trying to lay blame here. The fact is, here we are, quite a few years after 1997, seven years later, and we don't have the competition. So our concern is being cautious about looking to the future and how we get there and making sure that in fact we do get the kind of competition we are hoping for.

1401 MS YALE: I think the analogy I would draw is actually to some of the successes the Commission has had, whether it's the regulatory framework for high-speed Internet, for new media, for cellular services, where the Commission has recognized that with new and innovative services, if there isn't a public policy rationale for regulation let the market develop freely and openly, and it has been a huge success.

1402 So really in terms of Voice over IP, we are not suggesting that the Commission should change the framework. We are saying that if all you change in your networks is your underlying technology, nothing is different. What we are simply asking is that in this new space, and there is a new space here, which is this application space, that the ILECs shouldn't be able to compete only out of territory, because that is in effect what the rules do. It says that we can offer it anywhere except to our own customers or to Shaw's customers.

1403 Because practically speaking, if it has to be done on a tariff basis, for the reasons that were described earlier today, you preannounce your prices, you preannounce your approach, it takes a long time to get the rates approved and so you really don't have a competitive offer in the marketplace. So if it is a vigorously competitive market, which it is, Vonage, Primus, there are more than eight providers there, then what we are asking for is the flexibility when we offer that new service, not when we offer traditional telephone service delivered on an IP basis or otherwise, in this new space to have the freedom and flexibility to compete in-territory offering that service to Shaw customers as well as our own.

1404 COMMISSIONER COLVILLE: Switching topics here for a minute, the issue of forbearance you have raised in your presentation, and I believe in your brief, I was going to ask this question anyway and the Chairman asked Bell a line of questions in this same sort of area, do you consider VoIP to be a separate market from PES, primary exchange service.

1405 DR. CRANDALL: I would have to say as an economist at this point I don't have enough empirical evidence to suggest whether it is or not. I mean, clearly it is a substitute to some degree, that is, increase the price of one and there will be more demand for the other.

1406 When you ask is it in the same market, then you have to ask if someone had all of one of those markets and a provider in the other one, PSTN, let's say if someone had all of VoIP in Canada and the people in the PSTN they tried to raise the price of VoIP, would enough people abandon VoIP for PSTN or do it the other way around to defeat the price increased? In that case, you would say they are both in the same market.

1407 I don't even think you have to get to that conclusion. That was the point of my part of the oral testimony, because it doesn't matter. For forbearance on access-independent VoIP, it doesn't matter whether they are in the same market.

1408 If you ever reach the position where you have evidence that they are in the same market, then you are facing the question of whether you should forbear not only VoIP but in traditional PSTN services.

1409 MR. GRIEVE: There is one thing to add there of course and that is that Voice over Internet protocol provided by a high-speed or through a high-speed Internet access provider, is only available to people who have high-speed Internet access. Whether it is a substitute for those customers once they have high-speed Internet access, whether this voice application on the public Internet is a substitute for their primary exchange service, that is a choice they can make just like they make the choice between whether wireless is a substitute for their primary exchange service or whether they hang on to the primary exchange service, take wireless or take this voice application on the public Internet.

1410 But while it may be in the same market for those people, not everyone takes high-speed Internet access. It is about 50 per cent of the customer base, or whatever it is, you know, the population base in Alberta and B.C. So there is a big chunk of the market where this is not even going to be relevant for them.

1411 COMMISSIONER COLVILLE: Do you think that we should consider that to be -- I mean, given your approach to this in terms of this two level or two layered approach, should we be considering VoIP to be a separate market?

1412 MS YALE: What we are saying it is a separate service for the purposes of determining forbearance, and it is a --

1413 COMMISSIONER COLVILLE: Which would probably mean that forbearance for you would probably happen later rather than sooner if we --

1414 MS YALE: Forbearance for primary exchange service?

1415 COMMISSIONER COLVILLE: For primary exchange service.

1416 MS YALE: That is why we are not asking for it, because we don't see it as a perfect substitute at this point in time for many of the reasons that have been articulated today, including Power 911 and so on.

1417 For practical purposes and for many customers it will not be seen as a perfect substitute for primary exchange service. Absolutely.

1418 MR. GRIEVE: For some it's not a substitute at all because they don't have high-speed Internet access. That is the first decision they have to make.

1419 COMMISSIONER COLVILLE: I guess it remains to be seen though for those who do have high-speed cable modem service or DSL whether in fact they see it as a replacement. I mean, presuming that you can provide all of the features -- I was also struck by a whole different approach here.

1420 I am old enough I can remember the crank magnetophone in the cottage where you had to crank the phone and get to an operator. You know, then we came up with dial phones and, you know, imagine at that time letting people dial their own phone numbers. So the transition from an operator or a crank magnetophone is probably akin to the transition we are talking about today.

1421 We talk about all the features, but when I look at Bell's chart that compares the features of PES, it is a snapshot in time of PES. Primary exchange service has evolved from the magnetophone through dial service, through touch-tone, digital, options and features. We go on about E-911 and how it is so vitally important, and it is, but it is a relatively modern thing in the sense that it was only 10 or 15 years ago that 911 came in and then E-911 and so on and so PES itself is going to evolve and maybe this is just part of that evolution.

1422 MR. GRIEVE: I'm sorry. I'm not sure this is part of the same evolution.

1423 I think using Internet protocol not on the Internet is an evolution of PES. I think using the public Internet, which also uses Internet protocol, is something different. It is an Internet application, something you can buy off the Internet. So I think PES is going in the direction of what we call access-dependent services, where we will switch out the local switches over time, maybe sooner in new areas, but over time switch those out for routers, but this other thing that is on the public Internet I think is something different in the evolutionary chain.

1424 COMMISSIONER COLVILLE: Notwithstanding the separate categories though, it is your view that all access-independent or dependent services should pay contribution. Right?

1425 MR. GRIEVE: Yes, that's right.

1426 COMMISSIONER COLVILLE: So we shouldn't make any distinction between the two in that respect.

1427 MR. GRIEVE: Yes, that's right.

1428 COMMISSIONER COLVILLE: On the issue that was raised this morning in terms of E-911 and other parties being able to provide that service, the issue was raised in terms of network E-911 element unbundling. Do you have a comment or a view on that?

1429 MR. WOODHEAD: The real problem there is not so much the E-911 unbundling as the public service answering point preferred to have all of the traffic aggregated from CLECs and WISPs and Vonage and Primus and whoever else is out there trying to terminate 911 calls coming in over the ILEC facilities.

1430 I think Willie can probably tell you from the last price cap's -- I don't know if it was in the last -- it was in the local competition case, what happened vis-à-vis offering up ILEC 911 functionality in MRS on a tariff basis for competitors.

1431 MR. GRIEVE: You will recall that when we came in in the local competition case we acknowledged that 911 and MRS were not really essential facilities. Why would we sort of force everyone in the world to reproduce all of that? We were quite happy to make that available to CLECs who wanted to come in, you know, and not make it necessary for them to build their own systems. What we called that was we were going to unbundle E-911 and we were going to unbundle MRS or provide it on an unbundled basis, I think is the better expression for that.

1432 What the competitors today have been saying about unbundling E-911, we really don't know what they are getting at because we hear this unbundling E-911, oh, it is really necessary and it is really difficult, in the same sentence or the next sentence or right around that they are talking about the PSAPs. The problem with the PSAPs, you know we are happy to talk about this issue, if there is some kind of unbundling that they need, let's talk about it, but I don't understand what it is frankly.

1433 COMMISSIONER COLVILLE: This is obviously a hugely important issue from a consumer safeguard point of view. I know some parties have said, well, you know, a consumer can decide, but it is kind of like seatbelts or, as Commissioner Langford mentioned this morning, brakes on the car or whatever. It is a vitally important service. Consumers expect that.

1434 We can have all of the information and acknowledgements of whether or not, but I think at the end of the day it may well be an issue that we have to decide, yes, there will be seatbelts in every car or E-911 absolutely should be part of this service, recognizing some of the constraints.

1435 Is it reasonable in your mind for the Commission to put some kind of time frame on the CISC exercise in order to be able to get this job done in a relatively expeditious manner, or is this something that could end up getting dragged out for some time?

1436 MR. GRIEVE: I think it would be reasonable. I am not sure what a reasonable amount of time would be, but I think we can undertake to give you a suggestion in our final written comments.

1437 COMMISSIONER COLVILLE: Okay.

1438 The last point I just want to pick up on and I wouldn't want to let this go, Ms Yale, it kind of got buried right at the end of your presentation this afternoon, I guess this is what Mr. Englehart would refer to as the rusty copper issue.

1439 MS YALE: Yes, indeed.

1440 COMMISSIONER COLVILLE: I wonder if you could elaborate a little bit on your third, and finally, point there at the bottom of page 8.

1441 MS YALE: The issue has to do with customers who choose to give up primary exchange service, sign up for a Voice over IP service and use our DSL to access that Voice over IP application. So the only service they are taking from us is DSL, not primary exchange.

1442 This comes back to what's new about this, because in the past, with local entry, whether we provided the primary exchange service to our customers or CallNet did, we had local service revenues because we either offered and provided primary exchange service or received the revenues from the wholesale seized for local loop and all of a sudden there is a customer who doesn't want local service for us and the local application the customer has chosen doesn't require the use of the local loop.

1443 So it's a marketplace-driven initiative, because, at the end of the day, from our perspective, we would rather get some revenue from the customer than no revenue. So as a consequence, we are saying if the only thing the customer wants from us is DSL service and not primary exchange service, fair enough, we will make DSL service available on a standalone basis. And the commitment we have made is that we will have that in place by early 2005.

1444 COMMISSIONER COLVILLE: Now, I had understood that there was a bit of technical constraint around this issue, as well, which led to the rusty copper analogy.

1445 Has that technical problem been overcome? Is that why TELUS is able to -- or is this --

1446 MR. WOODHEAD: It's the issue of sealing current, and that's been in Bellcore documents for at least two decades, that there is a requirement to apply a sealing current over the loop.

1447 The loops, in fact, do degrade. Mr. Engelhart calls it rusty loops. But it can degrade the loops over time, but we feel, now that Telecordia has published some documents that give us better comfort that there is a solution to this problem, so that has really been taken off the table.

1448 COMMISSIONER COLVILLE: So, then, this isn't, from a technical point of view, something that's unique to TELUS, it's something that we should be able to expect from all of the ILECs?

1449 MR. WOODHEAD: Well, all of the ILECs have raised the issue of sealing currents in other matters before the Commission.

1450 COMMISSIONER COLVILLE: I haven't heard the other ILECs make this offer, though.

1451 MR. WOODHEAD: Well.

1452 MS YALE: Our view is that, as I say, its not a regulatory issue for us, it's a business imperative: we would rather sell something than nothing. We believe that in order to respond to the evolution of the competitive marketplace, we have to do it. We were planning to do it anyway, and so we are making a commitment because we believe it's necessary to respond to the competitive marketplace.

1453 MR. WOODHEAD: Just to follow on that, the cable companies all offer fully standalone high-speed cable service, so that's point number one.

1454 Secondly, and this was addressed very early on after the Commission's public notice was published, and Ms Ng, if she's still in the audience, raised it at a conference: do you not have a problem with your access-independent voice service if there is this linkage, and, to be honest, that was a problem.

1455 If we are able to overcome the technical problems, we are able to respond to competition in our territory -- where we offer the service and it enables us to remove an obstacle to providing an access-independent voice service to compete with a Vonage, then that's where we wanted to go.

1456 COMMISSIONER COLVILLE: Okay. Thank you very much.

1457 Thanks. Those are all my questions, Mr. Chairman.

1458 THE CHAIRPERSON: Thank you.

1459 Counsel.

1460 MR. MURDOCK: Earlier today, there was some discussion on packet prioritization and the Companies, the Bell companies, stated that they did not have any current plans to engage in packet prioritization. Does TELUS have any current plans?

1461 MR. WOODHEAD: We don't have any current plans on packet prioritization, but I would add that it's not just about packet prioritization. It can be about -- people who would take a service like this, they are advantaged by tiered bandwidth levels, so many of the companies out there offer tiered bandwidths. So you can get 1.5 megabytes per second, you can go to 3 megabytes per second, 5 megabytes per second, 6 megabytes per second, and so on.

1462 So certainly we offer services like that. The cable companies offer services like that. All of the competitive ISPs offer varying levels of bandwidth.

1463 With respect to packet prioritization, I think that would be a great thing, but there is a variety of standards out there, there's still a bit of an evolving environment here as to how you do it. You can do it. Absolutely, it technically can be done. And in a managed environment like what you will see from the cable companies in the next year, they will manage quality over their network because it's all their network.

1464 One of the problems with the access-independent thing that I'm talking about -- or that we are talking about today is once -- you can manage -- or, sorry, prioritize the packets only on your own pieces of the service, of the transport. So once you enter the Internet cloud and you are on a bunch of other networks, who may not prioritize packets, you know, it's hard to say whether that, in fact, is a managed quality service.

1465 MR. MURDOCK: One additional question.

1466 It was stated earlier, I believe, that -- the comment was made that Vonage is not a reseller but an application service. But my understanding is that if a Vonage offers a 604 number, that it has to place the gateway, or at least contract with a LEC, to allow for calls for one of its subscribers, who wants to call a local number in Vancouver, to allow that call to come out of the Internet cloud and to jump onto the PSTN.

1467 So isn't it the case, by virtue of that relationship with a LEC, that's what makes a Vonage a reseller?

1468 MR. GRIEVE: Well, you know, if you think back to what resale is all about, resale is about taking the services of your competitor or taking the services of some wholesaler, buying them in bulk and reselling them to customers who can't get that volume.

1469 "Resale" over the years has developed to mean "anytime anybody buys anything, including interconnection from the telephone company, and uses that in order to finish one of their services". Yes, you could say they are reselling it. They are reselling that final interconnection service, the call-termination function that they may buy from us or they may buy from a LEC.

1470 It may, from your viewpoint, give you a lever to actually impose some regulation on them through the tariffs or impose conditions on a CLEC, that if a Vonage comes to them you are going to impose this on them, yes, you could call them a reseller from that perspective, but in terms of all of the other things that we have thought about resellers being over the years, it's just not there.

1471 This is an Internet application. If they have to use some antiquated technology to terminate their calls, then they have to do that. But it's not their service. I mean, their service is not a resale service; their service is an Internet application

1472 MR. MURDOCK: One final question to clarify who is eligible, in your view, for contribution.

1473 In response to the CCTA's July 16th 04-5 interrogatory, TELUS stated:

"Only access-dependent service providers should be able to access the National Contribution Fund in order to obtain subsidy." (As read)

1474 TELUS went on to state:

"Only those providers of integrated access and voice service should have access to the National Contribution Fund." (As read)

1475 Based on that interrog, clarify whether a local exchange carrier providing both high-speed Internet access and access-independent VoIP service together will be eligible, in your view, to receive subsidy from the National Contribution Fund?

1476 MR. GRIEVE: No. And let me explain why, okay?

1477 The subsidy fund, the National Contribution Fund, is designed to provide a subsidy to make up the difference between the cost of primary exchange service and the rate that customers pay, the regulated rates, and there is $5 in there for optional local services.

1478 When a CLEC, or anyone else, buys an unbundled local loop in order to provide that service, then they buy the unbundled local loop at its full cost, full phase-two plus the mark-up cost. There is no discount on that. So that is why they get that.

1479 When you turn around and you are looking at DSL service, yes, they still pay the same price for the local loop, but they are not in the business of providing primary exchange service. It's not a service that is a copy of primary exchange service in any way, or a direct substitute. It is an Internet application carried on what they functionally acquired from the ILEC to do, which was high-speed Internet access.

1480 So I think if we had an access-dependent Voice over IP application using Internet protocol to carry calls not on the Internet, then, yes, you are in the same league. But if it's access-independent and you have an Internet application coming in on a high-speed Internet connection, that's like any other application, like e-mail.

1481 THE CHAIRPERSON: Thank you.

1482 Commissioner Langford.

1483 COMMISSIONER LANGFORD: Sorry, I'm a little out of turn here, but I want to put a final question to you that I had also put to the Companies earlier. I understand that your application is a pure application for forbearance. It perhaps doesn't go as far as theirs, but it's still moving down that road.

1484 I wanted to remind you of the concern in the Telecommunication Workers Union's submission to us, original submission to us, which was, I think, in paragraph 22 of their submission.

1485 Basically, what it comes down to is a kind of state fear that this may be the beginning of the end for the PSTN, as we know it, in the sense that as we strip away the revenue earners -- and I assume this wouldn't happen overnight, but as the popularity for this grows and you strip away the revenue earners, as, for example, was done with long distance and with cellular, as this continues there is just less there to keep up the quality, to keep up the services and to keep down the costs for those people who don't have the option to go to VoIP and who are stuck, as it were, with the old technology.

1486 How would you respond to that? If that's a real concern, what sort of safeguards could we realistically build into our decision and would you find acceptable?

1487 MS YALE: Let me say that, at the end of the day, the market is going to drive the way these services evolve. So from our perspective, the Voice over IP world is here and these application providers are in the marketplace. It's evolving, they are competing for customers, and the only question is whether or not we, as an ILEC, get to play in that sandbox and on what terms we do it.

1488 So it's not like we can stop the evolution or prevent the evolution. It's happening. And voice revenues, traditional voice revenues, and traditional voice lines are going down because of all kinds of substitutions.

1489 So I think the reality is what it is. The issue is how do we deal with the concerns that are raised vis-à-vis customers who are still primary exchange service customers? And your question around safeguards, I think, from our perspective, leads to some contribution discussions, which Willie will address.

1490 MR. GRIEVE: I read very carefully what the TWU said in there because the words were very familiar. Commissioner Colville will remember many of the same words in 1991 being spoken at the long distance competition hearings. So as Janet says, this isn't an issue, really, of Voice over IP or anything else, it's really an issue of competition.

1491 The Commission made the decision to embark on the road, down the road to competition. Then, Parliament caught up and put it in the act for you. So the Commission has been very aware of this issue over the years and actually has dealt with it, almost entirely dealt with it.

1492 The way the Commission has dealt with it is, over time, it developed, originally, in 79-11, pardon me, and then in 92-12 it had another contribution mechanism. There has always been some sort of contribution mechanism. Then, in 2000, it modernized its contribution mechanism to make it on the basis of revenues. And once you make it on the basis of revenues and you calculate how much contribution is needed in order to support the customers that the TWU mentions it's concerned about, and that we are also concerned about, in order to support them you have a contribution mechanism that collects contribution, not just from regulated services, but also from forborne service and from deregulated services or unregulated services right across the whole span of services.

1493 So if there is a concern about revenues coming from -- about the ILECs getting into unregulated services and somehow leaving these customers high and dry, the mechanism is there to prevent that from happening.

1494 COMMISSIONER LANGFORD: And we would have to switch who could receive it, then, from the high cost back down through all of Canada, is that what you are suggesting? I mean, who would able to -- in this renewed or new use of this mechanism, who would be eligible to receive --

1495 MR. GRIEVE: It's not a new use of the mechanism, at all. The mechanism that was designed and put together in 2000, first of all, there are two sides to contribution. There is the collection of contribution, and then there is the pay out of contribution.

1496 The collection of contribution collects contribution from all of the services that the TWU mentions that it's concerned about: the unregulated services. Well, contributions collected from those services, as well as tariff services, and put into a pot, then when it's paid out, it's paid out to support the customers, the services, the primary exchange services, to those customers in high cost-serving area who need the support.

1497 So I think that the mechanism is paid out to --

1498 COMMISSIONER LANGFORD: To high-cost, in high-cost areas.

1499 MR. GRIEVE: It's paid out, yes.

1500 COMMISSIONER LANGFORD: So what happens 10 years down the line, if people who need the support are in low-cost, if I can call it that, serving areas or in the middle of Vancouver?

1501 MR. GRIEVE: Well, I think one of the things that the TWU mentions is that they are concerned about customers in these rural areas not getting the benefits of these lower prices the competition is bringing, and so they are protected in two ways: one, if there is competition that comes, which is TWU's concern about the prices going down in some areas and not in others, well, then, those customers will also get the benefit of lower prices.

1502 If competition doesn't come in a particular geographic area, then the regulator is there to ensure the prices remain affordable.

1503 DR. CRANDALL: Could I add something to that?

1504 COMMISSIONER LANGFORD: Yes.

1505 DR. CRANDALL: You are probably aware that telecom revenues are fix-wire operators. ILECs, CLECs, everybody combined, are falling everywhere in the world, I mean, not just in real dollars, in nominal dollars, and they are falling at a fairly rapid rate now, an increasingly rapid rate.

1506 Those people who have network facilities, such as the people to my right here, have to worry about where they are going to get revenues to support those networks. Clearly, it comes from applications.

1507 To the extent that they are regulated in the provision of those applications while others are not, particularly providers from the United States or Ireland or some place else, the revenues will flow to them. It will disadvantage them in being able to provide these services and it will also provide them with the disincentive for rolling out network facilities in marginal areas, because they will have less in the way of incremental revenue they can get from it.

1508 So it strikes me that this is a risk of regulation that you should consider as you go down this road: whether you put the ILECs in precisely the position the TWU worries about, namely by diverting revenues to other application providers and away from the incumbent telephone companies.

1509 COMMISSIONER LANGFORD: Your expert witness has earned his crust today.

--- Laughter / Rires

1510 COMMISSIONER LANGFORD: Thank you very much.

1511 Those are my questions.

1512 THE CHAIRPERSON: Thank you.

1513 Thank you very much, Ms Yale, Mr. Grieve, ladies and gentlemen.

1514 Madam la secrétaire.

1515 THE SECRETARY: Thank you, Mr. Chairman.

1516 For appearance number six, I am now calling Northwestel Inc.

1517 Gentlemen, please present yourself and proceed with your 20-minute presentation.

PRESENTATION / PRÉSENTATION

1518 MR. FLAHERTY: Thank you.

1519 Mr. Chairman, members of the Commission, my name is Paul Flaherty. I'm the president and CEO of Northwestel.

1520 On my left is Dallas Yeulet. Dallas is the manager of Regulatory Affairs in Northwestel. And on my right on is Phil Rogers, our legal counsel assisting us in this endeavour.

1521 Northwestel is pleased to appear before the Commission in this public consultation regarding voice over Internet services. We appear today to provide our perspective on these issues as a northern-based service provider.

1522 IP-based services, including Voice over IP, offer both great opportunities and great challenges to northern Canada. Northwestel welcomes these opportunities and challenges, nevertheless, Northwestel urges the Commission to bear in mind that the North represents a unique telecommunications environment and, as a result, poses special risks.

1523 Regardless of the rules introduced for the rest of Canada as a result of this proceeding, changes to the current northern regulatory framework will need to be considered so as not to undermine the carefully balanced framework established by the CRTC to ensure the sustainability of the northern telecommunications infrastructure.

1524 The Commission has consistently found that there are important differences between the provision of telecommunication services in the North and the rest of Canada. In decisions 99-16 and 2000-746, the Commission recognized the high-cost nature of the access and transport network in the North and the services that ride on that network. Some of these unique characteristics include: the companies operating area, spread over 40 per cent of Canada's landmass and yet serving only 110,000 people -- and you can see that in Attachment 2, and 1, as well.

1525 Secondly, a few large businesses and government customers account for a relatively large portion of the voice and data market relative to the experience in southern Canada.

1526 Seventy per cent of Northwestel's communities have less than 500 network access services.

1527 Fourthly, 50 per cent of Northwestel's communities are served by satellite. Attachment 2, again, will highlight some of those areas and Attachment 3 will give you a visual perspective of a northern community served by satellite.

1528 Five, a relatively large portion of the company's transport network is served by microwave.

1529 Six, a third of the company's microwave sites are helicopter-accessible only. Again, Attachments 4 and 5 highlight some of those sites and some of the unique challenges in getting to them.

1530 Finally, item seven, 60 per cent of households in the North have access to broadband Internet and within the next few years this is expected to grow.

1531 In light of these realities, the Commission has designed a unique regulatory regime that recognizes the high-cost characteristics of this environment. The key objectives of the framework are to enhance the provision of high-quality services in the North at rates reasonably similar to the south, promote rationale competition and ensure that Northwestel remains the telecommunications service provider of last resort in all communities throughout the North.

1532 To accomplish these objectives, the Commission introduced long distance competition in 2001, but, to date, has prohibited local competition. The Commission has approved a relatively large service improvement program, $75 million, and has established a framework that relies on a careful balancing of local, long distance, carrier access tariffs, settlement rates and revenues, as well as supplementary funding, which is $13.4 million, on an interim basis, in 2003.

1533 Changes to any one element of this framework must carefully be considered to avoid undermining the balance that ensures the sustainability of the telecommunications infrastructure that exists in northern Canada today.

1534 The introduction of Voice over IP services necessitates a review of all of these components, most importantly, a review of contribution and supplementary funding, before it is allowed to proceed in the North.

1535 Many parties to this proceeding have referred to VoIP as a disruptive technology. What makes IP applications disruptive is that the underlying IP technology encourages the convergence of services once considered very distinct. Technology is rendering meaningless the distinction between local and long distance services, as well as the delineation between voice and data services.

1536 While still in the early stages, it is this integration and flexibility that will make VoIP services attractive to customers and service providers. At the same time, it will also erode the revenues that sustain the northern telecom network. As I noted, local competition is currently prohibited in the areas served by Northwestel.

1537 Access to northern-based telephone numbers and number portability are not available to competitors. Therefore, VoIP services, which supply an underlying network connection to the service providers network, as well as the VoIP service, would not be permitted at this time; however, VoIP service providers are already offering other types of VoIP services in the north. While revenue erosion to Northwestel's long distance services is currently believed to be minimal, adoption of Voice over IP can be expected to grow rapidly, as quality and functionality issues are resolved. In a few cases, customers may even decide to replace their traditional PES service.

1538 Although Northwestel is not in a position to give a detailed forecasting of VoIP growth in the North, implications for the North may be more profound than in the south. For example, in the initial stages, some northern customers are likely to view VoIP as a very attractive alternative to bypass conventional long distance services. Toll rates in the North, though reduced in recent years, continue to remain higher than rates available from southern-based companies or recent VoIP entrants.

1539 In addition to lost toll revenues, Northwestel is concerned about the impending erosion of contribution and settlement revenues, as northern customers adopt VoIP alternatives. If 10 per cent of the company's customers were to migrate to a competitive VoIP alternative, Northwestel would expect to lose approximately $9 million in total revenues, which would equate to about a 70 per cent increase into supplementary funding to make up the shortfall.

1540 In the North, the Commission has maintained a traffic-based contribution mechanism, using long distance conversation minutes, specifically a carrier access tariff, which consists of the following components: contribution to the local network, switching and aggregation and recovery of costs associated with equal-access start-up.

1541 The CAT rate approved in Decision 2000-746 is below full cost and is designed to promote rationale growth of competition, while still maximizing revenue sources before depending on supplementary funding. While the CAT rate, currently at 7 cents a minute, is below cost, it, along with settlement and toll, comprise a relatively large percentage of Northwestel's revenues -- $46 million, or 33 per cent of Northwestel's total revenues -- however, VoIP services originating, terminating or transiting in the north will, in many cases, avoid paying the CAT. For example, as identified in our interrogator responses to this proceeding, the company cannot distinguish between voice and data carried on the data network, and, therefore, cannot measure VoIP traffic.

1542 In our view, it would not be fair or beneficial to long-term development and maintenance of the network if certain types of services that ride on that network do not pay contribution. The network that provisions traditional Legacy services will, for the most part, be the same the network that allows for VoIP services.

1543 It is Northwestel's position that the costly and long-term nature of the underlying PSTN facilities in the North must have a bearing on decisions where and when to provide these IP-based services. If the applications using those services do not adequately pay contribution to support the northern network they use, the continued viability of that network will be jeopardized. In addition, if the carrier access tariff and settlement costs can be bypassed, this will encourage further market distortions.

1544 In the course of this proceeding, the Commission will have an opportunity to consider applying a mechanism to capture appropriate contribution from these services to support Northwestel's access and transport network and to impose a fair and reasonable share of network costs to those services utilizing these facilities.

1545 Without such contribution, the regulatory framework would extend an undue preference to third-party VoIP application providers and their end users to the prejudice of all Legacy service end users. It may well be difficult to measure or impose a per-minute contribution or a proxy measure on VoIP providers in the North. If a measure cannot be identified, then the resulting shortfall will need to be made up by either user rates, increased supplemental funding or a combination thereof.

1546 Northwestel is in the very early stages of evaluating the impacts of VoIP in the North and cannot provide definitive views as to what might be the optimal regulatory environment for VoIP services. However, Northwestel has concerns with the Commission's preliminary view that VoIP services, which provide access to the PSTN, should be regulated in the same fashion as traditional Legacy services, while VoIP services that do not are retail Internet services and, therefore, not regulated.

1547 As mentioned previously, given the variety of VoIP services that are and will be available and the variety of current and future VoIP providers, once the company begins to offer such services Northwestel will not have a dominant position in the provision of IP applications in the north. The Commission should not oppose economic regulation where no market dominance is clearly established.

1548 Moreover, Northwestel is unsure how the Commission can effectively monitor or regulate VoIP traffic and services available on the world wide web when PSTN conversion may be provided outside of Canada. Given that data packets move across multiple paths between IP addresses without clear traditional exchange boundary and across international borders, it is not clear how the Commission could impose effective controls. Generally a VoIP customer can plug into any high speed internet port in the world and establish service. The VoIP customer is free to move to any other high speed internet port within or outside Canada and re-establish the service at their convenience.

1549 In conclusion, the current regulatory regime is working well in the north. However, the introduction of VoIP services brings a number of unique concerns and challenges for the north which must be recognized by the Commission in the course of this proceeding. VoIP service will erode the current fine balance struck by the Commission between contribution, settlement, toll and local access revenues which, along with supplemental funding, maintains the Northern Telecommunications Network.

1550 Under this framework Northwestel is the provider of last resort in all 96 communities. If that obligation to provide legacy services is to continue, the Commission must decide how the revenue shortfall will be recovered, either through a change in contribution, legacy service rates, supplementary funding or a combination thereof.

1551 Thank you, Mr. Chairman, and I would be happy to entertain any questions that you may have.

1552 THE CHAIR: Thank you very much. Vice-Chair Wylie.

1553 COMMISSIONER WYLIE: Thank you, Mr. Chairman.

1554 Good evening, Mr. Flaherty and Mr. Rogers. Yes, Mr. Rogers, it is past 6:00, I see you looking at your watch.

1555 Gentlemen, your oral presentation today focuses primarily on the potential effect of the deployment of VoIP on Northwestel as a northern based service provider who is already regulated, taking into consideration its particular circumstances. I guess the worry is the potential erosion of contribution and supplement revenues or the possible need for supplementary funding to recover increased revenue shortfalls. It is quite possible that all these issues will have to be addressed at sometime, some of them you would like addressed in this proceeding.

1556 I will go more to your written comments, which were more generally addressing the issues that were raised in the 2004 public notice and request for comment. In particular, I will try to explore with you your position that you are not in favour of economic regulations for VoIP services. I assume that that position is with regard to Northwestel and with regard to any of the other potential providers that the Commission... the ILECs, in particular, that the Commission has as of a preliminary view the possibility of tariffing. So, it is for all the ILECs, it is a position you are taking in principle.

1557 MR. FLAHERTY: We speak generally on behalf of Northwestel specifically, but it could apply to the others as well. It really comes back to I think some of the discussion that was in the previous panel about the dynamics of the marketplace. Specifically, in the case of Northwestel, if you look at all of the names of companies who have been mentioned here today, they are all much larger than Northwestel and very easily could introduce price controls or the like that could have a very negative effect on Northwestel. We are really not in a position to get into a price war over companies, I say, that have customer bases that begin probably four, five, six, seven times the size of Northwestel and go substantially or exponentially higher than that.

1558 COMMISSIONER WYLIE: Are you prepared, however, to explore with me your position which seems to be wider than that, which is there should be no economic regulation? I'm looking, in particular, at paragraph 15 of your comment where you say that in a very general way that the nature of VoIP demonstrates that the system of economic regulation developed for traditional ILEC service is unnecessary in this case. So I am looking at them if you are prepared to discuss with us your position.

1559 And, if I look at paragraph 5 of your written comment you express the view that the Commission's preliminary analysis in Telecom 2004-2 contains and I am quoting, "No consideration of the relative position of end users and whether their interest in VoIP services require or would benefit from regulation."

1560 From the following sentence, which is "It is a fundamental principle of economic regulation that where it is necessary it must serve to protect the interest of users." Can I conclude from that sentence that your comment about no need for regulation is limited to tariffing of VoIP services and does not extend to the social obligations that are largely delineated in decision 97-8 or, as have been discussed today, issues related to equitable and unfettered access to transport facilities and to the deployment of VoIP on a provider facility? So, when you say that we failed to have taken consideration whether end users needed to be protected, you are speaking of tariffing here, of economic regulation, not of the other two?

1561 MR. FLAHERTY: Yes, that is correct. We basically, in a lot of what we are referring to here, again repeats much of what you heard from the previous panel, in that particularly when you look at access independent voice over IP consumers have multiple choices there in terms of both the access component as well as the application component as well.

1562 COMMISSIONER WYLIE: Yes, and that leads me quite easily then to your paragraph 11 where you pause it as a reason why economic regulation is not required to protect the interest of users, the fact that users will have choice. The sentence is, "In fact, users will exercise control over their VoIP service providers, not the reverse, the choice of and use of VoIP service, etc. So similarly, at paragraph 18, I think you again refer to choice and use that word to address what you perceive to be the reason why in wireless the Commission didn't feel that economic regulation was necessary.

1563 So, to you, choice is the determinative factor as to whether economic regulation is necessary to protect the interests of users?

1564 MR. FLAHERTY: I think choice is one very important element. I wouldn't say it is the only factor. I think market position of the relative individual groups providing the services will. Today, for example, if I look at Northwestel, we don't offer a voice over IP service. So to say that somehow we would have some dominance in that market is clearly not the case. We are very--

1565 COMMISSIONER WYLIE: No, I'm speaking more generally. Interestingly, in that paragraph 18 you reference section 34(2) of the Telecom Act and although the words you use about the need to protect the interests of users are the same as in 34(2). But 34(2) uses the word "competition", you use the word "choice." I am interested to know whether, in your view, those two words are synonymous?

1566 MR. ROGERS: Commissioner Wylie, I think I could respond to that. You are correct that the words "interests of users" are found in section 34, which is the forbearance provision of the act. When determining whether or not to apply forbearance in any given market, the Commission is looking at whether or not the elements are necessary and in place to ensure that the interests of users are adequately protected by competition, that is the whole point of the exercise.

1567 If consumers do have lots of choice, that would be at least one indication that competition is working adequately. It may not be a sufficient test in itself, but if there is a lot of choice it would be certainly a first step towards such a finding.

1568 COMMISSIONER WYLIE: Then, what was your view about the following question? Could the commercial dominance of the provider of the service, for example primary exchange service, which in your own words --and I can indicate which one to you if necessary -- you say that it has public PES, it has similar characteristics although not the equivalent of VoIP. Could it be that commercial dominance in a market could thwart competition even in the face of choice?

1569 MR. FLAHERTY: I think the key here, again I go back to the last panel, I thought they described it very well. I think the services are similar, but only to a very small extent. I think they are very different services and I think the fact that you have a PEZ service that the incumbent Telco is providing by no means guarantees you voice over IP customers. You are going to have to provide your own service and you are going to have to provide the quality that goes with that service and that's going to be the determining factor, not the fact that you have existing PEZ customers.

1570 COMMISSIONER WYLIE: But what is your answer to the question whether commercial dominance can thwart competition even in the face of choice? Are there not circumstances where that could be the case? Because, in your submission on no economic regulation you use the word "choice" much more than you use the word "competition", which is intriguing because you use exactly the same words. When is it that there is a need to have regulation? And you have said economic regulation was what you were focusing on. Here in that subsection it says presumably we could forebear from economic regulations if a service is or will be subject to competition sufficient to protect the interest of users. But you substitute the word "choice". I am kind of curious to know -- this is very much what we have heard today, that there will be many providers, that there will be a choice, the end user will have a choice and that is good enough to forebear and we shouldn't worry about dominance in the provision of a service that has similar characteristics even if we agree that they are not completely equivalent because of a lot of the factors that have been put forward today.

1571 MR. ROGERS: Commissioner Wylie, I might offer a reflection or a response on that point that you raise. I think it is a good point. If we consider the state of the primary exchange service market today and the position of the incumbents, I think many people would probably take the view of that the incumbents are dominant in the wire line local exchange service and the Commission, of course, is not forborne with respect to that service.

1572 But, at the same time, the Commission has forborne with respect to other services where there is choice and where there is a degree of similarity or overlap with the functionality of primary exchange service, and the primary example of that is wireless. The Commission proceeded with the forbearance in respect of wireless notwithstanding its clear determination that primary exchange service wire line is still dominant with the incumbents.

1573 But what the Commission did is they looked at it and they recognized that there are differences between wireless exchange service and incumbent wire line exchange service. And it recognized, of course, there is choice, there has always been choice and it reached a conclusion with respect to that market and its analysis and conclusion with respect to that market was not coloured by the fact but, in fact, it was not contested that the primary exchange wire line market remains dominated. What the Commission did is a proper functional analysis of this new service called wireless which, most would agree, has many characteristics that overlap with traditional local exchange service.

1574 So I would commend that analysis that the Commission has done and urge you to consider the same sort of approach in respect of VoIP services.

1575 COMMISSIONER WYLIE: If you ended up with a duopoly, there would be choice. Would there necessarily be competition?

1576 That's what I am trying to see. Whether those two words are interchangeable.

1577 MR. FLAHERTY: Could explain what -- the premise of your question refers to a duopoly?

1578 COMMISSIONER WYLIE: Suppose at the end of the day we had just two suppliers of VoIP service, there would be choice to the consumer, but only two. One with dominance and with none. Would there be competition?

1579 MR. ROGERS: Mr. Flaherty may want to offer his perspective. I offer you this --

1580 COMMISSIONER WYLIE: Because the preliminary view and those who support it seem to base it on dominance in a similar service. So I am curious to see.

1581 You obviously don't agree with that view and feel that there is no need for economic regulation. I am trying to get a little further into what are the criteria that you look at to decide that 34-02 would apply.

1582 MR. ROGERS: Commissioner Wylie, even if we accept the premise of your question that there should be a duopoly in VoIP, just for the purposes of this discussion, the Commission has already proceeded down that path -- and I refer again to its analysis and conclusion to forbear with respect to wireless services, which, you will recall, began as a duopoly, and Commission's intention, from that time, was not to regulate cellular service.

1583 It was regarded as an ancillary service adjacent to, somewhat overlapping, but still an entirely optional service.

1584 So, even when there was a duopoly the Commission reached that conclusion. However, I would have to say that I really could not accept the premise of the question because there is no indication that we could ended up with a duopoly in VoIP.

1585 We already have six to eight or ten VoIP providers today in Canada, and these are national and international providers, and they have entered before the Commission has even established a regulatory regime.

1586 There is no indication that these companies based in the United States and Europe are going to go away. So I would ask you to re-consider the feasibility of the duopoly which was the premise of your question.

1587 COMMISSIONER WYLIE: Now, at paragraph 39 of your application, you state that, and I quote:

"It is difficult to forecast the timing and rate of acceptance of such an integrated services model where VoIP services would be integrated with other similar IP applications." (As read)

1588 That comment is made again by reference to the effect of this in the North.

1589 But, what is your view on -- since there is, you feel it, it's difficult to forecast what will happen -- what is your view as to whether if perhaps only as and how VoIP takes hold that the Commission will know whether there will be or is a need to tariff in order to protect the interest of users?

1590 In other words, to follow on some of the discussion this morning what you have got are the social obligations -- I think it was Comwave, I stand to be corrected, but who said, well, don't mandate these social obligations, the market will force us to develop them, and if and when you see that it hasn't worked that way, then mandate.

1591 Can we discuss whether that's also a possible approach to tariffing? That today you are of the view that there will be sufficient choice or competition to not have economic regulations? But is it possible that the need would develop in the future? And if so, what would be the indices that we have reached that point?

1592 MR. ROGERS: I think, to your comment about social obligations, Northwestel would fully support the need for us all to be aware of social obligations, whether it would be --

1593 COMMISSIONER WYLIE: Yes. (off mic...) I was just trying to draw a parallel between say, we agree that there should be social obligations, but you don't have to do anything about it, you don't have to mandate requirements, was what we heard this morning from one party.

1594 If and when the need arises because the market forces have not been sufficient to do it, then you can step in.

1595 Could we make a parallel to tariffing, that if the world doesn't develop the way you think it will and the way those who are against the idea of economic regulation, that you could wait and see what happens and jump in at that time with economic regulation?

1596 And, if you agree that this is a possibility, what would be the indices, as VoIP develops, that tells you, you have reached that point where maybe to go back to 34-2 to protect the interest of users you have to do something as a regulator?

1597 MR. ROGERS: I will start with a brief comment. Then I will ask Mr. Rogers to step in as well.

1598 Again, the context that you are reading from in item 39 here is more around the sustainability of telecommunications in Northern Canada.

1599 COMMISSIONER WYLIE: It's my drafting question.

--- Laughter / Rires

1600 MR. FLAHERTY: I think that's the point that we are really to stress more than anything else.

1601 I'll Mr. Rogers to comment.

1602 MR. ROGERS: Commissioner Wylie, I think, if I understand your question, you are raising the point, at what point would there be indicia that would indicated that there is something out of order and that would require the Commission to step in, and if so, how would it do so?

1603 The Commission has a long history in dealing with this precise issue. The Commission, as you know, has forborne with respect to many services in Canada and has achieved frankly a great success in that regard.

1604 People are quite quick to criticize the Commission constantly, but we can just rhyme off starting with private line inter-exchange connection, terminal equipment, cellular services, long distance services, retail internet access services. These are all services which have been forborne for many years by conscious decision of the Commission.

1605 The markets are successful. The Commission frankly deserves credit for dealing with it properly. You asked, well, how would we then determine if something is not going right?

1606 The Commission, in most cases, applies forbearance by retaining Section 24 powers to attach conditions if necessary. It has attached conditions, for example, underlying access conditions that are imposed on service providers, network providers.

1607 Also, Section 27 is commonly maintained, as you'll recall, in many cases where the Commission can deal with cases of obvious undue or unjust preference.

1608 These are tools which are at the Commission's disposal. They have been used many times before.

1609 I would just observe the fact that the Commission has applied those, even in forborne markets where it found there was an abuse. But it has not to date, to my recollection, actually rolled back any forbearance decision and undone forbearance.

1610 The tools that are at the disposal of the Commission are reasonable and adequate, and the Commission can deal with those cases if they arise.

1611 COMMISSIONER WYLIE: So, despite the fact that it's very difficult to forecast the timing and the rate of acceptance of the deployment, and to forecast what the deployment of VoIP will look like, you would be prepared to forbear and not --

1612 You see, if the examples that you give are going the other way, where services were tariffed and they were forborne, what I was positing was the possibility that you were forbear and make a mistake and that those who tell us that because of the dominance of the ILECs we need to tariff them.

1613 Could it be that we could wait and see, are there sufficient indices for us to trust that things will develop as you pose it, but that if they don't you used the power then to step back in and correct the misconception?

1614 MR. ROGERS: Commissioner Wylie, I don't think there has been any dispute in all the evidence and that there would much dispute in this proceeding as to how much choice there is, but there is lots of choice. There is no question about that.

1615 In the case of Northwestel, as Mr. Flaherty said, there are six or eight providers today, and Northwestel is not one of them. So there is choice today.

1616 The question that you raised is, if you were to proceed with forbearance of this type of service, say in access-independent service, what analysis would you apply, and then what tool would you have available if something went wrong?

1617 The most applicable example that I would draw to your attention is the Commission's decision with respect to forbearance in retail internet services.

1618 That was a case where the Commission had not tariffed such services. It was a brand new service which was clearly becoming available by many providers.

1619 The Commission had to examine the availability of those services, and it reached the conclusion very early in the game that this was not a service that warranted tariff regulation.

1620 The Commission was absolutely correct to reach that conclusion. The retail internet market in Canada is a success, a great success.

1621 If it was not a success and there were major problems -- and these do arise from time to time. The Commission hears about them. The Commission its new expedited oral processes, as you know, and it deals with a number of ISP issues on access.

1622 Those are things which occur from time to time, but it doesn't mean that the Commission needs to undo the forbearance which it has granted with respect to retail internet services.

1623 So I would ask you to consider that as the most applicable. It's also the market which is most relevant to VoIP, which is an application riding on that service.

1624 COMMISSIONER WYLIE: Forbearance is obviously, as it has been developed by the Commission and as it is delineated in Section 34 of the Act, is on certain conditions.

1625 So you could go back and re-adapt the system with economic regulation or whatever other regulation.

1626 I am just curious. Somehow we don't have this position from anyone. It seems to me maybe that we can find that there will be sufficient competition, but that it may not occur.

1627 Those who have a problem with the dominant players may indeed over time prove to have been wrong, or the opposite could be.

1628 So there are really -- you could forbear, you could tariff economically or you could wait and see what is going on.

1629 That's my point.

1630 You have answered to Northwestel, arched to Northwestel too. You were asked, I believe, about the social obligations 9-1-1, safety, et cetera.

1631 If I recall, your answer was that if and when Northwestel would make every effort to supply these social obligations. Do you have -- if it were to offer VoIP. Am I correct?

1632 MR. FLAHERTY: Sorry, we would try and meet social obligations if we were to offer VoIP?

1633 COMMISSIONER WYLIE: Yes.

1634 MR. FLAHERTY: Yes. I guess one of the things, just to keep in mind, a little bit different from the discussion we have heard today, is unfortunately in the North 9-1-1 is not a standard --

1635 COMMISSIONER WYLIE: No. My question was going to more general. Having taken that position, do you have anything to add about what should be happening in general to the other providers with regard to social obligations? Not particularly to Northwestel.

1636 You know, in other words 9-1-1 all these MRS, et cetera, do you have anything to add on the record that --

1637 You don't have to, but we have been asking everybody what their positions are as to how they should develop.

1638 MR. FLAHERTY: As I said earlier, we don't have any objection to the social obligations. I think it is going to have to take efforts on the part of all parties to be able to make sure they get addressed in an effective fashion.

1639 COMMISSIONER WYLIE: Thank you very much.

1640 Thank you Mr. Chairman.

1641 THE CHAIRPERSON: Thank you.

1642 Commissioner Williams.

1643 COMMISSIONER WILLIAMS: Good afternoon or evening, Mr. Flaherty, Weulett

and Rogers.

1644 Northwestel is a relatively small company as compared to some of these competitors that we envision in this business, I believe you said.

1645 Who would own Northwestel? Are they a small company as well?

1646 MR. FLAHERTY: Bell Canada owns Northwestel.

1647 COMMISSIONER WILLIAMS: Okay.

1648 MR. FLAHERTY: I must say though, while Bell Canada does own Northwestel, we operate very independently.

1649 We raise all of our own financing totally independent of Bell Canada. So we are independent to the bond market for our performance independent of Bell Canada.

1650 COMMISSIONER WILLIAMS: Okay.

1651 One of the Northern competitors, I guess, or want-to-be competitors, NewNorth Network, out of the Town of Inuvik, has put forward that the Commission should set in place a framework that will enable broadband carriers in the North to enter the VoIP market consistent with entrance in the rest of the country in an expeditious manner.

1652 I guess I am interested in, when in your opinion should VoIP be introduced to the North?

1653 MR. FLAHERTY: Thank you, Commissioner Williams.

1654 In fact, today, I would surmise that there is Voice over IP services being provided in the North now and that the concern that we have is the contribution mechanism that we have, which is based on minutes of traffic, don't capture any use of that network.

1655 So the concern that we have is, in its current form, in fact people are able to bypass both. From a consumer point of view, they might be able to get access to cheaper long-distance rates by using a Southern provider. Likewise the providers are able to bypass the carrier access tariff system.

1656 So it is sort of a false economy of scale, in that everyone is of the opinion they are getting access to lower-cost rates, but the underlying infrastructure costs are exactly the same, and we don't have the same revenue supporting that underlying infrastructure cost.

1657 In terms of local-based services, that really comes back to sort of the whole notion of local competition, and Northwestel would submit that, rather than having local competition start in a roundabout way through a Voice over IP evolution, we need to have a detailed hearing to determine what are the issues of around local competition and what should be addressed in those areas.

1658 COMMISSIONER WILLIAMS: Yes. I go to your presentation today, and part of it, on page 4 specifically, says, in light of these realities the Commission has designed a unique regulatory regime for your operating area, and I guess in the last sentence in that page, you talk about the introduction of VoIP necessitates a review of all of these components for those reasons.

1659 Northwestel is a service provider of last resort. How widely deployed is 9-1-1 in your operating area?

1660 MR. FLAHERTY: 9-1-1 is actually little provided. We have 96 communities that we provide service to in all, but six.

1661 So, in other words, 90 communities do not have access to 9-1-1. Part of the challenge there is that the network has some of the capabilities to do that, but the municipalities have not found the wherewithal to be able to do it.

1662 So, for example, you are probably aware that in Yellowknife there has been lots of dialogue on 9-1-1.

1663 It is indeed an issue of cost --

1664 COMMISSIONER WILLIAMS: And nobody there to pay for it yet.

1665 MR. FLAHERTY: Yes. Exactly.

1666 COMMISSIONER WILLIAMS: How widely deployed is broad-band capability in your operating area?

1667 MR. FLAHERTY: At the present time we estimate that approximately two thirds of all the households in Northern Canada have access to broad band. Probably only about half of that number actually exercise that access.

1668 That number is likely to change in the near future. There are applications in front of Industry Canada through the BRAND program. Particularly in the Northwest Territories, for example, that if that were to change it would see it significantly increase.

1669 So it is very much dependent on the territory. The Yukon, by the end of the year, all of the communities in the Yukon will have access to broad band.

1670 The same in Nunavut. The BRAND proposal that was funded by Industry Canada will provide high-speed internet access to all communities.

1671 That leaves largely the Northwest Territories --

1672 COMMISSIONER WILLIAMS: Is Northwestel the main provisioner of this broad band access?

1673 MR. FLAHERTY: Depending on the community. Our largest market is Whitehorse, and I would suggest we probably have an equal market share to the cable company that is located in Whitehorse.

1674 In Yellowknife, we do have a competitor as well, but probably are the dominant provider.

1675 Then, of course, when you get to the very small communities where, you know, unfortunately, I think to even have one provider, Northwestel generally is that provider.

1676 MEMBER WILLIAMS: So what plans would Northwestel have in the future, I guess, to deploy its own version of VoIP?

1677 MR. FLAHERTY: We are really just in the infancy of evaluating VoIP. One of the challenges that we have is the same is the same challenge that we continually refer to, and that's one of gale in scope.

1678 You know, we have such a large geography, and yet such few numbers of customers, that it makes it quite challenging.

1679 One of the requirements that we understand for these types of services, is broad band pipes.

1680 So in Southern Canada there is a lot of fiber-optic facilities that have quite a bit of capacity.

1681 Our Northern networks generally don't have large pipes that run between communities.

1682 So, for example, we have recently had some dialogue with, again, government officials about putting even fiber-optic cable, just to two communities, Yellowknife and Whitehorse.

1683 That would probably cost us in excess of 20 million dollars, just to go to those communities alone.

1684 The other challenge that we have got is 46 of our communities are served by satellite. So again, some of the technology that's being contemplated there, there is not a lot of track record of using it over satellite either.

1685 So we have got some very unique circumstances that we have to be able to understand clearly, some of the things that are driving, say Bell Canada, for example, are cost reductions.

1686 They have developed a lot of complex data platforms over the years, and there is an opportunity to bring them on to one platform.

1687 We haven't had that opportunity. That hasn't unfolded in our territory.

1688 Again, given the very remote nature and the limited number of users, we are not convinced that the scale or scope is there to do the same kind of thing.

1689 So really we are trying to evaluate. Probably in the next year or so we will be in a much better position to evaluate what is practical for Northern Canada.

1690 COMMISSIONER WILLIAMS: Could you please describe the effect on your company and on your customers if the CRTC's preliminary view on VoIP were implemented as is in the North?

1691 MR. FLAHERTY: One important element that we are trying to stress throughout this is the need for the contribution issue to be addressed.

1692 COMMISSIONER WILLIAMS: Yes.

1693 MR. FLAHERTY: That is the most critical piece from our perspective, more than anything else.

1694 If it is such a fragile network, today we do have supplementary funding, indicating that it isn't self-sustaining on its own.

1695 So again, if we were to introduce a new system, whether Northwestel were providing it or whether it is just with the existing carriers in Canada, the big concern is that moneys would flow out of that system and you would not have the same level of revenues to support the network going forward, and therefore either have to raise rates or raise supplemental funding if contribution isn't addressed.

1696 So I think one very critical element for us specifically is around the contribution that would be lost unless something else was done.

1697 We feel strongly that needs to be addressed in this proceeding.

1698 COMMISSIONER WILLIAMS: And making it more difficult I imagine to fulfil your responsibilities as a carrier of last resort in that area.

1699 MR. FLAHERTY: Exactly.

1700 COMMISSIONER WILLIAMS: Okay.

1701 Thank you very much, Mr. Flaherty.

1702 I have no further questions.

1703 THE CHAIRPERSON: Thank you.

1704 Thank you very much gentlemen, we will break now and resume at 7:15.

1705 Nous reprendrons à 7 h 15.

1706 Within the next item.

--- Upon recessing at 1840 / Suspension à 1840

--- Upon resuming at 1918 / Reprise à 1918

1707 THE CHAIRPERSON: Madam Secretary.

1708 THE SECRETARY: Thank you, Mr. Chairman.

1709 Next on the agenda, Mr. Quail for B.C. Public Interest Advocacy Centre on behalf of BCOAPO et al.

PRÉSENTATION / PRESENTATION

1710 MR. QUAIL: The world looks very different depending on which end of the telescope you are looking at it through. What I urge the Commission to do is to be sure to take a good hard look at the view from the consumer's perspective because what it all comes down to is the Commission's primary customer, if I can use that word, is the Canadian public. It is not the telecommunications industry.

1711 Our clients who comprise a broad coalition of community groups representing seniors, tenants and low income consumers commend the basic approach charted by the Commission's preliminary views on the regulation of Voice over Internet telephony. I hate using VoIP. It is a terrible acronym. You would think with all the bright people in the industry they could come up with something better than that, VoIP.

1712 I was thinking with emergency response that would be VIPER which has a little more of a ring to it. Anyway, back to my comments.

1713 The guiding principle of technological neutrality and the focus on the fundamental character of the service being provided to the public is the key to getting it right in this area. It is a real challenge to achieve clear-sightedness when it comes to regulatory issues touched by the Internet. I know they are a challenge to my comprehension of a lot of the issues.

1714 The first obstacle is a thick overlay of technobabble, pseudomystic and pervasive what I would call a geewhillikers hype.

1715 Another obstacle is the propensity of many parties to conjure up hypothetical obscure or exceptional scenarios to cloud the fundamental issues. The suggestion that if the regulatory approach is in any imaginable instance imperfect, it is fatally flawed and should be discarded. The Commission should keep its eye on the ball and be guided by the big picture that is emerging, the general characteristics such as they can be seen at this point of the Voice over Internet platform.

1716 Let's be real. From the customer's perspective for the foreseeable future almost all residential Voice over Internet service in Canada will likely consist of simply a cheaper way to pay for the phone that is plugged into the wall at home.

1717 While the Commission should take account of other exceptional circumstances where that can usefully be done, the exception should not drive the design of the regime. I pause there to say that a significant exception in my submission is full-fledged E-911 emergency services. In my submission, it is important that there is no loose pieces clanking around in the system in that part of the regime.

1718 In response to a suggestion from Vonage this morning, the scheme of the Telecommunications Act is not that a field is unregulated unless the market fails. The scheme is that the telecommunications sector is subject to regulation but the Commission may forbear if the market forces in place are shown to be adequate.

1719 I also recall one of the submissions by TELUS seemed to suggest almost a reverse onus. We put that back to them in our interrogatories and they assured us that that was not what they were intending to suggest.

1720 I am sure everyone will be disappointed. I am going to skip over a bunch of legal argument about jurisdiction. I had expected this would surface as an issue on the basis of some interrogatories sent to the parties by Bell et al that seems to have gone away as an issue presumably because of the recent Supreme Court of Canada decision. Suffice it to say that in our submission the Commission has the legal jurisdiction to regulate any VoIP provider anywhere with respect to services being provided to people in Canada.

1721 I should also say, just to be completely clear, that our clients believe that the Commission's proposed amendment to Bell Canada et al's definition of PSTN Voice is an appropriate one. The reference I can give, that was an issue that arose in many of the interrogatories in the proceedings is 11 August 04 BCOAPO et al/CRTC 16 July 04-5.

1722 The Commission has powerful tools to shape the emergence and development of this new platform for telephone services and should be ready to make effective use of those tools. We suggest that you assert regulatory authority concerning security and service standards with respect to any provider anywhere that markets Voice over Internet service to Canadians. This approach is not dramatically unlike the regulation of any other form of commerce that may cross international boundaries from time to time.

1723 Local residential wire line telephone service continues stubbornly to exhibit the basic characteristics of a natural monopoly. Despite dramatic changes to the regulatory environment and years of prodding by the Commission, the incumbent telephone companies face no meaningful direct competition in this realm and none is in sight.

1724 The only significant alternative to TELUS and Bell in this sector comes from alternative technologies, up to now exclusively cellular phone service.

1725 While Voice over Internet only represents a negligible fragment of Canada's telecommunications market, there was talk about the number of choices but realistically they are nibbling at the periphery of the telecommunications business in North America and globally. It may have the potential to grow into a significant element in the future.

1726 If Voice over Internet is finally going to bring us serious competition in local residential service, let's make sure we do it right and that the new platform maintains and protects the social values that drive our national telecommunications policy.

1727 Voice over Internet technology holds the potential to introduce the first real challenge to the dominance of the traditional phone companies in local residential wire line service. On the other hand, it could well emerge as yet another arena for the small club of incumbent cable and telephone companies to exploit their installed hardware and their enormous market power to extend their dominance.

1728 I suggest that not only is duopoly not competition, it really means having two ILECs in town.

1729 It is too early to predict with real confidence that market forces will avoid this outcome. Until that point, the Commission must exercise vigilance. Putting Humpty Dumpty back together again if things go wrong is much more difficult than acting prudently and carefully and doing it right at the beginning.

1730 Thus, the approach we submit that is indicated in your preliminary views is on the right track. The Telecommunications Act mandates the Commission to foster competition in Canada's telecommunications sector. In this context, competition means TELUS and BCE losing market share.

1731 Instead of bemoaning this possibility, we submit that BCE should relish the prospect of being freed all the sooner of all economic regulation if indeed VoIP helps to spawn local telephone service competition, and all of this in the context in fact of an expanding market. Loss of market share does not necessarily mean loss, in absolute terms, of market.

1732 So I say to them this is what it looks like. I mean, this is what moving into this new era of competitive markets probably looks like, or something like this, in this sector so get over it.

1733 Now some comments on safety and standards.

1734 Our clients strongly support the preliminary view of the Commission that existing standards for telephone services should apply in a consistent manner regardless of the technological platforms being used. As Public Notice 2004-2 notes at paragraph 24, this includes not only adherence to ILECs by ILECs to their existing tariffs as modified from time to time but also adherence by intended competitors to the existing regulatory rules including the obligations set out in Decision 97-8.

1735 This includes the requirements enumerated in paragraph 288 of that decision:

"LECs are required to satisfy all existing and future regulatory requirements designed to protect customer privacy. These include:

1. Delivery of the privacy indicator when invoked by the end customer;

2. Provision of automated universal per call blocking of calling line identification;

3. Provision of per line call display blocking to qualified end customers;

4. Disallowance of call return to a blocked number;

5. Enforcement of the Commission's restrictions on automatic dialling announcing devices, automatic dialling devices and unsolicited facsimiles applicable in the ILEC territory where they operate; and

6. Provision of universal call trace." (As read)

1736 In short, nobody should be permitted to offer Voice over Internet telephone service to Canadian customers other than peer to peer unless they comply with all of those standards.

1737 The same goes for message relay service. Maintaining universality of access should not be treated as a footnote or as an afterthought. If someone wants to enter the Canadian telecommunications market they must be required to fully implement MRS by a fixed and early date.

1738 Respect for and accommodation for our disabled neighbours is a fundamental Canadian value. If it is left to the industry players to resolve these shortcomings on their own, let's say by market forces or some other fictitious force that would achieve that objective at their own pace, we will see a prolonged and avoidable exclusion of the hearing impaired. It is all a simple question of priorities. It may not be the industries priority, but we submit that it ought to be the Commission's priority.

1739 If we are to believe the hype about the capacities of Voice over Internet we can expect that this platform holds the potential for more flexible and effective communication solutions for Canadians with other kinds of disability as well. Our clients agree with the preliminary view of the Commission that services to persons with disabilities should be referred to CISC. Market forces alone will not ensure that minority segments of the public will reap the full potential benefit of the new communication technologies.

1740 It is the Commission's appropriate role as the protector of the public interest in this sector to intervene and require the industry to fulfil societal needs that may not be placed high on the company's priority list driven by bottom-line considerations.

1741 Perhaps the largest program designed to overcome the inadequacy of market forces in addressing small and expensive market segments is of course the mechanism to collect and distribute contributions for high cost service areas. It is essential that the Commission ensure that the integration of Internet networks into the routing of telephone communications does not undermine this very important program.

1742 We agree with the broadbrush approach charted in Public Notice 2004-2 to incorporate Voice over Internet into this regime, that is, contribution by all service providers.

1743 The industry should not be permitted to carve out exceptions, ways of evading this mechanism, by drawing distinctions within the broad category of Voice over Internet based on technical or contractual characteristics. There has been a lot of categorization in these proceedings, I submit, based on those kinds of characteristics rather than service characteristics.

1744 If a service uses the North American Numbering Plan and is linked to the public switch telephone network, it is subject to the contribution regime.

1745 Providers place special emphasis on the low cost of service typically offering flat monthly rates for unlimited local and long distance telephone service to attract customers to this new platform. It may be that early customers are getting what they are paying for as things stand today, a cheap but in many ways inferior service.

1746 TELUS filed the following comment in response to TELUS/CCTA 16 July 04-11 at page 2:

"Because we lack the market experience needed to understand how consumers will trade off the lower quality of VoIP calls made over today's public Internet against the lower cost for such calls, we cannot offer statistical studies of the substitution of Vonage-like services for traditional ILEC services. Nevertheless I am confident that were firms such as Vonage and Primus to offer their service at $5 per month, many of those consumers who already have high-speed Internet access would replace their traditional ILEC telephone service with Vonage-like service in combination with their high-speed Internet access." (As read)

1747 There is a comment found in Rogers' response to CRTC Interrogatory 16 July 04-3:

"Services without 911 number portability and back-up powering or with lesser voice quality reliability may be less attractive to some customers who place a high value on these elements. As a result, services without these capabilities may have difficulty gaining widespread adoption in the telephone market depending on customers' willingness to make trade-offs with price discounts. Providing nomadic capability and/or foreign exchange telephone numbers..." (As read)

1748 Of course another flavour of bargain basement prices for telephone service:

"...is likely to make a VoIP service more attractive to consumers seeking a lower cost alternative to long distance service rather than primary exchange service." (As read)

1749 In a similar vein, TELUS states the following at page 4 of its response to TELUS/CallNet 16 July 04-3. In TELUS' opinion, access-independent VoIP service and traditional circuit switch voice services are close enough substitutes to be in the same economic market. That question was put to them today of course and they have stated their position on the record. Because customers with high-speed retail Internet access can and would readily shift between them in response to changes in relative prices.

1750 In this context, it is important that the Commission ensure that the result is not a significant undermining of standards, security and public safety in the communications service we all rely upon today.

1751 While the distinct technological capabilities of Voice over Internet need to be recognized and the maximum benefit needs to flow to the public from this technology, it will take careful regulatory oversight to maintain public access and protection.

1752 Voice over Internet offerings available today have serious shortcomings and little to offer in the way of implemented compensatory advantages other than low cost.

1753 The absence of fully implemented E-911 service, for instance, makes Voice over Internet a seriously inappropriate choice for the sole telephone access in a household.

1754 The Commission should recognize that the fundamental basis on which Voice over Internet Phone service is marketed, that is that it is a low-cost but comparable alternative to traditional wire-line service, will lead to increasing numbers of households relying upon it as their sole residential phone access. Indeed, that, in fact, would be the natural outcome of the prevailing marketing strategy of the players in the industry.

1755 So, for instance, YAK said, in its response to the Commission, July 16, 04-03, as it addressed the growth of Voice over Internet as a replacement for the switched-circuit network, and they said:

"The following capabilities and limitations of Voice over Internet Phone services will accelerate the rate at which Canadian consumers adopt the VoIP services as a replacement for primary exchanger service." (As read)

A public perception that VoIP service providers will charge low prices for VoIP service relative to PES and the availability of features, such as nomadic capability, that a significant number of customers value, but that are not available through PES -- and, again, that second bullet is another version of low price -- the same company says in YAK/CRTC 16 July 04-9 that:

"YAK's expectation is that local VoIP services will be a replacement for conventional PES." (As read)

1756 The Commission cannot assume that residential Voice over Internet service will only be deployed as a secondary telephone access platform and that households will retain their regular phone service. On the contrary, the industry, itself, anticipates that an increasing portion of the market will migrate to Voice over Internet as its sole telecommunications service. Its marketing efforts are consistent with that objective -- to some extent, seeking that objective, I submit.

1757 That context lends real urgency to the warnings we are hearing from the intervenors who run 9-1-1 emergency services. Industry players will not make it their top priority to provide a fully featured emergency calling service unless the Commission makes it their top priority -- and you have the tools to do that.

1758 No one should be providing telephone service that does not incorporate 9-1-1 access and you should set a firm early deadline for the implementation of fully featured E-9-1-1 solutions as a condition of licensing. I submit that the analogy of a car without breaks is completely apt.

1759 Warnings and disclaimers for subscribers are not an adequate response. In the event of an emergency, we have all been thoroughly trained through years of public educational campaigns to reach for the nearest phone and call 9-1-1. The person needing emergency assistance may not be the subscriber to the phone service and will often be unaware of any service limitations, like the babysitter in the example that was cited this morning.

1760 In general terms, this is why applying the consumer choice approach to safety and quality of service standards to telephone service rests on a serious fallacy. For instance, if we permit seriously substandard voice quality offerings onto the market as a low-cost consumer choice, the subscriber making that choice is not the only person who is adversely affected. Diminished quality of service affects both parties to a voice communication.

1761 We need to consider a scenario where a significant portion of traffic, and a growing portion, is affected by severe echoing or delay, for instance. From the vantage point of a hearing-impaired person or the vantage point of a person whose first language may not be English or French, the telephone network will become increasingly useless and inaccessible, even if they, personally, have purchased the highest quality available service.

1762 We heard some discussion today on the question of packet prioritization, which, of course, looking through the companies' end of the telescope, is all about competitive advantages. From the consumer's standpoint, that's degradation of network service. It affects everyone who uses the service and it should not be permitted to happen.

1763 We do not make any other vital safety standards optional for consumers. For instance, the use of seat belts in automobiles or helmets on motorcycles is compulsory, for good reason. Homeowners are not left with the choice, as consumers, to build houses that fail to comply with building codes and fire safety standards. Access to fully functional emergency assistance is far too important and the foreseeable consequences of access failure are far to dire to let the industry off the hook with the disclaimer on the customer's invoice. We need to avoid a potentially very nasty irony in calling Voice over Internet a "Killer application".

1764 That having been said, we say that in the meanwhile there is some urgency for the Commission to require all current providers of residential Voice over Internet service to explicitly warn users of the deficiencies in the 9-1-1 services they bundle with their offerings. It is reasonable to assume that the vast majority of members of the public have no idea that there is a difference between 9-1-1 service and fully featured E-9-1-1 service.

1765 We suggest that warning measures, as an interim measure, should include the provision of highly visible, plain language stickers for telephone handsets.

1766 Industry players have dodged interrogatories from the Commission and, frankly, in questions today and interrogatories from ourselves asking them to suggest a target date for mandatory implementation of enhanced 9-1-1 service. So, by default, they are leaving it up to you to set it.

1767 We suggest April 1st, 2005. If the day you set does not make the industry suck in its collective breath, then you have been too lax. If you set a target and they can't meet it, what that means is the Canadian public is spared from being put at risk of serious harm with the growth of this industry without the brakes being installed first on the car.

1768 The industry has not said it can't be done. I submit that the way to truly achieve the earliest practical date is to make it an issue that must be solved first. If they have to resolve this question before they go after the gold, I can assure you we can expect them to solve the problem in a timely way. If we leave it as something to be sent off to a committee with whatever agenda and no due date when it has to be produced, when the deliverable has to be there, then, I submit, there's a serious risk of delay.

1769 I submit that the parties here who provide 9-1-1 services are the experts on what constitutes an adequate solution, not the industry players.

1770 If the results of prudent regulatory intervention is a delay in the large scale onset of voice over the net telephony, we see that as a very small price to pay for ensuring public safety. Technology is generally neutral in relation to the public good. Societal benefit or detriment depend on how any technology is deployed. Blind reliance on market forces to align technology with the public good is reckless, as the residents of Bhopal, India, will attest.

1771 The full potential benefit of Voice over Internet technology for Canadians will only be realized if the Commission maintains a watchful eye over its development, especially in these crucial early years, and the industry are the first ones to say that its course is unpredictable.

1772 The general approach set out in your preliminary views is on the right track. If you go a step further and tighten up the enforcement of safety accessibility and privacy standards, you will have set the stage for a significant contribution to the public good by Voice over Internet.

1773 If you heed the urgings of industry players who seek to plunge into this market first and then solve the pressing safety and other societal needs later or seek to gain the regulatory structure and use this technology to evade standards and protections that have evolved over the years, Canadian will bear the burden of those mistakes for a very long time.

1774 I must say, in particular, the suggestion that we wait and see whether the market looks after public safety and then decide whether to regulate, so the scenario is wait and see if all kinds of havoc breaks lose, ambulances don't go to the right place, and then after that we will decide to regulate, I submit, is rather obviously putting the problem on its head.

1775 This is the strategic moment to get it right. Again, we submit you are on the right track and should stay the course.

1776 Those are our comments for this evening.

1777 THE CHAIRPERSON: Thank you, Mr. Quail.

1778 Commissioner Williams.

1779 COMMISSIONER WILLIAMS: Good evening, Mr. Quail.

1780 I can assure you that voices and opinions of consumers are an important part of our considerations here, as well as, of course, the other two parts of the triangle being the incumbents and the competitors, as we try and craft a decision that's workable for all.

1781 Could you take a bit of time and please build on your statement in the area of access for persons with disabilities, that accessibility must not be an afterthought?

1782 MR. QUAIL: Yes. This addresses the fundamental question of whether, in the nascent stage of a service, that nobody really knows what it's going to look like, whether we can just assume. So an article of faith that the market will align its development with the public interest and public good, this is an example of a little niche in that market that is not economic.

1783 The marketplace doesn't drive any money that way, and it's not going to drive any money that way. The only way that will happen is if the companies are told, "You are not in there. You are not going to rake in the profits you can make from the profitable parts of the market if you don't address that problem and provide equal service for those people", who are entitled to equal service under our Constitution and our Telecommunications Act and just a basic decency to each other, as a society.

1784 COMMISSIONER WILLIAMS: Okay. Could you also, please, elaborate on your stated views regarding the privacy safeguards?

1785 MR. QUAIL: Yes. Again, the privacy safeguards are also, in many instances, safety issues, and often urgent safety issues. The need, for example, in situations where there has been a history of domestic violence, of someone to be able to block caller ID when they are placing a telephone call can be very important. These services are closely integrated with the question of protecting ourselves in an environment where, as communications networks get more and more pervasive, sometimes people need to be shielded from the way that they operate. That's what a lot of these privacy safeguards do.

1786 There is sort of a tangential issue, maybe a little off topic but I can't resist raising it, because the issue of win-back programs has come up and there is privacy issue involved in that, as well, and that is that the time is overdue for a review of the restrictions on win-back tactics that can be employed by telephone companies, in view of the new federal legislation protecting the privacy of personal information in the private sector.

1787 Anyway that's probably a matter for another hearing, but I want to sort of footnote that because it's something you may be hearing more from us about in the near future.

1788 COMMISSIONER WILLIAMS: What are your views on, say, for example, the position of the Canadian Association of Chiefs of Police on holding up implementation until wire-tapping capability has been introduced?

1789 MR. QUAIL: We agree -- well, wire-tapping, I mean, I have to sort of bite back sort of some of my Libertarian instincts on that one, but, again, issues of public safety have got to be paramount. If what we are weighing is a trade-off between the safety of the public and the development of an industry that's going to happen anyway, I mean, the tide is running in that direction, if you put some safeguards in place at the beginning, that isn't going to stop it from happening. This thing has a momentum. The important thing is to channel it where it needs it.

1790 So we say that falls in the same category as the other public safety issues and can't be ignored for the sake of maximizing the immediate short-term development of the industry.

1791 COMMISSIONER WILLIAMS: In regards to the implementation of E-9-1-1, and I guess you have stated that you don't think our preliminary view goes far enough and that, in fact, it should be established as part of this service before it's even allowed to be introduced --

1792 MR. QUAIL: That's correct.

1793 COMMISSIONER WILLIAMS: -- what information do you have that it would be relatively easy for the companies to do this?

1794 MR. QUAIL: I'm a lawyer, not an engineer. I wouldn't even try to figure that out. I know that I can go to Radio Shack and buy a little device that will tell me, by asking a satellite, where I am physically with great precision. If the industry is saying we are having such a hard time figuring out how a device plugged into a network can tell the network where it is, maybe that is true, but I just have a very -- more than just a strong suspicion that, if this is something they had to overcome, if they had to solve this problem first, it would get solved.

1795 Years ago, when I was an undergraduate -- I won't tell you how many years ago -- in one of my seminars we had Tommy Douglas, the late-Tommy Douglas was a guest speaker, and he was telling us about the situation when they first came to power in Saskatchewan in the 1940s and he called in the province's engineers and said, "I want you to give us a plan to fully implement rural electrification in five years" and they came back and said, "Well, Mr. Premier, that's impossible". He said, "I didn't ask you if it's impossible or possible, I asked you to do it", and they did it and five years later they had implemented the program.

1796 I mean, everything in life may not work out that way, but, again, the price -- it can't just be left as something for the industry to get around to, either when the committee grinds through whatever process it has -- and I can only imagine what those look like and I have no interest in knowing, from an inside point of view -- or the market gets around to it.

1797 The market has sort of dealt with it when Primus and others can tell their customers, "Oh, yeah, we now have 9-1-1 service". People have no idea that that means that, if you are having an aneurism and you manage to hit 9-1-1, the ambulance won't come, you know, they won't do that. That's a fairly significant question for people, and it isn't something, really, you leave to consumer choice.

1798 So let this process slam on its brakes a little bit, if that's what it takes, until they figure out how to put brakes on that system. But I can't believe there isn't a technology solution. It might cost the system money to come up with it, but they have a lot of very bright people working for all those companies, we have heard a bunch of them today and you will hear over the next couple of days. I can't believe they can't find a solution. If there isn't a solution we have a really serious problem and this whole avenue has got to be looked at very closely in my submission.

1799 COMMISSIONER WILLIAMS: What's your view of the cellular phone users then through a triangulation that is only to the nearest tower or area?

1800 MR. JAMES QUAIL: Yes again, I am not an engineer. I won't even try to speculate.

1801 COMMISSIONER WILLIAMS: But say 911 with cell phones, they are not location pinpointable.

1802 MR. JAMES QUAIL: Yes, but they are sort of closing in on the problem is my understanding. And, you know, again I have no doubt that--

1803 COMMISSIONER WILLIAMS: So should we have delayed cellular phone service until such time as that was solved?

1804 MR. JAMES QUAIL: Should we have delayed cellular phone service? I'll say this, that -- I mean it is sort of late in after, you know, in sort of hindsight to try to say that. But, you know, if the industry had been required to come up with a better 911 solution before they could plunge into the market I suspect we'd have better 911 service for people with cell phones.

1805 Anyway, that is probably a subject again for another hearing if it comes up at all. But this time, again, I don't think that we should use the cell phone situation as a template for how we deal with this.

1806 COMMISSIONER WILLIAMS: I am not suggesting it, I was just interested in your view.

1807 MR. JAMES QUAIL: Yes, and my clients would say take no formal position on that question... in that way.

1808 COMMISSIONER WILLIAMS: Thank you very much, Mr. Quail. I have no further questions for this witness.

1809 THE CHAIRPERSON: Counsel.

1810 MS PINSKY: Yes, I just have one question. I just wanted to clarify, during your presentation this evening you stated that and I'll just quote you, "For instance, if we permit seriously substandard voice quality offerings onto the market as a low cost consumer choice, the subscriber making that choice is not the only person who is adversely affected." Could you just be more specific, what are you suggesting that the Commission do in this respect?

1811 MR. JAMES QUAIL: What the Commission needs to do is, first of all, I gave the example of prioritization of packets in this network. The Commission has to pay attention to issues having to do with quality of service, not just from the perspective of competition, but from the perspective of potential degradation of service to the public. I don't know if that makes it clearer or not. It doesn't appear that it has made it particularly clear.

1812 MS PINSKY: -- you are not asking anything.

1813 MR. JAMES QUAIL: The problem is, when we have this integrated network if there is growing bits of it that are seriously substandard in their quality everybody pays a price for that and the Commission has got to watch that situation. You know, parties have all acknowledged, I think, that there is some serious deficiencies in voice over internet including, you know, reliability, network failure, all these things. They affect everybody, not just the person who's decided to purchase that service.

1814 MS PINSKY: Thank you very much.

1815 THE CHAIRPERSON: Thank you. Thank you, Mr. Quail. Madam Secretary.

1816 THE SECRETARY: Thank you, Mr. Chairman. I am now calling Public Interest Advocacy Centre on behalf of Consumer Groups to make its presentation.

PRESENTATION / PRÉSENTATION

1817 MR. MICHAEL JANIGAN: Thank you, Mr. Chair and Members of the Commission. My name is Michael Janigan, I am the General Counsel of the Public Interest Advocacy Centre. With me is John Lawford, a research lawyer with the Public Interest Advocacy Centre. We are here representing a coalition of public interest and consumer groups in this proceeding, which has been styled the Consumer Groups, originally enough. These include, l'Union de Consommateurs, the Consumer's Association of Canada and the National Anti-Poverty Organization.

1818 These groups, together with the organization which we are affiliated, the Public Interest Advocacy Centre, have intervened in many telecommunications proceedings in order to secure the appropriate protection for consumers and, in particular, vulnerable consumers.

1819 The Consumer Groups have filed written submissions earlier in this proceeding and have responded to interrogatories based upon those submissions. We have tried to approach these proceedings with a view to ensuring that access to the evolving range of services known as basic service is maintained and that the objectives of the Telecommunications Act are advanced.

1820 In our limited time for oral submissions we would like to emphasize three concerns and these are economic regulation and access, the ILECs versus the new voice over internet protocol world; social issues, including 9/11, service access for the disabled, privacy rights, contribution, local number portability; and thirdly, lawful access issues including privacy and due process. I will be addressing the first issue and my colleague, John Lawford, will be addressing issues two and three.

1821 Now, the solutions that we have proposed to these concerns are threefold. First of all, VoIP services provided by ILECs should be classified as local voice service and subject to regulation accordingly. While this may mean asymmetric treatment of VoIP services offered by ILECs compared to those offered by other market entrants, the establishment of a competitive market and the offering of local service through VoIP could, at a later date, trigger forbearance from economic regulation.

1822 Secondly, section 24 obligations, including 911 service, message relay service and privacy safeguards should be part of any VoIP offering with enforcement of such obligations imposed on carriers and resellers alike. Mandating response to such identified social issues should be a requirement of those offering VoIP service in Canada.

1823 Thirdly, we believe that a clear indication should be given by the Commission that it will not set conditions for lawful access to VoIP that will represent a lower standard of review than afforded to interception of communication versus circuit switch calls and amount to a charge on subscribers to fund lawful access requests.

1824 First, in dealing with the issue of regulatory treatment of VoIP, we believe that there are two principle questions arising from the consideration of the facts associated with the proposed regulation of VoIP services. First, can the service be characterized as local voice service for the purpose of its regulation in the same fashion as voice service provided through traditional wire line as part of primary exchange services. Secondly, regardless of this characterization, should the Commission forbear from regulating VoIP because of the state of the competitive market for that service?

1825 In general terms, PIAC has supported the Commission's preliminary view that VoIP offering should trigger a requirement that ILECs abide by their local service tariff obligations. Since our initial comments were filed we have reviewed the plaintiff claims of the ILECs and other stakeholders that the old bottles of local service obligations should not be used to serve the new wine, we will attempt to address them briefly.

1826 The position of the ILECs is most compelling when they point out the number of ways that this technology does not fit into the regulatory box. There are significant technical and logistical differences from PES currently offered that are associated with VoIP offerings that militate for the ILEC position. As TELUS notes in its submissions, VoIP can be provided independent of the Access Network. It can be provided by DSL, broadband, cable or wireless cable provided that there is access to high speed networks.

1827 The companies also note it is true that for both PEZ and VoIP both local and long distance calls could be made and received. The difference, however, is that for the former the customer knows whether the call is local or long distance and for the latter the information is missed. There is also not a clear linear progression on the regulatory record that compels the Commission's preliminary conclusion. For example, wireless services that provide services analogous to local wire line voice services have been forborne from regulation that governs wire line based voice services.

1828 However, the supine approach urged by ILECs is only compelling by its simplicity and its requirement for regulatory lethargy. Potential problems that may occur associated with market segmentation and the provision of voice services are potentially troublesome even before we get to competitive issues such as market dominance and potential thwarting of local service competition.

1829 While wireless services are treated differently, it is to be recalled that the Commission's approach to the development of that market was hardly laisser-faire. As well, in the United States a regulatory regime frequently lauded by the supporters of the current ILEC position stringent controls were placed on AT&T to keep it out of the wireless market for years after other entrants. We would also note that the relatively low percentage of wireless only subscribers existing at the current time seems to belie the argument of functional equivalent for wireless services.

1830 The approach suggested by the Commission presumably involves moving beyond the parsing of the technical and logistical elements of the service provision into an analysis of what constitutes provision of local voice service by ILECs. While the functional equivalence of key elements of VoIP with PEZ is not the sole criterion for adoption of a scheme of economic regulation, the model makes rather more sense than its abandonment solely for the inconsistencies cited.

1831 Connection with the PSTN and use of telephone number resources seems to us to be reasonable identifiers for the purpose of classification of voice services. However, in fairness, there is more to the position of reliance upon market forces that is being urged by some stakeholders than simple inconsistency. Some key players have essentially told us that the market for VoIP is flourishing very well thank you and current and future rivalry will be sufficient to ensure consumer protection. There is little doubt that any proposed economic regulatory regime of ILEC VoIP service offerings must be forborne if a competitive market for these services exists.

1832 The rosy predictions for multiple provider service offerings look promising. It is entirely possible that VoIP meets the plant or at least rival the traditional PSTN in the future. But neither current penetration levels by Vonag in the United States nor study cited dealing with public awareness of VoIP foretell immediate seismic shifts in the retail customer market.

1833 The ILECs are convinced that VoIP is a disruptive technology created in a new market, this VoIP market where incumbents must scramble to meet the new challenges. Since it is a new market, there are already several competitors and since there is no theoretical limit to more competitors entering the market due to the myriad ways in which VoIP signals can be delivered to the customers, it is stated that there is no need for economic regulation of the ILECs.

1834 In the company's submission everyone is starting from near zero on the VoIP market. The presence of new service providers will, in the company's view, protect consumers. The problem with this logic is that while the VoIP market doesn't really exist yet there is still the same imbalanced local service market with a potential new delivery vehicle, VoIP. While the incumbents may be absent from the new market, they provide local voice service to the overwhelming number of potential customers in the same market. In 2002 the ILECs had over 95 percent of the local services market.

1835 Notwithstanding the intriguing aspects of Professor Christensen's work concerning disruptive technology cited in the evidence of the companies, it seems a bit of a stretch to believe that ILECs will not exhibit market dominance, at least in the initial period. The characteristics of this technology also make it a case for its regulation. VoIP has a functional equivalence with circuit switch voice and, although it is added functionality, it will be marketed as a replacement for local voice services. Introduced in the local services market that is not competitive, VoIP will require an examination based on the functionality of its service and the market condition arising as a result of a position of potential providers of that service. There is reasonable cause for concern.

1836 ILECs have two pressure points in the voice over broadband market, they have become one of the two main delivery channels for broadband internet access, with Cable Co as being the other, and they will overwhelmingly provide the connection to and from the PSTN. In the short term it is the second pressure point, access to the PSTN, that is significant in determining successful rollout. Note that a VoIP provider such as Skype, for example, can only charge for its Skype out service, which connects to the PSTN, not for its regular service which does not. In a word, PSTN connectivity is essential to the VoIP market today. In the future, however, it may be the first pressure point, broadband access will be controlling the market at any juncture where VoIP replaces circuit switch calling.

1837 However, the removal of regulation from services that lack workably competitive markets could be a disaster from the standpoint of consumer protection and market price discipline.

1838 If the Commission gets this aspect of the VOIP issue wrong, it has the potential to swamp the potential consumer benefits from this technology. If ILECs use their market dominance and local service to ensure that dominance in the nation VoIP market as it matures develops in their favour.

1839 Once an area would see the ILEC VoIP offerings that will work purely seamlessly when connecting calls to and from the PSTN.

1840 Others offering such services either by piggy-backing on ILEC DSL or cable co. or otherwise, may save technical and legal contractual obligations to PSTN access.

1841 ILECs and CLECs, including the cable cos, could also pursue a two-pronged strategy of traffic-gearing enhancements for their own VoIP network packets and finding technical and contractual challenges to allow other VoIP services similar priority routing on their broad band connections.

1842 And while VoIP competitors to the ILECs could have an interesting opportunity -- could have an increasing opportunity to interconnect without interfacing with the PSTN, and therefore the ILECs, they'll likely face other obstacles.

1843 ILECs will leverage their brand recognition and telephony along with the ability to bundle fore-borne services, such as Internet connectivity and wireless.

1844 The ordinary consumer experience with scenarios which feature competitive markets and important services without adequate rules, have largely been an unhappy one.

1845 A likely result could be the perennial weeds in the competition garden, problems associated with quality of service, billing, customer service, complaints handling and signal quality.

1846 The potential to impact on price, if current patterns and market dominance in local service markets take hold, will be entirely negative.

1847 Lest anyone think that this prediction of dissatisfaction in a fore-borne market is a departure from the ordinary consumer-friendly world of ISP services, I'll draw the Commission's attention to a recent study by my organization, the Public Interest Advocacy Centre, who found that 62 per cent of consumers felt that the government should develop and enforce consumer protection rules for the Internet, with particular emphasis on the above highlighted issues.

1848 The market has not yet delivered the consumer protection envisioned for its customers when the CRTC decided to forebear from the regulation of ISP services.

1849 The companies advance an argument of more ancient vintage associated with the competitive disadvantages of being subject to economic regulation.

1850 The delays and uncertainty associated with obtaining approvals, together with possible curbs or disincentives on investments in new products and services.

1851 With great respect, this line of reasoning has been visited many times in the past by the companies in efforts to be freed from what has been described as the shackles of regulation.

1852 This argument has been advanced, so that they can presumably attract increased investment associated with monopolies that are not price constrained.

1853 In the process, as the story goes, economic benefits will flow to all Canadians and we will realize the full potential of telecommunication services.

1854 We would suggest that the best prediction of the future, in this case, is the past and the present. Not withstanding the continuing and persistent whimpering, the ILECs have done outstandingly well financially and have not shown any disability associated with access to capital markets associated with the regulatory shackles placed upon its monopoly or utility services.

1855 Indeed, the strength, marketing and good will associated with their products in the local service markets has been so outstanding as to dwarf their current and potential competitors and trigger a recent proceeding to hobble their ability to discount and bundle offerings.

1856 This is assuredly the weakest point of the case for the urged policy of benign neglect by the ILECs to the Commission.

1857 SPEAKER: Good evening. I'm going to address the social issues. First of all, the lawful access issue which would allow the 911 service being followed as a condition and PX supports and BCPX is calling for 911 service to be made a condition of VoIP service in Canada.

1858 How quickly we arrive at that, I would suggest, is - as BCPX also suggested - a test of the Commission's will; but one that has to be made simply because it's not a matter of shaving service costs, this is a matter of life and death.

1859 And, for most people who use a land line telephone, there's an expectation that that land line telephone will connect them through 911 to the appropriate PSAP.

1860 Now, WIC's services are largely marketed as a replacement for land line telephone service and so, for that reason, it's not the same situation as a wireless situation which we discussed previously.

1861 We would like also to mention that the Commission should continue with the privacy safeguards for Voice Over IP, again, it seems counter-intuitive that we take a step backwards in time, if you will, with a new technology like VoIP and that there seems to be no technical reason suggesting in any of the interrogatories why those privacy safeguards cannot be delivered, just delay in getting services up and running.

1862 So, we would like to see the Commission mandate those as well.

1863 ARCH is going to be speaking immediately following us, dealing with issues of MRS and handicapped access to services.

1864 So, far we've seen from the web providers only promises of increased functionality but no commitments to continuing the present services for disabled persons that they expect at the moment.

1865 We, again, would like to have that as a condition of offering Voice Over IP.

1866 The Commission also should seriously look at the diminution of contribution revenues for the contribution regime and we believe that there is the same potential weakening of the contribution regime which the telecommunications workers have pointed to, you have VoIP on one side making money and the Legacy PSTN on the other side not, and more resources being poured into the former than the latter.

1867 So, we believe that this Commission should stand firm on VoIP traffic access in the PSTN as being the criterion for whether it's contribution eligible.

1868 So, that would be our submission on that point.

1869 And, finally, we wanted to mention an issue which is not often thought of as a social issue but it's more a consumer issue, which hasn't been addressed in a great way so far, and that's local number affordability.

1870 Local number affordability is a feature which would greatly assist in consumer choice in this area and it has not been produced by market forces in the wireless arena, and so we would like to see the Commission mandate this from the beginning as a condition of VoIP service provision.

1871 The social issues I'm going to move from now to one in particular which has not been addressed in full so far, and that is the issue of lawful access, building a back door into VoIP and who will pay for that.

1872 The Community Association Chiefs of Police and the others in this proceeding have asked the Commission to hold up implementation of VoIP until there is a true wiretapping capability, not just a capability, but an actual turn-on-the-switch, listen-to-any-conversation type of capability.

1873 PIAC and the consumer groups are not opposed to an ability to eavesdrop when judicial authorization is received, but we are opposed to building a complete surveillance system into the new web offerings.

1874 In particular, we would like to point out that the lawful access request as stated by the police at the moment is not clear on the issue of judicial authorization, they rely on the lawful access proposals of the Federal Government, and those at the moment are not clear in terms of what standard will be applied to get a wiretap for new services such as Voice Over IP and other things which are not covered by the present legislation.

1875 We think that the Commission should decline to require this back door functionality requested by the police, unless it is assured that a higher standard of judicial pre-authorization which is now in place for circuit-switched calls should be maintained for VoIP because VoIP is, in essence, a substitute for circuit-switched voice communications.

1876 And we'd like to point out that, as well, even traffic data associated with Voice Over IP is more robust, more rich than traffic data associated with circuit-switched calls and that it can provide more privacy invasive information than circuit-switched calls.

1877 At present, as well, the Commission is not in the position to say what that standard will be for lawful access, and so, at the moment, we don't believe that the Commission should mandate building in a back door access until the Government has come up with clear proposals on what the standard will be for interception of voice communications in new technologies.

1878 The second problem in this interception is the cost, who will bear it? Funding of this issue is very sticky and it's been funded in the United States in the context of the Communications Assistance Law Enforcement Act, CALEA.

1879 Down there there has been a lot of lobbying and significant political pressure from service providers to have money transferred to them to fund this.

1880 We are concerned that the same process will in Canada by providers of VoIP and that type of funding will not be transparent.

1881 The appropriate accountability for this sort of very privacy-intrusive measure should be through taxation.

1882 So, we're suggesting to the Commission that business as well should not be required to fund lawful access, that if the Government wishes to have this very privacy-intrusive security measure - which they say is required for our security - that they should put the money where their mouth is and pass a particular appropriation for that purpose, because those costs - and all the data we've seen so far - the costs of that lawful access provision will be quite steep; in other words, they will be passed onto affected consumers.

1883 THE SECRETARY: Excuse me, sir, you are exceeding your time on the record.

1884 Will you resume?

1885 MR. LAWFORD: We're done. Thank you.

1886 MR. JANIGAN: Thank you.

1887 Commissioner Cram

1888 COMMISSIONER CRAM: Thank you and welcome.

1889 It's interesting to see the issue of the lawful access.

1890 Do I understand, Mr. Lawford, that the standard as to lawful access has not, as yet, been finalized by the Federal Government?

1891 MR. LAWFORD: That's my understanding, that there's still consultations, there's consultation document out there on Justice website and, in particular, it leaves open at the moment the question of what the proper standard should be, both for interception of content and for traffic data as well.

1892 There is another round coming up in this new parliament, and I believe a legislation was going to be proposed for this parliament, but I'm not sure where it stands at the moment, I'm sorry.

1893 COMMISSIONER CRAM: So, do you have any idea as to when this standard would be complete or completed?

1894 MR. LAWFORD: It's certainly a high priority issue for the Federal Government because of the pressures from -- largely from the United States to put something in place, so I would see it -- I don't think it would be left to a majority parliament to deal with, I think it's going to be going ahead as soon as possible in the fall.

1895 COMMISSIONER CRAM: I wanted to talk to you about the social issues, I guess, and I'm putting them in, sort of, three categories.

1896 I'm putting the 911 and, as you call it, the differently tabled issues in one category; privacy, which is call blocking, et cetera, in another category; and then the security issues, the hacking, that kind of thing in another category.

1897 If I were to say, which is the most important in your view that we should deal with, what would you say of the three categories, or would you say they're all important?

1898 MR. LAWFORD: Of course I'd say they're all important.

1899 I would say the 911 issue is your most pressing and most difficult fault. To the extent that people will replace their primary telephone with VoIP offering, it must have what are, in effect, life line services working the same way.

[8:15 - 8:30 p.m.]

1900 I think that the lawful access is a sleeper issue that is something which is just as -- almost as important but is not highlighted simply because it's not been on the radar screen to this point. So, I would put it second.

1901 And the privacy issues, the privacy markers, except to the extent where they are, explained by Mr. Quail, where they are, in effect, life saving are in third place.

1902 COMMISSIONER CRAM: And if I said we probably - well, we may have more - but it seems to me we have three choices to deal with with pretty well all of them.

1903 The first one is, is to warn and ensure that consumers are aware of the problems with the service in regard to all of these.

1904 The second one, at least as an interim position of something we could do, would be to do -- or to require something like -- who was it, today -- Comwave said, we just have a third party, sort of a forwarding centre for 911 calls on their own service.

1905 And the third would be to require immediately the imposition of E-911 with the privacy issues, et cetera.

1906 And I guess my concern is that I'm not entirely certain - save for E-911 - how long it will take, even if we pushed it, to get a solution.

1907 MR. LAWFORD: Yes, I agree, and sending it to -- but I have to underline that sending it to CISC without a due date seems to us to be an invitation for delay and it has not materialized through the wireless E-911 despite claims of great effort to do so.

1908 I'm, again, not a person who's well versed with the way that would work through VoIP, but I would like to echo Mr. Quail's comments, that if it were made a priority, perhaps it would be solved more quickly.

1909 We would like to see, again, a due date put on, put on that and be made a condition of VoIP licensing eventually, but...

1910 I'm just going to stop there. That's fine.

1911 COMMISSIONER CRAM: And in the interim on 911, what would be your preferable route that they would have the third party like Comwave has for the 911 service, or that there would be warnings and that sort of thing?

1912 MR. LAWFORD: My preference would be for any reasonable mid-station, if you will - the Comwave solution or whatever - simply because people picking up the phone are not thinking in terms of warning either it's an invitee to the house or a young child or someone who's not aware of the present arrangements, and let's require all VoIP or VoIP providers to provide yellow phones, say. Perhaps they could be shaped like a duck - I don't know - but people would know I can't use that phone for 911.

1913 Otherwise you have to ask the providers to give you a plan of how they're going to solve this problem in the interim with that type of low tech solution, if necessary.

1914 COMMISSIONER CRAM: You heard, I'm assuming, what the three VoIP providers said that they did. What do you think?

1915 MR. LAWFORD: We were intrigued by the -- I think it was the Vonage people, saying that they would have a better -- new or better E-911 service, but I don't believe there were details given of that.

1916 I can't recall what Primus said. They have gone to a PSAP, some PSAP somewhere. That is -- that would be acceptable, if the PSAPs had some way of rerouting calls back to the proper point.

1917 But, at the moment, I don't believe the funding for the 911 system - probably you'll hear more about it tomorrow - supports them doing independent solutions, like working on passing traffic from PSAP to PSAP.

1918 So, I think we were uneasy with both assertions, didn't think they went far enough, and really we like to view Commission as the one bottleneck, if you will, to stop services going ahead without some sort of adequate plan.

1919 COMMISSIONER CRAM: Do you agree with Primus, and I believe some of the others, that any requirement that we have a written acknowledgement of a lack of 911 would be difficult and do you believe that the difficulty, we should consider that -- which is more important, that people know that E-911 doesn't exist, or that we worry about administrative difficulties?

1920 I don't mean to say that they don't know, but that's one way to prove it, you know, being a lawyer.

1921 MR. LAWFORD: I'm less concerned about someone being able to prove in court that consumers are given notice, I'm more concerned about the consumer actually getting the notice so that they can make other arrangements, like keeping another primary exchange service line.

1922 That's -- the notice requirement is good as far as it goes, but it's not providing the safety that we've come to expect. We've built up so much cultural sensitivity to dialing 911 that just saying this phone that looks like a phone doesn't work for 911, only gets you so far.

1923 So, the notice is good, as far as it goes.

1924 Now, written acknowledgement, not written acknowledgement, as long as it comes to the actual notice of the consumer one way or another, I guess it's not a hill to die on written or not written.

1925 COMMISSIONER CRAM: You must come from Saskatchewan, because I always talk about hills to die on when my colleagues say there aren't any.

(laughter)

1926 I wanted to talk about the next issue, such as privacy and security, and when I'm talking about security here I was really talking about what you were referring to paragraph 30 in your written submission, which is the hacking and the unsecured information issue.

1927 MR. LAWFORD: Yes.

1928 COMMISSIONER CRAM: Like, you know, we're trying to get into a society, at least the regulatory environment, where our regulation is supposed to be light.

Rift in both of those cases, in the privacy issues - which is, of course, the call blocking and those issues - and in knowledge of whether it can be hacked or not.

1929 To me it seems like we're getting a little mother hennish if we insist that all VoIP providers provide caller ID and call blocking.

1930 Wouldn't that be almost a competitive issue, because already we've got provider, the ILECs, providing it, and so there is always a back-up for people, you know, if they need that.

1931 MR. LAWFORD: I understand that. I guess, I assume -- we assume that there will be a significant number of consumers that are bound and board by price and for those people there won't be the alternative, they will have switched.

1932 COMMISSIONER CRAM: Because they can't afford it, you mean?

1933 MR. LAWFORD: It's cheaper, so why wouldn't the switch.

1934 And yet their needs for privacy shouldn't be less, they aren't less than those people who are on the circuit switch networks.

1935 As far as the technical solutions go, being heavy handed regulation, we're entering a slightly more technology-heavy, if you will, delivery of voice services by doing it by IP, so technical matters are going to be turned to by the companies anyway.

1936 It's not difficult to give them some guidance at the design stage, it's probably better to give them some guidance at the design stage than to later on figure out there's a problem and ask them to implement it then. That's our thinking on that.

1937 SPEAKER: Let me just jump in with a small point.

1938 It seems to be the experience across-the-board in dealing with utility, or utility-like industries, particulary, in North America, that it's very difficult to use market forces to achieve the results you want to achieve with respect to service quality and other sort of features associated with service quality.

1939 And this is something that's a phenomena not just simply to telecommunications, it's also in airlines for example, where there's been - notwithstanding the fact, even in sectors and city routes where there's been intense competition throughout North America, it's been very difficult to have and maintain appropriate service quality standards in that industry.

1940 So, in areas where we think that there are sort of basic service standards or basic quality standards, the preference, from our experience, would be to mandate those rather than to rely upon their delivery through market forces, simply guided by our experience in these industries.

1941 COMMISSIONER CRAM: But, I mean, call blocking is something that is an option, people know about it, people subscribe to it, to me it's something that may be a differentiation, a service differentiation and, given that there are a goodly number of people who do subscribe to it, one would think that that may be a defining issue in them staying with a particular service or moving to another service.

1942 So, I don't see that as a quality of service issue, the privacy one, I must admit.

1943 MR. JANIGAN: We're probably discussing something on the margin.

1944 I assume that the issues associated with call blocking and alarm line services have had an important public policy aspect that have mandated their incurrence in the past, and I would assume that the same kind of chain of incidents that triggered that might occur in the Voice Over Internet circumstance, but whether or not the likelihood of that occurrence is such that it, you know, reaches the level and the radar of triggering its mandatory inclusion is a question for the Commission.

1945 We've come down on that in favour of it, but clearly, that's something that the Commission could adjudicate.

1946 COMMISSIONER CRAM: Back to hacking. Do you have any idea of the degree of risk associated with this?

1947 MR. LAWFORD: Not being a computer scientist, honestly - not a good answer - but it's true that since everything's moving to IP, well, that's where all the hackers will go too.

1948 Also, the telephone system does ensure the way the companies are suggesting will carry out their functionality with it, so I would think it would be a terribly tempting target to go after, and even basic information from traffic data such as name and such could be useful perhaps for identity theft or other purposes.

1949 We see a large potential for this, and it is, to a large extent, travelling over the public Internet which is not by its nature secure.

1950 So, that would be the root of our concern. Whether it's justified or not, I would like to know more about myself.

1951 COMMISSIONER CRAM: Do you think that we should require that security or the hacking issue or the privacy issue should be explicitly disclosed, that they have or do not have these things, should be explicitly disclosed by the providers -- VoIP providers?

1952 MR. LAWFORD: That would be in line with most website privacy policies and security policies, which do say that there is a risk of interception now, you're seeing them pop up, same as a risk of interception of your personal information and to check your credit report regularly, sort of thing, but that seems to me to be an important requirement for that to be stated, yeah.

1953 COMMISSIONER CRAM: Do you think the particulars of that could be resolved through CISC?

1954 MR. LAWFORD: Now, that would be an issue, it's also a bit of a policy issue as well, but, yes, I think it would be an appropriate place to start the ball rolling.

1955 COMMISSIONER CRAM: Thank you, Mr. Janigan, Mr. Lawford. Chair.

1956 THE CHAIRPERSON: Thank you, very much, gentlemen. Madame le secrétaire.

1957 LA SECRÉTAIRE: Yes, monsieur le président.

1958 For the appearance No. 9 I am calling ARCH to make its presentation.

1959 MS GORDON: Good evening, Mr. Chairman and Commissioners.

1960 My name is Phyllis Gordon, and I'm the Executive Director of ARCH Legal Resource Centre for Persons With Disability.

1961 With me are Ms Lana Kerzner, my colleague from ARCH and Chris Taylor our external counsel.

1962 ARCH welcomes the opportunity to participate at the consultation. We are here to speak to the Commission and the telecommunications industry about the obligation and the potential to provide VoIP telecommunications products and services to all Canadians without discrimination.

1963 It's our view that regulation of VoIP is essential to both the fulfilment of the law and the realization of this potential.

1964 In these remarks we review the vision of full participation for persons with disabilities and examine telecommunication barriers that they currently face in daily life.

1965 We set out a legal context relevant to these deliberations and describe the opportunities and the dangers that come with VoIP.

1966 And, finally, we offer to you a proposal for action now and in the future.

1967 Let me briefly begin by speaking about ARCH. ARCH is an Ontario based, charitable, not-for-profit legal clinic that's dedicated to defending and advancing the equality rights of persons with disabilities, regardless of the nature of the disability.

1968 ARCH represents national and provincial disability organizations and individuals in test case litigation at all levels of tribunals and courts, including several appearances at the Supreme Court of Canada.

1969 We provide education to the public on disability rights and to the legal profession about disability law, we make submissions to governments on matters of law reform, we provide summary advice and we maintain an informative website.

1970 We have a staff of 11 with six lawyers and we're governed by a volunteer board of directors, the majority of whom are persons with disabilities.

1971 Our goal in this proceeding is simple but significant, it is that the telecommunications industry deliver VoIP services and products to Canadian consumers with disabilities in a way that ensures accessability consistently.

1972 Mr. Chairman, you've recently enunciated the vision we share. We were thrilled to read your comments made at the Abilities International Disability Film Festival in Toronto this past June, and I personally can tell you that I know individuals who were in that audience who were moved and heartened when you stated that:

"The Commission believes that all Canadians are entitled to participate fully in society. Everyone deserves full access to life's opportunities and enjoys the undeniable right to realize their full potential with no exception."

1973 The Supreme Court of Canada has articulated in no uncertain terms why this vision is so essential. To frame the context for our presentation, I'd like to read from a decision of our highest court.

"It's an unfortunate truth that the history of disabled persons in Canada is largely one of exclusion and marginalization. Persons with disabilities have too often been excluded from the labour force, denied access to opportunities for social interaction and advancement, subjected to invidious stereotyping and relegated to institutions. This historical disadvantage has to a great extent been shaped and perpetuated by the notion that disability is an abnormality or a flaw. As a result, disabled persons have not generally been afforded the equal concern, respect and consideration that section 15(1) of the Charter demands. Instead, they have been subjected to paternalistic attitudes of pity and charity and their entrance into the social mainstream has been conditional upon their emulation of able-bodied norms. Once consequence of these attitudes is a persistent social and economic disadvantage faced by the disabled. Statistics indicate that persons with disabilities in comparison to non-disabled persons have less education, are more likely to be outside the labour force, face much higher unemployment rates and are concentrated at the lower end of the pay scale when employed."

1974 That's from the Supreme Court of the country.

1975 We thought it useful to briefly identify the consumer constituency that will be potentially affected by VoIP telephony.

1976 We have filed with the Commission today a brief summary of disability statistics that's set out by age and by type of disability at the end of our materials.

1977 We believe this report should assist you in your deliberations by providing an overview of the variety and extent of disabilities among Canadians.

1978 There are almost admitted 3.6-million Canadians with disabilities, that is just over 12 out of every 100 Canadians report some level of disability, a very significant proportion of the population, and the proportion rises significantly as people age.

1979 For example, in the 55-64-year-old age group the disability rate is 21.8 per cent; but for those Canadians 75 years and older, the disability rate is 53.3 per cent.

1980 It's also striking to realize that the most frequently reported disabilities are those related to mobility, agility and pain.

1981 Last year ARCH conducted a consultation relating to the accessability of telecommunications, a summary of which we submitted to the Commission as an appendix to our submissions in the application initiated by Marie and Chris Stark to review telecom decision 94-19.

1982 It's worth repeating some of the problems raised at that time in order to illustrate the variety and extent of telecommunications barriers.

1983 Individuals with little capacity to control hand movements have insufficient motor control to use key pads, given the small numbers and the lack of space between the numbers.

1984 Similarly, persons with weakness and chronic pain, joint pain find it impossible to press the buttons and even turn the phone on or off.

1985 Persons who communicate slowly or with irregular voice patterns find that the speed and inflexibility of automated services cut them off, becoming anxious when they're rushed. This is also so when contacting 411.

1986 Some individuals are unable to dial without assistance experience a lack of privacy. This is even more a problem when the individual also needs to use a speaker phone.

1987 Persons with limited cognitive capacity have trouble navigating the complex menus and features of most current phone technology.

1988 Some parties have suggested that self-regulation and market forces will ensure VoIP accessability. It is our view that these examples document that, to date, in the absence of focused regulation, numerous barriers continue to frustrate and isolate persons with disabilities.

1989 There are significant gaps in accessible services and products that simply have not been responded to by the industry.

1990 Although cellular phones have been in the competitive market for years, they are markedly inaccessible for many persons with disabilities.

1991 Likewise, 99.5 per cent of pay telephones in Canada are not TTY equipped.

1992 To date the most notable accessibility developments have followed Commission direction. For example, the Commission mandated a 50 per cent discount on long distance calls made by TTD users.

1993 The Commission directed Bell to provide billing statements in formats that are accessible to persons who are blind.

1994 Very recently the Commission directed access to pay telephones for deaf consumers and we note as well that the current CRTC three-year plan provides for consideration in 2005 and 2006 of the regulatory framework for vendors of telephones to make them accessible to visually impaired persons.

1995 While the Commission is clearly well positioned to make a significant contribution to the vision that all Canadians are entitled to participate fully in society.

1996 In order to achieve this goal, it will be necessary to initiate and implement a comprehensive accessibility strategy.

1997 ARCH urges you to adopt such an approach with respect to VoIP.

1998 The provision of a fully accessible telecommunications environment in Canada isn't only a vision, it's also a legal obligation shared by the Commission and the industry. When exercising its powers under the Telecommunications Act, the Commission must ensure that Canadian carriers offer services on a non-discriminatory basis; that is, services must be available to persons with disabilities in a manner that enables them to enjoy the full benefit of the service, as do all other Canadians.

1999 The opening words of section 7 affirm that:

"Telecommunications performs an essential role in the maintenance of Canada's identity and sovereignty."

2000 Section 7 also sets out the requirement that:

"Telecommunications' policy safeguard, enrich and strengthen the social and economic fabric of the country."

2001 Section 27(2) of the Act prohibits unjust discrimination.

2002 Commission activities are subject to the Canadian Charter of Rights and Freedoms as well, this includes the Commission's policy setting and interpretation of the Telecommunications Act.

2003 Specifically relevant to this proceeding is the Charter's guarantee of equality rights in section 15.

2004 While the need for accommodation of persons with disabilities is great, the opportunity is also tremendous. The introduction of IP enabled services means voice, video and data can be integrated in a relatively straightforward manner to software loaded onto servers and installed on IP telephones.

2005 This, in turn, means that persons with disabilities should be able to choose the mode of communication that fits their particular circumstances for each particular communication.

2006 For example, individuals who are deaf could use video to communicate in sign language. These same people using the same IP telephone could switch to text when communicating with a hearing person who doesn't know sign language.

2007 Similarly, a person who's blind could use voice when communicating with a person with hearing and could then use text to speech and speech to text software when communicating with a person who's deaf.

2008 A person who is blind could also rely on text to speech software when using menu-driven communications, such as scrolling through a directory of text options.

2009 The fact that these IP enabled services are software driven, should also mean that there will eventually be no need for persons with disabilities to buy special assistive equipment.

2010 Instead, any IP telephone could have the relevant software loaded onto it. This should be particularly helpful in a corporate or government environment with numerous telephones.

2011 In such an environment, the central server should be able to download the necessary software to any telephone, so the person with the disability could use any telephone in the organization, not just their specifically equipped telephone.

2012 But there is a danger. The opportunities available with IP enabled services are inspiring; on the other hand there are many ways in which VoIP technology could actually worsen the situation of persons with disabilities.

2013 The American consulting firm, Inclusive Technologies, has identified a number of potential problem areas.

2014 People who are hard of hearing may not be able to use VoIP if the voice quality is significantly worse than conventional telephony, as is often the case today.

2015 Similarly, people with speech impairments or people who use voice output communication aids may not be as intelligible to the other party if the voice quality is significantly worse than conventional telephony.

2016 People who have low vision may not be able to use the VoIP software on screen controls if those controls are not designed to be visually accessible.

2017 People who are blind or who have extremely low vision may not be able to use the VoIP software on screen controls if those controls are not compatible with their screen access systems.

2018 People with mobility limitations may not be able to use the VoIP software on screen controls if those controls require keyboard or mouse actions that are not easy for them to perform, or if the controls are not compatible with their alternate input systems.

2019 People with language or cognitive impairments may not be able to use the VoIP software on screen controls if those controls are not simple enough to understand.

2020 These two perspectives, the opportunities and the potential dangers, make it clear that VoIP technology is at a crossroads.

2021 It can offer persons with disabilities new pathways into full participation, or it can significantly increase their exclusion from public life.

2022 As VoIP products and services begin to permeate our homes, our businesses, educational institutions and leisure activities they will either level the playing field or they will impose ever increasing barriers in daily living, employment and education.

2023 It's our view that the Commission should act and, in law, is required to act in a proactive way to ensure that VoIP technology is not offered in a way that fails to accommodate persons with disabilities.

2024 Accordingly, ARCH recommends the Commission adopt a two-pronged approach. The first prong is to direct that if the industry wishes to offer VoIP products and services, it can only do so on a non-discriminatory basis.

2025 The second prong is to refer VoIP-related issues that are not yet resolved to CISC.

2026 It is technologically possible to implement many significant VoIP accessibility features today. The potential cost advantages of VoIP are well recognized. It will be even more cost effective to build out an accessible VoIP environment from the outset.

2027 When Chairman Michael Powell spoke at the FCC Disability Solutions Summit for IP Enabled Technology this May he stated:

"From my experience and from my heart there has been always the same criticism and problem about policy approach to disability issues, it's always been retrofitted, it's always bolted on at the end and it's always twice as difficult because it's been thought of at the end, after investments have been made, choices have been made, policies have been developed."

2028 Knowing of the great potential of VoIP and being aware of the potential dangers, it is essential that we not procrastinate.

[8:45-9:00 p.m.]

2029 On an optimistic note in this regard, we can point out that in response to ARCH interrogatories, several companies indicated that they have complied with all accessibility directives from the CRTC and also indicated they will accept new accessibility-related directives.

2030 In ARCH's written submission in this proceeding we set out in appendix A the accessibility requirements that must be established immediately with respect to terminal equipment and service features.

2031 The features of hardware telephones that must be accessible include: key pad design, volume control and hearing aid compatibility, alternative ringing mechanisms, video display, TTY compatibility or alternative text messaging capability and instructions.

2032 All of these features and more are equally important to cell phones.

2033 Three service features should be provided immediately: message relay service, TTY compatibility and voice quality.

2034 The second prong of ARCH's proposal involve CISC. We propose that CISC be directed to establish an accessibility working group which would investigate and assess all aspects of VoIP's accessibility issues in order to ensure that new barriers are not created and that ongoing barriers are addressed so that VoIP meets its promise for Canadians with disabilities on a regular basis.

2035 We propose that the accessibility working group report directly to the Commissioners on a semi-annual basis identifying any VoIP accessibility issues warranting consideration and action by the Commission.

2036 It's imperative that the VoIP accessibility working group be adequately resourced from a CRTC staff perspective and a technical consulting basis. It must offer a strong representation and input from persons with various disabilities.

2037 However, the costs that persons with disabilities incur in order to participate should not become a disincentive to their effective participation.

2038 In its response -- in our response to Public Notice 2004-1 of this year, the deferral account hearing, ARCH sets out a related proposal to set aside deferral account funds into a fund that will resource a concerted barrier removal and accessibility initiative in Canadian telecommunications. Perhaps such a fund could support the work of the accessibility working group.

2039 The establishment of the working group should be proactively publicized in order to attract sufficient participation of persons with various disabilities and the respective organizations, as well as individuals with technical expertise and assistive technology in telecommunications.

2040 Direct input from those who need and use the accessible technology is essential to ensuring that the accessibility working group of CISC is effective.

2041 In conclusion, let me summarize the essential points.

2042 There is a shared vision that persons with disabilities must be able to participate in Canadian life. VoIP technology can go a long way to making that vision a reality, however, if VoIP is not made accessible, the barriers persons with disabilities face will be increased significantly.

2043 The Commission must ensure that VoIP is accessible now and in the future.

2044 We look forward to your determination.

2045 Thanks.

2046 THE CHAIRPERSON: Thank you very much.

2047 Commissioner Pennefather.

2048 COMMISSIONER PENNEFATHER: Thank you very much, Mr. Chairman. Good evening.

2049 Thank you for your presentation this evening and for your written comments.

2050 In fact, your presentation did answer a number of the questions I had and clarified some points, so I will have fewer questions than I did when I came this morning.

2051 But, I'd like to just ask you to clarify the first thing for us. I noticed this evening in your presentation and again on page 10 of your written comments that you say:

"TTY technology is likely to be replaced by IP enabled technology over the longer term."

2052 And this idea comes up throughout the presentation as well, in the sense of trying to get a clear picture of the timing of all of this and specifically what you mean by that.

2053 So, my question is: What do envision as an appropriate replacement for TTY and why, and what do you mean by the longer term?

2054 MR. TAYLOR: The appropriate replacement would be the ability to have text to voice communication with somebody on the other end, or text to text communication, which should be available almost, I would have thought, fairly immediately with IP enable communications, once that integration of text, video and voice actually comes about.

2055 So, that's the possible replacement should be available fairly early on.

2056 The need to maintain the TTY compatibility should continue, I would suspect, for some time. We were quite heartened to see an interrogatory response by Nortel on this particular issue, both to an interrogatory asked by ARCH and asked by the CRTC, where they talk about the way in which the need to accommodate persons with disabilities, how that could evolve or should evolve.

2057 And they point out in their response - and we agree 100 per cent with it - that not everybody is going to go to VoIP services right off the top, so not everybody is going to have an IP telephone right off the top, so you're still going to have somebody who may want to have a communication with somebody at the other side who doesn't have an IP telephone and, therefore, the IP telephone on this side is going to have to have TTY, you know, protocol compatibility so that you can have a communication with the person on the other end who has a regular TTY. So, this would be deaf person to deaf person.

2058 And until everybody -- until IP enabled technology becomes prevalent throughout the communications system, that will continue.

2059 A lot of people have these -- deaf individuals will have these TTY sets and that's what they're used to relying on, so they may not --

2060 COMMISSIONER PENNEFATHER: I think that was part of it, I think it was, to be clear, that you see - another comment you made in your comments in paragraph 3 and 4 that IP technologies can enhance the ability of persons with disabilities to use existing and new telecommunications, so I'm assuming the IP phone is the telephone advanced with IP software to enhance its usefulness to, not just the hearing impaired but the visually impaired as well.

2061 And then there's the whole other component, which is the use of the computer screen, and you've laid out some of the advantages there, but also some of the potential disadvantages.

2062 So, I take it there's those two - to use your term - prongs in terms of the technology that you're looking at.

2063 MR. TAYLOR: Yes, the two prongs that I was discussing is also the element that a number of the features can be implemented today.

2064 In our written submission for June 18th we caveated things a bit with respect to the implementation of MRS and TTY compatibility because some of the materials that we had reviewed were caveated themselves. So, not being -- none of us on this panel are technical experts, we felt that was the appropriate way to go.

2065 However, through the interrogatory process it became very clear that TTY compatibility is implementable right now and MRS is implementable right now.

2066 Nortel emphasized that and a couple of the service providers indicated that they either have implemented it or they believe it can be implemented immediately.

2067 COMMISSIONER CRAM: I assumed that reading your response to interrogatories, also regarding your comment on table 1 in the Bell comments about message relay service not being available, although I believe Mr. Hunter said this morning so far, so it may have alleviated that a bit.

2068 So, in your response as well to CRTC interrogatories you say you do not envisage VoIP services as a replacement for PES, so can you just expand on that a little bit so we're clear.

2069 MR. TAYLOR: Well, it's been an indicator I think through the course of the day VoIP right now has a limited market appeal, and so you will have individuals who will choose to go with VoIP and other individuals who will not choose to go with VoIP, and -- oh, maybe I'm misinterpreting your question.

2070 COMMISSIONER PENNEFATHER: Yes. I think it's more related to your comment that you do not see, having said in the first instance that IP telephones would replace TTY in the longer term, you later say in interrogs that VoIP will not replace PES service.

2071 So, just to clarify the differences in those two comments.

2072 MR. TAYLOR: Okay, I didn't misinterpret your question.

2073 But, the response to the Commission's interrogatory, our response was framed in the context of the immediate provision of VoIP services which we did not construe as being a replacement for primary exchange service today.

2074 But, if we're looking at what's going to happen 15 years from now, I mean I think, you know, the Telus folks said -- I mean, they envision all of their switches being replaced with routers, et cetera. They envision everything, the whole network moving to an IP based network for the routing of things.

2075 And, assuming that that's true, then you will be looking at anybody who's got a telephone having an IP telephone, in which case the old style TTY would have been supplanted and everybody would have available to them that text to text capability from one IP telephone to another, or text to voice, or whatever.

2076 So, that's the long term, yeah.

2077 COMMISSIONER PENNEFATHER: You say long term. Can you give us a sense of what that means?

2078 MR. TAYLOR: No, because it's really up to the individual carriers as to when they are going to make those sorts of changes.

2079 I believe Mr. Greive when asked about the time frame for replacement of the network upgrading or the network cited five years.

2080 I mean, we have no, sort of, crystal ball to second guess that or anything. I mean -- and from a legacy point of view, I mean, there's also going just the issue of all these people who have telephones are going to have to go out and buy new telephones.

2081 It's sort of like digital T.V., you know, how many people are going to replace their equipment how quickly. All those sorts of factors come into play.

2082 So, it's very difficult to predict, but certainly over the real long term, you know - and I would think 10 to 15 years would be a reasonable sort of time frame - one would expect that the networks would become fully IP. It may happen much quicker than that, I don't know.

2083 COMMISSIONER PENNEFATHER: Well, that's a helpful and important discussion in terms of a reality check on what you really mean about where the starting point is and then what time will be taken to develop the kind of services that you consider adequate for disabled Canadians.

2084 MR. TAYLOR: To clarify on that point, we think that the kind of services that we would like to see, some of the services need to be done, should be done - in fact, our view - must be done now.

2085 The longer term of when -- it's more a question of when can you cease to support TTY, because TTY is an older technology.

2086 You can cease to support TTY when there are no TTYs out there, and that will happen basically when, you know, frankly, there's no more IP telephones out there.

2087 I mean, it's like when can you cease to use, you know, rotary phones, you know, when do you cease to support rotary phones. I mean, the telephone companies over the course of many, many, many years implemented the role of digital call, digital network and slowly, you know, kicked all the rotary phones out. There probably are still some out there, but...

2088 COMMISSIONER PENNEFATHER: I've still got one.

2089 MR. TAYLOR: You've still got one.

2090 But some of them are fake rotary phones, right, that actually -- you pull it out and do whatever, but it actually sends out the beep instead, but...

2091 COMMISSIONER PENNEFATHER: No, I think I still have one somewhere in a cupboard, just in case.

2092 MR. TAYLOR: Yeah.

2093 COMMISSIONER PENNEFATHER: I'm interested in another point. Commissioner Cram was discussing previously with the other panel - the panel previously also made this comment, the gentleman previous to that - we tend to talk about service for the disabled here and we talk about privacy issues here and we talk about 911 here, let me ask you for your comment on the issues related to 911 service and the issues related to privacy, as it will affect the disabled community.

2094 Do you have some particular comments on what we should be aware of when looking at these issues from the point of view of the disabled community?

2095 MS. GORDON: I think that with respect to 911, if anything, the need for persons with disabilities is as great or greater for lots of Canadians, in that they may be more regularly persons who are very perhaps house bound who have few resources, who have chronic illnesses, who have illnesses that have to rush them to hospital frequently.

2096 I mean, the incidents for a need for 9-1-1 may be larger, but I don't have any statistics on that. I can't imagine some of the clients and the people we work with not having 9-1-1 accessibility. So it's critically important that you not let the system develop without effective 9-1-1.

2097 I might say that on one of the comments on privacy, Commissioner Cram's questioning a little while ago, another thing to remember with a low-income community is that, you know, it's not necessarily every individual who makes the choice in a household about whether or not to, for example, do call blocking.

2098 So if you are vulnerable person -- and there are many vulnerable people who have disabilities, vulnerable to abuse within their homes -- for them all the safety concerns that we are familiar with in a domestic violence situation also pertain, and they may not be the purchaser of the product that's out on the market as a competitive market aspect in the way that Commissioner Cram was suggesting.

2099 So I think it's really important to remember that there is a high incidence of abuse in the community we work with.

2100 COMMISSIONER PENNEFATHER: A specific example of that, I think you have heard the conversations throughout the day regarding an obligation on local VoIP service providers to specifically and clearly advise potential and existing subscribers about information on the nature and terms of local VoIP services -- what is available, what isn't.

2101 Now, part of the suggestion was also to have your comment on whether you think it's a good idea to get the positive acknowledgement from the customer/subscriber regarding the potential and the nature and terms of the specific VoIP.

2102 Now, can you answer that, from the disabled community's point of view, what particularly or specifically does this mean for the disabled community, that question?

2103 MS GORDON: I think it depends upon the individual we are talking about. I mean, if we are talking about the people who are living independently, with the support of community living, who have intellectual disabilities and cognitive impairments, it has a huge impact because they still want phones and they want cheap phones and they are happy to have the Internet, but I wouldn't think that the capacity questions of, you know, I consent to a telephone that won't provide me with emergency services, you know, it really doesn't relate to or speak to numbers of people who have disabilities in country.

2104 If I may say, as a comment, somebody very new to CRTC work, I mean, it is clear that the emphasis and the consciousness around disability and the CRTC has been with respect to issues of people who are blind and people who are deaf, primarily. There are numerous other kinds of disabilities and the legal requirement to ensure accessibility does not pertain only to persons who have vision impairments or who are hard of hearing.

2105 I think that's one of the goals of our coming, is to attempt to expand that horizon so that when we look at telecommunications problems, we do it with a real disability lens, an inclusion lens, so that you are not focusing only on the known technology that has been identified in the past as significant, as significant. And I'm not, in any way, minimizing the issues that persons who are blind or deaf face, but there is a lot of other issues.

2106 COMMISSIONER PENNEFATHER: Thank you for that comment.

2107 Those are my questions, Mr. Chairman. Thank you.

2108 THE CHAIRPERSON: Thank you very much, Ms Gordon, Ms Kerzner, Ms Taylor.

2109 That will conclude our day. We will resume at 9 a.m. tomorrow with Microcell. Our intention tomorrow would be to proceed through to, and including, Alcatel, so we may have another lengthy day.

2110 Nous reprendrons à 9 h 00 demain matin.

--- Whereupon the hearing adjourned at 2109, to resume

on Wednesday, September 22, 2004 at 0900 /

L'audience est ajournée à 21 h 09, pour reprendre

le mercredi 22 septembre 2004 à 09 h 00

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