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Toutefois, la publication susmentionnée est un compte rendu textuel des délibérations et, en tant que tel, est transcrite dans l'une ou l'autre des deux langues officielles, compte tenu de la langue utilisée par le participant à l'audience.
TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TELECOMMUNICATIONS COMMISSION
TRANSCRIPTION DES AUDIENCES AVANT
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT:
FORBEARANCE FROM
REGULATION OF LOCAL EXCHANGE SERVICES /
ABSTENTION DE LA RGLEMENTATION DES SERVICES LOCAUX
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 26, 2005
Le 26 septembre 2005
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.
Canadian Radio‑television
and
Telecommunications Commission
Conseil de la radiodiffusion et des
télécommunications canadiennes
Transcript / Transcription
FORBEARANCE FROM
REGULATION OF LOCAL EXCHANGE SERVICES /
ABSTENTION DE LA RGLEMENTATION DES SERVICES LOCAUX
BEFORE /
DEVANT:
Charles Dalfen
Chairperson / Président
Richard French
Commissioner / Conseillier
Michel Arpin
Commissioner / Conseillier
Stuart Langford
Commissioner / Conseillier
Joan Pennefather
Commissioner / Conseillère
Andrée Noel
Commissioner / Conseillère
Elizabeth Duncan
Commissioner / Conseillère
Rita Cugini
Commissioner / Conseillère
Barbara Cram
Commissioner / Conseillère
Ronald Williams
Commissioner / Conseillier
Helen del Val
Commissioner / Conseillère
ALSO PRESENT / AUSSI
PRÉSENTS:
Marielle
Girard
Consultation Secretary /
Secrétaire de la
consultation
James Wilson
Legal Counsel /
Shelly Cruise
Conseillers juridiques
Chris Seidl
Project Manager /
Gestionnaire des projets
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 26, 2005
Le 26 septembre 2005
TABLE DES MATIÈRES /
TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY /
PRÉSENTATION PAR:
Aliant Telecom
Inc.
10 /
63
The
Companies
178 / 1015
Gatineau Quebec / Gatineau (Québec)
‑‑‑ Upon commencing on Monday, September 26,
2005
at 0930 / L'audience débute
le lundi
26 septembre 2005 à
0930
1
THE CHAIRPERSON: Good
morning, ladies and gentlemen.
2
Bonjour et bienvenue, mesdames et messieurs.
3
My name is Charles Dalfen, and I am Chairman of the Commission and of
this hearing.
4
With me on the panel are, to my immediate right, Richard French, the
Commission's Vice‑Chair, Telecommunications.
5
To his right, Barbara Cram, Commissioner for Manitoba and the
Saskatchewan regions.
6
To her right, Helen Ray del Val, Regional Commissioner representing the
regions of British Columbia and the Yukon.
7
And to her right, Ronald Williams, Commissioner, Alberta and the
Northwest Territories regions.
8
To my immediate left, Michel Arpin, the Commission's Vice‑Chair,
Broadcasting.
9
To his left, Elizabeth Duncan, Commissioner for the Atlantic
Region.
10
To her left, Joan Pennefather, National
Commissioner.
11
To her left, Andrée Noël, Commissioner for the Quebec
Region.
12
And to her left, Rita Cugini, Regional Commissioner for the Ontario
Region.
13
And to her left ‑‑ I can't identify the character waving at the end
there ‑‑ Commissioner Langford, National
Commissioner.
14
We have a number of Commission staff here as well. At the staff table are our Consultation
Secretary, Marielle Girard; Commission counsel, James Wilson and Shelley Cruise,
Chris Seidl; Project Manager; and behind them other members of the
team.
15
Over the next few days, we will hear the oral presentations of parties
who indicated in their submission that they wished to appear in
person.
16
In addition, we will give careful consideration to all of the written
material filed in this proceeding, both by those appearing this week and by
others who are not appearing.
17
Comme vous le savez, dans l'avis public de télécom CRTC 2005‑2, le
Conseil a amorcé un processus public sur l'abstention de la réglementation des
services locaux.
18
Le principal objectif de cette instance est de développer des critères
clairs dont le Conseil pourra se servir pour déterminer lorsqu'il convient de
s'abstenir de réglementer les services locaux.
19
La présente instance est la plus récente d'une série de processus
destinés à favoriser la concurrence dans les marchés
locaux.
20
Le Conseil a établi un cadre de réglementation de la concurrence locale
dans la décision télécom CRTC 97‑8, laquelle découle de la décision télécom CRTC
94‑19 intitulée Examen du cadre de réglementation.
21
Dans cette décision, qui fut la première décision rendue suite à la
promulgation de la Loi de 1993 sur les télécommunications, le Conseil a énoncé
sa politique de base, qui consiste à ouvrir tous les marchés de
télécommunication à la concurrence, y compris le marché des services locaux, et
il a développé un cadre réglementaire dans le but d'atteindre cet
objectif.
22
In its annual monitoring reports of the Canadian telecommunications
industry over the past five years, the Commission has found that in general
competitors have not gained a substantial market share with respect to local
telecommunications services since the issuance of Decision
97‑8.
23
Local competitors have, however, made some inroads in local
business‑driven market and the local residential urban markets in some parts of
the country.
24
Since Decision 94‑19, the Commission has forborne from regulation in most
telecommunications markets as competition has taken hold.
25
The Commission looks forward to the time when it can forebear from
regulating the local exchange market as well, when competition in that market is
sufficient to protect the interest of users.
26
In the Commission's view, robust, sustainable competition is the key not
only to protecting consumers of telecommunication services, but about
stimulating investment and fostering innovation by telecommunications
companies.
27
I will quickly recap the six questions that the Commission put to
interested parties in Telecom Public Notice CRTC 2005‑2. They are:
28
What local exchange services should be within the scope of this
proceeding?
29
What is or are the appropriate, relevant market or markets for
forbearance from the regulation of local exchange services, taking into
consideration both services and geographic areas?
30
What are the appropriate criteria to be applied to determine whether the
relevant market or markets is or are sufficiently competitive for
forbearance?
31
What Commission powers and duties should be
forborne?
32
What post‑forbearance criteria and conditions should apply and
why?
33
What is the appropriate process for future applications for forbearance
from the regulation of local exchange services?
34
As stated in the Public Notice, the Commission intends to apply these
criteria in deciding upon Aliant Telecom's forbearance application, as well as
in decisions on future applications for forbearance from regulation of local
exchange services.
35
These proceedings will also assist the Commission to determine whether
there should be a transitional regime that provides ILECs with more regulatory
flexibility by removing certain competitive safeguards prior to forbearance and,
if so, what the appropriate criteria should be.
36
As we have a packed agenda, I would ask all parties to ensure they are
available when their turn is called; to restrict their presentations to the
matters set forth in the public notice; and to adhere to their allotted
time. Your cooperation will ensure
that our time is used efficiently and effectively.
37
Unless otherwise indicated in the organization and conduct letter of
August 17th, parties will be allotted a maximum of 20 minutes to make their
presentation.
38
The Consultation Secretary will advise you by holding up a card when you
have five minutes remaining.
39
Generally, Commissioners' questions as well as questions by Commission
counsel, if any, will come after each party has completed its
presentation.
40
Parties wishing to make a closing statement will be allotted five
minutes, in reverse order of their presentation, after all parties have made
their initial presentations.
41
Si vous avez d'autres questions sur le déroulement de la consultation, je
vous demanderais de vous présenter à Marielle Girard, secrétaire de la
consultation, que j'invite dès maintenant à vous faire part de certaines
questions additionnelles.
42
Madame Girard ?
43
THE SECRETARY: Thank you Mr.
Chairman.
44
Avant de débuter, j'aimerais clarifier quelques points afin d'améliorer
la conduite de cette consultation.
45
First, we would ask you to please turn off you cell phones and beepers or
to set them on a vibrator mode while you are in the hearing room as they tend to
be an unwelcome distraction for participants and Panel
members.
46
Also, please turn off Blackberries and other text messaging devices, as
they cause interference on the internal communication systems used by our
translators and court reporter. We
are counting on your cooperation in this regard throughout the
consultation.
47
As indicated in the organization and conduct letter issued on August 17,
2005, we propose to sit from 9:30 a.m. to 5:30 p.m. each day. We will take a 90‑minute lunch break, as
well as a 15‑minute mid‑morning and mid‑afternoon break.
48
While we do not anticipate sitting into the evenings, it may be
necessary if the consultation falls behind schedule. It may also be necessary to extend the
consultation to include Friday, September 30th.
49
The order of appearance for this consultation was set out in Schedule A
to the Commission's August 17th organization and conduct letter, and appears,
with few slight amendments, on the consultation agenda.
50
If you do not have a copy of the agenda, additional copies are available
at the reception and in the Papineau Room.
51
The Papineau Room will serve as the public examination room and is open
to all parties and to the public for the duration of the consultation. It contains a complete copy of the
record for this proceeding. An
additional copy of the record is available for parties at their presentation
table.
52
Furthermore, please be reminded that all parties are to provide the
Commission with 25 copies of their oral text prior to delivery of their
presentation.
53
These copies are to be provided to Commission's staff at the registration
table located in the reception hall, with 25 additional copies to be made
available for all other parties presenting at the
consultation.
54
Parties are also reminded that copies of their oral presentations do not
form part of the public record of this proceeding.
55
In addition, cross‑examination by other parties and audiovisual
presentations will not form part of this consultation.
56
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
presentations within the prescribed timeframe.
57
Finally, in order to ensure the court reporters are able to produce an
accurate transcript, please ensure that your microphone is turned on when
speaking.
58
A copy of each day's transcript will be available in the Papineau Room at
the start of the next consultation day and the full set of transcripts will be
posted on the Commission's website shortly after conclusion of this
consultation. Parties who wish to
purchase copies of transcripts or other services from Mediacopy Inc. should deal
with them directly.
59
Maintenant, monsieur le président, nous allons préceder avec les
comparutions.
60
I am now calling on Panel No. 1, Aliant Telecom
Inc.
‑‑‑
Pause
61
THE SECRETARY: Please
introduce yourself and your colleagues and start your
presentation.
62
Thank you.
PRESENTATION /
PRÉSENTATION
63
MR. ROBERTS: Good
morning. My name is Mike
Roberts. I am Vice‑President of
Regulatory and Government Affairs for Aliant.
64
With me here today representing Aliant, to my immediate right, is Heather
Tulk, Aliant's Vice‑President, Broadband and Marketing; to her right is Rick
Stephen, Aliant's Director of Regulatory Matters.
65
To my far left is Dan Campbell, counsel to Aliant, and to my immediate
left is our economic consultant, Margaret Sanderson, Vice‑President of CRA
International.
66
We are pleased to be here with you this morning to talk about our
application for forbearance of residential local services in 32 exchanges
in Nova Scotia and Prince Edward Island.
67
In this proceeding, you will be considering a number of matters including
framework issues for future forbearance applications. We have filed comments in our written
submissions and will be pleased to discuss them with you, but our presentation
this morning will focus on our forbearance application.
68
Heather.
69
MS TULK: The
Telecommunications Act sets out a two‑step process of analysis in section
34.
70
The first step is to examine the evidence to determine whether
competition with respect to the services under consideration is sufficient to
protect the interests of users. If
it is, the Commission is directed to forbear from
regulation.
71
We submit that our evidence demonstrates that this test has been met for
the 32 exchanges. On any
reasonable analysis competition in these exchanges is robust. Nobody has seriously suggested
otherwise.
72
The second step is to consider the evidence and determine whether it has
been established that competition is unlikely to continue if forbearance is
granted. If that is proved the
Commission is directed not to forbear.
We submit that this has not been proved. Indeed, nobody has seriously suggested
that competition will be impaired at all in the 32 exchanges. There is no basis to hesitate in
granting forbearance on the grounds that competition is not likely to be
sustainable.
73
With respect to the products and services to be included in the
residential market, we took a very conservative approach in our application,
including only wireline services in our calculations of market share, but it is
clear that the market is much more than this.
74
The increasing use of wireless high‑speed internet access and various
internet applications have all contributed to an industry‑wide decline in the
number of wireline lines and services.
This will be important to understand in future applications, but in our
application we have been conservative and have not included
them.
75
With respect to the geographic market, we strongly believe that the
exchange is the appropriate unit.
The economic analysis that Margaret will take you through will explain
this further, but from my perspective it is fully reasonable for local
forbearance to unfold on an exchange‑by‑exchange basis. The exchange is the
basic building block of local service and it is from our services that you are
being asked to forbear. It is the
smallest basis on which we can exhibit market power and that we can
operationalize.
76
As competition unfolds, we will have to operate for some time in a
partially‑forborne environment as our competitors are not mandated to provide
service throughout our territory.
As competitors are choosing where and when to enter, the exchange is
the smallest basis on which a competitive footprint can be mapped to operational
reality in our industry.
77
Quite simply, the exchange is the practical unit for our industry and,
indeed, for the Commission to administer in the future.
78
As stated in our application, competitor share of lines in these 32
exchanges stood at 21 per cent at year end 2003. By year end 2004 this had risen to 29 per
cent and, as we have shown you in our update this morning, by the end of last
month the share has a climbed to 33 per cent.
79
Obviously, without access to our competitor's total line count these
shares are estimates, but we believe them to be a reasonable representation and
it is notable that nobody has questioned them.
80
With respect to demand conditions, the rapid growth in competitor share
of lines clearly demonstrates that consumers are not afraid to exercise
choice. Inertia is simply not
standing in the way of customer choice.
81
The Competition Bureau has noted that an important indicator of effective
competition is the ability of competitors to retain customers. Aliant has filed in confidence with the
Commission data on our ability to win over customers from competitors and,
clearly, retention by our competitors is also not an issue of
concern.
82
With respect to supply conditions, some parties suggest that you need
numerous competitors for a market to be truly competitive. In my experience this is simply not true
in the telecom industry.
83
Initially, there were only two cellular competitors. In high‑speed internet service there are
usually only two competitors in any given market. In both cases competition is intense and
customers have benefited.
84
It is not how many competitors exist, but whether an effective
alternative is available to customers.
In the case of the 32 exchanges, we provided our estimate that EastLink
has 98 per cent network coverage.
With access to unbundled loops this is really 100 per
cent.
85
There are clearly no barriers to entry for EastLink. It already has entered and, as I
mentioned, has virtually complete coverage in the
32 exchanges.
86
In addition, VoIP providers can enter quickly and at very low cost,
as shown by how rapidly they are setting up in Halifax. High‑speed internet service is widely
available and Aliant has recently introduced dry loop high‑speed internet
service. This means that any
customer in our high‑speed footprint can now quite easily choose telephony
services from any provider while purchasing only high‑speed Internet from
Aliant.
87
Wireless is already here and, as you know, the number of wireless‑only
households is growing quickly.
Customer inertia is not an issue as customers have demonstrated their
willingness to choose from more than one alternative. This is not a marketplace where barriers
to entry are an issue.
88
With respect to rivalrous behaviour, I can say that if you are living in
one of these 32 exchanges you are witnessing a vibrant rivalrous market for
residential local service. There is
a full and dynamic intent by all parties in the market to earn the choice of
each customer.
89
In the last year alone, examples of communications with respect to local
service offers from our major competitor have ranged from free local service for
one month, free local service for six months, save $174 per year on local
service, to the latest offer last week of $9.00 per month for local service with
all features.
90
In a market with such quick‑changing offers, customers would certainly
expect and deserve to see all competitors in the market working hard with new
offers to earn their business.
Certainly, Aliant has been working hard within the current regulatory
framework to earn the right to be chosen by our customers and we work hard to
communicate our value proposition.
However, for over two years local service promotions by Aliant were
banned and rivalrous behaviour exhibited by us was perhaps less than it
otherwise would have been and presumably, therefore, EastLink's promotions too
have been less as they would have benefited from our regulatory
restrictions.
So the market
is very rivalrous, but forbearance is necessary so that customers can see the
full benefits of this rivalry.
91
And evidence of rivalry is not new.
As you know, we felt that we could not raise residential local prices
four years ago in Nova Scotia, even though we have price cap headroom to do
so. Even back then competition was
sufficiently rivalrous to prevent us from raising rates. That would be even more so
today.
92
In short, customers have options and have shown that they are willing to
choose. It is clear that the 32
exchanges are intensely and irrevocably competitive.
93
So why forbearance now? If
our application is approved it will be approximately two years after we
filed. In the meantime, customers
have been missing out on the benefits of competition, including faster market
response, greater innovation and flexibility, more promotions, more incentives
and innovative bundles. The
potential further benefits to customers during those two years are lost
forever.
94
I know that some have questioned Aliant's intentions
post‑forbearance. On this point I
wish to be extremely clear:
Aliant's only intention in a post‑forborne world is to ensure that
customers have the full ability to benefit from competition and are given a
free, equal and open ability to choose.
Put simply, we aim to operate the way any reasonable consumer marketer in
this country does, to continually adapt our offers based on our customers needs
and ensure that we earn their business.
95
Let me give an example of what I mean: As I mentioned, just last week EastLink
launched a new promotion; residential local service and all options and features
communicated for $9.00 a month.
There are some strings: sign
up for a year, subscribe to a bundle, but $9.00 a month is the offer they are
communicating.
96
How do we respond? A normal
consumer marketer in a normal competitive market would look at what the customer
is saying and decide on their offers based on how they need to communicate their
value proposition.
97
In our case a large part of our alternative response has to be: Will the Commission let us respond in
that way? What has to be filed with
the Commission? Does it meet the
bundling rules and imputation tests?
Does it meet the promotion rules?
Can we file something without the details being made available to
competitors? Can we get it approved
fast enough? And on it
goes.
98
In the meantime, customers in our market are not able to see a true
like‑to‑like comparison between their offer and theirs. They are not able to hear about their
real choices and they are not getting the benefits of an intense competitive
rivalry that should accrue to them.
All that disappears with forbearance. We will be able to react to changes in
market conditions as quickly as our competitors. We will be able to bring new and
innovative offers to market to appeal to customers and customers will
benefit.
99
Let me also be clear on what we will not do. We will not cut prices recklessly. Local access is a valuable service and
there is a cost to provide it. If
we want to continue to make money in the business pricing has to be
rational.
100
Because of the comments of our competitors you may question as to whether
competition will continue after forbearance. Let me be very clear here as well. There is no issue here with the
sustainability of competition in these exchanges. EastLink has strengths in television
service, high‑speed internet and bundling.
Their network is in place and they already have a substantial telephony
base. They are already in many more
than the 32 exchanges with a significant and growing number of business
customers in addition to their residential base and they continue to expand to
new exchanges.
101
EastLink's costs are competitive.
They must be for them to be able to offer local service at $9.00 with all
features included.
102
Finally, predatory pricing, if one were foolish enough to want to try it,
is prohibited under the Competition Act.
If you look at the history of Canadian telecom, no forborne market has
ever been re‑monopolized; not terminals, not cellular, not long distance, not
private lines. Competition is here
and competition is here to stay. It
is time for customers to truly benefit.
103
Margaret.
104
MS SANDERSON: Thank you,
Heather.
105
Aliant has asked me to briefly summarize my assessment of the extent of
competition for residential local services in the 32
exchanges.
106
This analysis is directed to answering the question that Heather posed
initially: Does Aliant have
substantial market power in the specified exchanges? If no, the Commission should forbear as
there is sufficient competition to protect the interests of users. As well, customers will be better off if
Aliant is free to respond to EastLink unencumbered by
regulation.
107
The first step in this process is market definition. I will not spend much time on product
market definition as most parties agree it is appropriate for you to find it to
be the collection of basic local service and optional calling features available
to residential customers. Several
technologies deliver this service, including telephony‑over‑cable infrastructure
like that of EastLink, VoIP and wireless.
108
In my report, I adopt the CRTC findings that VoIP is part of the relevant
product but wireless is not. I do
this to be conservative.
109
Geographic market definition is more controversial here. Aliant argues that the exchange is the
relevant geography for assessing competitive conditions. The CCTA and EastLink argue for a much
broader area like the local interconnection region (LIR) or even the
province.
110
There is agreement among the various economic experts that users do not
consider alternative calling pairs to be good substitutes. In theory, then, this may mean that each
individual calling pair is a unique market. This is not practical and some form of
aggregation is required. The
question is how much.
111
In Decision 94‑19 the Commission defined the relevant market
as:
"... the smallest group of products in geographic area in which a
firm with market power can profitably impose a sustainable price increase." (As read)
112
As a result, any aggregation of calling pairs must stop at the smallest
area over which market power would be exercised.
113
Because investments at the local level are required to offer local
service, the set of suppliers or the set of competitive alternatives differs by
location.
114
EastLink cannot offer local service in Cape Breton by making investments
in Halifax. EastLink has to make
some investments in Cape Breton in order to offer service there. As a result, the competitive
alternatives are not the same throughout the province. This makes the province the wrong
geography for considering forbearance applications. It is too big.
115
What about something smaller like local calling areas or LIRs? Do they make
sense?
116
It is clear from the maps distributed by Aliant this morning that LIRs
like provincial boundaries are also too broad. They fail to distinguish areas with
different competitive conditions.
This is easily demonstrated by looking at the Halifax LIR. There are over 60 exchanges within the
Halifax LIR, but EastLink offers service in about half of
them.
117
If the Commission were to adopt the LIR as the appropriate geography, it
would be melding highly competitive areas where EastLink is present and less
competitive areas where Aliant is the only wireline
provider.
118
As with the province, the LIR is too big. It fails to limit the geographic market
to an area with similar competitive conditions.
119
This leaves the local calling area.
For every exchange there is a local calling area composed of several
exchanges. As a result, local
calling areas overlap. As well,
local calling areas will mix competitive and less competitive
areas.
120
Consider Antigonish. Within
the Antigonish local calling area there are nine exchanges but EastLink is
present in only two. Further, the
Antigonish exchange is included in seven other local calling areas. These two will include a mix of areas
with EastLink present and areas without EastLink. To my mind, use of local calling areas
introduces unnecessary complications without improving upon exchanges at the
smallest geographic area for consideration.
121
The CCTA proposes broader geographies, not because this is the result of
economic analysis directed to finding common competitive conditions; rather, it
is because broader geographic areas will make forbearance more difficult when
that is paired with high market share loss thresholds. This will be a significant departure
from the Commission's stated principles for forbearance.
122
I believe the Commission's test for geographic market definition is the
right one and we need to stop at the smallest geographic area over which market
power would be exercised.
123
Finally, there is the proposal to define the geographic market around the
overlapping footprint of the ILEC and perhaps a full facilities‑based
competitor. This approach will
distinguish different supply conditions and, hence, it is conceptually very
appealing. However, I understand
the practicalities of this are much more difficult. In essence, it would be extremely costly
for Aliant to administer forborne and non‑forborne areas below the exchange
which this proposal might entail.
124
Practically, if we want to compare the area of overlap between the cable
provider and the ILEC, we are brought back to the ILEC's infrastructure which is
built around the exchange. So we
are bought back to looking at individual exchanges or perhaps collections of
exchanges where we have a comparable competitive presence. This is what Aliant has presented to the
Commission in this proceeding.
125
Once markets are defined, the analysis turns to assessing the vigour of
competition. Here the record, as
Heather has mentioned, is unambiguous.
EastLink is an independent facilities‑based service provider. EastLink offers attractive bundles that
include television, internet, wireless and local telephony. Within a short time of entering global
markets EastLink has captured a substantial share of the market, one‑third of
residential wirelines in the 32 exchanges.
126
Aliant's market research confirms that residential consumers are willing
to, and readily switch, suppliers.
As well, EastLink retains its local customers as Aliant's data, filed in
confidence with the Commission, indicates.
127
Should the Commission grant forbearance, it is clear from all of this
that Aliant would not find it profitable to increase prices above competitive
levels in the 32 exchanges. From my
reading of the record in this proceeding, no party is even suggesting that
Aliant would charge monopoly prices following forbearance.
128
If there is any pricing concern, it is one of prices that might be too
low. Whenever such claims are made
it is important to recall that low prices is one of the reasons why we want
competition. The only low prices
that the Commission needs to worry about are ones that might be
predatory.
129
But here the concern is not the low prices. Here the concern is the higher prices
that would follow the period of predation once the competitor exits. It is critical, then, to assess the
likelihood that EastLink would exit local telephony markets if Aliant has the
flexibility to engage in the type of promotional activity that Heather spoke
about.
130
We know EastLink is not going to exit the communications business
overall, because it is the incumbent cable provider and it also has a
significant internet presence.
131
But for EastLink to be driven from the local services market, Aliant
would have to charge extremely low prices.
The bulk of EastLink's costs to provide local services are fixed and
sunk. This is simply a feature of
the capital intensive nature of the industry. Aliant would have to price below
EastLink's variable costs of providing local service to drive EastLink from the
market.
132
EastLink has just demonstrated that these costs must be very low, it is
charging $9.00 for local service and unlimited features. Nine dollars must be above EastLink's
variable costs of providing local telephony or EastLink's pricing is completely
irrational.
133
Could Aliant ever recoup the revenue losses that it would take to drive
EastLink out of the telephony business, assuming it is possible to price low
enough? The short answer is
no. Aliant cannot increase prices
in competitive markets, like wireless and internet, because this would simply
cause customers to flock to Rogers, Telus and EastLink.
134
Aliant cannot increase prices for local services in non‑forborne areas
because you, the Commission, and your regulation prevents this. If Aliant tried to raise prices to
recoup its losses from predation in local telephony markets after it supposedly
drove EastLink out of the market, it is likely to find VoIP providers present
this and EastLink has the ability to re‑enter. After all, it is profitable for EastLink
to compete against Aliant at current prices today. Given much of EastLink's investments to
this are sunk, it would be profitable to compete against Aliant if Aliant were
to raise prices back up to current levels or beyond after the period of
predation.
135
Some might argue that Aliant could try to discipline EastLink through low
pricing in order to curtain its expansion elsewhere, but the horse left the barn
a long time ago. In a year EastLink
will have invested enough to offer local service to 90 per cent of it's
cable footprint. EastLink is
already in the largest and most lucrative markets. I makes little sense for Aliant to lose
money in Halifax in order to convince EastLink not to expand into the Cape
Breton Highlands.
136
No matter what theory of predation is postulated, the facts indicate that
a predatory strategy is not likely to be profitable. If it is not profitable, it will not be
attempted. The Commission does not
need to fear this speculative concern in respect of the
32 exchanges.
137
MR. ROBERTS: Thank you,
Margaret.
138
So if I could briefly summarize.
139
First, the local exchange is the proper geographic market for
consideration.
140
Second, the evidence is clear and uncontradicted that competitive market
forces are already protecting interests of consumers in that they are into
exchanges.
141
Third, competition is well‑established and will remain vibrant after
forbearance. There is no evidence
to the contrary.
142
Finally, delaying forbearance is unnecessarily denying customers the
benefits of a full and open competitive market.
143
Thank you very much. We are
prepared to take any questions you may have.
144
THE CHAIRPERSON: Thank you
very much to the panel.
145
Commissioner Duncan.
146
COMMISSIONER DUNCAN: Good
morning.
147
First of all, I am going to be referring to the company's final argument
at page 24, paragraph 87.
‑‑‑
Pause
148
MR. WILSON: Sorry. Just if I can clarify, I believe when
Commissioner Duncan says "the company" she is referring to the Bell Canada's
final argument.
149
COMMISSIONER DUNCAN: Sorry
about that.
Sorry.
150
MR. WILSON: Just to clarify
that.
151
COMMISSIONER DUNCAN: Thank
you.
152
MS TULK: We need to get a
copy of that. We only have our
final arguments here.
153
Just a second.
Sorry.
‑‑‑
Pause
154
COMMISSIONER DUNCAN: Sorry
about that, Mr. Roberts. We are off
to a good start.
155
It is clear what Aliant's recommendation is, but we would like to explore
the local calling area as a possible geographic market. The Companies, in their final argument,
list some of the difficulties associated with selecting the local calling area
as a relevant geographic market.
156
LCA includes many exchanges, each of which is part of other LCAs. So the LCA's overlap and it is not clear
which LCA should be relied upon in the context of a forbearance
application.
157
Could you discuss whether it might be appropriate as part of the
application for forbearance for the applicant ILEC to pick a central exchange
and its associated local calling area?
Is this solution workable as an appropriate, relevant geographic market
and could this minimize the problem of overlapping LCAs?
158
MR. STEPHEN: In selecting
the configuration that you would call the local calling area I think it would be
certainly open to a lot of discussion and debate in terms of what should be
included and what shouldn't. So
while your suggestion obviously could be done, that a proposal could be put
forth, we would think it would raise a lot of questions.
159
Some of these exchanges have really like a daisy‑chain effect to them and
it is not necessarily just one exchange that would be in question in terms of
which local calling area would it belong to, so it would seem to us to be a lot
simpler to just focus on the exchange.
160
The local calling area is made up of exchanges, so to us it was easier to
go with the smaller and not have to worry about the confusion and any, I will
say, debate of is a certain exchange in one calling area or another when in fact
they are in several. So rather than
debate the issue, it is so much easier to just accept the exchange as the proper
measure.
161
MS SANDERSON: I will just
add to what Rick has said.
162
Commissioner Duncan, if you do proceed in that fashion I would urge you
that ultimately what you want to do with the geographic markets is you want to
find the smallest area that has the common competitive conditions. So you want to be careful not to expand
this area to be beyond the areas where the cable provider ‑‑ in this case
EastLink ‑‑ has a significant presence.
163
So if I was to take your example and think about, let's say, Amherst as
an example, then you might think about the Amherst exchange and the competitive
conditions that exist in the Amherst exchange and then you might say: Well, what are the common competitive
conditions just in the adjacent exchanges that are part of, say, this local
calling area. So perhaps you would
include Springhill, you might include Collingwood, you might include
Oxford.
164
But you do not want it to be the case that you take that expanding
market, which really if you think about it it is just an aggregation of
exchanges with common competitive conditions. In essence, your building block is still
back at the exchange level, but now what you are doing is, instead of examining
the market four times, Springhill different from Amherst, different from
Collingwood, different from Oxford, you are saying the competitive conditions
within this collection of exchanges is similar and you are assessing the market
in that sense.
165
So in some sense you are brought back to the exchange of this basic
building block where adjacent exchanges have common competitive conditions and
common alternatives. I do not see
any harm in examining the competitive conditions of the collection of those
exchanges in one application.
166
COMMISSIONER DUNCAN: So in
that instance you would be in agreement then?
167
MS SANDERSON: It would
depend on what the competitive conditions were in the areas that you went out
to. So you would not want to just
say, "Well, I am going to define the market around these local calling areas and
then pull in areas where, for instance, Aliant is the only provider, EastLink
has no infrastructure in place.
Essentially, you need to guard against that.
168
COMMISSIONER DUNCAN: All
right. Thank you. I take your point.
169
I notice the Halifax central exchange serves 11 exchanges. Hopefully I have interpreted this
correctly from your tariff. It says
it serves 11 exchanges, and three of these exchanges, Chezzetcook, Elmsdale
and Musquodoboit Harbour, are not included in the 32 exchanges you have applied
to have forborne.
170
Similarly, in the Heatherington exchange, which serves four exchanges,
only one, Antigonish ‑‑ interesting, because that was in your opening
comments ‑‑ is included in the 32 exchanges you have applied to have
forborne.
171
You indicate again today the percentage market share that you have
lost. I wonder what your market
share would be if the loss was calculated based on a central exchange and its
associated calling area. So for
these 32, how it would impact your market share loss.
172
I think it points to some of the complications in using this approach,
but I am assuming that you would only consider an exchange area once for the
purpose of this calculation. So,
for example, you would have to decide whether Halifax exchange would be included
in the Halifax or Hubbards central exchange ‑‑ because I notice Halifax is
also listed in the Hubbards central exchange. Of course I am interested to know if you
disagree with that, but I would assume you could only use it
once.
173
MR. STEPHEN: Commissioner,
when you referenced the exchange make‑ups, are there some documents that we
would have that you are referring to or is it from our
tariffs?
174
COMMISSIONER DUNCAN: I used
your tariff, your General Tariff, CRTC 21‑491.
175
MR. STEPHEN: Sorry, I don't
think I have a lot of specific data on those particular
exchanges.
176
COMMISSIONER DUNCAN: I think
it would be interesting. I
don't realistically expect you are going to have that percentage right here with
you.
177
MR. STEPHEN: No. I am trying to recall whether or not I
have anything close to it and I am not aware that I do.
178
But I think what is important is that when we came up with our 32
exchanges the approach we used was to look at where the competitor is. In fact, our whole philosophy of
adopting the exchange that wasn't the starting point. The starting point was
really looking at the geography where competition exists. Obviously as we did work on that we
consulted with economists to determine how best to use that information in terms
of meeting 94‑19 tests, you know the framework tests.
179
The exchanges, when we adopted that it was after looking at all other
forms of aggregations and concluded that the exchange made the most
sense.
180
So in the exchange that you referred to that would be adjacent to, let's
say Halifax, in those cases EastLink may or may not be offering service. So when we looked at the 32 exchanges we
were very much looking at where is the competitive footprint and how does that
match or map to our service areas.
181
So if we didn't include it in the 32 exchanges it would have been
that at the time of our application we wouldn't have felt there was sufficient
competition in those areas to include it.
182
So while I don't have the mathematical response in terms of if we include
certain exchanges what that would do to market share, obviously if they are in
exchanges where EastLink is not that will obviously reduce the share of line
loss simply because of you are adding into, you know, the base without adding
any additional loss perhaps. So the
answer would be the number would go down.
183
MS TULK: We did file,
Commissioner Duncan, during the proceeding our market share in confidence with
the Commission by local calling area, which was aggregated up above the exchange
level. So that would be in the
abridged copies of our filings.
184
It is not on the public record and it is competitively sensitive so we
wouldn't be able to disclose those particular numbers
today.
185
MR. ROBERTS: I believe the
interrog reference is 808.
186
COMMISSIONER DUNCAN: 808,
thank you.
187
MS TULK:
Yes.
188
COMMISSIONER DUNCAN: Just on
that point then, how did you handle the fact that some of the exchanges were
counted in the overlapping aspect of it?
189
MS TULK: Well, I think that
speaks to what we did was we provided the exchange per the defined local calling
area, but definitely that is the issue.
That is why we believe the local calling area is not appropriate, because
you can have a specific exchange, whether that exchange is competitive or not
can fall within the market share and line counts of different local calling
areas because they can be on the border with more than one other local calling
area.
190
So an example where you have a community between two competitive
exchanges that is not competitive, it could in fact be in the local calling area
of both the competitive exchanges.
Actually, in using a local calling area test, that non‑competitive
exchange could be pulled into forbearance because the total local calling area
meets a forbearance test that will be established.
191
That is why we believe strongly that in order to protect against that the
exchange is the right building block, and if, for example, all exchanges inside
the Halifax calling area were competitive and met the test, then de facto
10:15:51) the local calling area would meet the test.
192
But what it prevents against is having the local calling area meet the
test and through that pull in exchanges that individually are not
competitive. So we believe it is
important to have the test at the exchange level and then as exchanges pass the
test, in certain cases full local calling areas would in fact meet the
forbearance tests, in other cases they wouldn't.
193
COMMISSIONER DUNCAN: I
appreciate your comments and they are well taken. I know that at Aliant's heart, of
course, is the 32 exchanges. We are
trying to develop a national framework so we will certainly take all that into
consideration.
194
MS TULK: One great of
example of that ‑‑ we have many examples of that outside these
32 exchanges in our footprint, so a great example for us would be the St.
John's area where in St. John's Newfoundland, Long Pond as an example, will be
part of the St. John's calling exchange.
It is not part of the calling exchange with Torbay.
195
You could easily foresee a world where you could have competition in the
heart of St. John's and because the heart of St. John's is so much bigger on a
line count basis than either Long Pond or Torbay, looking at the calling area
St. John's could pass a reasonable test and pull Long Pond and Torbay into
forbearance even though there may never be a competitor in either Long Pond or
Torbay.
196
That is why we believe that keeping it at the exchange level prevents
that type of occurrence and makes sure that areas outside of a competitive
footprint aren't in fact pulled in through the local calling
area.
197
COMMISSIONER DUNCAN: But a
VoIP provider might be a competitor in that example, would
you say?
198
MS TULK: It may be, if they
choose.
199
COMMISSIONER DUNCAN: As
things evolve?
200
MS TULK: Right,
yes.
201
The big thing for us really in filing our application and landing on the
exchange in our proposal is really looking at: How do you map a forbearance test for
local service with the way this industry is going to evolve? How do you map a forbearance test for
local service that has to be mapped something to how competitors are choosing to
operate? Competitors are not
mandated nor certainly demonstrating any intent to date of rolling out on a
provincial or national basis or on a local calling area
basis.
202
Competition is unfolding at a very grassroots level, both in the EastLink
example, but also in the VoIP example, also in the wireless as a substitute,
example. It is happening on a
location‑by‑location basis in terms of where it is being provided as a local
service alternative. It is
important that the administration of forbearance in that regime is matched to
that grassroots type of rollout.
That is why we are proposing the exchange.
203
MR. CAMPBELL: Commissioner
Duncan, in terms of a national standard, this applies to a limited extent I
suppose in our territory. There is
at least one exchange in New Brunswick that has free local calling into the
United States. The same exchange
has free local calling into Telus territory in Quebec. Needless to say, competition to the
American carrier or competition to Telus doesn't discipline Aliant in its
exchange. But under this postulated
test, that would be part of the forbearance test. That will probably be more relevant as
you apply the test across the country.
We don't have much border with the U.S.
204
COMMISSIONER DUNCAN: That is
a very helpful comment. We will be
able to take that into consideration.
Thank you.
205
I will move onto the next question if you are satisfied with that. Okay.
206
Mr. Townley suggests that in low density areas possibly overlooked by
competitors an incumbent may not be able to raise prices.
207
Can you explain why an incumbent would not be able to raise
prices?
208
MS SANDERSON: Could you
refer me to the reference in Peter Townley's report?
209
COMMISSIONER DUNCAN: I don't
have the reference here, unless staff has it maybe.
‑‑‑
Pause
210
COMMISSIONER DUNCAN: If we
can't easily find the reference I could maybe just pose the question a little
differently.
211
Do you want me to do that?
212
MS SANDERSON: I wouldn't
want to try to interpret Professor Townley incorrectly.
213
COMMISSIONER DUNCAN: I
appreciate that. Me
either.
214
MS SANDERSON: Particularly
if you ever met him. He is a very
large imposing figure.
‑‑‑ Laughter /
Rires
215
COMMISSIONER DUNCAN: I will
keep that in mind, too.
‑‑‑
Pause
216
COMMISSIONER DUNCAN: The
suggestion is I will move on to another question and they will look for
that.
217
MS SANDERSON:
Okay.
218
COMMISSIONER DUNCAN: So with
respect to LIRs, assuming the geographic area proved is the local calling area
or the LIR, I notice in your final argument at paragraph 21 you explain, and I
quote ‑‑ I will wait for you:
"The larger the geographic market to be considered the greater the
likelihood that it will include areas in which subscribers do not have the
benefit of a competitive market.
For example, if forbearance were granted for a large area such as LIR or
an entire province on the basis of the average degree of competition across the
entire area, then the possibility of some subscribers in portions of the area
having insufficient competition to protect their interests increases." (As read)
219
What regulations could be put in place to protect these consumers and
ensure their quality of service and their rates are reasonable and
affordable?
220
MS TULK: Well, certainly
there is a tremendous amount of regulation in place today to ensure quality of
service and rates are reasonable for consumers in the absence of a competitive
market, as a gatekeeper.
221
So I think, to answer that question, the easiest way to ensure that
happens it to make sure that forbearance is granted on the right building block
in the first place.
222
So to make sure that a building block for forbearance is chosen such that
it prevents forbearance being applied where no competitive market exists, which
gets right back to why we believe the LIR is too big and the LIR doesn't protect
the interest of those consumers.
223
To try to build in a set of safeguards around such an event happening is
in and of itself, we would believe, an admission that the LIR is too big on
which to grant forbearance, because choosing the right relevant market would in
fact mean that in a post‑forbearance world the market will operate effectively
and competition will rule the market.
224
So to say that we would expand the relevant market to the point where we
need to protect those people who have been drawn unduly into forbearance would
seem to me in and of itself an argument that that market is too large to be the
building block for forbearance.
225
MS SANDERSON: I just wanted
to reiterate what Heather was saying.
226
If you take the example that I offered of the Halifax LIR exchange, so
there are about half of the exchanges within the Halifax LIR ‑‑ EastLink is
not currently offering local telephony service. So if you think about if you were to
start in one of those areas and you were to pose the question that is the
hypothetical thought exercise that you go through for geographic market
definition and you were to ask yourself:
Could the provider Aliant in those locations potentially exercise market
power following forbearance ‑‑ assuming for the moment that we accept the
proposition that wireless is out of the market to be conservative and follow
your previous findings ‑‑ you would probably say "Well, yes, Aliant
could."
227
In that context you would then be saying, "Well, I don't want" ‑‑
these are presumably the customers that you would wish to protect. But of course if you define the relevant
market narrowly you won't forebear in those areas. So that you don't in fact need to have
pricing safeguards added because your regulatory regime will remain in place for
those consumers and then for the consumers that actually have competition in the
other half of the exchanges that are within the Halifax LIR, in that instance
you will then assess whether you think the competitive conditions are sufficient
to forebear in Aliant's application.
I guess in my opinion they are.
228
I can't spoke to what those actual share numbers are because they have
been filed on the confidential regard record, but they are very
substantial. It's a very
substantial loss of customers, a very large number of customers that EastLink
has across that set of exchanges.
229
Then in that way you have no reason to worry about pricing safeguards
afterwards, because you have properly defined the relevant geography for which
you are doing forbearance.
230
MR. STEPHEN: I would
add a couple of comments about the LIR.
231
Having read the record in the proceeding, a number of parties of course
are advocating the LIR. When I read
the rationale for them wanting to adopt the LIR, it makes me think that they
have read the decision on LIR but have not watched exactly what has happened in
terms of the actual definition of LIRs in our region.
232
When the decision came out ‑‑ and I am referring to Telecom Decision
2004‑46 ‑‑ the decision itself was based on trunking and it was trying to
achieve greater efficiency and less cost for interconnection, so it wasn't
anything to do with retail pricing, it had everything to do with exchange
carrier to exchange carrier connectivity.
233
However, in the decision the Commission laid out counties, or in Nova
Scotia's case they identified there would be 18 LIRs. When you go through the list they are
very similar in nature to calling areas.
234
However, in the decision the Commission also had a bunch of what I refer
to as overlay rules, and it goes to a number of the parties. All the reasons they say LIRs are good
really are all done away with by these overlay rules, things like community of
interest, things about not relating to networks. A lot of those conditions, as I say, are
done away with with the overlay rules.
235
The critical overlay rule was ‑‑ and I will read it
here:
"In cases where an exchange is served by a remote switch, the exchange
will be included in the LIR of the exchange of the host switch." (As read)
236
So what that means is, of that those 18 LIRs that were defined in
the decision they quickly got grouped up into four, because there are four host
switches in Nova Scotia. So because
of the switching network it redescribes all of the LIR.
237
The original intent was to do away ‑‑ find something that was
neutral, that had nothing to do with our network. The LIRs have everything to do with our
network and they are very large geographic units, significantly larger than what
would have been laid out in the original decision, only because of the rules
within the decision.
238
So when people are proposing to use the LIR, I don't think they
fully appreciate the sheer geography that is covered and the fact that the
design of switching really has nothing to do with the retail pricing. So a number of parties are arguing that
it is a good measure for retail pricing, but they are totally
unrelated.
239
One of the attachments you have has the LIRs colour coded for Nova
Scotia. If you refer to that, you
will see that there are just the four and you will also note that there are
large geographies. Again, I would
ask that people consider that those geographies really don't go to a ‑‑
when you are looking at forbearance criteria, that this is the relevant
market. They are very large,
certainly a lot larger than local calling areas. It would be the summation of multiple
calling areas.
240
Thank you.
241
COMMISSIONER DUNCAN: Thanks,
Mr. Stephen. Again, we are
interested in your comments and they will certainly be
considered.
242
Just to maybe go back, and even if we were to accept the local exchange
as the relevant market, I think it is possible, as competition rolls out, that
we will come ‑‑ now, in the first 32 exchanges I gather that EastLink is
fully serving or essentially fully serving them all.
243
But as time rolls out, it is quite likely there will be exchanges where
EastLink, the facilities‑based competitor, is not situated. How will the rights of those consumers
that are situated in a forborne exchange that is not served by a competitor, how
will those consumers have their rights protected? How will they be assured quality of
service and reasonable and affordable rates?
244
This is sort of extending it down the road a bit.
245
MS SANDERSON: Right. If there are not sufficient competitive
alternatives in that exchange, you will not have forborne from regulation,
because it will not have met the test under section 34(2).
246
So if an ILEC in the future comes to you with an exchange and you look at
that exchange and you feel that there is insufficient competition in it, because
perhaps you want a facilities‑based provider that isn't in fact there, then you
will turn down the application.
247
So in that sense the regulatory regime will remain in place and the
customers within that exchange will remain fully protected by
regulation.
248
In instances where you forbear, you will have found that there is
sufficient competition from whatever the set of alternatives is and the set of
technologies are that you will have found are good and close substitutes to the
ILEC.
249
COMMISSIONER DUNCAN: I'm
thinking in an instance, for example, where maybe the exchange is picked and the
facilities‑based provider is serving 75 per cent of the
area ‑‑
250
MS SANDERSON: Right,
okay.
251
COMMISSIONER DUNCAN: ‑‑ about the
25 per cent.
252
MS SANDERSON: Okay. I understand.
253
I think this actually is one of the features that makes the exchange a
nice ‑‑ or at least a starting point in terms of the geography, is that
they do tend to be relatively small.
254
Now, I cannot at all speak to the exchanges across the rest of the
country, but in the context of the exchanges that Aliant is seeking forbearance
in, it is certainly true that EastLink's infrastructure is very extensively
deployed.
255
I would hazard a guess that if you are in a situation where you are
looking at an exchange where the second facility is not extensively deployed,
that will be a more difficult decision and ultimately you will have to assess
the extent to which the infrastructure that is in place, or the competitor that
is in place, how readily and easily could they expand to meet the needs of the
remaining customers.
256
If you think that they can do that relatively easily, then you would be
presumably comfortable finding sufficient competition to
forbear.
257
If instead you are looking at the type of exchange where the
facilities‑based competitor, if that is what you limit yourself to, is only
covering a third of the market, then you might say well ‑‑ and there are,
for whatever reason, substantial cause for expansion and you feel that there
aren't other technologies that could be deployed to offer the service, then in
those instances you will probably find there is insufficient competition and you
will refrain from forbearing.
258
MS TULK: Yes. I think the other thing that is
important to that specific discussion is that one of the other reasons that we
proposed the exchange is because it is also realistically the smallest building
block on which you can operationalize.
259
So the thought that, as an example, we would be granted forbearance
inside an exchange and then treat the customers within that exchange
disproportionately different, in fact the risk is much more, I would say ‑‑
maybe not a risk, it is hard to call it a risk ‑‑ but the reality is much
more on the other side, which is what is likely to happen is that customers
outside the competitive area are likely to benefit from the competitive offers
that are in place to deal with the competitor and the promotional pricing and
the opportunities there. Because
the ability for us to identify below the exchange level someone who is inside
versus outside the competitive footprint is in reality extremely and
extraordinarily different.
260
So the thought that we would do something different to harm the customers
who don't have a competitive choice while fighting competitively to earn the
business of those who do have a competitive choice, is actually not
operationally feasible. I would say
although there has been I think some discussion and fear‑mongering and that, it
is impracticality not a risk to the customers, and the competitive market
presence in the exchange of scale enough to grant forbearance will in fact
manage the entire of that exchange from a practical
purpose.
261
COMMISSIONER DUNCAN: I'm
sort of just wondering, even if it is
not a rate difference, I mean is it possible that people living in the
noncompetitive area wouldn't have the service technician dispatched as quickly
as the person living in the competitive area? I mean it is a local exchange, it is
small.
262
MS TULK: Again, the ability
for us to actually do that and weigh it off against the risk of the reality,
certainly of ‑‑ we certainly, and I know all the companies in Canada
recognize this because the rest of our business is so fully competitive ‑‑
we certainly recognize with respect to local service the thought that I would
look at a customer on Parker Court and say, "Well, you live off Acadia Mill Road
and I got forbearance there, but because they haven't yet built on your
cul‑de‑sac I'm not going to come and serve you, would
be ‑‑
263
COMMISSIONER DUNCAN: Not
that you wouldn't come, but you mightn't come first.
264
MS TULK: Yes, but even so it
would be foolhardy in the extreme, because in fact we know as a fact that one of
the main retention variables in our business is the service quality. In fact, to alienate a customer in that
way, particularly on a neighbourhood basis when you know that at the next
barbeque on Saturday night they are going to hear all about it from the their
friend on Acadia Mill who got the guy the next day, I mean it would be ludicrous
and certainly at our own peril that we would do that.
265
So I really don't think that is a realistic risk for those
customers.
266
In fact, you know, if anything, we are going to be more and more
aggressive because they are so near to where we see competition
unfolding.
267
So the reality of a consumer marketing organization, it would be like
saying that a supermarket is going to charge you walking in the front door a
different price on green peppers than the person who walks in next, because they
know the person who walks in next is less likely to buy down the street. It is just not a reality of the consumer
market.
268
COMMISSIONER DUNCAN: Thank
you.
269
Mr. Campbell...?
270
MR. CAMPBELL: Thank
you, Commissioner Duncan.
271
Another reason that the exchange is particularly appropriate is that if
you have got a cable LEC who has a substantial presence but not
100 per cent, if they are a LEC in the exchange by definition they
have access to every customer in the exchange through use of local loops. So you are not going to have these
isolated customers who have no competitive alternatives. This will give the opportunity for
natural growth as well.
272
COMMISSIONER DUNCAN: Thank
you.
273
I'm just wondering ‑‑ and maybe you filed this and I didn't see
it ‑‑ did you happen to calculate what impact these markets that you are
requesting to have forborne, if we selected an LIR, what impact that would have
on market share loss?
274
MS TULK: We did supply in
the interrog we previously mentioned our market share by LIR and local calling
area.
275
COMMISSIONER DUNCAN:
Okay. I will look it
up. Thank
you.
276
Moving along here, in keeping with the same discussion, what factors do
you take into consideration in defining a community of interest and in what ways
do local calling areas actually reflect communities of
interest?
277
MR. STEPHEN: In terms
of the establishment of exchanges, which certainly is a historical event, there
would have been a establishment of community of interest at the time the
exchange was built.
278
Similarly, the expansion to what would have been referred to as extended
area service or EAS, which makes up the local calling area, over the years there
has been different processes to determine community of interest. In many cases there would have been
voting by customers to whether or not they would be involved in the larger
calling areas.
279
So there were tests established.
I believe they were certainly all established either in tariffs or in
public proceedings that we would have gone through.
280
I don't have the list of them in front of me in terms of what makes up
the community of interest from a regulatory standpoint, but certainly calling
patterns was a critical component of that.
It likely varies by province because of the history of the
company.
281
I know in New Brunswick, for instance, there was a major re‑establishment
of the local calling areas in the mid‑ to late‑90s. There was a formal proceeding on it and
it examined the various issues of what makes up the community of
interest.
282
I can't speak to each province in the Atlantic area in terms of how they
established the community of interest.
However, I can say that they would have all been through CRTC
proceedings.
283
COMMISSIONER DUNCAN: I think
as time goes on if the decision is to go on local calling areas and to take the
central exchange, and you have to make that decision which local calling areas
go within, then that would be a factor that we would have to
consider.
284
I have a follow‑up question, if you have no other
comment.
285
The geographic definition of a particular market will likely change over
time as communities grow. These new
subdivisions and developments adjacent or near to your existing geographic
markets, the ones that are going to be determined, will very likely have the
same community of interest but they will not be part of the forborne
market.
286
How and under what conditions would you expect to come back to the
Commission to expand your forborne market?
287
MS TULK: Well, in our
proposal, using the exchange, that wouldn't be an issue because, of course, when
subdivisions are established, they are established inside a particular exchange
boundary.
288
We certainly live that in reality today. I can say that within a competitive
marketplace, the competitor is as focused on the new subdivisions as the
incumbent is and certainly it is not the case that inside our competitive
footprint, new areas are opening up that aren't
competitive.
289
So by choosing the exchange, and therefore new subdivisions get mapped to
exchanges, the new subdivisions will be either forborne or not on the basis of
whether the exchange is forborne or not.
We believe that to be practical and reasonable because it is also highly
likely that if that subdivision is inside the competitive exchange it is likely
to be subject to competition from day one and competitive market forces would
rule there from day one.
290
COMMISSIONER DUNCAN: Do you
think, Ms Tulk, that at some point there would be a subdivision adjacent to
an exchange that would have the same community of interest but might end up in a
different exchange, given we are doing a national ‑‑
291
MS TULK: Yes. Certainly, that is the case. I mean, with the urbanization that is
happening in Canada, and certainly in Atlantic Canada, we see all the time that
subdivisions are moving in the suburbs of the major cities. There a constant, I guess, analysis and
watch in the market that has to take place as the cities get larger in terms of
what exchange a given subdivision, particularly if it is an in‑fill subdivision
between one or more existing exchanges, and which exchange that has to get
mapped to.
292
But at the end of the day every line in Canada is mapped to an exchange,
each and every one, and once that decision is made and mapped and it is based on
the practicality and the community interest and where they are and how that
community ‑‑ it is a very community‑based approach, and by choosing the
exchange it would actually be better in that case than the local calling area
because in fact the debate happens more around the local calling area than it
ever does around the exchange.
293
So in terms of what exchange various subdivisions fit in tends to be a
lot more readily apparent versus whether or not it changes the community of
interest vis‑à‑vis the local calling area or an equal access area
definition. Certainly, we see that
quite a bit around the St. John's area in Newfoundland as that area is growing
so fast.
294
I think that, again, keeping forbearance at a smaller building block,
helps prevent that from becoming an issue in the future.
295
COMMISSIONER DUNCAN: Thank
you.
296
This one is a little different:
What are some of the approaches that could help safeguard vulnerable
customers such as the disabled, rural, old or poorer customers, and ensure they
receive reliable, high‑quality and affordable telecom
services?
297
What safeguards could be put in place or should be put in
place?
298
MS TULK: Well, certainly, we
believe that a competitive market is in and of itself a safeguard and
protects the interest of consumer, as presumably if one or more of the
competitors isn't doing a good job by consumers then someone else will attract
their business that way.
299
However, we believe, with respect specifically to social obligations and
that area, that what is important for the Commission to consider is how
increasingly important it is that all players in the marketplace have the same
obligations in that direction. It
has not been, nor is it or will it be Aliant's intention to walk away from our
responsibilities to our customers.
300
That being said, we think it is very important that the Commission and
the Commission's policies recognize that we are not the only game in town and
that those citizens have the same rights no matter which competitor they choose
to purchase from.
301
COMMISSIONER DUNCAN: Thank
you. I want to switch now to
mobile.
302
Is wireless ubiquitous in all the areas that you have requested to have
forborne and, if it isn't, does each area need to be reviewed
separately?
303
MS TULK: I'm sorry, is
wireless ubiquitous?
304
COMMISSIONER DUNCAN:
Yes.
305
MS TULK: Do you mean with
respect to wireless coverage?
306
COMMISSIONER DUNCAN:
Coverage and reliability, yes.
307
MS TULK: Wow, that's
a ‑‑
308
COMMISSIONER DUNCAN: I'm
just thinking that if wireless were decided to be included as a factor in the
calculation of ‑‑
309
MS TULK:
Right.
310
COMMISSIONER DUNCAN:
Yes.
311
MS TULK: Yes. Definitely I would feel uncomfortable
answering yes or not to that. I
don't know any of the 32 exchanges where wireless is not available, but to say I
would definitely expect it to be the case that there will be coverage in
services just like there is coverage and service differences in Mississauga
versus downtown Toronto.
312
So to say "ubiquitous", certainly, there is availability of wireless from
more than one supplier in all of those 32 exchanges that we are
looking at.
313
We, specific of course to our application, didn't include wireless in the
calculation. We do though, and as
we speak in our submissions, believe very strongly that go forward it should be
and we would feel that it would be a reasonable question to be asked with
respect to future forbearance applications as to the availability of wireless
and it will be reasonable for us to supply that in our forbearance
applications go forward.
314
COMMISSIONER DUNCAN: So
would you agree, then, that that would be a factor on an ongoing basis? If wireless was to be considered, that
we would have to consider the extent of coverage and the reliability of the
service?
315
The quality of the service as experienced to date always isn't the
same.
316
MS TULK: Yes. Well, I think the issue would be the
availability and willingness of customers to choose. Certainly, I haven't seen anything in
this proceeding that would dispute that given the market share numbers that we
put in front of you that customers are therefore saying that they believe that
the quality of the service they are choosing is
acceptable.
317
So if customers are choosing ‑‑ as an example, in the
Statistics Canada numbers, when 4 per cent of households in the
Halifax area have said that they have gone wireless only, then presumably that
would tell you that there is a substantive portion of the population that
believes it is an acceptable alternative and a reasonable product alternative
that is available to them.
318
COMMISSIONER DUNCAN: How
would we go about getting those numbers in the future, like having access to
those wireless numbers?
319
MS TULK: The wireless only
households?
320
COMMISSIONER DUNCAN:
Yes.
321
MS TULK: Yes. Well, we propose in our submission that
the Statistics Canada data be used, which of course does create the problem that
it is likely to be conservative because it will be rear‑view versus current
view. So at any point in time, as
an example, in using the wireless only calculation right now we would be held to
a 2004 number so in fact it would be a conservative element of the forbearance
test, but we believe that it is an independently available number that should be
used.
322
COMMISSIONER DUNCAN: I
believe I read in your comments that it is not available by exchange or by local
calling area, that we would have to agree to settle on a census, metropolitan or
whatever.
323
MS TULK: Yes. That is correct.
324
MS SANDERSON: I was just
going to say that the Statistics Canada data distinguishes the major
metropolitan areas and then it gives you a provincial number as
well.
325
So what you might be able to do ‑‑ which, again, it is an estimate,
it is not 100 per cent accurate, exchange‑by‑exchange, but assuming that
you have established that wireless is in fact ‑‑ there is wireless coverage
in that area that you are speaking about, you might be able to turn to the
provincial number outside of the metropolitan areas.
326
COMMISSIONER DUNCAN: Thank
you.
327
Speaking about the 4 per cent, I was just wondering ‑‑ because
at this point on your 32 exchanges it may not be as relevant, but into the
future it is going to be relevant and wireless is going to
increase.
328
Would you agree that if wireless only households were to be included
in the relevant product market that we should exclude the ILEC's portion of the
4 per cent, because we are trying to get sustainable
competition?
329
MS TULK: No, I wouldn't
agree with that. The reason I
wouldn't agree with that is because the fact that a household has gone wireless
only is showing that wireless is an accepted substitute for wireline
services.
330
COMMISSIONER DUNCAN: Thank
you.
331
MS TULK: If you accept that
the wireless market is competitive and that wireless providers ‑‑ be they
Aliant, be they any of our competitors ‑‑ are in a competitive market
having to earn and that the competitive marketplace that wireless is is
dictating and allowing customers to freely choose and presenting many
alternatives to customers, then the fact that the ILEC's wireless division
happens to have that specific customer is irrelevant.
332
The relevant test is: Is
wireless being used as a substitution for wireline and is wireless overall
substitution such that the market share of wireline services has
fallen?
333
I would say, "Well, why would you want to exclude the Aliant
subscribers?" Presumably you would
say, "Well, it is because we want to prevent you from being able to move
wireline subscribers to wireless in order to get forbearance." Well, the reality is the wireless market
is fully competitive and, given that it is fully competitive, we can't move
someone from wireline and lock him into Aliant by putting them in wireless,
because if we tried to do that they would simply change to another wireless
supplier.
334
So if you assume that the wireless market is itself fully competitive,
then the test is: Are people moving
from wireline to wireless and has there been a reasonable level of movement from
wireline to alternate suppliers, not which alternate supplier they are
choosing.
335
COMMISSIONER DUNCAN: Thank
you.
336
Now, Mr. Ergas ‑‑ and hopefully, I have pronounced that
correctly ‑‑ maintains that and I quote:
"Some consumers prefer products or services of one firm; others prefer
the products or services of another.
Many customers are willing to pay a premium for services from the firm
that they prefer. By using price
discrimination, the firm may decrease prices for customers who are less attached
to the products of that particular firm while maintaining prices for those
customers who are not likely to switch.
This can increase competition in comparison to a situation where all
firms are forced to set a single price."
(As read)
337
Is it really the firm to which people are loyal or is it a particular
product which is perceived as superior, and what role does the ongoing
introduction of new technological innovations play with these
customers?
338
MS TULK: Well, certainly in
my experience over the last 11 years across all of our product areas, both those
that are competitive and not, the concept of customer loyalty is quite a
multifaceted, complex and often frustrating dynamic.
339
So to say that it is simply as simple as ‑‑ well, that would be like
saying, "I buy my gas from gas station X, I prefer to buy gas from gas station
X, so no matter what price gas station X charges I am going to buy my services
from them." Well, any of us who
purchase gas know that that is not the case.
340
You could take that and you can apply that to green peppers. It is like saying I like to shop at the
supermarket down the street, I like to buy green peppers and any price they
price green peppers I am only going to buy from them.
341
So it is a much more complex dynamic than that. The dynamic is sometimes customers
choose to buy from a firm, absolutely.
Our customer research would show that very strongly. Sometimes customers are choosing to buy
by product. Sometimes customers are
rate‑shopping offers, particularly in the bundled world and in the bundled
environment. Sometimes customers
are looking for a certain product feature or element that is available in one or
they like it better in another.
342
So there is not a single silver bullet for why a customer is
purchasing telecommunications products from a given supplier. It is very customer‑dependent, it is
very offer‑dependent, it is market segment‑dependent. Youth look for completely things than
empty‑nesters.
343
So the relevant discussion is:
Are there available substitutes?
Are customers able to choose relevant substitutes and is the competitive
market prevailing to make sure that customers aren't being harmed? That is the test.
344
MS SANDERSON: Commissioner
Duncan, you will be able to ask the question directly to Henry Ergas later
today, but at the risk of stealing his thunder and paying for it later I will
just say that it depends often on what type of product you are talking
about.
‑‑‑ Laughter /
Rires
345
MS SANDERSON: When Heather
was speaking about gasoline for instance, that is going to be a homogeneous
product. There will be other
instances where products are differentiated.
346
If we think of branded products, for instance, it is very hard to
sometimes separate the firm from the nature or the attributes of the
product. The reason for that is
that the firm has invested great effort to create a product, a particular
branded product that is its alone.
347
Coca‑Cola. Coca‑Cola is
completely different from Pepsi.
Having spent the weekend preparing for this hearing, I know that Lourdes
Clancy has tremendous preferences for Pepsi, coming from Atlantic Canada and is
undoubtedly ‑‑ but could Pepsi actually find her in the marketplace to then
charge her a higher price when she shows up in the supermarket versus somebody
else who is less committed to the product.
It is in that context that the competition goes
forward.
348
So there will be types of product where in essence you can't easily
distinguish the firm from the product because that is what the firm has done, it
has established itself as the provider of Coca‑Cola. and so
on.
349
Then there will be other products where multiple firms provide similar
products and perhaps consumer loyalty may be to a product or perhaps there will
be very little consumer loyalty, as Heather was
mentioning.
350
COMMISSIONER DUNCAN: I think
this probably moves into this whole area of customer inertia and because people
have been dealing with Aliant for so many years ‑‑ I think of our own home
for example ‑‑ I am just wondering if you can say that this reputation
effect ‑‑ we refer to it as that ‑‑ gives the incumbent an added
advantage in the market?
351
In determining when to forebear, should market tests or related measures
adjust for this advantage and how would you see this adjustment being
calculated?
352
MS TULK: First of all,
stating Aliant would feel very proud of our reputation advantage, as you stated,
however, that is not to say other firms don't also have reasonable reputations
with their customers. So we don't
believe that there is a reasonable test that could be applied to measure that as
part of a forbearance application.
353
In any case, to say that Aliant's brand and reputation is necessarily de
facto stronger because we have been in that particular product market longer
ignores the fact that in many cases we are competing with companies whose own
reputation and brand has been around as long or relatively long ‑‑
certainly from an individual customer perspective they have been dealing with
them as long, i.e., EastLink ‑‑ or their reputation is perhaps
international or multinational.
354
So how do you measure the reputation of a company like Vonage and how
does that reputation difference change vis‑à‑vis a certain customer segment,
because reputation also is very different on a customer‑by‑customer
basis?
355
So how do you map Aliant's reputation overall against a reputation of a
niche player, you know, a business market niche player? How do you do
that?
356
So I don't believe that there is a relevant measure that can be
used. The measure is: Are customers moving? If they are, there is no
inertia.
357
MS SANDERSON: Just to follow
up on what Heather was saying, ultimately you will be able to identify whether
there is inertia or there isn't by what do the customers
do.
358
So in the case of these 32 exchanges, a third of them have walked
and they have gone across the street to another provider. I don't really see how you can then
adjust that share. You can't really
sort of say, "Well, it really isn't a third of the people that chose to walk
away from Aliant or never went to Aliant in the first place because they moved
into a new subdivision and they had a choice right from the beginning and they
were never Aliant customers". You
can't really sort of adjust it by downgrading it in some fashion to say, "Well,
it really isn't a third; it is something less
than that."
359
So, in essence, there isn't really a need to make an adjustment. You can just look to what customer
behaviour actually is.
360
COMMISSIONER DUNCAN: Thank
you.
361
You propose that"
"... the Commission forbear from regulation of local exchanges in a
relevant market if the market power analysis of Decision 94‑19 indicated that
the ILEC did not have market power and if its competitor served 5 per cent of
the relevant market."
(As read)
362
Could you discuss why you selected 5 per cent and whether it
is, in your opinion, that at that level of market penetration competitors
would be viable?
363
MR. STEPHEN: When we put our
application together we were obviously very much focused on 32 exchanges. We were also looking at where do we
think competition will go in our territory next?
364
One of the things that became clear to us it that with the success of our
competitor in Nova Scotia and Price Edward Island that they can easily roll out
to any additional exchanges. In
fact, one of the handouts we have, one of the maps, shows areas where they have
already announced they will be rolling out their service. Because of the type of competitor they
are, in terms of facilities, in terms of their ability to provide service, there
is really nothing new for them as they moved exchange to exchange. It is just an extension of the business
they have.
365
So from our perspective it became clear that the tests that are
established in 94‑19 are in fact the nature of them as a competitor. You know, the conditions are already
met. What hasn't been met is market
share.
366
So in our minds, as soon as the competitor gets into a new exchange and
demonstrates that they are offering service, it doesn't require a great big
number of loss simply to indicate that they are going to be successful. The data that we have provided to the
Commission in terms of their ability to, I will say, get customers by year, they
certainly increase their number of customers in each exchange they have been in
quite handily year‑after‑year.
367
So that is where we started from, was looking within our own territory,
what we thought would happen next.
368
So when we started looking at what should the test be we said, "Well, it
shouldn't be a big number; what experiences are out there today in terms of
tests"? Clearly, we went to look to
see where the Commission has gone before in terms of other tests. In the case of the interchange private
line it was down to that there is competitor on a route that makes an offer for
sale of a service. So there is not
even a requirement to have lost a customer, just the fact that the competitor
has made an offer. So that would be
basically one extreme.
369
We then looked and said, well, the Commission on the cable side had
developed a 5 and 30 test. So we
looked at that and said that seems to be a reasonable ‑‑ it was reasonable
for the cable companies and, of course, in our case that is who we are competing
against largely, are cable companies.
So we honed in on that as being a guide to how to look at a future
forbearance. So that is the origin
to the 5 per cent.
370
COMMISSIONER DUNCAN: Can I
ask you, if we just looked at Newfoundland for example, where there is no
competition from a provider like EastLink ‑‑ that I know of at any rate,
you can correct me if I'm wrong ‑‑ how would your 5 per cent rule apply to
that?
371
Do you feel that that would be attractive enough for a competitor to make
the investment necessary?
372
Do you think they would consider it viable at 5 per
cent?
373
MS TULK: Five per cent would
be the test. Five per cent
doesn't illustrate the upside of a competitor's potential. Five per cent illustrates the test after
all of the conditions for forbearance has been met. Once that final check of: Has it taken hold and are customers
moving and in fact has it taken hold in the marketplace?
374
So our understanding of the forbearance test is it is not supposed to be
any type of communication to a competitor of what the upside of their business
case is, but once a competitor has entered is competition taking
hold?
375
Certainly, it would be reasonable, I would think ‑‑ and in the
example of St. John's where we do have quite a bit of competition actually
in the business market, much of it from the local cable company ‑‑ but when
you look at the case of that it is reasonable I think for competitors ‑‑ I
can't imagine that EastLink would enter our market expecting that forbearance
would never be granted. I can't
imagine that any reasonable business person would look at our market and
expect to be given a completely unfettered attack at the market, because you are
choosing to enter a competitive market and this is supposed to be about creating
competition. If you are entering a
competitive market, as a business person you expect to have to
compete.
376
So this 5 per cent is simply:
After all the other conditions have been met, has it taken root, is it
taking hold, is there a reasonable trend that shows that the market is
functioning as a competitive market?
We believe 5 per cent reaches that goal.
377
COMMISSIONER DUNCAN: The
Competition Bureau, in response to CRTC Question 303, if you want to look that
up or you are familiar with it, whatever?
‑‑‑
Pause
378
MS TULK: Yes,
okay.
379
COMMISSIONER DUNCAN: So the
Competition Bureau said in that response, and I quote,
that:
"Forbearance should be based on the actualability of a competing network
to provide competitive services, i.e., actual entry that is competitive." (As read)
380
On the record of this proceeding there is evidence that service providers
in this industry incur high fixed costs.
I realize that the entrants and incumbents may have different technical
platforms. Even so, how can
competitors serving only 5 per cent of the market compete with the ILEC that may
serve 95 per cent of the relevant market?
381
MS TULK: Again, the 5 per
cent test is not with the expectation that that is where the competition
stops. The 5 per cent test
establishes a signal that competition has fully started.
382
So once a competitor has made the investment into the marketplace, once a
competitor is in place and has sufficiently ‑‑ or competitors have
sufficiently garnered 5 per cent, then that would tell you that the market is
now alive and moving and that customer inertia, if there ever was one, has been
overcome and that competition is established.
383
Certainly I can only speak for myself as a business person looking at new
product introductions, new service launches, any new business decision, you
don't assume that you are going to enter into a market and then have it stop at
some point. There is not an upper
limit. In fact, once you gain
velocity in general your forecasting improves.
384
So once a competitor or competitors have been allowed to enter and gain
that kind of velocity and traction, it would in fact be reasonable to expect
that their velocity would improve.
Certainly in the numbers we have filed with you that is what we have
seen.
385
So I don't believe that the forbearance test at 5 per cent would hamper
or reduce the sustainability of competition.
386
Margaret, I don't know if you have anything on
that?
387
MS SANDERSON: I would just
add that the Bureau also makes mention of this, that the nature of this industry
is such that when an entrant enters, particularly an independent
facilities‑based entrant like a cable company, the investments that are required
to provide these services are large, fixed and sunk. What that does in essence is that
commits that entrant to the marketplace, but it also makes the cost of expanding
and offering additional services quite low. Essentially, once you have committed
that money to being able to offer the service you have a relatively low variable
cost to then expand that service outward.
388
I think it is in that context ‑‑ in fact, it is partly for that
reason that the Bureau notes that perhaps shares are in fact properly counted on
the basis of capacity, and not even on the basis of whether you have actually
taken that customer but do you have a capacity to serve that customer. If you imagine a world where you have
got two ‑‑ and the Bureau makes mention of this in one of the
interrogatories ‑‑ if you have two independent facilities‑based competitors
that maybe you just think of the world as they have a 50:50 share of the market
based on capacities, whether or not they have actually taken
customers.
389
So I think it is in that context that you initially have a base like
that. Then, as Heather says, there
is a proven ability to take customers as customers start to
move.
390
COMMISSIONER DUNCAN: I'm
just wondering, do you think if we settle on a 5 per cent mark that that would
inhibit a potential competitor from deciding to enter that market? EastLink is already in there, they have
made the commitment, but what about an instance where somebody is looking and
deciding to make that investment?
Do you think 5 per cent is sufficient to make it attractive to
them?
391
MR. STEPHEN: When we looked
at the rest of our region we reasonably expect, based on both what we are seeing
elsewhere and the stated plans of Rogers, as an example, that they would offer
telephony services in New Brunswick and Newfoundland. While maybe on a different technology
platform than EastLink, one would reasonably expect that they would have the
same results.
392
When we look at where the markets are going and where competition is
going and the competitors it's very ‑‑ at least to us it is very clear that
the participants are going to be reasonably well established somewhere, perhaps
not in our region but as they come into our region. They are likely coming from abroad with
the knowledge and the experience to do the job, to compete in our
markets.
393
All to say that we look at where competition is and going. We feel the 5 per is a relevant
number.
394
COMMISSIONER DUNCAN: Just
continuing on sort of along those lines.
In your answer to CRTC Question 305(c) and
(d) ‑‑
‑‑‑
Pause
395
COMMISSIONER DUNCAN: ‑‑ you indicated you
were:
"... not aware of any studies done in any other jurisdictions on the
telecommunications industry or other network industries that confirm the
incumbent is no longer dominant when it has lost 5 per cent of the market." (As read)
396
Have any such studies come to your attention since your August 15th
reply?
397
MS TULK: No, we have
not.
398
COMMISSIONER DUNCAN:
No?
399
Are you aware of such studies in any other industry that would confirm
gaining a 5 per cent market share is sufficient to bring about competitive
results?
400
MS TULK: No, we have
not. As Margaret has mentioned, the
only economic studies that certainly I have seen would argue that the
availability of competition and in fact a single customer moving is a relevant
test. So our 5 per cent proposal is
actually conservative to the economic theory that we have seen and, in fact, was
proposed simply on the basis of symmetry and the fact that it is the test that
the Commission has already established in the cable
industry.
401
COMMISSIONER DUNCAN: Given
the European Union uses 25 per cent share as a benchmark for possible market
power and 50 per cent for possible market dominance, shouldn't the level be
higher than 5 per cent?
402
MS TULK: I wouldn't be able
to comment on what led the European Union to that
conclusion.
403
Margaret...?
404
MS SANDERSON: Again, it is
going to depend, I think, on the industry and the nature of the investments that
you are considering.
405
These market share thresholds are highly imprecise. I mean, the nature of the world is that
we know, and the Commission has indicated this, market share alone is not
indicative of market power. If
market share alone is not indicative of market power, then setting a particular
threshold to say 7 per cent isn't enough, 8 is, is going to reflect the same
considerations.
406
So ultimately it is going to depend on the nature of the competitive
environment. You are facing the
nature of the investments that the competitor has made. As I say, if you are in a world that is
two independent facilities‑based competitors where the entrant has made
substantial investments, maybe not in local telephony, they made substantial
investments in the ability to provide high‑speed Internet through cable
infrastructure, so that is what they have made the substantial investments
with ‑‑ they are going to keep providing that service. It doesn't cost very much then, relative
to the initial investments, to then provide local telephony on top of
that.
407
So it is going to vary tremendously by industry and the nature of the
products.
408
Actually, Henry Ergas is someone who does quite a bit of work in Europe
and he may be able to give you greater insights in respect of those particular
thresholds.
409
COMMISSIONER DUNCAN: Okay,
thank you.
410
Interesting, your comment about our ability to precisely calculate that,
even that 5 per cent. So that is
going to be interesting.
411
Thank you.
412
The CHAIRPERSON: We will
break for 15 minutes. Nous reprendrons dans 15 minutes.
‑‑‑ Upon
recessing at 1120 / Suspension à 1120
‑‑‑ Upon
resuming at 1140 / Reprise à 1140
413
THE CHAIRPERSON: Order,
please. A l'ordre, s'il vous
plaît.
414
We will resume the questioning by Commissioner
Duncan.
415
COMMISSIONER DUNCAN: Thank
you.
416
With reference to CRTC Question 210, which was answered by Rogers,
Cogeco, Eastlink and Shaw ‑‑
‑‑‑
Pause
417
COMMISSIONER DUNCAN: ‑‑ in their response to the CRTC's question
those cable companies expressed concerns regarding the administrative problems
in terms of collecting and reporting accurate information on market shares, as
well as applying a market share threshold, for example how to ensure that an
ILEC and its competitors are reporting market share information on an equivalent
geographic basis.
418
With respect to these administrative problems associated with Telus'
two‑facilities bright‑line test, can you explain with supporting rationale
whether you share the views of the cable cos?
419
MS TULK: Specific to the
market that we have proposed, being the exchange, we believe that it is entirely
possible for all of the cable cos to provide information as to their numbers of
subscribers by exchange. In fact,
the way that the industry has unfolded, all of the numbers are mapped to
exchanges and they can, we believe, quite easily supply to the Commission
information as to what their customer accounts are on a per‑exchange
basis.
420
I believe you have some evidence of that that was supplied in confidence
to you by our competitor.
421
I guess with respect to the Telus‑specific position, we would share
concern with going below the exchange level, because of the operational issues
that I have already outlined, and we would share the cable companies concern
with respect to trying to manage forbearance applications below the exchange
level.
422
At the exchange level we believe it is entirely possible for them to
provide you with subscriber level detail for the exchange
counts.
423
COMMISSIONER DUNCAN: That is
going to assume that they exactly match, but you are not concerned that they
would?
424
MS TULK: Certainly the
exchanges are defined and the NXS' are all mapped to
exchanges.
425
Rick, I don't know if you had anything you wanted to add on
that?
426
MR. STEPHEN: Just that, as
Heather has indicated, all LECs get their telephone numbers through a third
party and in order to get telephone numbers the NXS' are linked to exchanges so
every local service provider should have the ability to sum those up to an
exchange,
427
So we would think that, you know, every supplier, if it's a CLEC or LEC,
should be able to get at the exchange level.
428
COMMISSIONER DUNCAN: Perhaps
we will be able to have some discussion later on today and explore this more
fully with the cablecos just to see where they see that as a problem. It seems to be quite a
problem.
429
Also with respect to the Telus test, they are proposing, as you know, the
5 per cent tripping line.
430
Should there be a tripping point for re‑regulation as well and, if so,
what should that indicator be and, if not, why not?
431
MR. STEPHEN: We don't
believe that there should be some sort of tripping point. I think that some people use the term
"deforbearance".
432
We go through quite a lengthy process to determine whether or not there
is competition and that the state of competition is such that there should be
forbearance. It would seem to me
that once we go through that, it shouldn't be a simple thing to undo that, that
if it takes a significant effort to demonstrate that all the conditions under
94‑19 are met, that to reverse that it shouldn't just happen at a flip of a
switch, so to speak.
433
Once companies have forbearance, as you know, they will be governed under
the Competition Act.
434
It seems to me that if there is a problem of any competitive behaviour,
for example in, you know, a forborne area, that it will be addressed under the
Competition Act.
435
It would seem to me that obviously if there is dominance and abuse of
dominance, then that will be addressed in that forum. I guess that's what I would look to, to
say that if there needs to be reevaluation downstream of whether or not there
should be re‑regulation, that it should only occur after there has been
demonstrated abuse and, again, that would be under the Competition
Act.
436
COMMISSIONER DUNCAN:
Sorry. Go
ahead.
437
MS TULK: I was just going to
mention that the way I read section 34(3) is that to some extent in making the
decision to forbear you will be thinking a bit about the future and whether the
competition is in fact sustainable.
So to some extent that will be brought into the initial forbearance
decision.
438
Now, of course, you know, ex post the world can change but, as Rick has
already mentioned, it would be a very high threshold.
439
I take the point that the Bureau makes in their argument that there
should be a very high threshold for any decision to potentially reimpose
regulation in a forborne market.
440
COMMISSIONER DUNCAN: I guess
that brings me maybe to two other questions then.
441
If we are only dealing with a 5 per cent benchmark we don't
have much room there as far as a high test.
442
How would you see that working?
443
MS TULK: Well, again, the
5 per cent benchmark is meant to demonstrate that competition is alive
and that competitive alternatives are available and being used and they will
continue to be so.
444
This whole issue of re‑regulation or deforbearance, as some are calling
it, to me is somewhat of a moot point.
445
So, first, in a forborne world the Competition Bureau has the power to
monitor the market and in fact in every other industry under their jurisdiction
they do, and actively, and in the other parts of our business they actively
monitor what's happening.
446
Second, the Commission in its forbearance reserves the right ‑‑ and
I'm sure if there were to be a situation where forbearance was no longer
necessary, or the market was to get so profoundly impacted by deterioration of
the competitive marketplace that I can imagine it will be brought directly to
the attention of the Commission and the Commission reserves the power to step
back in.
447
Third, in every other market since terminals, this is not been an
issue. It hasn't been an issue in
terminals; hasn't been an issue in long distance; hasn't been an issue in
wireless; hasn't been an issue in internet.
448
We have seen competitors move into the market. We have seen competitors, presumably
ones who weren't as good as others at managing their business, move out of the
market. New competitors move in and
take their place, oftentimes purchasing the assets of the departing competitor
at a very low price and reducing their cost to serve. Very vibrant
marketplaces.
449
There is absolutely no evidence that I have seen anywhere in this
proceeding that anything different than any of those experiences would happen in
a local market.
450
So why people are proposing that the forbearance of a local market
requires something different or more than what happened in each of those other
marketplaces, I honestly don't see the logic in that. To me it is fear‑mongering. There is no risk here that needs to be
protected, and the risks that are there will be fully protected by both the
Competition Bureau and the future functioning of the Commission and, in fact,
the Government of Canada.
451
So this issue, I really struggle with this one.
452
COMMISSIONER DUNCAN: Just
bear with me. I have one more
question.
‑‑‑ Laughter /
Rires
453
COMMISSIONER DUNCAN: Just
humour me, then.
454
Assuming that a tripping point was established, how long a period do you
think that market recapture, if you like, should be in place before the market
is re‑regulated?
455
MS TULK: Sorry, so how long
between the time that you pass the tripping point?
456
COMMISSIONER DUNCAN: How
long a period?
457
Yes. So if the tripping
point was ‑‑ I hate to throw out a number
there ‑‑
458
MS TULK: Yes. But at such a number, at which point we
fall below that number and the market gets re‑regulated?
459
COMMISSIONER DUNCAN: How
long should we go?
Yes.
460
MS TULK: Well, as
passionately as I believe ‑‑
461
COMMISSIONER DUNCAN: I have
seen.
462
MS TULK: ‑‑ that a tripping point is ludicrous, if I couldn't
hypothetically say that there was one, I can also ‑‑ I can only support
what we have said on the public record many, many times, which is regulation
needs to be applied swiftly.
463
So when it comes to delays between regulatory rules, it would be
unconscionable for me to say that there should be some prolonged process for
that when we clearly advocate that our marketplace, competitive, deserves to
happen and function efficiently and any regulatory delays stand in the way of
efficient marketplace.
464
So if it was there, I would hope that it could be administered swiftly
because I hope that all regulation that exists can be administered
swiftly.
465
That being said, I see absolutely ‑‑ this one is overhead,
regulatory cost and burden with absolutely no customer
benefit.
466
COMMISSIONER DUNCAN: Thank
you.
467
Just moving on, now I am referring to Crandall and Sanderson. These are filings they did for Aliant
and Telus I gather.
468
The economic theory has been presented as showing that predatory price
cuts are not a viable strategy for incumbent carriers.
469
Does it matter, in your view, how broad or targeted the projected
price cuts would be and possible selective increases in cuts applied
dynamically with consideration of the changing competitive situation in given
sub‑areas would produce different results in terms of profitability and market
share than Crandall suggests?
470
Could you comment on that?
471
MS SANDERSON: I will speak
just for myself and then I will let Dr. Crandall speak for himself, I guess
either later today or tomorrow.
472
In terms of thinking about predation and the possibility that you might
drive a competitor out of the market, a predatory strategy is expensive for the
predator. You are losing money in
the period that you are ‑‑ you may not be losing money, but you are
certainly foregoing profits that you would otherwise earn.
473
Shareholders typically aren't too crazy about such strategies, unless
there is a prospect that you are going to be able to recoup those foregone
profits in some other fashion.
474
So there are a number of ways of thinking about
this.
475
How would you in fact recoup these potential
losses?
476
The traditional story in predation is that what you do is you price low
enough to drive your rival out of the market and then after your rival has left
the market there are sufficient barriers to entry for that player to come back
and there are sufficient barriers to entry in order to prevent new players from
coming in that you are able to raise your prices up. And you have to raise your prices up to
recoup whatever the loses are that you have incurred.
477
That is something different than targeted pricing.
478
Target pricing is essentially just responding to competitive conditions
and pricing lower where you face greater competition than in a situation where
you don't have as much competition.
Competitive firms engage in differential pricing all over the
place.
479
In fact, there is a fair amount of literature written in the economics
area about the fact that if you are a firm that has large, substantial fixed
sunk costs and you have to recover those costs, that in fact you will typically
try to do that through differential pricing, and that when you are engaged in
that that is actually a beneficial thing to do in the sense that you are then
able to provide services that you wouldn't otherwise be able to provide if you
had to charge uniform prices.
480
So I think it is very important to distinguish targeted pricing or just
differential pricing because you are meeting different sets of competitors in
the marketplace or you are offering a product that for whatever reason isn't as
desirable to consumers, you have to lower the price and so on. That is quite different from
predation.
481
I apologize for this long preamble.
482
Then in the context of predation, which really is the area that you would
then be concerned about, you have to think about, in the case of Aliant in the
32 exchanges, what prospects does Aliant actually have here to recover any costs
that it would need to incur to drive EastLink out of local telephony
markets?
483
So the first question is just:
How low do they have to price in order to drive EastLink
out?
484
EastLink is a pretty vigorous and effective competitor. It's here. It has a great bundle because of the
ability to tie into television. It
is not going out of the market overall and it would appear to have relatively
low costs of providing that local telephony, given this most recent offer that
has been spoken about.
485
So that would suggest to me that it is going to be very difficult for
Aliant to actually price at a low enough level to actually drive them out of the
market.
486
But even if you imagined that in fact it might be able to do that, where
is it going to earn the money back?
What incentive does it have to gain this money back? Where is it going to get it
from?
487
Some people might say: Well,
Aliant is going to be able to earn that money back because it is regulated in
Newfoundland and it is regulated in New Brunswick.
488
Well, you are not going to let them raise prices there. At least I would hope that you are not
going to let them raise prices there to recover these losses, so they are going
to remain regulated in those other areas.
489
Some people might suggest:
Well, perhaps there is a big pot of gold in Newfoundland that they are
earning through the regulatory regime because for some reason the price cap
isn't set appropriately ‑‑ I'm assuming again that is not true ‑‑ the
price cap regime is such that you are curtailing the available profits, but even
if there was this big pot of gold sitting in Newfoundland that they are being
able to access, they are still foregoing profits somewhere
else.
490
You have a money losing division, so to speak, because you are engaged in
this predatory strategy, why would you necessarily want to do that unless you
have some hope of earning that money back?
Because overall you would be better off if you didn't engage in that,
particularly if you don't expect to earn additional profits back from getting
rid of the entrant.
491
COMMISSIONER DUNCAN: That is
very helpful.
492
I'm just curious, would your answer be any different if I asked it in the
context of business customers?
493
MS SANDERSON: I guess you
would then just be thinking about the available set of alternatives to business
customers. So you might be talking
about a different competitor, I suppose, and whether you could drive them out of
the business segment of the market, but I think the principles would be
essentially the same.
494
COMMISSIONER DUNCAN: Thank
you.
495
In a forborne market should there be a requirement to substantiate all
price discrimination to show that it is economically
justified?
496
MS SANDERSON: Sorry, I will
just jump on this one.
‑‑‑ Laughter /
Rires
497
MS SANDERSON: No. Price discrimination is not necessarily
bad. It is often efficient. As you alluded to, Commissioner Duncan,
there are circumstances in which it may be economically inefficient and there
are circumstances when it would be economically efficient.
498
It is the case that the Competition Bureau ‑‑ and there are
provisions that deal with price discrimination under the Competition Act. Also, not only are there specific price
discrimination provisions under the Competition Act, but it is also possible for
the Bureau to take actions in the context of section 79, which is their abuse of
dominant position section.
499
The issue of targeted pricing and differential pricing can also be raised
in the context of a practice of anticompetitive acts to the extent that it in
fact forms part of a practice of anticompetitive acts.
500
So there is another regulator, so to speak, to deal with these issues in
forborne markets and that body deals with them in other telecommunications
services which are forborne and in any other part of the industrial make‑up of
the country.
501
COMMISSIONER DUNCAN: Just to
explore that a little further, if it is a relatively small area ‑‑ I mean
it is not going to attract the attention of the Competition Bureau or probably
prompt a complaint, I wouldn't think, to the Competition Bureau ‑‑ but if
we were to decide on a local calling area for example, or an LIR, then there is
the possibility that there would be a larger number of subscribers in a forborne
market that do not have a competitor.
So then it might be feasible for an ILEC to charge a different rate
there. I mean, you could justify
the rate based on costs,
502
But what if it was just a higher rate, higher than it needed to be? In that instance is there a need to
protect the consumers in that ‑‑
503
MS SANDERSON: Well, if it is
a forborne market it has been forborne because there is some prospect for
competition in that market, and if that rate is higher than it needs to be, if
Aliant is charging a rate that is higher than it needs to be, EastLink is just
going to take their customer.
504
So you can rely essentially on that and then you don't have to get into
this problem of what should the price be, what does it need to be? That is extremely difficult to
do.
505
COMMISSIONER DUNCAN:
Okay. That is helpful. Thank you.
506
MR. STEPHEN: I think as
well on that, it argues for trying to keep the geography as small as is
reasonable.
507
COMMISSIONER DUNCAN: As a
local exchange area.
508
MR. STEPHEN: Thank
you. That is exactly what I was
thinking.
‑‑‑ Laughter /
Rires
509
COMMISSIONER DUNCAN: Just
moving on, are two facilities‑based competitors in each market sufficient to
create a truly competitive market?
510
MS TULK: I guess the short
answer is yes.
511
The longer answer is, two suppliers of substitutable alternatives is
reasonable to dictate a competitive market; and the facilities‑based versus
non‑facilities‑based, particularly the way our industry is unfolding, becomes
quite a red herring.
512
If you look at including wireless in, well, is Telus a facilities‑based
competitor in our territory or not?
What is facilities based, that at some level the traffic rides on a
facility or that they own the facility?
513
So you say: Well, we are
going to dictate that. The only
competition we count is facilities based.
Well, that to me would seem completely counter to the goals that you
yourselves have set down and has been set down in Canada of trying to encourage
facilities‑based competition, because in general presumably you would now, as a
competitor, say: Well, I don't want
to enter as facilities‑based because that makes forbearance more real, so I will
enter as a non‑facilities‑based and try and stave off
forbearance.
514
So the question is: Are
there reasonable substitutable choices for customers in that market and, if
there is, then forbearance is mandated.
The facilities‑based really, I believe, is a red herring to the whole
discussion.
515
MS SANDERSON: It is not that
many industries where two is enough.
516
We often think about we have quite different circumstances in other types
of industries, but as the Competition Bureau pointed out, and as a variety of
players and as actual experience in telecommunications indicate, particularly in
respect of high‑speed internet, is that these kinds of industries, the economies
of scale are such, the scale of the investment is such that you are not going to
have 10 wires into your house.
517
So if you are thinking about it in the context of facilities and the
investments that are required to provide facilities, you are not likely to have
large numbers of players with facilities.
518
The existing facilities providers, once they make those investments they
are here to stay, they are committed to the market, they have low costs of
expansion, and it is in that context that you do not need very many of
them. Then, hence, two gives you
very vibrant competition in the context of broadband
internet.
519
COMMISSIONER DUNCAN: I
understand that. I think it is
along the lines of what you are addressing there, but I understand that every
cellular market in the world has seen dramatic improvement in pricing and
service offerings once a third competitor entered the
market.
520
So I gather we would be talking there in that context VoIP or
wireless.
521
MS SANDERSON: Yes. I mean one of the things that is great
about VoIP I suppose is that essentially it ‑‑ I have gone into this at
great lengths in other proceedings, but it divorces the transport facility from
the actual services that can be provided.
Essentially, Primus or Vonage can ride on top of one of two facilities
and that allows you to have many competitors enter the
market.
522
Just the fact that when I say two may be enough, obviously three is going
to be better. So it is not the case
that you are necessarily going to always have just two.
523
COMMISSIONER DUNCAN: If
three is going to be better, that answers my next question which I didn't have
to ask. Thank
you.
‑‑‑ Laughter /
Rires
524
COMMISSIONER DUNCAN: Ergas
implies that as few as two carriers are suffer to ensure competition, as if a
duopoly has no potential down sides.
525
How does one ensure that price differentiation in a duopoly context does
not result in higher than competitive prices being imposed not only on consumers
willing to pay a higher price band or other reasons, but on those just looking
for the best deal?
526
MS SANDERSON: When you speak
about price differentiation, may I just ask you to clarify
that?
527
Is that in the context of just that there will be two firms and are they
each offering different prices to ‑‑ so in the example that we talked about
earlier, for my customers that really like my product I charge them a higher
price and is the other player doing the same thing, or are they each charging
different prices to the same set of customers?
528
COMMISSIONER DUNCAN: I guess
what I'm thinking is that if there are only two players we mightn't get the most
competitive price.
529
MS SANDERSON: Economists
have a series of models, which I will not bore you with, but there are certainly
circumstances where you can get right to the competitive price with only two
firms in the marketplace.
530
Essentially what happens, imagine a situation where the firms offer a
very similar product, it is a completely homogeneous product, it is gasoline,
and we are two retail gasoline stations in a small town.
531
I am the one retailer and Heather is the other retailer and because she
is a much better marketer than I am she cuts her price a little bit below my
price, what is my reaction?
Basically I have to match her or I potentially lose all my customers
because they can drive over to her station. In essence what happens is the process
proceeds and we charge the same price.
532
It is unlikely in those circumstances that you get much in the way of
differential pricing between the two of us, and you also very quickly get down
to pricing that would be thought of as being at the competitive
level.
533
You can have different circumstances. If we produce products that are
differentiated in some fashion and by branding, that is a sort of Coke/Pepsi
type example, but even here the consumer, sort of the attributes ‑‑ if the
products are sufficiently close substitutes for a large enough group of
consumers and customers are willing and able to move back and forth between the
providers, then you will certainly have situations where you can have quite
competitive pricing with two players.
534
I mean, with two players you can also get them colluding with each other,
so it is not the case that two is always enough. You have to basically look into the
circumstances of the industry and the characteristics of the
industry.
535
COMMISSIONER DUNCAN: Thank
you.
536
Just sort of following along on that, then, in reference to winbacks, the
question revolves around whether the customers that are being recaptured are
true returning customers or whether they are just churning for the best
offer. So I'm just wondering if
there shouldn't be some type of regulation in place to ensure winback
restrictions protect new entrants from the deep pockets of the ILECs, assuming
that the ILECs could afford to offer.
537
MS TULK: Yes. Well, I guess the short answer is
no. The customer benefit that
should accrue to customers from a competitive market is that the competitors in
that market should be free to try and earn their business and the same market
dynamics that dictate all the other parts of that competitive market would apply
to what types of things you would do to try and win back
customers.
538
The fact that customers choose to leave an ILEC, right, which is
representation of the competitive market, should accrue to the ILEC the right to
try to woo them back, the same way that the other competitors in the marketplace
have the position to be able to woo them in the first
place.
539
The other thing is ‑‑ interestingly enough and certainly in a number
of the questioning interrogs and positions that I read through ‑‑ what is
interesting is we need to forget that in a competitive marketplace a new
customer coming from the second in or third in or whichever number in competitor
to the one that happened to be there the longest is not necessarily a
winback. In some cases it is just a
win.
540
Customers in these 32 exchanges, as an example, a number of them have
never been with us. So they are
choosing, when they first move into the region or they first move out from their
parents' home into their own home, or the first move that they are connecting
first with the other competitor, they are making that choice right at the
beginning, and why shouldn't they have the ability to decide later if that
choice was right?
541
So if you preclude the ILECs from trying to win customers from
competitors, you are in fact restricting customer choice and you are restricting
the customers from being able to benefit from the competitive
marketplace.
542
So once you realize that the marketplace is competitive, you have to
accept that the competitive dynamic will encourage and should encourage
businesses trying to win the customers back and forth and that that movement, in
fact, is not an example of something anticompetitive; in fact, that movement is
an example of a functioning competitive market.
543
COMMISSIONER DUNCAN: Do you
think that there is a need, then ‑‑ I think I can anticipate your
answer ‑‑
‑‑‑ Laughter /
Rires
544
COMMISSIONER DUNCAN: At any
rate, because our objective is to develop sustainable competition, do you think
there is some need for some winback restrictions at least in the initial
stages?
545
MS TULK: Well, I guess in
answering some of your previous questions ‑‑ that question could apply to
any other piece of our industry as it is gone through into a forborne
circumstance. It can apply to any
other industry out there.
546
You say, "Well, if you have a new entrant coming into a certain industry
should there be some restrictions that the first X number of customers they get
can never go back"? It is an
unnecessary tampering of the marketplace.
547
As I mentioned, there is monitoring of the marketplace to make sure
anticompetitive behaviour doesn't exist; there is the ability of the Commission,
if it ever were to become a point the competition wasn't sustainable, there is
the ability to re-regulate at such time as that were to
happen.
548
So it is again an unnecessary and burdensome overhead that really stands
in the way of customer choice and a competitive marketplace is supposed to be
around letting the customers choose.
549
COMMISSIONER DUNCAN: Thank
you. I will move
on.
550
How do you feel about regulation with regards to propping up a company
that would otherwise not remain in the market, in other words, that supports
companies that are being innovative?
551
MS TULK: Supports companies
that are being innovative?
552
COMMISSIONER DUNCAN:
Yes.
553
MS TULK: So propping up
companies that will be deemed to be innovators in some
way?
554
COMMISSIONER DUNCAN:
Yes. Do you think there is
or should be a relationship between regulation and
innovation?
555
MS TULK: Well, if you look
at a marketplace, innovation ‑‑ which oft written about and published on a
weekly basis now I think, or daily basis all over the world ‑‑ innovation
is no simpler than the ability to try to uncover new customer needs or
unidentified customer needs and develop a product or service that meets those
needs.
556
In a competitive market it is the job of all of the players to try to and
innovate in order to drive new benefits to their
customers.
557
So I don't think there is anything special needed to prop up innovation,
because true innovation has a customer benefit and therefore true innovation is
a product or an offering that you can sell. A company coming in and innovating will
find a market, given that there are no carriers to entry and there is no
customer inertia. So the market
will decide whether that innovation is warranted and the market will decide
whether that innovation is worthy to be sustained.
558
I can't imagine what it is, but presumably unless there is some
innovation that were deemed to be necessary to the public good, and therefore
there was a need to force that to be provided, then innovation, successive
innovation is designated by do customers buy the innovation in question. So I don't see why there would be any
need to prop up innovation.
559
In fact, an open and competitive landscape encourages innovation, because
it encourages companies, both ones like ours as well as new entrants, to find
new ways to attract the customers' buying decision. That is the only thing that truly drives
innovation.
560
MS SANDERSON: Just to add to
that, I think if you look at telecommunications in particular, you will hear the
idea of sort of a dynamic ‑‑ almost a destructive form of competition,
there is a leapfrogging that happens, because when you get these innovations
they are essentially huge breakthroughs and then the party that shows up with
this innovation now has a totally different cost structure than the old
incumbent. Typically, if you look
at telecommunications, generally those costs are falling.
561
So that innovation, what drives that innovation is, as Heather was
saying, from the marketing side, it is offering a product that is very popular
and desirable and hence there is no need to prop them up because customers will
flock to them.
562
But it can also be the ability to now offer the other product or a new
product at an entirely different cost structure and that typically means there
isn't really any need to prop them up as well.
563
COMMISSIONER DUNCAN: Thank
you.
564
MR. STEPHEN: Just a
final comment on that, I would suggest that there is a relationship between
regulation and innovation, but it is not a positive one; that in fact can be
very negative.
565
I would say, for instance, as an example, the banning of promotions for
several years in local services was very destructive in terms of stifling
innovation in that market.
566
So I would be concerned about the thought process that takes us down that
regulation should be viewed as something to incent innovation. I would say that the evidence would be
to the contrary.
567
COMMISSIONER DUNCAN: Thank
you.
568
Does the nature of the entrant, whether it is a cable company, a
standalone non‑facilities‑based VoIP provider, another ILEC from out of the
market, does it matter? Should they
all be treated equally in developing the forbearance
criteria?
569
MS TULK: Well, it doesn't
matter to the customer. Forbearance
is about is there competitive alternatives that customers are willing to choose
and is the market functioning competitively?
570
Presumably, no matter who it is, whether they are from the local
community, whether they are from somewhere else in Canada, whether they are
using the specific technology that we use or they are using another technology,
one that exists today or one to be developed, if customers are choosing it as an
alternative to wireline local service then the market is competitive and they
deserve to be treated in terms of the set of establishing is the market
competitive?
571
So I don't think it does matter with respect to a definition for whether
a forbearance test is being met.
572
COMMISSIONER DUNCAN: Thank
you.
573
MS TULK: I think just to
take it further, to assume that there needs to be some dictation around that in
fact gets back directly to the most previous question, which is now it is a
regulatory regime trying to dictate the direction of innovation. If we want to stimulate innovation in
this industry in Canada we should be setting up a regime that allows innovators
to find ways to attract customers inside a market niche or a market area. To say that we are going to deem what is
or isn't the technology or what is or isn't the ownership definition of a
competitor in fact will stifle innovation.
574
COMMISSIONER DUNCAN: Thank
you.
575
If the current competitive safeguards on promotions are removed if
certain criteria are met, the decisions to remove the safeguards, can you
comment on which consumer groups are or are not likely to
benefit?
576
MS TULK: Well, I don't think
the safeguards protect consumer groups.
The safeguards presumably protect competitors. I think those particular safeguards in
fact do the opposite with respect to consumer groups, because they are standing
in the way of consumers getting offers that they might otherwise
get.
577
So I would think that removal of those safeguards would benefit all
consumer groups.
578
Now, to say would the specific benefit of that removal be completely the
same, I would suspect not, because the definition of the promotion that might be
entered into the marketplace would differ.
579
So as an example, I would fully expect to have different promotions into
the student market than I would have for families with kids, that I would have
for empty nesters, than I would have ‑‑ because as a marketer, and the same
thing if you take that into the full regime into the business market, you would
offer different promotions for small businesses than you would offer for large
businesses because the needs and what appeals to those market segments are
different.
580
So to say would every consumer get the exact same promotion? No. Would every consumer benefit from the
ability of companies to try and woo and earn their business with
promotions? I would expect that
they certainly would.
581
I can't foresee any place where there is a safeguard for consumers that
would be lost, because that restriction doesn't safeguard consumers
today.
582
COMMISSIONER DUNCAN: I
suppose the initial safeguards were put in place to try to ensure we had
sustainable competition.
583
MS TULK: Right. So that's what I'm saying, trying to
link that safeguard with consumer protection in your question. That is not what that safeguard is about
and in fact that safeguard stands directly in front of consumer benefit and
prevents consumers from benefitting.
584
Consumers in these 32 exchanges and in the other exchanges we have that
are competitive, absolutely would have seen further benefit in the last two
years in the a forborne world than they have seen today.
585
On any basis of economic analysis. either theoretical or the real
situation that we are in, customers are not seeing the full benefits of
competition because of these safeguards, so to speak, that have been put in
place.
586
COMMISSIONER DUNCAN: If the
current winback rules are removed, would you care to comment on which consumer
groups are or are not likely to benefit?
587
It is probably the same answer.
588
MS TULK: The only consumer
group that wouldn't benefit from the winback rule being removed would be a
consumer that never left us I guess.
589
The winback rule is about winning back, so it applies to customers of the
competitor, but I can't imagine any other specific consumer interest group, so
to speak, that would be affected any more or less than any other. It doesn't have a tie to a specific
consumer group.
590
COMMISSIONER DUNCAN: What
about if the winback rules were reduced from twelve months to three months. What impact or what would be your
reaction to that?
591
MS TULK: The point of the
winback rule is, as you just yourself mentioned, some of these rules have been
in place to safeguard presumably competitive entry, our position, and we believe
all the evidence shows that competition is well and firmly
established.
592
The analogy for that for me ‑‑ and I can't help but think about
analogies ‑‑ is, well, so if I go into one store in the mall and I make a
purchase and then I go into the next store ‑‑ so I buy a blouse in one
store and then I go to the next store and I see a blouse I like better, right,
should there be a rule that I can't return the first one until I have thought
about it for three months just to make sure that I really like the second blouse
better?
593
In a competitive market you buy something, if you have dissonance ‑‑
I mean, there are books and books and books written on customer and consumer
dissonance; if you have dissonance and you regret your decision you should be
allowed to rethink and change your decision. Winback rules stand in the way of
customers making choices and it is a rule that stands in the way of
choice.
594
COMMISSIONER DUNCAN: Bearing
in mind that we are trying to develop a national framework and all the ILECs
across the country haven't had the degree of competition that Aliant has been
faced with since 1999, would your answer be different? Do you think there is a need
for ‑‑
595
MS TULK: Keeping in mind
that I also have accountability for many other exchanges in two other full
provinces that haven't seen competition in the residential market, I would say
clearly, no, my answer isn't different.
596
So what I'm saying is, once a market is forborne, once you have met the
test of a competitive market, then competitive forces in that marketplace should
be allowed to prevail and these safeguards for competitive entrants are not
necessary. That is true in the 32
exchanges and it will be true at such a time as we meet the forbearance test for
St. Lawrence, Newfoundland or Miramichi, New Brunswick. Once you meet the test, once the market
is competitive then the marketplace should be allowed to provide full choices to
consumers.
597
MR. STEPHEN: I would like to
add, though, that irrespective of forbearance these rules and safeguards are
probably not necessary and they are probably doing more harm to the public than
good. I don't see this discussion
as being a substitute for forbearance, but the core rules themselves should be
re‑examined on the basis of: Are
they effective in doing something for the public good?
598
That is what I would question.
599
MS SANDERSON: I wanted to
just add one point, and that is that because this is local service the
competitive conditions are going to differ locally across the country and
whatever set of rules you are applying you have to apply to the competitive
circumstances in that location.
600
So if there isn't enough competition in Timmins or Lethbridge or Nanaimo
and you want to have winback restrictions in those locations, none of that
matters for Dartmouth or Halifax or Charlottetown, because ultimately what
matters is the competitive conditions in Charlottetown and Halifax and
Antigonish and Truro and if in those markets there is sufficient competition to
forbear there is absolutely no reason to have winback restrictions if they exist
somewhere else.
601
COMMISSIONER DUNCAN: That is
an excellent point. It's not that
you disagree that it would be useful, it's just unique to the
market.
602
MS SANDERSON: Exactly. I mean, you might want to have them in
Nanaimo, but that doesn't mean that you need to have them in
Truro.
603
COMMISSIONER DUNCAN:
Sure. I appreciate
that. Thank you. Thank you.
604
Do you consider that market forces will be sufficient to ensure that
disabled customers receive a level of communication service equal to that
received by other subscribers?
605
ARCH provided recommendations to ensure persons with disabilities receive
telecom services on a non‑discriminatory basis in a forborne market. For example, telecom service providers
should audit their services and products to identify barriers to disabled
persons and design and implement barrier removal strategies and they should be
required to file an annual report with the Commission regarding the
accessibility of services for disabled persons and plans for barrier
removal.
606
Could you just give us your comments on the costs and practicality of
these recommendations?
607
MR. STEPHEN: I think these
types of recommendations really shouldn't be tied into a discussion on
forbearance. If there are
requirements to address special needs and the Commission feels they should be
addressed, then that should be a standalone issue. They are really not something that I see
as being part and parcel of a forbearance discussion.
608
MS TULK: The other thing,
and I think I mentioned it earlier, I myself and Aliant totally feel very
strongly that any protection that the Commission were to deem required for any
interest group in this country, that that interest group or individual deserves
that protection no matter which supplier they are choosing to purchase their
services from.
609
The importance of that protection and the reality of a competitive
marketplace ‑‑ and we have seen that in our market, that we need to always
keep in mind that both today in certain exchanges and in the future that you are
planning for across this country, ILECs are not serving every customer and if
there is something that individual citizens in Canada need then they need it
from everybody.
610
COMMISSIONER DUNCAN: Just to
follow on that, if the Commission maintains sections 24 and 27(2) to ensure
access for disabled consumers and imposes these or other conditions on all
service providers, would competition be impeded in any
way?
611
MS TULK: I guess if it is a
case that you are saying, well, you have to provide certain services to the deaf
or you have to provide ‑‑ I don't see how that's going to impair
competition if it is provided equally across different
providers.
612
MR. STEPHEN: The only way it
may impede is if it is at a very high cost. So assuming that there is a relationship
between the regulatory requirement or obligation and the cost to achieve it, it
should affect all service providers the same way.
613
COMMISSIONER DUNCAN: Do you
think that all of these providers are equally able to provide these services at
this point in time?
614
MS TULK: Well, I think
that ‑‑ I can't speak to the capability and I can't speak to hypothetically
what the cause of them are, but as an example, one example being billing inserts
in Braille, right?
615
COMMISSIONER DUNCAN:
Sorry? Again,
sorry?
616
MS TULK: Billing inserts in
Braille.
617
COMMISSIONER DUNCAN: Oh,
yes, okay, sure.
618
MS TULK: One specific
example. So if only the ILEC is
mandated, as an example, to provide that, then that is the Commission de facto
saying that the blind shouldn't have choice in communication services. If you believe that that is necessary
for citizens who are visually impaired, then visually‑impaired citizen should
enjoy the same choices in communications products as other
citizens.
619
So if the requirement is reasonable, then everyone should be able to
provide it. On the other side of
that, if the requirement is such that everyone can't be mandated to provide it,
then the requirement is not reasonable.
Because I would not believe it is the Commission's place to dictate that
certain citizens in Canada should have less choice in communication products
than others. That would be de facto
what you would be doing if these mandates weren't applied
equally.
620
COMMISSIONER DUNCAN: I think
probably it is the concern that if everybody is not equally able to provide the
service ‑‑ and I don't know at this point in time that everybody is but we
will have an opportunity to ask the capabilities as we move
along.
621
MS TULK: Well, yes, and you
can certainly ask them, but again it is ‑‑ and obviously through this
proceeding you will examine it in great detail, or through other proceedings,
but I think that you really have to ask yourselves very strongly if you are
putting a requirement on one company, one player in a fully competitive market,
then you are dictating where citizens can choose to buy, and is that your
role?
622
COMMISSIONER DUNCAN: We of
course are going to take your comments into consideration.
623
Just moving on to quality of service, your comments on how quality of
service is maintained in a competitive market.
624
If companies are enticing new customers with cheaper services, isn't it
possible that this type of consumer market will lead to a race to the bottom in
service quality?
625
MS TULK: Well, I suppose
certain players in a market could choose to try and offer lower costs, lower
service alternatives. Presumably,
if they were to try and do that, then you as a business person would look at
what proportion of the market is willing to pay for higher cost/higher service
alternatives, and that value proposition between price and service, just like it
does in every other industry, will dictate what customers buy and where they
make their choices and competitors will make decisions on what they market to
who in order to attract that customer.
626
So again, in a fully competitive market customers have the ability
to choose and if one player is not doing a good enough job in establishing their
value proposition, i.e. costs versus service, then presumably one of the other
competitors will step in and fill that gap.
627
COMMISSIONER DUNCAN:
Considering that in this question we are anticipating that both
competitors might slacken off on their quality of service objectives, do you
think that there should be any regulations left in place that address issues
like price or voice quality, percentage of calls completed, billing available
bundles?
628
MS TULK: Well, we believe
that. As we have stated in our
application, in a forborne world the market should dictate the level of service
that is provided and customers are willing to pay for and buy and, certainly,
any asymmetrical mandate such as that would hamper full
competition.
629
MS SANDERSON: You are
unlikely to find ‑‑ there are other competitors that are part of this
marketplace so, first off, if Aliant was considering, "Do I degrade my quality?"
the first thing it has to think about is what EastLink's response is going to
be, so if EastLink is just going to take the customer because Aliant's quality
is no longer what it should be relative to the price that it's
charging.
630
I guess the premise of your question is that perhaps EastLink might also
degrade its quality. Well, then,
Rogers Wireless or Telus Wireless is also there to step in, VoIP providers are
there to step in.
631
So if you think about the total environment it is unlikely to be the case
that you are going to get these kinds of degradations in quality, assuming you
have a competitive environment, which is the presumption because we are talking
about a forborne environment so if you are forborne there is enough competition
to not worry about these things.
632
You can certainly have different players in different products provide
different types of levels of quality, but then customers will go to whatever
value proposition they would like to purchase.
633
COMMISSIONER DUNCAN: I think
the concern would be that you know the bottom line will be the motivation and so
the competitors will be equally influenced and perhaps decide instead of having
10 technicians in a certain area maybe they would have five. Just a thought.
634
MS SANDERSON: You are always
going to expect a company to maximize its profits and that i going to entail two
components; one is minimizing the cost of providing service, but it also entails
maximizing your revenues.
635
The beauty of the competitive market is that someone will eat your lunch
if you are really crummy to your customers. In fact, that is actually a useful way
to know if you have a company that has monopoly power, because a company that
has monopoly power can treat its customers in a way that is, I suppose, "Well, I
will charge you a lot of money for something that isn't very good", but as soon
as you are in a competitive environment that is not possible because somebody
else is going to take that customer away from you.
636
MR. CAMPBELL: Commissioner
Duncan, I think you should try to assess whether this is a realistic risk in any
case. Look at the markets which are
served in competition now. I don't
think there is any evidence of that sort of problem. High‑speed internet, we are getting
increasingly good quality; cellular, we are getting increasingly good
quality. There is no issue in that
regard.
637
Remember how we got into quality service regulation in the first
place. It was an adjunct to price
cap, because when the Commission began regulating prices directly it had to also
observe these indirect price changes through quality degradation. But if you are satisfied that the market
is sufficiently competitive to protect the interests of users and prices, it is
sufficiently competitive to protect your interests in other
ways.
638
COMMISSIONER DUNCAN: So I
take it your position is there is no need?
639
MR. CAMPBELL:
Yes.
640
COMMISSIONER DUNCAN: Okay,
thanks. Thank
you.
641
In a forborne environment, do you foresee selling a basic local exchange
service as currently defined by the Commission on a standalone
basis?
642
MS TULK: Yes, we
do.
643
COMMISSIONER DUNCAN: So
would that be an undertaking on behalf of your company to see that that is
done?
644
MS TULK: Certainly, we have
no plans. We offer it today. We have no plans to discontinue it. It is available from our competitor
today. Obviously in a competitive
marketplace as things change it is very difficult to predict what the market
offers will or won't be, but certainly it is a fact of our market today and I
think it would be reasonable to expect to continue.
645
COMMISSIONER DUNCAN:
Okay. Thank
you.
646
Now, I'm looking at the argument of the Competition Bureau at page 9,
paragraph 48.
‑‑‑
Pause
647
COMMISSIONER DUNCAN: In its
argument the Competition Bureau submitted that first lines of residential
customers could be one relevant market; and second lines, mobile wireless and
VoIP services, could be a different relevant market.
648
Could you comment on the Competition's proposed division of the relevant
residential market into a first line market and another market that includes
second lines, mobile wireless and VoIP services?
649
MR. STEPHEN: In terms of the
secondary lines, I think it is important to note that we do not have a very
large base of second lines, in fact I believe we have an interrogatory response
and it is approximately 2 per cent of our lines, in response to a CCTA
Interrogatory No. 4. Anyway, it has
been declining each and every year for the last number of years. So we don't have a big market for second
lines in the Atlantic area.
650
I think that makes sense, given the expansion of mobility certainly over
the last number of years. Our only
experience with second lines was initially for internet there was a big demand
for it. However, as more and more
customers adopt high speed we are seeing second lines disappear. So we don't see that as being, at least
in our market, an applicable break point or at least there is no distinguishing
between first and second lines.
651
MS SANDERSON: I think what
that means, then, is that the calculations that have been presented to you, the
confidential calculations and so on, are basically of primary lines, primary
service.
652
I guess what the Bureau might be worried about is that you have a
situation where if you are looking at market shares the competitor EastLink
basically has all of Aliant's second lines, so that the customer still is
purchasing product ‑‑ service from both Aliant and from EastLink. It is not known definitively if that
never happens, but given the context that second lines are such a small
percentage of this market, and also I think given the consumer research that
Aliant has filed with you on a confidential basis as to why customers go to
EastLink, at least the consumer research that Aliant has done, I think you can
be fairly safe in assuming that most of those calculations are basically primary
lines.
653
COMMISSIONER DUNCAN: Does
your answer change with respect to VoIP services?
654
MS SANDERSON: I suppose
people might ‑‑ well, first, Aliant and the 32 exchanges hasn't put in any
numbers, calculations on VoIP.
655
COMMISSIONER DUNCAN: Looking
down the road, yes.
656
MS SANDERSON: Right. I suppose that will be something that
one will see as you deal with different markets and get statistics as to what
shares would be like for VoIP providers.
657
If VoIP is a close substitute for a local wireline ‑‑ which the CRTC
has found that in fact it is, it is sufficiently close to be included in the
relevant market for local services ‑‑ then you would expect that if someone
is going to buy VoIP they are probably going to leave their wireline. Why would you bother buying two things
that are good substitutes for each other?
658
COMMISSIONER DUNCAN: In the
event that some people do, and I could actually even point to an example where
somebody close to me is actually doing that, would that affect your ‑‑
well, maybe that is a very rare circumstance.
659
MS SANDERSON: I suppose it
is the type of thing where they might do that. You can imagine the situation where
somebody is trying it out to see what it's like and that if they are happy with
it they would go ahead and switch entirely.
660
It is certainly the expectations ‑‑ if I think of just the
telecommunications analysts that are forecasting going out into the future, if
you think of analysts at RBC Capital Markets and people like Michael Sone that
are regular analysts following the industry, those forecasts for VoIP are
basically that it is going to be a good substitute for the wireline in that you
will not have a lot of this situation arise.
661
Thank you.
662
MS TULK: I think the other
thing is. the definition of primary versus secondary line is a somewhat archaic
definition based on a monopoly industry.
So I have no way to know which of the lines that I have into consumer's
homes are primary lines, secondary lines.
663
In the case of my home, we have a wireline line, we have a wireless
line. Which of those is the primary
line? Well, we in fact talk more on
our wireless phone than we do on our wireline phone. So is the wireline the primary line for
our home or the secondary line?
664
As you move forward into that you look at a customer who has a single
line from us who shows in our billing system as their primary line, that could
in fact be the third or fourth line and the least used in their home if they
have an EastLink service and they have VoIP service or they have a wireless
line.
665
So this primary second line definition is predicated. The only way we know what a primary or
secondary line is predicated on the belief that we are the only supplier in the
market, which isn't the case.
666
COMMISSIONER DUNCAN: So then
you wouldn't see this distinction that the Competition Bureau has suggested as
being practical?
667
MS TULK: Yes, so definitely
not. It definitely is, sorry,
impractical, yes.
668
COMMISSIONER DUNCAN: My next
question is addressed to the Competition Bureau's Response to
CRTC‑303.
‑‑‑
Pause
669
COMMISSIONER DUNCAN:
Okay. Among other matters,
the Commissioner of Competition proposed a possible forbearance test for
facilities‑based entry. In bullet 2 of the response the Commissioner stated
that:
"One condition of the test is that the variable costs of provision on the
two networks are similar or that costs of the entrant is lower and neither
network is capacity constrained."
(As read)
670
Could you give your views as to whether as part of the forbearance test
the Commission should examine the entrant's and incumbent's cost structures,
including whether the entrant has similar or lower variable costs than the
incumbent?
671
MS SANDERSON: I will take
that.
672
Obviously, you will have to ask the Bureau directly what they were
thinking of here. I am going to try
to read minds, just having worked there for 10 years.
673
When you read that test the Bureau is outlining conditions that are
sufficient under their structured rule of reason test. So they are not necessary, but they
are. So what you are reading about
is, you are reading about conditions that if these conditions are met then it is
surely the case that the market is sufficiently competitive for you to forebear.
So something less than this in fact may give you the same end result that you
have sufficient competition to forebear.
674
On the variable cost issue, there are a lot of markets that will be
competitive without necessarily having firms that have the exact same cost
structure. In fact, if they are
using different technologies to deliver the same product they are bound to have
different cost structures.
675
The way I interpreted that second condition from the Bureau is that if
the entrant that has arrived does have variable costs that are at least the
level of the incumbent in providing that service, then that is sufficient to
demonstrate that that entrant is in fact a viable sustainable entrant who won't
be, say, easily marginalized following forbearance.
676
That is the way that I thought about it in looking at it, but it
certainly can be the case that you could get an entrant that had a higher
variable cost than the incumbent, and unless it's wildly ‑‑ I mean you can
have situations that it is very, very high and, in essence, what you are then
looking at is that perhaps that entrant is not in fact sustainable because it is
too high cost a player. But in
situations ‑‑ it doesn't mean the cost structure needs to be
identical.
677
So I guess if you were to adopt the Bureau's test instead of a
bright‑line test, then that is one of the sufficient conditions that they
suggest may be needed.
678
Just a word of caution, though, on just trying to calculate variable
costs, because when you are thinking about ‑‑ the Bureau in writing about
this is, I think, thinking about it as an economist and financial statements are
not written by economists. It is
probably good for economists, so the old jokes about the accountants: Who is more boring, the accountants or
the economists?
679
But there are going to be differences between the accounting statements
and trying to actually transcribe what is a variable cost in this economic
context and derive that from the financial statements.
680
Then, of course, in these types of industries, as you well know from your
Phase II hearings, there are always these issues about what do you do when there
is a joint product and it is provided across a common infrastructure, how do you
attribute the cost of that infrastructure or that asset across all these
different products? I mean, it is a
difficult process.
681
COMMISSIONER DUNCAN: That's
helpful. That's very helpful. Thank you.
682
The Competition Bureau's structured rule of reason approach requires
information on the costs of each party, the possibilities of capacity expansion
and measurements of demand. This
probably follows along on your last comment, but is this information likely to
be available for both the entrants and the incumbents?
683
MS SANDERSON: I guess that
would depend on the extent of the information that you would require. As the Bureau notes, if you undertake a
full analysis, which essentially is what you are going to be doing in respect of
Aliant's application under 94‑19, if you take a full‑blown approach that is
going to minimize the probability of error.
684
There are certain costs that come with that in the context of all the
people that here in this room and the time that it takes to go about a
full‑blown analysis. So it is in
that context that other parties have suggested that it may be prudent moving
forward to have either a bright‑line test or something that would minimize these
administrative costs and expedite the process in some fashion, bearing in mind
that as soon as you do that you potentially may increase the risk of some kind
of error.
685
The Bureau's test, I am assuming that this structured rule of reason is
going to require less information than under a full 94‑19 process, otherwise you
just flip back to the 94‑19 process.
686
The criteria that are actually outlined easily fit within the criteria
that the Commission has already outlined in the context of 94‑19 under demand
conditions and supply conditions.
687
So I think it would depend somewhat on the extent of information that you
would require. You may be able to
look to indicia that these are met.
688
For instance, in the context of the first criteria that the Bureau had
noted ‑‑ and if you think of the Aliant application ‑‑ is EastLink an
independent facilities‑based provider?
Yes. Are they offering a
service that is of comparable quality to that of Aliant? Well, a third of the customers in
32 exchanges think so and also the customer research would indicate they
are. So in that sense you can
gather that at a relatively high level with not a lot of detailed
analysis.
689
I guess the only ‑‑ also the third criteria would be similar in the
sense of you would be able to get information on that to some extent by seeing
the marketing materials, the type of thing that has been filed in this
proceeding, and market research on customer retention rates which could be
readily filed.
690
The last criteria on industry characteristics, the Bureau does quite a
persuasive job, I think, in talking about the fact that if the anticompetitive
behaviour that you are fearing is predation. If you have met the first criteria in
their set of four, which is that you have an independent facilities‑based
provider who has sunk these costs, entered the market, and so on, that the risks
of predation are very low. So in
that sense that criteria ends up being met if the first criteria gets
met.
691
Thank you.
692
Mr. Chairman, that's it.
Thank you.
693
THE CHAIRPERSON: Thank you
very much.
694
Commissioner Langford.
695
COMMISSIONER LANGFORD: Thank
you, Mr. Chairman.
696
I will try not to keep you very long. You have had a long
morning.
697
I was interested in a couple of statements you made in your opening
statement and then reiterated and emphasized in answer to questions from
Commissioner Duncan.
698
I want to take you to paragraph 25 of your opening statement where you
announced to us the launch of EastLink's latest promotion with the local service
and all options and features for $9.00 a month, which you say then have some
strings attached.
699
Could you tell me what the strings are?
700
MS TULK: I guess if you want
detailed information on the offers, EastLink, I understand, will be
testifying and they can take you through that, but
if ‑‑
701
COMMISSIONER LANGFORD:
Sorry, I am not hearing you.
702
MS TULK:
Sorry.
703
COMMISSIONER LANGFORD: It
may just be ancient old age creeping in.
704
MS TULK: Oh, sorry. I said I can give you a little bit, but
if you want to go really deep into that offer I think you would have to ask
EastLink when they appear. We only
have the information, obviously, that is publicly
available.
705
COMMISSIONER LANGFORD: That
will be good enough.
706
MS TULK: We did provide you
in Attachment 1 a copy off their website.
Sorry, Attachment 3, a copy of the printout of their
website.
707
So their advertisement that they are running is very clearly presenting
local telephone and calling features for only $9.00. Then, in the fine print beside that, it
says $9.00 a month for 12 months in a watch, surf and talk bundle. Then they go on to say it is $9.00 a
month for up to 12 months.
708
Further down they say, and we have pulled it out there, local telephone,
all calling features, free installation and available in a TV, internet and
phone bundle.
709
So that is what they launched in our marketplace and that is being
advertised to customers as of last week as far as ‑‑
710
COMMISSIONER LANGFORD: Well,
you are in the business, what is a walk, talk and surf bundle? Can you give fill
us in?
711
MS TULK: Walk, talk and surf
bundle would be EastLink's bundle ‑‑ sorry, it is watch, talk and
surf ‑‑
712
COMMISSIONER LANGFORD:
Sorry, watch.
713
MS TULK: Did I say
walk? I
probably did.
714
COMMISSIONER LANGFORD: Maybe
you said watch, sorry.
715
MS TULK: Yes, watch. It is TV, telephony and high‑speed
internet inside a single price, but they in this case seemed to have pulled out
a specific attribution of the component of that bundle that has to do with local
service.
716
COMMISSIONER LANGFORD: Do
you know whether EastLink offers local service with calling features on a
standalone basis?
717
MS TULK: I believe that they
do.
718
COMMISSIONER LANGFORD: Do
you have any idea what that price is?
719
MS SANDERSON: I have that
here, yes.
720
MS TULK: At Table 1, which
was page 63 of Attachment 1, which was my report to Aliant, there is a listing
of the prices for each of the various services for Aliant, EastLink, Vonage and
Primus. Some of these may be
somewhat out of date just because the information was pulled from websites in
late May and early June of this year.
721
Do you want me to read you the numbers?
722
COMMISSIONER LANGFORD: Maybe
you could just give me kind of a number of hat a package like
this.
723
You folks know what local service is and you know what all the features
are so maybe we could jump to a kind of final answer, or something close to it,
what you think EastLink is selling at this at, or probably selling it at on a
standalone.
724
MS TULK: Well, the
standalone service as listed here is $20 for basic monthly service and then
$4.95 per feature, so Call Answer, voice mail, Call Display, Call Forwarding, et
cetera. They also sell a feature
bundle, any three features for $7.95; entire set for $12.95. So given that this offer seems to say
all features, I would presume the comparison will be the $20 basic fee plus
the $12.95 for the entire set of features, therefore,
$32.95.
725
COMMISSIONER LANGFORD:
Right. What would Aliant be
selling that for on a standalone basis?
726
MS TULK: Aliant, I guess the
nearest comparison would be our enhanced consumer access under our tariff, which
is $36 including all features.
727
COMMISSIONER LANGFORD:
Okay. I assume you sell
bundles as well?
728
MS TULK: Yes, we
do.
729
COMMISSIONER LANGFORD: You
bundle products?
730
MS TULK:
Yes.
731
COMMISSIONER LANGFORD: So
there would be savings on certain things when you bundle
products?
732
MS TULK: That $36 would be
the bundled price for local service and all features under our tariff. So that would be the lowest price that
you can get local with all features.
733
COMMISSIONER LANGFORD: Don't
you bundle with anything else, with long distance?
734
MS TULK: Not local service,
no.
735
COMMISSIONER LANGFORD: No
local service at all.
736
MS TULK: So $36 is the
lowest price that a consumer can buy local service with all features from Aliant
at this time.
737
COMMISSIONER LANGFORD: But
you do bundle your forborne services I assume?
738
MS TULK: We do bundle our
forborne services.
739
COMMISSIONER LANGFORD: I
guess the deal is there.
740
MS TULK: Pardon
me?
741
COMMISSIONER LANGFORD: You
give deals there?
742
MS TULK: We give deals on
the forborne products and their available standalone separately from the local
service products.
743
COMMISSIONER LANGFORD:
Right.
744
To go on with the rest of paragraph 25, I was confused by it. I am not in the business end of this, I
am in the regulatory end, the dark side as I inevitably must think of it, but it
seems to me that essentially looking at this you have thrown up your hands and
you have said, "We can't do anything.
Until you lift the rules, we can't win".
745
MS TULK:
No.
746
COMMISSIONER LANGFORD: I
don't see anything that you are doing here in all of these papers ‑‑ and I
have read your final argument and I have read your initial submissions ‑‑
and I don't see anything you are doing to fight back. I don't get a sense that there is a
battle going on here and I want to know why that it is.
747
I want to know why you have put so much on this one particular
proceeding. You seem to have so
much at stake, when my reading of a move from the regulated environment you are
in now to a forborne environment for local services wouldn't be that big a
change. So it is your chance to
instruct me and just why it is that you are not fighting
back.
748
For example, you can lower prices.
$36.95. You can do better
than that, I'm sure. Those optional
services are way above costs, I'm sure of it. I have seen the imputation tests. So have you.
749
So why aren't you fighting back?
Why are you waiting for us to do this for you when you could fight back
right now?
750
MS TULK: That's a long
question.
751
COMMISSIONER LANGFORD: Well,
it comes down to the last bit.
752
MS TULK: I think it is
definitely not true that we are not fighting back. The intent of that in the opening
argument we have there is not to say that we won't react, it is to show the
regulatory time lag and burden that stands in the way of the customers
benefiting immediately from the natural rivalrous behaviour in a competitive
market. It stands and places the
hoops one after another, after another, after another that you have to jump
through in order to react to something like this.
753
The other thing is, if you look at our history over the last number of
years in question as competition has unfolded, and certainly we have been before
you talking about some of them, we have reacted again and again and again. We have pro‑acted again and again and
again and we are doing everything that we possibly can within the regulated
environment to be able to earn our customer's business and we continue to do
so.
754
However, customers have free and open choice. There is a free and open competitive
market. Customers should be able to
freely and open benefit and it is not right in this situation ‑‑
forbearance as defined under the Act is definitely warranted and should be
applied. Once it is applied, we
will continue to continue to fight to earn our customers' business each and
every day and we will continue to be able to allow customers to benefit from
that. We are absolutely not afraid
to work to earn our customers' business and we do that each and every
day.
755
However, when you look at something like this, this is just one example
of how a competitor in the market is being given an unwarranted advantage in
terms of their ability to bundle across their product lines in a free and
unfettered basis; their ability to change promotions regularly, swiftly,
naturally; their ability to go into sub‑segments of the market and put in place
special promotions and special offers and to change them on a frequent
basis.
756
The time lag, the overhead, the burden that is on us to do the same, to
act as a natural marketer in a naturally competitive environment would
is simply unwarranted.
757
COMMISSIONER LANGFORD: Well,
I have heard that from you all morning ‑‑
758
MR. STEPHEN: There is
also ‑‑
759
COMMISSIONER LANGFORD: ‑‑ and I have to say I am not impressed by
it. I mean, I am not impressed by
it.
760
I am sorry. But we might as
well put it on the table here.
761
It seems to me that if you have got prices at $36 and you have got
flexibility in the optional features of those bundles to lower them, and that
the most that perhaps ‑‑ and you have got the flexibility to bring in the
sort of new products that the folks behind you at Bell have brought in over the
last month with ceiling prices and minimum floor prices so they have got
flexibility in, it seems to me that the folks behind you are being more
proactive.
762
You used the word proactive once.
You used the word reactive about seven times.
763
And it seems to me, yes, if your plan is to react all the time, you have
got a little bit of a regulatory ‑‑ a few regulatory hoops to jump
through.
764
But there is ‑‑ it also seems to me that you have enormous scope
here to cut productivity costs, to move to a smaller building on the
waterfront ‑‑ maybe your costs are too high in that high rise on the
harbour ‑‑ to make cuts in ways that you could pass on to
subscribers.
765
And, sure, you have to come to us for a ten‑day process to run some of
these tariff changes through.
766
But if you put together a proactive plan rather than a reactive one, it
seems to me that there is very, very little left that forbearance is going to
offer you.
767
You know, some targeting if winback is gone, some promotional
opportunities if that is gone.
768
But, you know, you are still going to have to make an imputation test or
you will be into predatory pricing.
769
So, you know, really, it seems to me you have come to us here looking for
the kind of philosopher's stone here that is going to open everything
up.
770
But I don't see evidence that you are using the tools available. And to me that demonstrates ‑‑ the
reason I bring this up is, I mean, this isn't a shaming process here ‑‑ I
bring it up because it seems to me that you have got too much riding on what
isn't going to offer you what you want.
771
And it seems to me that I don't see the kind of proactive marketing and
pricing and product definition of somebody who really feels they are under
threat by a competitor.
772
I don't see before me, I don't hear before me, and I don't read in your
papers the kind of sense that you feel threatened.
773
It just seems to me you want it easier.
774
MR. STEPHEN: I would like
to ‑‑
775
COMMISSIONER LANGFORD: And
it seems to me that if you get it easier, the consumers might end up paying a
very big price.
776
So that is another long question, for which I apologize, but I don't
understand why you have so much riding on what appears to me to be so
little.
777
MR. STEPHEN: I think you
would agree that in most cases the things you are referring to would require to
come back to the Commission and get approval for.
778
And while there have been a number of changes over the last six months,
largely of a positive and progressive stance, I think you would also have to
agree that they have been fairly prohibitive.
779
We have seen over this period of time, these several years, the
Commission at every turn wrench up the rules and make it more difficult to
compete, whether we talk about the winback rules, which went from 30 ‑‑ you
know, from a 90‑day to a one‑year.
780
We have seen applications for tariffs take up to two years to get
approved. We have seen nothing but
discouragement by the Commission on reducing prices.
781
If it wasn't for the floor price decision that came out earlier this
year, ‑‑ you know, that was the first time in three years that the
Commission has accepted that we could come in and start reducing
prices.
782
I can take you through tariff filings where the Commission routinely
denied them and ‑‑
783
COMMISSIONER LANGFORD: But I
could take you through instances of you folks breaking the rules
flagrantly. So let us not get into
a pointing game here.
784
I am simply asking why it is that you aren't competing more
vigorously ‑‑
785
MR. STEPHEN: But what I am
telling you ‑‑
786
COMMISSIONER LANGFORD: ‑‑ under the present
rules.
787
MR. STEPHEN: Mr.
Commissioner, what I am trying to explain to you is that we have made many
attempts in our market place to address some of this in front of the regulator
and, at every turn, it gets more difficult.
788
So you say what have we done?
Well, you know, it took us several attempts to get approval of our
bundled local service and features.
789
It did get approved but a long history in terms of the duration ‑‑
it wasn't ten days, let me tell you.
I am not sure it was even ten months. The point is, is that ‑‑ that you
are saying we have done nothing. I
think if you look at the record, you will see that we have tried many
things.
790
The discouragement of price reductions has been pretty incredible over
the last three years.
791
As I say, I can take you through a number of tariff situations. Our discussions with the Commission,
until the decision on floor prices, the Commission was of the mind that we could
not reduce prices during the price cap period.
792
COMMISSIONER LANGFORD: I am
afraid you would have to point to some paper on that. I think that was a misconception in the
industry. But I don't think the
Commission ever said anything like that.
793
MR. STEPHEN: Very much from
within the Commission.
794
MR. CAMPBELL: Can we be
clear, though, Mr. Commissioner ‑‑
795
COMMISSIONER LANGFORD: Well,
it would be very interesting to know where you are getting your
information.
796
MR. CAMPBELL: We are not
submitting that forbearance should be granted because we are
hurting.
797
The test has nothing to do with whether or not we are hurting. The test specified in the legislation is
whether or not there is sufficient competition to protect the interests of
customers. And you prescribed a
test ‑‑ or your predecessors perhaps prescribed the test in Decision
94‑19.
798
We, I think, have demonstrated that test that has been prescribed is
met. On any reasonable analysis of
the evidence and any reasonable standard, including some of the unreasonable
standards that have been proposed here, it is clear that forbearance isn't
justified in these 32 exchanges.
799
It is not a question of whether we are hurting or whether EastLink is
hurting. It is ‑‑ the focus
should be on the customers.
800
COMMISSIONER LANGFORD: My
question wasn't on pain levels. It
was on reactive or proactive strategies.
801
Le me give you another example where I see a ‑‑ what I have heard
this morning ‑‑ something of what I think is a total misconception
here.
802
Miss Tulk, you sort of took us on this kind of buying of the blouse
expedition a little earlier. If I
understood what you said correctly ‑‑ and I am pretty sure I did because I
wrote it down ‑‑ you saw winback as comparable to preventing you from going
to a first store, buying a blouse and then finding a better deal in a store down
the mall and not being able to take the blouse back for three
months.
803
But that is not the comparable at all. I mean, to find the situation comparable
to that scenario, really, it would have to ‑‑ you would have to have the
owner of the first store following you from store to store and offering to beat
or match any other blouse offer you got.
804
And in telecom that is not what happens. I mean, the subscriber can decide to
return to an ILEC. That is
okay.
805
And the ILEC, you folks, can put adds in the paper, as long as the prices
apply generally, to try and win back all the subscribers you
want.
806
All you can't do is focus in on that one subscriber and focus and funnel
all you marketing power and energies on that one person.
807
So, you know, you talk of winback, it seems to me, in the terms of this
poor woman trying to get her blouse deal and return her blouse, but it simply
isn't like that. And I just wonder
whether you haven't exaggerated.
808
That is what I am hearing here today.
809
MS TULK:
Well ‑‑
810
COMMISSIONER LANGFORD: A
huge exaggeration of the few regulatory hurdles you have to get
over.
811
MS TULK: I can give you, you
know, another example, which would be, if you go to put money into a financial
institution and you request to have a transfer from your existing financial
institution. The winback
restriction would be anomalous to your current financial manager not being able
to call you and talk about that choice and try and change your
mind.
812
But I think, getting back to ‑‑
813
COMMISSIONER LANGFORD: Well,
if I may, excuse me ‑‑
814
MS TULK: Getting back to the
point ‑‑
815
COMMISSIONER LANGFORD:
Excuse me. I rarely
interrupt, but ‑‑
816
COMMISSIONER LANGFORD: ‑‑ since we are on this point ‑‑ I do
go on, but I rarely interrupt.
‑‑‑ Laughter /
Rires
817
COMMISSIONER LANGFORD: I
don't think that is the same at all because trying to stop the Royal Bank from
taking a customer back from the CIBC, I would agree. You know, these are equal
competitors.
818
But the winback is ‑‑ you know, as you know, is trying to nurture
new entrants and give them a chance to build a customer
base.
819
Every customer a new entrant gets must be wrestled
away.
820
MS TULK: So what about
the ‑‑
821
COMMISSIONER LANGFORD: Its
"New Entrant Agonistes", if I may borrow from Milton, must be wrestled
away.
822
MS TULK: What about the
Eastern Edge Credit Union?
823
COMMISSIONER LANGFORD:
Pardon me?
824
MS TULK: What about the
Eastern Edge Credit Union? What
about if it is a credit union I am trying to move my money away from the Royal
Bank from?
825
Should the Royal Bank then not be able to contact me about that because
the credit union is smaller than the Royal Bank?
826
COMMISSIONER LANGFORD: No,
because we ‑‑
827
MS TULK: And keep in mind
this particular ‑‑
828
COMMISSIONER LANGFORD: ‑‑ don't have Royal Banks to take you on,
you see. We don't have anything
comparable over the national situation.
829
MS TULK: Yes. So in this ‑‑
830
COMMISSIONER LANGFORD: You
have a particular situation in 32 exchanges but nationally that is not
duplicated anywhere that anyone can see yet.
831
MS TULK: Which is why we are
proposing that the forbearance test be kept local where you can look at that
situation.
832
In these 32 exchanges, this competitor has the same ‑‑ very
comparable revenues out of consumer homes than we do.
833
And this competitor is not at harm. There has been no evidence that the
competitor will be harmed by any forbearance decision.
834
And with, you know, due respect ‑‑
835
COMMISSIONER LANGFORD: Well,
there can't be any evidence until we make the decision, can
there?
836
MS TULK: Well there has been
no suggestion that that will be the case.
837
And to the point, I mean, I could sit here for quite a long time and take
you through as I do with my boss on a regular basis what our department does to
try and earn our customers' business and how we are proactively marketing the
customers and what our business plan is.
838
And I think I could definitely prove to you that within the regulatory
regime we are doing everything possible.
And I said in my remarks that we are absolutely committed to earning
customers business, and we will continue to be so.
839
The question and issue of the day is, is forbearance warranted here under
the Act? We have proven that it
is. By any reasonable test it
is. And under the Act, the duty is
to forbear when those tests are made.
840
And so, it is not a matter of whether you think I am doing a good job at
marketing in Atlantic Canada or not, it is about whether or not forbearance is
warranted under the Act here.
841
COMMISSIONER LANGFORD: And I
would say ‑‑
842
MS TULK: And we believe we
have met that test.
843
COMMISSIONER LANGFORD: I
would say you have submitted that it is.
844
But whether you proved you have, well ‑‑
845
MS TULK: Well, I guess that
is what ‑‑
846
COMMISSIONER LANGFORD: We
will be closer to knowing Friday ‑‑
847
MS TULK: That is what this
proceeding is about. That was
our ‑‑
848
COMMISSIONER LANGFORD: ‑‑ and even closer in the fullness of
time.
849
MS TULK: I mean, our belief
coming into the room that this proceeding was about the collective group of you
looking at all the evidence and making that ‑‑ and ascertaining whether or
not it has been proven.
850
I didn't expect that the meeting was about, am I going a good job at
marketing?
851
COMMISSIONER LANGFORD: Well,
I think that is part of it because, I mean, the sense of urgency that I am
hearing from your table today strikes me as somewhat unwarranted. And that is really the point I am
making.
852
There you are. We will agree
to disagree on that.
853
Those are my questions, Mr.Chairman.
854
THE CHAIRPERSON: Thank
you.
855
We will break now and resume at 2:15.
856
Nous reprendrons à 14 h 30.
‑‑‑ Upon
recessing at 1315 / Suspension à 1315
‑‑‑ Upon
resuming at 1415 / Reprise à 1415
857
THE CHAIRPERSON: Order,
please. À l'ordre, s'il vous
plaît.
858
Welcome back. I hope you
have had a chance to exchange any merchandise you may have purchased in the last
few days.
‑‑‑ Laughter /
Rires
859
THE CHAIRPERSON:
Commissioner Cram.
860
COMMISSIONER CRAM: Thank
you, Mr. Chair.
861
I was looking at your attachment and it is the one of Nova Scotia with
the LIRs bands and EastLink Telephony.
862
By the way, I didn't want to let this moment pass without commending
Aliant on their near‑gender equity of their panel and the excellence of that
panel.
‑‑‑ Laughter /
Rires
863
MS TULK: Well, it is duly
noted on our side the gender balance on the Commission as well, which is very
good to see.
864
COMMISSIONER CRAM: Thank
you.
865
MS TULK: Which is not
reflected in the back half of the room, I do note.
‑‑‑ Laughter /
Rires
866
COMMISSIONER CRAM: I did
notice that.
867
MS TULK:
Yes.
868
COMMISSIONER CRAM: However,
it is a lot easier in the washrooms, isn't it?
‑‑‑ Laughter /
Rires
869
COMMISSIONER CRAM: If we can
go the Nova Scotia LIRs bands EastLink Telephony, and I notice that you are
asking for forbearance from F bands.
Are those in high‑cost areas?
870
MR. STEPHEN: Exactly
what they are.
Yes.
871
COMMISSIONER CRAM: So they
are high‑cost areas.
872
Yes it is the colour ‑‑ well, I cannot tell you ‑‑ yes. They are high‑cost serving
areas.
873
MR. STEPHEN:
Correct.
874
COMMISSIONER CRAM: And so
right now you are getting a subsidy from the fund and I would take it that
EastLink is also getting a subsidy for its subs.
875
MR. STEPHEN: I can only
assume that they go through and receive that.
876
COMMISSIONER CRAM: Because
your numbers go down.
877
MR. STEPHEN:
Yes.
878
COMMISSIONER CRAM: So what
can you hope to gain in these high‑cost serving areas? Because I guess I can't see us being
likely to ‑‑ I mean, you would be reducing your prices even lower than
cost? Because it is under ‑‑
these prices are under cost already.
879
MS TULK: Well, I think it
gets back to some of the things throughout our submission we try to be clear on
and that is that forbearance is not specifically about pricing. Forbearance is about the ability for
customers to have an unfettered choice in the marketplace.
880
So it is not a necessary chain of logic that forbearance directly leads
to cost reduction. Forbearance
leads to a better ability for the market to operate in a competitive manner and
for customers to choose and presumably we need to be able, anywhere, to be able
to compete on a basis at a price point that a customer is willing to pay and at
a basis in which as a business company that we can manage our costs and be
profitable and provide profitable returns for our
shareholders.
881
And so we would continue to do that, just like we do in all the other
markets, high‑speed, wireless, long distance, et cetera, so we don't see the
direct link between high‑cost serving areas and the need for
forbearance.
882
The link on the need for forbearance is the market competitive and has it
passed the ‑‑
883
COMMISSIONER CRAM: And
giving you the flexibility to do win backs and ‑‑
884
MS TULK: And promotions, et
cetera.
885
COMMISSIONER CRAM:
Yes.
886
MS TULK: And has that market
passed the forbearance test and I guess it is indicative of our commitment to
customers throughout our region that we are not seeking forbearance on specific
exchanges, the ones we like, so to speak, among the ones that qualify versus all
the ones that qualified.
887
Our application in 2004 consisted of all exchanges, then what we proposed
was a reasonable forbearance test at that time.
888
COMMISSIONER CRAM: Now,
there is some band E. Is band E
high cost also or ...
889
MR. STEPHEN: That is
correct. It would
be.
890
COMMISSIONER CRAM:
Okay. So the same would
apply to it.
891
I wanted to sort of get an idea of the number of exchanges. How many exchanges are there in Aliant
territory?
892
UNIDENTIFIED SPEAKER: All
four provinces?
893
COMMISSIONER CRAM: Yes, all
four provinces.
894
You can tell me later.
895
MS TULK: It is about
400. We can get you the exact
number.
896
COMMISSIONER CRAM: All
right.
897
MS TULK: But it is in that
range.
898
COMMISSIONER CRAM: And
Halifax has, I don't know how many, band A. How many band A do you have across all
of Aliant territory?
899
MR. STEPHEN: Just the
one band A.
900
COMMISSIONER CRAM: So you
could presumably, then, right now apply to lower those prices in band A
without ‑‑ I mean, you would take away from the deferral fund, but you
would have always been free to reduce those prices, then, in
Halifax.
901
MR. STEPHEN: Band A is
the Halifax area, that's correct, and as a band we could reduce prices there and
not be concerned about de‑averaging.
902
COMMISSIONER CRAM:
Yes.
903
MR. STEPHEN: If that is
what you are asking about.
904
COMMISSIONER CRAM: And you
wouldn't have suffered any ill effects of having to do it all across the band,
because this is your only band A.
905
MR. STEPHEN: That would
be correct.
906
COMMISSIONER CRAM:
Okay. Now, I see that
Charlottetown is band B. How many
band Bs are there across Aliant territory?
907
MR. STEPHEN: There
would be numerous band Bs in each province. They would be St. John, Fredericton,
Moncton, St. John's, Newfoundland, for example. So there typically would be the other
cities.
908
COMMISSIONER CRAM:
Okay. Could you tell me
later, just give me a breakdown of the ‑‑ I don't know how many band Bs
there are in Charlottetown and then also give me the total number of band Bs in
your territory.
909
MS TULK: How many band
Bs? You mean customers or how
many ‑‑
910
COMMISSIONER CRAM: How many
band B exchanges.
911
MS TULK: Oh, how many band B
exchanges.
Okay.
912
COMMISSIONER CRAM:
Yes.
913
MS TULK: Okay. We'll get you
that.
914
COMMISSIONER CRAM: And how
many exchanges there are in Charlottetown band B also.
915
MS TULK:
Yes.
916
COMMISSIONER CRAM: And I
wanted to sort of get into what you said I think in your final argument about
exchanges in different parts of the country are different
sizes.
917
Do you know the average population range in each of your exchanges or
could you find it out, Ms Tulk?
918
MS TULK: Yes, we can
certainly find it out. I don't have
it right here. I don't know if you
do.
919
No, certainly we can estimate that.
920
COMMISSIONER CRAM:
Yes.
921
MS TULK: We don't track
specifically population, but we can certainly do a very good estimate of that,
yes.
922
COMMISSIONER CRAM:
Yes.
923
MS TULK: And we could supply
that.
924
COMMISSIONER CRAM: And if I
understand your test, it is really that you lose five percent of customers; is
that correct? Not households, but
customers.
925
MR. STEPHEN: It will be
number of lines lost.
926
COMMISSIONER CRAM:
Okay. And I have already
heard you say, Ms Tulk, that ILEC wireless, Aliant wireless, whatever that share
is would also be a subtraction from ‑‑ that it would not be attributed to
your side of the ledger, it would be attributed to the competitive side of the
ledger.
927
MS TULK: So we believe that
that would be appropriate in the inclusion of wireless in a future forbearance
test. Specific to the 32 exchanges
and the numbers we have supplied, we haven't included any wireless components in
that. These are purely us and the
other facilities‑based competitor, the share numbers that are reflected
there.
928
But our proposal would be in including wireless in a forbearance test the
relevant test is has a customer chosen wireless and if you accept that the
wireless market is in and of itself competitive, it would govern the protection
of customers in that side of the market.
929
COMMISSIONER CRAM: So, in
other words, for this test Aliant wireless does not count as Aliant ‑‑ as
an Aliant customer.
930
MS TULK: Right. They count as ‑‑ and again, it is
not Aliant wireless subscribers. We
propose wireless‑only households.
931
COMMISSIONER CRAM:
Yes.
932
MS TULK: So in that case it
would be households that are not choosing a landline‑based voice
service.
933
COMMISSIONER CRAM: And
wireless substituted.
934
MS TULK: So it is total
wireless‑only households.
935
COMMISSIONER CRAM: And I
note what you are saying here today and I note that you said something different
last year and are saying something different to another
forum.
936
Where would your VoIP, if you had a VoIP product, where would it
stand? Would it be part of that
would make up the 95 percent that you would have or would it be also making up
part of the 5 percent or more?
937
MR. STEPHEN: Any lines
lost to VoIP we would consider to be part of the lost lines, so that as
customers adopt VoIP, just as they would wireless or just as they would take
service from another CLEC, we want count that as a
lost ‑‑
938
COMMISSIONER CRAM: As a
loss?
939
MR. STEPHEN:
Yes.
940
MS TULK: Yes. I think the reason ‑‑ and I guess
you bring up a good point ‑‑ that our position seems
inconsistent ‑‑
941
COMMISSIONER CRAM: I was
going to ask ‑‑
942
MS TULK: Yes. If I could just explain that, we
believe, as we have put in front of you in the past, that the VoIP market should
not be subject to wireline regulation and the same
regulation.
943
Now, obviously this proceeding today isn't about debating the ruling on
that.
944
So if you assume that the VoIP market is competitive and open to
competition, then in that case it would be reasonable, as we have said with
wireless, that once someone disconnects from wireline, if you assume VoIP is a
substitute for wireline, then when someone leaves wireline, you would not
include them in our numbers.
945
If, however, we apply the thinking that the Commission has put forward,
that VoIP is a like‑to‑like service and really is ‑‑ that it is just a
technology difference and we are still providing local voice service in that
basis, then under that lens you would include it as an Aliant subscriber and not
have it in the 5 percent forbearance test.
946
So, I mean, that's what causes the vacillation, so the theory behind our
argument has been the same, which is customers leaving wireline, if they are
moving to another competitive market, i.e. wireless, then it doesn't matter
whether they are buying that from Aliant or not, they have left the market and a
competitive market will dictate them.
947
If you take the stance, as has been put forward in the Commission's
decision, which we have since subsequently tried to reflect in our thinking,
that it is still like‑to‑like wireline per se subscriber of Aliant, then you
would not include it in the five percent test and it will be counted as an
Aliant subscriber as part of the forbearance test.
948
COMMISSIONER CRAM: So what
is your position today?
949
MR. STEPHEN: Our view
is that we would treat that VoIP lost line as coming out of the ‑‑ as a
lost line. So if a customer goes to
VoIP, then ‑‑
950
COMMISSIONER CRAM: That's a
loss of share for you.
951
MR. STEPHEN:
Yes.
952
COMMISSIONER CRAM: And in a
way, though, you could engender that, couldn't you? I mean, say the competition was cooking
along at 3, 3.5 percent, if you pushed your VoIP, lowered the prices, you could
get over the 5 percent if you ‑‑
953
MR. STEPHEN: Well, I
think that's more than hypothetical because we do not even have such a service,
so, I mean, it is ‑‑ I respect where you are going with
this.
954
COMMISSIONER CRAM: Yes. I'm not personally talking about
you. I am talking about anybody
else in the market.
955
MS TULK: But presumably,
yes. And I guess that to do that
the ability to do that would, of course, depend on whether VoIP pricing itself
is subject to regulation.
956
COMMISSIONER CRAM: Which it
is, as we speak.
957
MS TULK: Exactly, yes. So given that it is, we would not have
the ability to engender that in that way that you are speaking of, so we would
not be able to force that migration.
958
COMMISSIONER CRAM: Yes. And I was wondering also why you
suggested that the competitor Q of S should not ‑‑ should be gone along
with forbearance? I am asking that
because it seems to me if I take your position that the competitor in the market
doesn't necessarily have to be facilities‑based, it could be a reseller and thus
quite dependent upon Aliant for loops and everything else, and yet you say that
you should not be bound by your competitor Q of S.
959
MR. STEPHEN: I am
sorry, could you refer to me where that you are ‑‑
960
COMMISSIONER CRAM: It was in
your initial argument, it was in the ‑‑ you know, at the end where you are
talking about what sections of the Act we should we should and should not
keep.
961
UNIDENTIFIED SPEAKER: They
said the same thing in the final argument.
962
COMMISSIONER CRAM:
Pardon?
963
UNIDENTIFIED SPEAKER: I
think they said in the final argument as well.
964
COMMISSIONER CRAM: You
didn't say that?
965
MR. STEPHEN: Well, I
don't think so. That
is ‑‑
966
MS TULK: We are trying to
find it.
967
MR. STEPHEN: That's why
I want to understand the context under which ...
968
COMMISSIONER CRAM:
Okay.
969
MR. CAMPBELL:
Commissioner Cram, the position we have tried to take was that competitor
services are not within the scope of the proceeding at all, so we were not
seeking any changes with respect to competitor services. If we have not excluded them in some
sentence, it is by accident.
970
COMMISSIONER CRAM: So even
if you did say it, you do not mean it any more.
971
MR. CAMPBELL: If we
said it we do not mean it.
972
COMMISSIONER CRAM:
Okay.
973
THE CHAIRPERSON: I think we
are looking at page 32 of 49 of your opening submission, initial submission,
where you make the point that as a result of competitive services not being
within the scope of this proceeding, as a result the issue is removing the
Commission‑mandated quality of service standards for competitive services would
also appear to be outside the scope of this proceeding.
974
MR. CAMPBELL:
Yes.
975
THE CHAIRPERSON: So that's
your point.
976
MR. CAMPBELL: That's
...
977
COMMISSIONER CRAM:
Okay. Thank you. Those are all my
questions.
978
Thank you, Mr. Chair.
979
THE CHAIRPERSON: Thank
you. Commissioner del
Val?
980
COMMISSIONER del VAL: Ms
Sanderson I am just going to paragraph 43 of the oral presentation and I am
wondering whether you could please elaborate on the administrative difficulties
in using the competitor's footprint as the geographic
market.
981
MS. SANDERSON: I would be
happy to.
982
So I think one of the ... it is conceptually very appealing to use the
overlap between the ILEC and the competitor's footprint, the cable footprint,
because if you take that approach you will be ‑‑ from a conceptual point of
view you will most certainly be dealing with, say, a common set of competitive
or supply alternatives, because if you have overlap within that overlapping area
you have two facilities‑based providers as opposed to another area where you do
not have the cable footprint crossing, you just have, say,
Aliant.
983
So in that sense it is a ‑‑ it is a good test on sort of an
economics grounds to be getting at the common competitive
conditions.
984
Now, what you have to do, of course, is you ultimately have to overlay
the two networks so when you take the ‑‑ I guess it is not ‑‑ there is
two parts to this.
985
In some respects, because the ILEC's offering has to be overlaid onto the
cable footprint, you are going to end up dealing with exchanges in that context,
because you are going to basically take ‑‑ no matter which direction you
start, if you start with the cable footprint you are going to have to then map
the ILEC infrastructure on top of that to see what the extent of the overlap
is.
986
Now, at the end of the day you are going to be ‑‑ if you choose to
forbear, the ILEC at its end is going to have to administer areas that are
forborne and areas that are not forborne.
987
Now, I make that assumption on the basis that it is unlikely that you
will find, certainly in this proceeding, it is certainly not been claimed that
Aliant has sufficient competition across its service territory to forbear. There is sufficient competition in 32
exchanges to forbear in those 32.
988
So when Aliant is then going to be administering this mixed regime,
because it is the body that will then have to know do those ‑‑ do these
bundling rules apply, do these promotion rules apply and so on, it is going to
have to know, according to its infrastructure where that customer
is.
989
It does that, and Aliant can explain in an operational sense how it does
that, but it basically does that at the exchange level.
990
And that is sort of operationally what brings you back to the exchange,
if you are thinking about the ILEC's infrastructure.
991
Now, it is certainly not the case that the cable company is thinking
about its world in the context of exchanges, but that doesn't actually matter
here.
992
What the Commission will need, the Commission will need a map of the
cable footprint and it will need a map that, you know, has the contours of the
Province of Nova Scotia to be the same that it can stick the map of the ILEC's
exchanges on top of that and then it can look for the extent of the
overlap.
993
The nice thing with the exchange is that, at least with these 32
exchanges, they are small enough that where EastLink is present in that exchange
it has got a very expansive or extensive network, and so you can imagine that
there will be problems with exchanges that are half in and half out of the cable
footprint and that is where the complication essentially will arise as you look
to the contours of this overlap.
994
If you are in a situation where most of the exchange is in the cable
footprint and you are satisfied that there is sufficient competition in
that ‑‑ as a result of the criteria you are going to look at, then you will
be comfortable forbearing for that exchange.
995
And then there will be more difficult circumstances where you are
essentially trying to decide is the exchange in or out.
996
The issue at Aliant's end is let's say you take the example of an
exchange that is half in the cable footprint and half out of the cable
footprint, that would not be any of the 32 that we are discussing here, because
we have looked into that, but if you had that situation for a future hearing, it
is my understanding and I will let Aliant elaborate, that they are not actually
going to be able to then say ‑‑ they are going to have to either treat the
people in that exchange as forborne or not. They are going to have great difficulty,
because of their billing systems, to change ‑‑ they could presumably make
substantial investments to do this, if they needed to ‑‑ but to change how
they deal with that customer to then know that that customer is in the half of
the exchange that is forborne or the half that is not.
997
COMMISSIONER del VAL:
Okay. Thank you. The next question is for Ms
Tulk.
998
In your discussion with Commissioner Duncan regarding the win backs as a
competitive, not consumer, competitive safeguard, you were drawing the
distinction between a win and a win back.
999
I was just wondering whether you were thinking that the win back rules
would tie your hands in trying to get a win situation.
1000
MS TULK: Well, no, that
wasn't what I was trying to say, so I guess I was trying to say that the counted
customers coming to us from the competitor are not necessarily all win
backs. In some cases they are first
time wins, but I wasn't putting that ...
1001
COMMISSIONER del VAL: Thank
you. Just my last question is why
do you think the kind of competition that we see in Aliant's territory is not
happening in the rest of the country, in other ILECs' territories? What is it that Aliant is doing, what is
it that EastLink is doing and what is it that the consumer is doing so that we
do not see that kind of competition in the rest of the
country?
1002
MS TULK: Yes. It is an interesting question and
certainly for me it is an interesting question even within my
territory.
1003
So why is it that what we are seeing in Nova Scotia and PEI is happening
fundamentally so differently than what we are seeing ‑‑ and has certainly
been. It is starting to change and
there is certainly indications that it is changing, but so much different than
what we have seen in New Brunswick and Newfoundland.
1004
So when you look at, you know, what Aliant is doing, fundamentally, if
anything, we have been the most proactive inside Nova Scotia and PEI, because of
the competitive entrant, so there is ‑‑ certainly, though, across the rest
of is it there is nothing fundamentally different between the way that we are
operating in New Brunswick and Newfoundland versus Nova Scotia and PEI, that
should make competitive entry any more likely in Nova Scotia and
PEI.
1005
From a customer perspective, certainly, you know, there are many
differences within our customer base, but they are not based on whether you are
a Nova Scotia consumer or a Newfoundland consumer. They are based on other characteristics
of the consumer group and, in fact, our segmentation tends to find similar
customers across all the four provinces and the heterogeneity actually happens,
you know, within the province, so that is not the
difference.
1006
So that really leads you back to the business decisions of our
competitors and I guess it's not really ‑‑ it would be an interesting
question to ask some of the other competitors, why they have not been as quick
to enter as EastLink has been or presumably to ask EastLink why they have been
so quick.
1007
Obviously we do not have access, EastLink not being a publicly‑traded
company, we have no information about their financial success, but presumably
the fact that they have sustained this competition, that they continue to expand
and grow, would tell you that if they are being rational business people, that
they must be seeing some financial success, so really it is a question you would
have to ask them.
1008
But from our perspective and the perspective of our customers ‑‑ and
I think that has come up in a number of previous discussions and through a
number of pieces of this ‑‑ and again, speaking to the importance of being
able, and the economic rationale that has been presented to you, of being able
to look at forbearance at the smallest relevant market, because otherwise you
would be holding the ILECs accountable for decisions they don't control and, in
fact, restricting the ability of the ILECs to compete based on decisions that we
cannot be expected to control.
1009
I cannot be expected to control why the business decisions for Rogers are
different than they are for Eastlink or why the business decisions of why
certain competitors have entered the business market in Halifax but not St.
John's or why they are in St. John's and not Moncton.
1010
That is not a decision that we make but the fact is once they choose to
enter, once they build a business, once they start winning customers, then the
customers need to be able to benefit there and they shouldn't be held back from
seeing the benefit of competition because the provider who happens to be the
ILEC in their territory happens to also serve other territories and it is why
the relevant geographic market must be kept small so that it is relevant to the
customer so that the customer can benefit.
1011
THE CHAIRPERSON: Thank you
very much. Those are all our
questions. Your answers have been
very clear and responsive. Thank
you.
1012
Madam Secretary.
1013
LA SECRÉTAIRE : Merci, monsieur le président.
1014
I will now call on The Companies.
‑‑‑
Pause
PRÉSENTATION /
PRESENTATION
1015
M. BIBIC : Bonjour, Monsieur le Président, conseillers. Je suis Mirko Bibic et je suis Chef des
Affaires réglementaires de Bell Canada.
1016
Je suis accompagné, aujourd'hui, à ma gauche de Steven Bickley, Premier
vice‑président, Marketing intégré; à sa gauche, on retrouve Bob Farmer, aussi de
Bell Canada, que certains parmi vous connaissez sûrement très bien; et à ma
droite, Henry Ergas, Chef de CRA International, Région
Asie‑Pacifique.
1017
Dans la courte période qui nous est attribuée aujourd'hui, nous
traiterons du milieu concurrentiel dans lequel nous évoluons et de l'urgente
nécessité d'établir un cadre de réglementation approprié à l'abstention de
réglementer les services locaux, un cadre aux critères
clairs.
1018
Mes propos porteront en particulier sur les changements qui ont marqué
notre environnement.
1019
Steven vous parlera des conséquences de la présente instance sur les
consommateurs canadiens.
1020
Commissioners, as I was preparing in the last couple of days to appear
here today, I spent some time thinking back to a year ago, just about now, when
we appeared before you in the context ‑‑ or some of you, in the context of
the Voice‑over IP public consultation, just to take stock of what we learned
there and especially what has transpired in the past year.
1021
I remember ‑‑ I remember because I pulled our opening remarks from a
year ago ‑‑ I remember appearing here and my colleague mentioning
that ‑‑ at the time, he said:
"This is not telecom as usual."
1022
And at the time, we said:
"Competition is here today."
1023
And then what happened?
1024
Well, party after party followed us a year ago and some in particular,
cablecos, urged the Commission not to be swayed by the ILEC hype, they called
it, and apparently, in the past, the allegation is that Bell Canada has made
some pretty grand predictions that have never come true.
1025
I pulled, in the context of this proceeding, one of the cablecos replies,
the one that was filed September 15th, and I read in there an accusation that
Bell Canada was crying wolf again by claiming that competition is around the
corner.
1026
None of those responses personally surprise me and I don't think those
responses should surprise any of us.
It serves the competitors' interest to deny the existence of market
conditions that would trigger forbearance from regulation. Regulation, of course, shields them from
market forces. Their rhetoric is
thus designed to distract us from the facts.
1027
So what are the facts?
1028
A year ago, Bell Canada predicted, and I quote:
"The cablecos are strongly positioned to deliver on the true promise of
VoIP."
1029
And today, the four largest Canadian cablecos are offering digital
telephony and they are succeeding.
Eastlink, of course, has been succeeding since
1999.
1030
A year ago, there were predictions that competition would come from every
direction, from big players and from small players, and today, we are witnessing
eBay jumping into the telephony market by purchasing
Skype.
1031
In fact, some of the most successful corporations in the new global
economy, Google, Yahoo, Microsoft, AOL, they all intend to offer the same and
let us not forget that when they enter Canada, they will be joining more than 50
Voice‑over IP service providers offering service to all of us today. Last year, there were 25 and that was a
lot. A year later, there are
50.
1032
Last year, we questioned whether VoIP competitors really needed a
regulatory leg up on the established telcos, and less than two weeks ago ‑‑
I had a copy of the magazine here ‑‑ less than two weeks ago, I picked up a
copy of "The Economist" and there is a story in here titled "How the internet
killed the phone business," and permit me to quote one passage from
it:
"The rise of Skype and other VoIP services means nothing less than the
death of the traditional telephone business established over a century ago. Skype is merely the most visible
manifestation of a dramatic shift in the telecom industry as voice calling
becomes just another data service delivered via high‑speed internet
connections." (As
read)
1033
So many of the predictions that were made in the past year have proven to
be accurate and I am quite comfortable sitting here today and asserting that, in
fact, I think Bell underestimated the force and speed of
change.
1034
Looking ahead, no one, absolutely no one, is predicting anything other
than escalating competition.
1035
So we ask again here today, a year later, does anyone really need a
regulatory leg up on the telcos?
The answer is no.
1036
The facts on the record of this proceeding show that competition is not
just around the corner, it is here today, and customers, commissioners, are
prepared for it.
1037
A study by Decima Research last month found that Canadians overwhelmingly
support policies and regulations that treat incumbents and entrants the
same. That is because such policies
and regulations would give them greater choice.
1038
Bell Canada is prepared for competition too. We experience it every day. We think and act like a competitor, not
out of principle but because we wish to survive and we wish to thrive. Everything we do is viewed through a
competitive lens. Everything we do
is focused on building broad and deep relationships with our
customers.
1039
Finally, our competitors.
Despite what they will tell you, they are prepared for competition. They are not infant companies. They are already making major inroads in
major markets across the country and they are cashing in on the IP revolution
that has blown the communications industry wide open.
1040
Customers are prepared for competition. Bell Canada is prepared. Our competitors are prepared. I submit then that the only issue is
whether or not the regulatory framework is prepared.
1041
The regulatory framework has to start with an assessment of
competition.
1042
Let me take a moment to flesh out our view of competition and how it
differs from our competitors.
1043
The cable companies view it as a regulated market in which one set of
competitors get a regulatory advantage over another set. This advantage, they say, is needed to
give them time and room to grow.
1044
They hold this position despite the fact that, in the case of the
cablecos, they are multibillion dollar enterprises with millions of customer
relationships, despite the fact that there remain no barriers to market and
wholesale regulation remains, despite the fact that their networks and
penetration into those millions of Canadian homes gives them a distinct
technological and marketing advantage when bundling telephony with other
services, despite the fact that even Ted Rogers admits that he is far from an
underdog.
1045
In his own words, and I quote:
"How has it happened that cable guys have come the old Bell guys and the
Bell guys have given up the advantage that they have had?" (As read)
1046
Despite all that, these communications giants equate sustainable
competition with regulated competition.
1047
But Ted Rogers had it right, the tables have turned and indeed the old
Bell guys see the world very differently today. It is because we have no
choice.
1048
We see competition first and foremost as a process of experimentation and
discovery, and for the competitive process to work, competitors must be free to
experiment so that they can continuously improve their products and
services.
1049
With today's regulatory regime, our competitors do have that complete
flexibility. We do not. This doesn't sustain competition, it
distorts it and it deprives customers in the process.
1050
Another key difference between Bell and our competitors is that we do not
believe in just‑in‑case regulation.
That is because regulation bears a cost to the consumer, which Steve will
explain further in a moment.
1051
Our competitors say they want regulation just in case an ILEC somehow,
someplace, somewhere, someday, might engage in predatory
pricing.
1052
Yet, the Competition Bureau, on the record of this proceeding, says the
following, and I quote:
"A particular concern of the CCTA is the possibility of predatory pricing
by the ILECs if forbearance is granted prematurely. In the Bureau's view, the CCTA has not
established the validity of their concerns." (As read)
1053
Those are powerful words.
1054
Our competitors want regulation just in case they don't succeed but the
facts say otherwise. They are
already acquiring customers rapidly and are poised to make further inroads using
new technologies.
1055
Our competitors want continued regulation now just in case an ILEC might
regain significant market power, this despite the fact, as we heard from Heather
Tulk this morning, that no previously forborne market has been
re‑monopolized.
1056
Our competitors' views are all the more extraordinary given that what is
at issue is not the complete and immediate removal of all regulation, what is at
issue is a framework for removal of economic retail regulation in competitive
local exchange markets. Wholesale
regulation, social regulation and technical regulation are not at issue
here.
1057
A decision to regulate must be based on the evidence, not on unwarranted
and unsubstantiated fears, and a decision to continue to regulate must follow a
proper analytical framework. We
need to put an end now to just‑in‑case regulation.
1058
So let us examine the basis for regulation.
1059
A proper analytical framework requires the right product and right
geographic market definitions. Only
then can one undertake a valid assessment of the state of
competition.
1060
Let us start with the geographic market.
1061
Some would have you believe that the purpose of defining a geographic
market is to minimize the potential for differential
pricing.
1062
This is wrong. It is no way
to define markets and the Competition Bureau has pointed this out. Those who advocate this view simply want
the broadest market definition because it suits their agenda of preserving
regulation that is long, deep and broad.
1063
We also emphasize that once a geographic market has been defined, any
forbearance analysis should not be based on market share
alone.
1064
Public Notice 2005‑2, the very PN that launched this proceeding, confirms
this proposition. It says, and I
quote from that PN:
"High market share is a necessary but not sufficient condition for market
power. Other factors must be
present to enable a firm with market power to act
anti‑competitively."
1065
(As read)
1066
In short, commissioners, we are simply asking the Commission to follow
Telecom Decision 94‑19. This means
considering markets separately.
1067
The state of competition in Toronto differs dramatically from the state
of competition in Chicoutimi and the CRTC should stop citing figures, for
example, like in its Monitoring Report, that say that nationally, ILECs have,
for example, 98 per cent market share.
That number tells us nothing about what is going on in Calgary versus
Toronto versus Montreal versus Halifax.
1068
In Decision 94‑19, the Commission adopted the fundamental economic
principle that a competitive market is one in which no single firm has the power
to profitably sustain prices that are significantly above competitive
levels. In such markets, the
Commission decided that forbearance from economic regulation of local exchange
services is required.
1069
Fundamentally, it is about high prices. It is not about low prices, it is not
about differential pricing, it is not about protecting competitors, it is about
high prices, and this economic principle, supporting forbearance, has been
endorsed by a multitude of economists who have filed evidence in this
proceeding, including Henry, Dr. McFetridge, Ms Sanderson, who you heard
from earlier, and Drs. Khan and Crandall.
1070
On this point, I would like to make a final remark.
1071
There is a very compelling piece of evidence on the record that I would
like to bring to your attention.
The cable companies have their own economic experts, of course, in the
form of Drs. Gillan and Ross, who filed the report, and the cable companies' own
experts, on the record of this proceeding, admit that they are not concerned
that prices would increase with forbearance. That is the evidence and it is on the
record.
1072
Steven.
1073
MR. BICKLEY: Thank you,
Mirko.
1074
I would like to focus on two issues, the impact of competition on Bell
and the cost of regulation to the customer.
1075
As Mirko said a few moments ago, everything we do at Bell is viewed
through a competitive lens. We have
no choice.
1076
We look at market leading incumbents, all household names, who falter in
the face of disruptive new technologies:
IBM when faced with the personal computer, Kodak when faced with digital
photography and K‑Mart when faced with the Wal‑Mart distribution system. These established brands were either too
slow or unable to respond to the tectonic shift that was going on in their
markets.
1077
Every day, we witness such a shift in the communications industry in
Canada. Our competition is
aggressively getting out their message of choice. Walk into your local shopping mall and
you will be able to walk out with competitive telephone service from Primus,
Telus or Vonage. Go to a Jays' game
in Toronto and you will hear about real choice from
Rogers.
1078
Telemarketers, direct mail, door‑to‑door salesmen are just some of the
marketing vehicles being employed by cable, VoIP, CLEC and wireless competitors
that woo customers.
1079
Last night as I was trying to relax before this proceeding, I turned on
the TV only to find a Primus ad on there and I will tell you it wasn't very
relaxing.
1080
So the question becomes:
What has been the customer response?
1081
Well, the customer response is they like choice. Videotron has stated that the interest
in cable telephony service has exceeded their expectations and customers are
flocking to their service.
1082
Bell does not have the luxury of standing still in the face of this
rivalrous competition and we are not.
1083
We have developed new products such as Bell Digital Voice to compete with
VoIP competition.
1084
We have provided competition training to our customer service
representatives so they can adapt to this new environment.
1085
We have revamped our customer intelligence gathering in order to better
assess our vulnerabilities in customer behaviour.
1086
We have completely re‑engineered our forecasting process to acknowledge
all competitive threats.
1087
Yes, competition has arrived.
Yet, the current regulatory framework constrains us from responding to
this competition.
1088
So now, let us turn to the cost of those constraints and how it harms
consumers.
1089
First, the most obvious example, the winback row. Put aside for the moment that this
regulation presumes customers are childlike, gullible, uninformed of their
choices, a presumption refuted not only by polling data but also by observation,
the simple observation that they make complex purchasing decisions every single
day.
1090
Depriving customers of choice is simply wrong. It removes the normal checks and
balances that competition brings.
By not allowing ILECs the opportunity to present a counter‑offer to a
customer who has left, there is no pressure on the CLEC to enhance their
offer.
1091
Let us take a recent example that involved customers who switched to a
competitor's service only to find their voice mail didn't work. It is a shame that these customers were
denied the opportunity to be contacted directly about a competitive
alternative.
1092
You see, choice holds companies accountable. In previous winback decisions, the
Commission stated that targeted winback activities increased customer churn and
that increased churn was likely to be especially detrimental to CLECs because
they don't have large, stable bases of customers capable of funding their
ongoing operations.
1093
I think we should look at the cable companies and realize that they do
have large bases of customers but a real point that I want to make here is that
customers are not the property of any company. Their business has to be earned each and
every day. The relationship cannot
be taken for granted but it must be sustained through hard
work.
1094
From a corporate perspective, changing companies is called churn. When a customer is doing it, it is
called choice.
1095
We cannot create choice by limiting choice. Our competitors, some large and
powerful, others small and aggressive, they don't need the winback rules that
restrict customer choice. The only
loser here is the customer.
1096
In the interest of time, let me briefly mention two other regulatory
costs for customers: the stifling
impact on marketing innovation as well as product
introduction.
1097
The bundling rules are a disincentive to creation or offering of bundles
that include both regulated and unregulated products. We cannot create these bundles without
subjecting the unregulated products to this onerous
regulation.
1098
Therefore, product bundles that have a single price point, like the
EastLink model, for escalating discounts like the Rogers model, have all been
rejected by Bell solely on the account of regulation.
1099
Bundles that would have a natural customer appeal like our Bell digital
voice with a broadband offering, again, because of the cost of regulation, not
brought to market.
1100
So let us turn to product introduction. In 2004, we launched a managed IP
telephony service. That product
would have been launched much sooner had it not been for the cost of
regulation.
1101
When new products, new service packages, new ideas are delayed or even
shelved because of the regulatory burden on the company, it harms innovation,
productivity, and the competitive process.
1102
In closing, let me touch on the issue of price discrimination, or more
accurately, differential pricing.
1103
Our competitors will claim that this is anti‑competitive, even though it
is the basis of all their offers.
In fact, differential pricing is a normal and healthy consequence of
competition.
1104
This is overwhelmingly supported by the evidence. You can look at whether somebody is
booking a hotel room, buying a car or new clothes, differential pricing is a
fact of life.
1105
It gives freedom and flexibility to the buyer. They can choose better deals or choose
convenience.
1106
It gives freedom and flexibility to the seller, who can tailor products
and services to meet their customers' needs and to respond to rapidly changing
market conditions.
1107
Our customers are the exact same ones who buy cars, clothing, hotel
rooms, and they want the exact same choice. They want the exact same control. They want the exact same
flexibility.
1108
And yes, they are willing to pay differential prices to get what they
want.
1109
In short, benefitting one customer will not harm another
customer.
1110
Mirko?
1111
M. BIBIC : Pardon.
1112
Conseiller, la concurrence est maintenant établie dans le marché des
circonscriptions locales.
1113
Nous constatons chaque jour la puissance de technologies perturbatrices
qui ont fait disparaître les notions traditionnelles relatives aux
communications téléphoniques et qui feront de même pour les entreprises qui ne
voudront pas ou ne pourront pas s'adapter.
1114
As Stephen said, you cannot create choice by limiting choice. It is time to allow competition to do
its job, and create a regulatory framework where the customer
rules.
1115
The evidence is in, and it is on the record. Now all we need is regulatory
certainty. We need a forbearance
framework based on the evidence and on firmly established economic
principles.
1116
These attributes of sound regulation are essential to all market
participants as we make our product development decisions, our expansion
decisions, and our pricing and marketing decisions. They are even more critical in a rapidly
changing environment.
1117
We ask the Commission to set the criteria for forbearance in local
exchange services in accordance with that evidence.
1118
Thank you.
1119
THE CHAIRPERSON: Thank you
very much, gentlemen.
1120
If we don't take you through questions on every aspect of your
presentation, your evidence, it is because they are clear to the
questioner.
1121
So I will be starting the questioning, and I will ask you questions to
make sure I understand what your position is. That is really the purpose of this
exercise.
1122
Just to start, on page 12 of your argument ‑‑ sorry, paragraph 12 of
your argument ‑‑ page four, you say,
"...as the company has pointed out in their
submissions" ‑‑
‑‑ and you
did. I even checked back for this
exact quote.
1123
You say:
"The Commission must apply the principles found in Telecom Decision
94‑19."
1124
Were you using "must" in a ‑‑ you weren't using that in a legal
sense? Were you using that in a "we
think you should" or what?
1125
MR. BIBIC: Mr. Chairman,
which ‑‑ are you talking about the June 22nd
submission?
1126
THE CHAIRPERSON: Your final
argument, 15th of September.
1127
MR. BIBIC: Fifteenth of
September.
1128
THE CHAIRPERSON: Paragraph
12.
1129
MR. BIBIC: Paragraph 12, was
it?
1130
THE CHAIRPERSON:
Yes.
1131
First line. You use the word
"must". "The Commission must apply
the principles..."
1132
And I am just ‑‑ I don't want to make too much of it. I just want to make sure. I am reading it as "you should" or "we
advise you to".
1133
MR. BIBIC: It is a
combination of both, I would say.
1134
The principles of 94‑19 are well established. They are used by other regulators. The Competition Bureau. They are supported by the economic
experts. And I think they flow
quite nicely from the statutory requirement in subsection 34(2) which does have
a "shall" in the "shall forbear if competitive market forces are sufficient to
protect the interests of users."
1135
So it is a combination of both.
1136
THE CHAIRPERSON: A
combination ‑‑ you are not saying it is a matter of law, that we have no
choice, we have to apply ‑‑
1137
MR. BIBIC: I would say it is
a matter of law under section 34(2) that the Commission forbear if it finds that
a market or a class or:
"...that a telecom services or a class of services provided by a Canadian
carrier is or will be subject to competition sufficient to protect the interests
of users."
1138
And Telecom Decision 94‑19, in terms of setting the forbearance criteria,
certainly an advisable framework to follow in order to meet the requirement
under 34(2).
1139
THE CHAIRPERSON: I
understand the link and the advisability.
And that is the sense in which you meant it?
1140
MR. BIBIC:
Correct.
1141
THE CHAIRPERSON: Thank
you.
1142
Okay. When you look at
94‑19 ‑‑ and we are familiar, I am sure, with the steps that were set
out ‑‑ the first step was, defining the relative market, generally the
definition of the relevant market.
1143
I can refer you to page 66 of that, but I am sure you are familiar with
it.
1144
MR. BIBIC: No, I have it
here. That is
fine.
1145
THE CHAIRPERSON: You have a
print version of it, but ‑‑
1146
Then there is the phrase:
"Indeed, once defined, the relevant market forms the basis of the entire
forbearance exercise, as well as any subsequent analysis examining alleged
anti‑competitive behaviour." (As
read)
1147
So do you see that the definition of the relevant market then provides
the boundaries service‑wise and geographically for the forbearance exercise and
that the focus should then be on that market so defined?
1148
MR. BIBIC: That is the way
we see it.
Correct.
1149
It all starts, as you indicated, with the relevant market, and, again,
paragraph 17 of PN 2005‑2 essentially reiterates, Mr. Chairman, what you
quoted from Telecom Decision 94‑19.
1150
Once the market, from a product perspective and a geographic perspective,
is defined or scoped out, the analysis turns to market power, which Telecom,
again, 94‑19 defines, and is in paragraph 18 of the PN 2005‑2 question, being,
can it be demonstrated ‑‑ the market power can be demonstrated by the
ability of a firm to raise or maintain prices above those that would prevail in
a competitive market.
1151
Which is the reason for my opening remarks, that it is about the ability
to increase prices above competitive levels. It is not about the ability to decrease
prices.
1152
First of all ‑‑
1153
THE CHAIRPERSON: Wait,
wait. This can be long and drawn
out, or you can answer the questions I am trying to put to you. So I am not going to stop you if you
want to speak, but that doesn't address my question.
1154
I was looking at the specific question of, are the boundaries
coterminous?
1155
When you define the relevant market, you then focus on forbearance, and
through the market power exercise, and so on ‑‑ but is that the market that
you then are talking about when you are talking about
forbearance?
1156
Is that the boundary of the market?
1157
MR. BIBIC: Well, I am not
sure I ‑‑ Mr. Chairman, I must confess, I am not sure I understand the
question.
1158
One defines the market, and then one decides whether or not to forbear in
that market?
1159
THE CHAIRPERSON: In that
market.
1160
MR. BIBIC:
Correct.
1161
THE CHAIRPERSON: Okay, and
the reason ‑‑ and it is not a trick question, but it seemed to me, on the
face of it, that there was a bit of a dissonance in the approach because, as I
saw you defining the four markets ‑‑residence primary, local business
primary, local Centrex, and digital upfront ‑‑ you then would
obtain ‑‑ that was your definition of the relevant
market.
1162
So zeroing in on any of those, I understood what you were getting at and
there is a list of service that virtually defines that.
1163
But when it came to forbearance, it seemed to me that you expanded the
scope into wireless and then you said, I think ‑‑ and we will get back to
that later on ‑‑ but I am just trying to understand your overall
conception. You then said, but take
into account, in addition to those markets I have just defined, wireless
substitution, those wireless substitutions that have taken
place.
1164
Now, your position is either that wireless is part of each of those
larger markets, which I think it really is ‑‑
1165
MR. BIBIC: That is our
position, yes.
1166
THE CHAIRPERSON: That is
your position.
1167
And then your reason for, in effect, shrinking the forbearance market to
only wireless substitution, I think the reason you gave was to be
conservative.
1168
Is that correct?
1169
MR. BIBIC: No. The way ‑‑ well, let us take the
residential market because that is probably the easiest one to use in order to
answer the question.
1170
The products which are the subject of forbearance in the residential
local exchange services market, our primary exchange service, the traditional
wire line service as well as voice over IP services, because the Commission
found them to be the same in 2005‑28 and, therefore, they are also
regulated.
1171
So the question is, if we are going to examine whether or not those
services should be the subject of forbearance, we need to decide in what market
they reside from a product perspective, from a geographic market
perspective.
1172
And our position, in terms of residential services, is that, if a
hypothetical monopolist offering either one of those services, traditional PSTN
services or VoIP services, were to try to impose a significant and
non‑transitory price increase, would there be competitive constraints to keep in
check those price increases?
1173
If the answer is, "Yes, there would be competitive constraints," those
other products come into the product market definition as well. If not, then the product market
definition is only those two products.
1174
So in the case of PSTN services and Voice over IP services, it is our
position and our view that if a hypothetical monopolist were to try to increase
those prices to supra‑competitive levels, wireless, for example, would act as a
competitive check. So would the
digital cable telephony products.
So would traditional CLEC offerings. And, therefore, all of those are in the
product market.
1175
But, of course, many of those products that are in the market are already
forborne and, hence, aren't the subject of this proceeding in terms of
forbearance.
1176
THE CHAIRPERSON: No, I
follow that. But, I guess, if you
turn to your measurement criteria, ‑‑ and I am using you final argument
paragraph 101 ‑‑ the denominator of that ratio includes all local
non‑wireless connections and all wireless only.
1177
So it doesn't use the entire wireless residential market, as you are
calling it.
1178
Is that correct?
1179
MR. BIBIC: Okay. Well, Henry would like to say a few
words, but the short answer to your question is, yes. But again, for the same reasons as
Aliant, it is to be conservative.
1180
THE CHAIRPERSON: Right. So that is what I was suggesting, that
you were trying to be conservative.
1181
I guess I understand that but to be conservative is, in effect, to
deviate from the logic of 94‑19 in that regard, because you would have thought
that you would be focusing on the same market.
1182
Now I appreciate that part of that market that you are defining is
forborne, namely, the wireless portion.
But, in terms of the market as you are defining it and for purposes of
measuring it, your desire to be conservative which, again, may be a good thing
or a bad thing but, as I see it, it deviates from the logic of the
model.
1183
Now I may be wrong about that, and perhaps you or Mr. Ergas can clarify
it for me.
1184
MR. ERGAS: If I may come
back to your earlier question, it seems to me that it may be helpful to think of
this in terms of an analogy.
1185
And it maybe that I misunderstood the underlying point that you were
making, but assume that at the outset I regulate the supply of natural gas
within a particular area and the question that I am, then, dealing with is,
should I continue to regulate that supply or ought I to forbear from regulating
that supply?
1186
Now what I would want to do, and certainly one approach to carrying out
that analysis, would be to start off by asking, what is in the market in which
natural gas is supplied?
1187
And I might look at that and decide that electricity, or electric power,
is a very good substitute for the uses to which natural gas is put in that area
and so the market in which natural gas is supplied includes
electricity.
1188
Now, obviously, having come to that view, the forbearance decision would
be with respect to natural gas because by my initial assumption I am not
regulating the price of electricity and I have decided that the electricity
supply acts as a competitive constraint.
1189
Now, having done that, I then focus on the supply of natural gas, and
what I might want to say to myself is I believe that the supply of electricity
imposes a reasonable constraint and it may be that my assessment of competitive
conditions in electricity is such that I conclude that the market in which
electricity is retailed is, effectively, competitive.
1190
But I might then want to have, for the avoidance of doubt, some
additional step that would buttress or underpin my view that I could safely
forbear from the regulation of natural gas.
1191
And what I might do at that point is I might look at how many of those
consumers for whom natural gas would meet their needs, how many of those
consumers use not only natural gas but how many of those are in the overall
market taking natural gas or taking electricity.
1192
And if I found that a significant proportion of those consumers had
shifted to electricity or were taking up electricity, then that might, as it
were, be an element of additional proof in my view.
1193
And that is what I see that particular formula as doing, and that is the
logic that leads you from the market definition step through to the formula set
out in paragraph 101.
1194
THE CHAIRPERSON: Thank
you.
1195
It is a perfect analogy. You
could have used the products and services we have here. I guess I am taking it to mean, we,
Bell, think it is the whole market‑‑ it includes wireless, all connections, VoIP
wireless and wire line ‑‑ the wireless portion is forborne and, therefore,
we want you to forbear from the rest, the wire line portion and including
VoIP.
1196
And in reaching that stage, throw into the count those wireless
subscribers who have abandoned wire line phones.
1197
And I guess ‑‑ I understand that as a policy advocate. See, I am just wondering whether it is
consistent with the approach that you ‑‑ of 94‑19.
1198
It is not worth belabouring ‑‑
1199
MR. BIBIC: Well, Mr.
Chairman, we would be ‑‑ we could certainly include all wireless lines in
the numerator and all wireless lines in the denominator because we do firmly
believe that wireless is in the market.
1200
But I think there ought not to be too much debate that if a consumer has
decided to completely forego a wire line connection and use wireless as a
replacement that clearly is in the market and that is why we drafted it the way
we did.
1201
THE CHAIRPERSON: I am not
sure about that. I mean, I would be
interested in hearing views on that.
I am not sure that that is what it establishes.
1202
I think it establishes a converging of the markets, an overlapping,
clearly, because you are getting the overlapping but whether or not you now look
at the entire wireless and wire line sector as one market or not is a separate
question.
1203
Your position is that they are separate but, however, for purposes of
forbearance, you only need to count the substituted portions in the
denominator.
1204
MR. BIBIC: Our position is
not that they are in ‑‑ that wireless and wire line are in separate
markets.
1205
THE CHAIRPERSON: That they
are in the same market.
1206
MR. BIBIC:
Correct.
1207
THE CHAIRPERSON: But that
for purposes of forbearance, you ought to count the wireless substitutions
only.
1208
MR. BIBIC: For the purposes
of administering the streamline test that we are presenting to the Commission,
it should ‑‑ we indicate in paragraph 101 ‑‑ count only all
wireless.
1209
THE CHAIRPERSON:
Right.
1210
MR. BIBIC: Wireless only
counts.
1211
It wasn't to suggest that it is only wireless only usage that is in the
market.
1212
THE CHAIRPERSON: No,
no.
1213
MR. BIBIC:
Okay.
1214
THE CHAIRPERSON: I follow
that.
1215
MR. BIBIC: That's
correct.
1216
THE CHAIRPERSON: But it was,
I guess, in reading, and we have wrestled with this in a number of
proceedings ‑‑ in reading the 94‑19 criteria, the statement that the first
step is defining the relevant market and, then, that becomes the basis for the
entire forbearance exercise led me to a different sense of how you would count
and measure.
1217
But I take that your position ‑‑
1218
MR. BIBIC: Okay. Can I ‑‑ Henry would like to say a
few words, but I would like ‑‑ I just want to make one thing ‑‑ I just
want to make sure of one thing.
1219
Just because the forbearance analysis by definition examines whether or
not to forbear from a regulated service ‑‑ if the service weren't
regulated, we wouldn't be here, but that doesn't foreclose the possibility that
non‑regulated services will or won't be in that same product
market.
1220
THE CHAIRPERSON: Oh,
no!
Absolutely.
1221
MR. BIBIC:
Okay.
1222
THE CHAIRPERSON: The
inconsistency is not on that side, it is between a view that the entire wireless
market is part of the market that we are speaking about, and in the measurement
test, you are only including ‑‑ and I understand ‑‑ to be
conservative ‑‑
1223
MR. BIBIC:
Okay.
1224
THE CHAIRPERSON: ‑‑ you are only including a portion of it. That was all.
1225
MR. ERGAS: Excuse me, just
for the avoidance of any doubt or uncertainty in this respect, it would not be
quite accurate to say that wireless and wireline are one
market.
1226
What is being said is that wireless is a substitute for wireline but you
clearly could not infer from that that wireline is a close substitute for
wireless. The substitution
constraint is a constraint that bears on the wireline market and the market in
which wireline services are provides includes wireless services because wireless
services are a substitute for wireline services.
1227
However, if you were investigating the market for wireless services, it
may or may not be the case that wireline services are a substitute for wireless
services and I would suggest that from an economic perspective you would think
that wireline services would not provide the full set of functionalities that
wireless service provides and particularly they would not provide
mobility.
‑‑‑ Laughter /
Rires
1228
THE CHAIRPERSON: Okay. Well, I guess we will go back to what
you said in terms of when you were defining the market in your original
submission just to make it clear what you are saying because I don't want to
mischaracterize it.
‑‑‑ Pause /
Pause
1229
THE CHAIRPERSON: Okay. This is paragraph 69 on page 20 of your
original submission.
1230
Now, we are always defining the relevant market for this exercise, are we
not, Mr. Bibic, Professor Ergas?
1231
MR. BIBIC:
Yes.
1232
THE CHAIRPERSON: Okay. So the first sentence in paragraph 69
says:
"Based on the Commission's reasoning in Decision 2005‑28, wireless
telephony services are also part of the residential local services
market."
1233
Then you go on to say they have the same functionality and so
on.
1234
So we should understand them as part of the residential primary
market?
1235
MR. BIBIC: Correct. Again, the products or services which
are the subject of this proceeding are voice over IP and traditional primary
exchange service.
1236
So to examine what other products are in the relevant market, one decides
what are the competitive constraints on the ability of a provider of those
services to increase the prices I mentioned earlier, and wireless does act as a
competitive constraint on the ability of a hypothetical provider, monopolist
provider, of PSTN services and VoIP services.
1237
What Henry was explaining is that if we were ‑‑ and we are
not ‑‑ but if this panel were the Competition Tribunal, for example, and
were examining a merger in the wireless market, one would look at what are the
competitive constraints on a hypothetical wireless
monopolist.
1238
The one important thing ‑‑ just to finish, Mr. Chairman ‑‑ the
one important thing, several parties in this proceeding have suggested that the
Competition Bureau when it reviewed the Rogers and Microcell transaction found
wireless and wireline not to be in the same market. They did not. What they found is that wireline
services would not constrain the pricing of wireless services. They did not find the
converse.
1239
THE CHAIRPERSON: Right. No, I understand that and
notwithstanding Mr. Ergas' previous intervention, I am taking the sentence in
section 69 as saying that for purposes of this proceeding, wireless telephony
services are part of the residential local services
market.
1240
MR. BIBIC:
Correct.
1241
THE CHAIRPERSON: Now, you
are saying because of the Commission's reasoning, because in that same decision
that you cite, of course, the Commission said that it was not and did not regard
it as being part of the same market?
1242
MR. BIBIC: Well, the
Commission in that decision did find, certainly did find that voice over IP
services are in the same market, and there is a reference to that in paragraph
69, and I ‑‑
1243
THE CHAIRPERSON: Where do
you see that?
1244
MR. BIBIC: No, it is not in
paragraph 69. It is elsewhere in
the submission, of course, where we make the point that the Commission has found
voice over IP services to be in the same market as ‑‑
1245
THE CHAIRPERSON: Well, of
course ‑‑
1246
MR. BIBIC:
Okay.
1247
THE CHAIRPERSON: ‑‑ but the first sentence in 69 is the
Commission's finding was the contrary ‑‑
1248
MR. BIBIC: Okay, on
wireless.
1249
THE CHAIRPERSON: ‑‑ on wireless.
1250
MR. BIBIC: Yes. Well, let me address
that.
1251
THE CHAIRPERSON:
Yes.
1252
MR. BIBIC: What I find
particularly striking about ‑‑ well, one of the things I find particularly
striking about the voice over IP decision is in coming to the conclusion that
voice over IP services are in the same market as primary exchange service, the
Commission went through the functional equivalence test.
1253
My first comment is that service doesn't have to be functionally
equivalent to be in the same market.
1254
My second point would be having done that for voice over IP services,
gone through the functional equivalence test, the Commission glossed over in one
sentence why wireless is not in the same market, and had it ‑‑ in my
respectful submission, had the Commission gone through the same functional
equivalence test, it would have found for the same reasons that wireless is in
the market.
1255
So it is correct that the decision doesn't say
that ‑‑
1256
THE CHAIRPERSON: This is not
an RNV of Decision 2005‑28. So
notwithstanding those views, I guess we are looking at wireless here with this
point.
1257
MR. BIBIC: It is not an RNV.
However, it is an independent proceeding where, again, we are advocating that
wireless is in the market and it is incumbent on the Commission to look at that
again.
1258
THE CHAIRPERSON: No, that is
fair enough and I will take you through those questions, and you can make
reference to 2005‑28 but I am not sure it will be helpful.
1259
I think it would be more helpful to focus on the tests that we did use
and one of those tests was the way a service is marketed and presented to the
public. Would you agree with that,
that that is a test for whether services are in the same product
market?
1260
MR. BIBIC: Oh, I
disagree. I mean I do agree that
the Commission used that as part of its functional equivalence
test ‑‑
1261
THE CHAIRPERSON:
Right.
1262
MR. BIBIC: ‑‑ but again ‑‑ maybe Henry can jump in ‑‑ but
I do not believe that a product has to be exactly functionally equivalent in
order to be in the same product market.
1263
THE CHAIRPERSON: No, but in
your own company, do you structure your company and market wireless as part of
the same market as residential service?
1264
I noticed this month there was a structural reorganization in your
executive ranks and you have now a president of Bell Mobility responsible for
managing Bell's wireless business and you have a president of residential
services responsible for wireline, voice and internet
solutions.
1265
Would you say that your company offers wireless and wireline as part of
the same market?
1266
MR. BIBIC: I will let Steve
jump in in a second but to answer the question about our corporate structure, I
will explain the reasoning for restructuring our organization that
way.
1267
Before last month, wireless was actually in our consumer business,
despite that the Commission didn't find wireless to be in the same market as
PSTN ‑‑
‑‑‑ Laughter /
Rires
1268
MR. BIBIC: ‑‑ a few months ago.
1269
The other answer is that the reason we moved wireless to be its own
separate unit under a separate president reporting to Mr. Sabia is that we found
that in the consumer business our business customers felt they weren't
getting ‑‑ our enterprise business unit felt that they weren't getting the
full attention that their customers deserved from wireless or necessarily were
getting that attention. So now we
have one wireless business unit whose job it is to offer services to consumers
and businesses and meet the needs of those two separate customer
segments.
1270
THE CHAIRPERSON: Right. But historically, I think, they haven't
been regarded as the same market by the Commission or the
players.
1271
Have you been able to get a hold of any of the early submissions that the
Mobility companies made in regard to the regulation of cellular in those
days?
1272
MR. BIBIC: How long
ago?
1273
THE CHAIRPERSON: Oh, 20
years ago, going back ‑‑
1274
MR. BIBIC: Well no, but
things change and they change rapidly, Mr. Chairman.
1275
THE CHAIRPERSON: No, but it
was interesting ‑‑ well, that is right. You are absolutely right about that but
you would agree that historically they have not been seen as part of the same
market, including in submissions by Bell, which I am sure maybe Mr. Farmer has
memory of but where the argument was ‑‑
Laughter /
Rires
1276
THE CHAIRPERSON: ‑‑ where the argument was certainly
made ‑‑
Laughter /
Rires
1277
MR. BIBIC: I shouldn't have
brought him along.
Laughter /
Rires
1278
THE CHAIRPERSON: The
argument certainly was made that this is not like wireline, this is totally
different for all the reasons we knew at the time. I am not saying that markets don't
change but historically, I think you would agree that they were not ‑‑ they
didn't evolve as part of the same market and your company made those
points ‑‑
1279
MR. BIBIC: Well, they
were ‑‑ 20 years ago was 20 years ago. The products were different. I remember people walking around with
these big clunky shoulder straps and I mean who would want that in place of a
wireline phone?
1280
THE CHAIRPERSON: It was a
great phone.
‑‑‑ Laughter /
Rires
1281
MR. BIBIC: But things are
different today. I mean there is a
lot of functionality, the prices have gone down, and a very important ‑‑
Mr. Chairman, a very important point.
1282
We are now ‑‑ because we are in a competitive environment and we
have to do this, we are tracking why our customers leave us. Those customers actually call us and say
we don't want you any more and we are disconnecting. We ask, well, why.
1283
Fully 6 per cent of those are leaving to wireless only. I mean that in and of itself is
indication that those customers ‑‑ it is 6 per cent ‑‑ do view it as a
total substitute.
1284
THE CHAIRPERSON: I don't
know whether it is in this proceeding or elsewhere but the ‑‑ and the
argument will go on.
1285
I guess if I had to ask you when during the past 20 years you think the
markets merged, because Bell certainly didn't take the view of that 20 years
ago, would you have any sense of when the company began to believe that they
were part of the same market?
1286
MR. BIBIC: The short answer
is I think that is irrelevant. We
are here to discuss the state of the marketplace today, and 34‑2 as well as
Telecom Decision 94‑19 makes clear that it is a forward‑looking test, we don't
look back in the rear‑view mirror, and the question is not only is wireless a
competitive constraint on wireline pricing today, the real test is will it be a
competitive constraint looking out one year or two years, which are the words
from Telecom Decision 94‑19.
1287
My position today, Mr. Chairman, is that wireless is in the market and it
will be even more so a year and two years from now for a whole host of reasons
which are on the record.
1288
For example, the CRTC's own Monitoring Report, the 2004 version, if one
turns to page 102 there is a reference there from the Commission citing a survey
that 48 per cent of Canadians indicated that wireless quality was superior or no
worse than wireline quality and 36 per cent considered wireline to be superior
in quality.
1289
There are a whole bunch of touch points, including the Stats Can data
indicating that wireless is in the market.
1290
THE CHAIRPERSON: Would you
agree or disagree with the proposition that when you market residential or
business services, you are marketing them to households or businesses; when you
market wireless, you are marketing it primarily to
individuals?
1291
MR. BICKLEY: As we think
about wireless, on it there are fields, and you do very much in wireless market
to households too. You have family
plans where you can get multiple cellphones there on it.
1292
As we go through this conversation, I can tell you the reality is what we
experience every single day. We can
ask ourselves all these questions but the consumers are voting and they are
voting by leaving us to use a wireless solution. They look at their total telecom
spending and make a complex decision around purchasing them. Some customers are coupling it with over
the top VoIP and saying that that is a good telecommunication solution that they
have.
1293
So as we look at all this, what I can sit here in front of you and say is
that absolutely it is a substitute.
It is a growing trend and it is one we take very seriously. We have a separate category as we look
forward in our market share that says what do we think will happen with wireless
substitution and the debates we have around it is will it grow faster than we
have predicted it to grow around it.
1294
THE CHAIRPERSON: All right,
thank you. Okay, I take your point
that the statutory provisions do require a future‑oriented guess to be made, an
estimate to be made. There are no
facts in the future but you are taking account of it.
1295
But in today's marketplace ‑‑ I think either Mr. Bibic or ‑‑ I
am sorry, Mr. Bickley ‑‑
1296
MR. BIBIC: Mr.
Bickley.
1297
THE CHAIRPERSON: ‑‑ Mr. Bickley ‑‑ differential pricing,
differential service quality, differential access to 9‑1‑1, differential
directory listing rules, all of these are still in place as between wireless and
wireline; would you agree?
1298
MR. BIBIC: Well looking
forward, there will be wireless number portability. In terms of price comparison, I think
the evidence on the record demonstrates that based on median wireline usage, the
price for wireline and wireless are more similar than one would think just kind
of looking back to two, three, four years ago.
1299
I would concede that they are regulated differently but that doesn't
indicate that they are not in the same market.
1300
THE CHAIRPERSON: No, I
wasn't making the regulatory distinction, I was ‑‑ I mean the regulatory
distinction grew up because, I guess, the Commission at the time was persuaded
by Bell and its competitor that they were truly a different market but the
question today is are they still a separate market or not and your evidence is
you think that they are part of the same market ‑‑
1301
MR. BIBIC: That is
correct.
1302
THE CHAIRPERSON: ‑‑ notwithstanding those
differences.
1303
Okay. Now, residence and
business, is it the practice of the industry, again, to ‑‑ again, your
corporate structure doesn't reflect that but as Mr. Bibic rightly pointed out,
if we could have our regulatory outcomes dictated by your corporate structure,
they might change more often.
‑‑‑ Laughter /
Rires
1304
THE CHAIRPERSON: So I take
that point.
1305
MR. BIBIC: My job would be
easier, I think.
‑‑‑ Laughter /
Rires
1306
THE CHAIRPERSON: I take that
point.
1307
But is it the practice of the industry, Mr. Bickley, to break these
accounts down between residence and business?
1308
MR. BICKLEY:
Yes.
1309
THE CHAIRPERSON: It is. So you would have different
representatives reporting now to the head of wireless residence and business;
would that ‑‑
1310
MR. BICKLEY: You are
specifically asking within wireless and how
wireless ‑‑
1311
THE CHAIRPERSON: Within
wireless.
1312
MR. BICKLEY: Within
wireless, does wireless separate between the consumer market and the business
market? The answer is
yes.
1313
THE CHAIRPERSON: And they
would market differently to the two?
1314
MR. BICKLEY: Yes, different
distribution systems, different bidding processes that go on. The consumer wireless is very
retail‑oriented. The business
wireless will be a direct sales force.
1315
THE CHAIRPERSON:
Right.
1316
Do you have the Commission of Competition's final argument handy by any
chance?
1317
MR. BIBIC: In a
second.
‑‑‑ Pause /
Pause
1318
MR. BIBIC: I have it in
hand.
1319
THE CHAIRPERSON: Right. Paragraph 22. Perhaps you could read it and then I
will ask you to comment on one or two sentences in it.
‑‑‑ Pause /
Pause
1320
THE CHAIRPERSON: And it is
the comments on the second half of the paragraph where they
say:
"Finally, for both the companies in Aliant, the loss of lines is to all
types of service providers. This is
problematic since it adopts a very broad product market definition but does not
distinguish between telecommunication service providers that provide access to
the PSTN using entirely or primarily their own facilities (local loops in
particular) and service providers that are very much dependent upon the
facilities of the ILEC to provide access to the PSTN. Thus, setting too low a bright line test
for forbearance will favour ILECs and not necessarily benefit
customers."
1321
Would you comment on that?
1322
MR. BIBIC: Is there a
specific question or ‑‑
1323
THE CHAIRPERSON: Do you
agree?
1324
MR. BIBIC: We disagree with
the Bureau's characterization of the impact of ‑‑ or the implication of our
product market definition.
1325
THE CHAIRPERSON: Could you
elaborate?
1326
MR. ERGAS: It seems that the
fundamental question that one is trying to get at here is what are the
competitive constraints upon the retail supply of the relevant telecommunication
services, and given that that is the fundamental question you are trying to
analyze, the issue then becomes what are the relevant sources of competitive
constraint.
1327
Now, at the retail layer, there is in my view no doubt that those
relevant sources of competitive constraint include both types of
telecommunications service providers that they outline or identify here; in
other words, the competitive discipline upon an incumbent local exchange carrier
may come from telecommunications service providers who have their own facilities
or they may come from telecommunication service providers that use facilities of
that incumbent such as unbundled local loops.
1328
So given that the competitive constraints may come from either of those
types of service providers, then, in assessing the extent of the competitive
disciplines in the market it seems to me entirely appropriate to take both of
those sources of competitive discipline into account.
1329
Matters might be different if the question you were dealing with
was: Should you remove any
regulation of wholesale input supplied by the incumbent local exchange
carrier? In that event it might be
relevant whether the competitive discipline was coming from other providers who
had facilities of their own or whether competition in the final market only came
from resellers of inputs derived in whole or in part from the incumbent local
exchange carrier. But given the
subject matter of these proceedings then it seems to me the approach which
defines a market that comprises both of those participants is analytically
completely correct.
1330
May I, Mr. Chairman ‑‑ and I apologize for this ‑‑ just go back
one moment to your question about wireless for just one second, if I may impose
on you and your colleagues? It was
simply to make two points in respect of the extent of the competitive discipline
that wireless imposes on wireline supplies. Those two points are
these:
1331
The first point is that it need not be the case that competitive
discipline on a product comes from another product that is identical. It's obviously true that very effective
competitive constraint on any particular product can come from another product
which is viewed as substitutable but has different functionalities in many
respects, perhaps functionalities that some consumers value more and others
value less.
1332
I'm sure without knowing the retail scene in Canada with any particular
degree of precision or closeness, I am sure that there are significant
competitive constraints that are imposed on traditional retailers by; for
example, big box retailers even though the nature of the supply, many of the
characteristics of the marketing, many of the ways they promote their services,
those things differ.
1333
So the mere fact that when you look at two sources of supply, they differ
in important or at least in some respects, including the way they are marketed
and distributed, cannot properly permit you to draw the inference that those two
products and sources of supply are not in the same market.
1334
The second point which is perhaps even more important, is this; that what
matters for market definition is not whether all consumers regard the two
products as very close substitutes but rather whether there is a sufficient
number of consumers who regard product B as a substitute for product A, that in
the event of product A attempting to impose a price rise the movement of
consumers from product A to product B would undermine the profitability of that
attempted price increase over the competitive level.
1335
As Professor Wiseman and others explain in the material that you have in
front of you, in the case of fixed line telecommunications, in the case of
wireline service, because the variable costs associated with serving any
particular customer are very low and the fixed costs and the common costs of the
system are very high, then the loss in contribution when you lose any individual
customer tends to be great because you lose all of that difference between the
marginal cost of serving that consumer and the revenue from that consumer and
that contribution is what allows you to cover your fixed and common
costs.
1336
Then, in that case, because that gap is so great reflecting the
significance of the joint and common and fixed costs in telecommunication
systems, it doesn't take a very large number of consumers who are willing to
shift to discipline a potential price increase.
1337
So when you look at it on that basis, even if it were the case that only
a relatively small proportion of the current wireline consumers regarded
wireless as so close a substitute that they would shift in the event of a
forborne incumbent attempting to raise price above the competitive level, then
in that event so long as there is that relatively small number, which may be
less than 10 per cent and, indeed, in Professor Wiseman's example is 6 per cent,
if I recall his numbers correctly, then in that case it is absolutely correct to
regard the wireless service as the competitive discipline on the wireline
service because it would have that price‑constraining
impact.
1338
MR. BIBIC: Mr. Chairman,
since you brought paragraph 22 to our attention, if I may, I would like to say a
short word about the use of the word "pockets" in that paragraph, the geographic
dimension in the first half.
1339
THE CHAIRPERSON: All
right.
1340
MR. BIBIC: The existence of
pockets in our proposed geographic market is the exchange and while true that
there is a theoretical risk that there may be pockets on customers who don't
have the benefit of competitive alternatives, yet are subject to forbearance
within the exchange, we submit to you that our market definition doesn't really
pose that risk in practice. It's
more theoretical.
1341
For example, Videotron; we have seen that in over 91 per cent of the
exchanges they have entered with their service they cover the entirety of our
exchange and in the remaining 10 per cent the portion of customers who aren't
served is very, very small.
1342
However, that having been said, if one takes as the geographic market a
larger territory such as a local calling area or an LIR of the province or the
operating territory, then the risk of having these pockets becomes much more
than theoretical. It becomes
real.
1343
So I just wanted to say that word on pockets since it is in paragraph 22
of the Bureau's Reply.
1344
THE CHAIRPERSON: Okay. I have your point on
that.
1345
Turning to that point about the local exchange, I guess if we stand back
from it the issues that ‑‑ the local exchange as the geographic parameter
of the relevant market raiser or, I suppose, one is targeting ‑‑ that by
having forbearance within an exchange and by using the exchange as the area in
which the forbearance powers are relaxed, the risk of targeting a competitor in
its infancy as it moves forward into the competitive marketplace arises and in
effect slows its progress down by the ability of the incumbent to target the
customers in that area.
1346
I guess a second is the issue of customers who are in regulated markets
and areas whose prices are in effect maintained at a higher level and the
profits from whose business can serve as a cross‑subsidy to assist in the
targeting of parties, so that the size of the area, the exchange being a
relatively small area compared to the other alternatives that are before us,
raises those kinds of issues in our mind.
1347
Perhaps you can allay those concerns.
1348
MR. BIBIC: Okay. I will try to deal with all those points
which I jotted down.
1349
I don't think one should assume that the prices of those consumers who
are in a forborne exchange don't have access to the services of the
competitor. It shouldn't be assumed
that those prices will necessarily remain at the same level. They may very well go down, number
one.
1350
Number two, the risks that, Mr. Chairman, that you raised are amplified
exponentially if one chooses a broader geographic market.
1351
The third thing, I would say, is that efficient entrants will
succeed. It's not the purpose of
defining a geographic market to worry about targeting. In fact, targeting is used in such a
pejorative sense and it shouldn't be.
It's actually differential pricing and differential pricing can be
consumer‑welfare enhancing.
1352
I know it serves the competitor's interests to use the word "targeting"
and then overlay a pejorative meaning on it. Targeting is also a sophisticated form
of market segmentation where you target ‑‑ you offer different services or,
sorry, different prices to different consumers who value your services
differently or you offer different service packages, not just price, to
different customer segments who value your services differently. So I would caution against using
targeting and assuming it is a nefarious deed.
1353
The regulator's role ought to be to protect the competitive process, to
make sure that new efficient entrants will enter and succeed and there won't be
any anticompetitive behaviour. It's
not the role of the regulator to define the geographic market with that in mind
and it's also not the role of the regulator to protect competitors, certainly
not competitors who don't need protection.
It reminds me of Minister Emerson's speech that he gave last week in
Toronto where he said ‑‑ I thought it was apt for today ‑‑ he
said:
"Competition
won't destroy us. It will make us
stronger. It will force us to
create wealth in new and creative ways".
1354
But did you have anything to add on that?
1355
THE CHAIRPERSON: Before Mr.
Ergas does, I am not using targeting in that sense although I appreciate your
comments.
1356
If one assumes, and it's been an issue that the Commission has raised in
other cases ‑‑ it's there in our minds and I think it needs to be addressed
that in an area that is relatively small the ability of the incumbent who is
forborne to in effect use the resources of the company to target in an
anticompetitive market is a concern and a fear that we have on an ongoing
basis.
1357
I take your point about not defining the geographic market on the basis
of that criterion but it nevertheless comes out at the other end as well, so
it's worth addressing in that thought.
1358
I understand the point that you have raised in your submissions also that
the chance within an LIR of there being more hostage customers who don't have
access to the complete competitive supply that they might have in a smaller area
is there, but it's almost ‑‑ from our point of view, we have to make a
decision that comes into effect at a certain moment in time. When you are looking forward out to
forbearance, your concern is that if you forbear prematurely you are going to
prevent through anticompetitive conduct, you run a risk that you are going to
prevent competition from growing.
1359
I agree with you that once forbearance is in place then the other risk
becomes grave, that you then have an area in which you have forborne from and
the customer that doesn't face competitive supply can be in a worse situation
owing to the incumbent's activities than they would have been otherwise. But where we are at in the process is
having to decide upon that issue of forbearance, so this again remains a
concern. Any way you can address it
for us will be helpful.
1360
MR. BIBIC: There is a lot
there so I will respond.
1361
In going through this analysis, and I would urge the Commission to kind
of build a framework from the bottom up, establish the proper economic
principles and then kind of build the analysis from there and address concerns
that you have along the way, rather than the way that the competitors and the
cablecos are urging you to do, which is to say, "Well, what is it that we
want? What's the objective?" and
the end result is keeping regulation for as long as possible and then work
backwards from there and make up arguments as we go along to support that point
of view.
1362
So let's take this issue of targeting.
1363
There is an assumption built into the question in some of the
competitors' submissions that somehow it is harder to or easier to
differentially price in a narrow area, but can you imagine whether or not the
area over which we are forborne is very large or very small? We could go in once forborne and
differentially price. So I don't
really follow the competitors or the cablecos when they make that
argument.
1364
On the one hand they say it's not cost efficient for an ILEC to tailor
offerings over a narrow area such as an exchange; yet, they plead the Commission
to avoid choosing the exchange for fear that we are going to differentially
price. So there is a disconnect
there, that dissonance as you put it earlier between those two
arguments.
1365
You also mention, Mr. Chairman ‑‑
1366
THE CHAIRPERSON: Just before
you leave this point.
1367
MR. BIBIC:
Yes.
1368
THE CHAIRPERSON: The
differential pricing would occur within that exchange relative to other
exchanges is, I think, their point.
1369
MR. BIBIC: But if we were
forborne over a large area we can go in and differentially price over a narrow
area because we are forborne.
1370
THE CHAIRPERSON: Right, but
the threshold would only be reached presumably when the competitor would have
developed more of its presence throughout that large an area and it would be
better protected against that.
That's, I think, what the argument is.
1371
MR. BIBIC: Well, let's kind
of reel back here and take it down back to first
principles.
1372
As the Commission tries to establish a streamlined test, which again
hinges on first the geographic market definition, in our view there are kind of
four principles or guidelines that the Commission should take into
account.
1373
One is the need to create an administratively‑manageable test. Given that are we going to get
perfection? Well, we could get
perfection if we choose the calling pair as a geographic market, and Margaret
spoke about that earlier, but then you are not going to strike a proper balance
between the administratively‑manageable and the economically robust. So we aggregate up. So that's one
principle.
1374
The other principle is the one, the
guideline that you mentioned in your question to me which ‑‑ or
two ‑‑ which is the risk of forbearing too early but the risk of forbearing
too late or regulating for too long.
1375
Then, the fourth thing is you want to ensure that there are similar
competitive conditions across the geographic market you
choose.
1376
We propose to you, Mr. Chairman, that a large geographic area suffers
from all of those or doesn't meet any of those guidelines.
1377
Number one, there will be regulation for far too long for consumers who
are benefiting from vigorous competition today. I could point you to the local
interconnection region, the Burlington LIR in Ontario comprised of seven
exchanges, two of which Cogeco is in.
One is the Burlington exchange in the Burlington LIR and the other one is
the Oakville exchange in the Burlington LIR.
1378
So Cogeco is fully in two of the exchanges, is serving 116,000 homes out
of 160,000 homes in the entire LIR and those customers, 116,000 of them are
benefiting from competition quite vigorously today. Yet, in order for Bell Canada to be
forborne under the cablecos test, which is 30 per cent of the households lost,
as you know, that would require us to actually lose 40 per cent of the
households in the two exchanges where Cogeco was
competing.
1379
So you have this situation where those 116,000 homes will not have the
benefit of forbearance but yet once forborne after 40 per cent, not 30 ‑‑
again, it's cableco new math ‑‑ after the 40 per cent is reached you still
have 40,000 or so homes who don't have the benefit of competition. So the two risks manifest themselves in
spades when you have that broad of an exchange.
1380
The last point, Mr. Chairman, is that at ‑‑
1381
THE CHAIRPERSON: Just before
you ‑‑
1382
MR. BIBIC: I don't want to
lose my thought but go ahead. I'm
still on the same topic.
1383
THE CHAIRPERSON: Oh, you are
still on the same topic.
1384
MR. BIBIC: You mentioned in
a question that targeting does concern you and it's something you think about
and whether or not you will factor that into the geographic market definition or
not it's going to kind of manifest itself or be a concern at the other end. Well, that's the right way of thinking
about it at the other end. It's not
a concern for geographic market definition.
1385
Now, conceptually, as a different issue let's examine the capability of
an ILEC to act anti‑competitively or in a predatory manner. I'm not going to go through all the
evidence, and Margaret spoke about it this morning.
1386
The wealth of the evidence on the record, including a page and a half
from the Bureau's reply on page 16, indicates that given the structure of this
market an ILEC could not act in a predatory manner.
1387
THE CHAIRPERSON:
Mr. Bibic, on the Cogeco example you gave, of Cogeco not covering
each ILEC, you are not suggesting that the geographic market definition has to
depend on the competitor being actually physically offering service to a hundred
percent of the households, are you?
1388
MR. BIBIC: Oh,
absolutely not.
1389
THE CHAIRPERSON: You are
not, no.
1390
MR. BIBIC:
No.
1391
THE CHAIRPERSON:
So ‑‑
1392
MR. BIBIC: What I am
saying is that as we observe the market, when ‑‑ especially a cable
company, when a cable company enters into an exchange it tends to cover the
entire exchange.
1393
In fact, Shaw says on the record that it offers its Shaw digital
telephony service by exchange, not by LIR.
1394
And if one looks at the other competitive alternatives, given the
ubiquity of wireless networks, they tend, I would think, to cover to cover
entire exchanges. If you look at
over‑the‑top voice over IP service providers, where we are and where a cableco
is, they are, because they ride on top of our platforms, and of course with the
traditional CLECs all they have do is establish one point of interconnection in
an LIR, co‑locate in an exchange and, bingo, they can offer service to every
single customer to whom we offer service in that exchange.
1395
THE CHAIRPERSON: Now, what
about in the LIR? Can they not use
that single interconnection point and be present throughout the territory? A number of their documents suggest that
no more costs are required to do that.
1396
MR. BIBIC: Well, they
do have to co‑locate in the exchanges if ‑‑ well, if they are traditional
CLEC they do have to co‑locate in every exchange even though they only have to
interconnect at one point.
1397
I do agree that CCTA, in one of their interrogatory responses, indicate
that once they are in an LIR, it is easy for them to expand their service to
cover the entire LIR and I say, good, I agree, my point is made. If they can cover the entirety of an
LIR, they can cover the entirety of an exchange much, much, much more
quickly.
1398
So the risk of having these pockets of unserved customers in an exchange
is far less and is theoretical, then it is in an LIR and it is by their own
admission, frankly.
1399
THE CHAIRPERSON: But if you
concede that point, that they can serve the entire LIR, then why wouldn't that
be more of a support for their argument that the LIR should be the geographic
area?
1400
MR. BIBIC: Well, they
can in theory serve the entire LIR, but the facts show that they don't. However they do, the facts do show that
when they go into an exchange they cover the whole exchange, so what I'm
suggesting is that with an LIR you have these large pockets who may or may not
be served at some point in time, but with an exchange you do not do that, so you
do not get into these costs of regulating too early ‑‑ you know, regulating
for too long and forbearing for too early with an exchange, however you do with
an LIR.
1401
MR. FARMER: Can I just
add a ‑‑ just to talk about the facts
associated ‑‑
1402
THE CHAIRPERSON: You are
going to bring us back to the eighties, Mr. Farmer?
‑‑‑
Laughter
1403
MR. FARMER: No, I will
not take us back to the eighties.
We like to look forward, Mr. Chairman.
1404
The facts are the following:
When it comes to the exchange, Mirko has already given some examples for
Videotron showing the fact they cover with almost no exception the entire
exchange. We have the same for
Rogers, who has filed 88 maps of their coverage, and in each one it shows in the
exchange they cover the entire exchange.
1405
So this issue about pockets just doesn't appear to be a real
issue.
1406
In the LIR we also have some facts.
Aliant gave us some this morning.
They presented the maps and it did show that there were these areas
within LIRs that where, even after six years, EastLink had still not
gone.
1407
Videotron has put on the record of this proceeding that they intend to
offer service in 37 LIRs, which cover which cover 356 exchanges, but of those
148 are where they intend to go, which is 42 percent, 42 percent of the
exchanges they would actually offer service. And that is not where they are today,
but rather what they plan to do.
1408
For Rogers the numbers are a little bit higher. Again, they would be covering 55 percent
of the exchanges in those LIRs, where they intend to go.
1409
So the facts are, though theoretically it is possible because of the
interconnection arrangement, that they may be able to, the facts are they are
not planning to do that and not within a reasonably short period of
time.
1410
THE CHAIRPERSON: Thank
you. We'll break for fifteen
minutes. Nous reprendrons à
16 h 20.
‑‑‑ Upon
recessing at 1605 / Suspension à 1605
‑‑‑ Upon
resuming at 1621 / Reprise à 1621
1411
THE CHAIRPERSON: Order,
please. À l'ordre, s'il vous
plaît.
1412
For scheduling purposes, we will finish with the Bell panel today and
resume with the next item tomorrow morning.
1413
So continuing with the questioning, Mr. Bibic, the Competition
Bureau brief is, would you agree, a little bit wary about establishing a
bright‑line test in this proceeding?
Would you agree with that?
1414
MR. BIBIC: Well, the
Bureau advocates what they call a structured rule of reason
test.
1415
THE CHAIRPERSON: Right. And I guess the fact‑based approach
taking into account the considerations that they mention. Your position, though, is that you would
like to see a bright‑line test such as you have set out.
1416
MR. BIBIC: Going back
to my opening remarks and a couple of my responses to the answers to questions
you posed, yes, I think part of the purpose of this proceeding is to establish a
framework which has clear criteria, and those are the words from the PN, if
every time an ILEC has to file a full‑blown forbearance application to be
considered, well, we have that framework already. Why are we here? We could have filed a whole bunch of
forbearance applications.
1417
But the Commission saw fit, and I think it was a good idea, to establish
this proceeding so we could have a framework and have things more
administratively manageable.
1418
THE CHAIRPERSON: Right, but
I guess as to their point that this is such a fact‑based determination and such
variable conditions across the country and I think in their view even in the one
application we have in this proceeding, an incomplete record, are we in a
position, do you believe, to forge ahead with doing what the public notice says
one of the aims would find it quite desirable to do?
1419
MR. BIBIC: I believe we
are in a position to do that. I
think if one takes a look at the record there is clearly evidence of low
barriers to entry, quickly go through the 94‑19 factors. It won't take lock too
long.
1420
But the low barriers to entry is one of the factors to look
at.
1421
On that point, if I may, Mr. Chair ‑‑
1422
THE CHAIRPERSON: You know, I
don't think you have to do that. I
think we can take your evidence on that, because you have referred to it at a
number of points.
1423
MR. BIBIC: Okay. Well, there is a piece of evidence on
barriers to entry I just do want to mention.
1424
THE CHAIRPERSON:
Okay.
1425
MR. BIBIC:
Mr. Rogers himself thinks that the barriers to entry are low and he
certainly said it at an investor conference in December of 2004, where he says,
"In our case, going into telephony the cost is quite small,
really."
1426
So the barriers to entry are low.
There is rapid innovation. I
think that is undeniable. There is
rival risk behaviour and, in fact, I think the cablecos have been said to have
the competitive advantage and marketing advantage when it comes to
bundling.
1427
When you look at all those factors I think one can draw a very strong
presumption that markets basically across the board where there has been entry
are competitive.
1428
So the factors are so powerful there should be that presumption of
competitiveness all over, so then what the 5 percent test, in our submission,
does is it acts as the clincher, so to speak. It's the last kind of trigger that the
Commission keeps in its pocket to make sure that a market should be
forborne.
1429
And what the 5 percent does, and it is been mischaracterized or
misunderstood, I believe, is not just about market share, it is not, you know,
95 percent. What it does is it
shows that with all the other factors in place, customers have a choice and they
are exercising that choice, so in that in fact the 5 percent acts as that final
trigger, as that milestone indicating choice and the exercising of that
choice.
1430
But it is not, you know, 95 percent or 5 percent, whichever way you want
to pitch it, all on its own. Behind
that there is all the other factors and given their presence there ought to be a
presumption that we can indeed set up a framework with clear
criteria.
1431
THE CHAIRPERSON: So
referring to the argument of the Competition Commissioner, paragraph 24, I
assume you disagree with the statement at the end where she says, "Choosing a 5
percent bright‑line without knowing the cost structure of the entrant, its
marketing strategies, its customer retention rate and its ability to compete
effectively risks granting forbearance in situations where it is not
warranted."
1432
MR. BIBIC: I do
disagree, because I feel there is a significant amount of evidence which points
otherwise and if you just look at the Bureau structured rule of reason test, and
I agree with Margaret Sanderson from earlier today, when she said it can ‑‑
the structured rule of reason test can actually map out quite nicely with the
94‑19 test, but there are four factors in the Bureau structured rule of reason
test.
1433
One is customer access to two independent facilities‑based service
providers offering similar services, functionalities and quality of access. Well, certainly where EastLink has
entered or Shaw or Videotron or Rogers, you do have that.
1434
I don't think one needs to have a detailed factual analysis. It is pretty evident in their wireless
networks as well. So that would be
met in any case that will have, you know, reasonable
forbearance.
1435
The variable costs of the two service providers are similar or the
variable costs of the entrant are lower and neither competitors' capacity
constrained. That's the second
test. I don't think there is any
debate that there are no capacity constraints in telecom
today.
1436
In terms of variability of the cost, just quoted from Mr. Rogers,
who thinks he's got the secret financial recipe because he has one big fat pipe
into the home and that his costs are quote, unquote, "quite small
really".
1437
The third thing is evidence of rivalry between these firms and the
entrant is able to retain its customer base. Well, on that point again, there is a
lot of evidence on the record.
Just, you know, January of 2004, about twenty months ago, Primus came out
with Primus Top Broadband and if you compare the prices now to the prices then
you have got a 43 percent decrease in price.
1438
Videotron is at $15.99 if you buy their bundled offering and I don't
think there is any suggestion from anybody that there is no evidence of
rivalry.
1439
And the last point in the Bureau's test is that industry characteristics
are such that the ILECs are unlikely to engage in anticompetitive activity. And the Bureau has answered its own
question at page 16 of its reply where they say that that is not going to happen
and I quoted part of their submission in my opening
remarks.
1440
So I disagree that we cannot establish a bright‑line test, given the
evidence we have on the record.
1441
THE CHAIRPERSON: Okay. And since you like quoting
Mr. Rogers, I will ask you to comment on his brief at Paragraph 11 of their
argument. I do not know whether you
have it with you. Picking up on the
competition law point. Do you have
it there? Paragraph
11?
1442
MR. BIBIC: I
do.
1443
THE CHAIRPERSON: The last
sentence:
"Although those ILECs tout greater reliance on competition law
principles, no competition law authority would consider a market in which a
former monopolist retains 95 percent of the market as workably
competitive."
1444
Would you comment on that?
Do you think it is a correct statement, for one?
1445
MR. ERGAS: In my
experience at least, Mr. Chairman, competition law authorities do not rely
solely on market share to determine competitive conditions and there are a
number of instances in which a competition authority looking at a market in
which an incumbent has a high market share determines that nonetheless the
competitive pressures in that market are strong as a result of the ease of entry
or of expansion of existing competitors.
1446
And coming back to the point that Mirko was making a moment
ago ‑‑
1447
THE CHAIRPERSON: Sorry,
Mr. Ergas, your responses are a bit long for the
question.
1448
MR. ERGAS:
Sorry.
1449
THE CHAIRPERSON: I don't
mean to interrupt you, but the question very simply was is this a correct
statement and you are free to elaborate, but that was the
question.
1450
MR. ERGAS: No, I don't
believe it is correct, sir.
1451
THE CHAIRPERSON: Okay. Is there a competition law authority
that you would cite that does consider a market in which a former monopolist
retains 95 percent market as workably competitive?
1452
MR. ERGAS: Well, there
is two points there and I hope I am not breaching your request to not be too
long.
1453
I think the first point is that there are cases where incumbents have
high market shares and competition authorities looking at those market shares
have nonetheless concluded that the incumbents face strong competitive
disciplines and to cite ‑‑
1454
THE CHAIRPERSON:
Mr. Ergas, again, I commented on this morning's panel, they were
responsive. It really helps if you
are responsive to the question.
1455
The question is a simple one.
You said that you didn't agree.
1456
MR. ERGAS:
Yes.
1457
THE CHAIRPERSON: And I asked
you was there a competition law authority who took those numbers and declared
the market workably competitive and if so which one?
1458
MR. ERGAS: Yes. Well, I was about to address that
specifically, Mr. Chairman, and I apologize if I seemed not to be answering
your question.
1459
But I was quite recently involved in competition law proceedings in
Italy, which involved Telecom Italia, and the market at issue was the supply of
services to very large business customers, including public authorities, and
Telecom Italia had close to the entirety of the relevant market and in the case
of the public authorities had a hundred percent of the relevant market, yet the
market at issue was strongly competitive because there were major customers who
were in a position to put out and did put out major tenders and in the context
of those tenders there were a number of suppliers who were able to meet the
tenders.
1460
So as a statement of fact, that assertion seems to me to be
incorrect.
1461
Now, additionally, it seems to me, Mr. Chairman, and I accept that
this is going perhaps a bit beyond your question ‑‑
1462
THE CHAIRPERSON: Then please
don't.
1463
MR. ERGAS:
Okay.
1464
THE CHAIRPERSON: Because I
would like to move on with the next one, if I could.
1465
If you could, Mr. Ergas, provide a reference to that example you
cited in case ‑‑
1466
MR. ERGAS: Yes, I
will.
1467
THE CHAIRPERSON: ‑‑ the Rogers people wish to examine it when they
have a chance that would be helpful.
1468
MR. ERGAS: For
sure.
1469
MR. BIBIC:
Mr. Chairman, if I may say a couple of words on the point. One is that the Bureau also indicates on
the record in response to CRTC's Interrogatory 502, that you can have an entity
in a market with a hundred percent market share, yet not have market power if
entry is timely, likely and sufficient, and I think in this case we have in many
markets entry which ‑‑ well, it's not likely, it is here. And is it sufficient? Oh, it is vigorously
competitive.
1470
And in terms of an example where regulatory authority ‑‑ mind you,
it is not a competition authority, but a regulatory authority finding a market
workably competitive at 95 percent, I would say that the Commission itself has
found markets to be workably competitive at 95 percent and I will give you two
quick examples.
1471
The cable deregulation test, the Commission has found time and again
since 1998, including twice last year, that cablecos are dominant in the cable
BDU market, yet that customers nevertheless have competitive alternatives
sufficient to allow for cable basic rate deregulation.
1472
The other example I would give is the IXPL market, which I would point
out is a very narrow market definition, it is point‑to‑point, and when there
is ‑‑ you know, there can actually be forbearance with a hundred percent
market share, because all you need is the presence of an alternative facility
and evidence that a customer has received two bids.
1473
THE CHAIRPERSON: Thank
you. Okay. I will leave it to the Rogers people to
respond to that, if I they wish.
1474
Turning to your measurement of this 95 percent, Mr. Bibic, which is
paragraph 101 of your argument of September 15th, just to understand it, I think
we have discussed the concept and the logic of it in an earlier exchange, but
just to understand your formula, I understand it is the sum of non‑ILEC local
connections and I assume you mean non‑wireless local connections there; is that
correct?
1475
MR. FARMER: That's
right.
1476
THE CHAIRPERSON: Right. And then plus all wireless only. Now, would you include in all wireless
only your own company's wireless subscribers?
1477
MR. FARMER: Yes, I
would.
1478
THE CHAIRPERSON: Okay. Could you explain how that would be
appropriate?
1479
MR. FARMER: Yes,
because what we are putting in the numerator here, of course, are those things
which would be substitutes or alternatives to our own regulated services and for
many of the reasons which I will not repeat that we went earlier with our
discussion about wireless, wireless too is a substitute for our wireline
services.
1480
Now, remember, we are talking about wireless only, so again we had hoped
to at least come to a consensus that surely for those people who had chosen to
completely cut the cord and go to wireless only that would be seen to be a
replacement for the wireline service.
So we have included those in.
1481
Our wireless service, just as Telus' wireless service or Rogers' wireless
service, would be a substitute for our wireline service.
1482
And I may be repeating a little bit of what Ms Tulk talked about this
morning. Our wireless service, of
course, has a good deal of market discipline imposed upon it as well by both
Rogers and Telus. Therefore I think
the theoretical concern that there might be some kind of gaming between our
wireline and our wireless is theoretical only, strictly academic and not really
practical.
1483
THE CHAIRPERSON: Okay. And I understand that your position is
that the wireless market as we discussed earlier, is part of, say, the
residential market, but for the purposes of this calculation you are including
only the wireless only, but I guess I understand that you are saying that your
wireline side lost the customer that shifts to your wireless side, but assuming
for argument's sake that you had a third of that five or, say, two percent of
that five, then you would really still have 97 percent as a company, but that
would pass the test because 2 percent had migrated over from wireline to
wireless.
1484
MR. FARMER:
True.
1485
THE CHAIRPERSON: So at a 97
percent level of your calculation, you would still think it was appropriate
to ‑‑
1486
MR. FARMER: Well, the
way I would put it, to use your example, 95 percent of the wireline services,
either are legacy wireline service or a VoIP service would continue to be
serving customers. Two percent of
those customers, wireline and VoIP customers, possibly, would have determined
that a wireless substitute was the way that they wanted to go. Some of them would have chosen ours and
some of them would have chosen Rogers or Telus.
1487
But yes, we would have included those in the
calculation.
1488
THE CHAIRPERSON: I think I
have that position; thanks.
1489
Turning to the issue of the powers that you are suggesting we should
forbear from, should we determine to forbear, I think I have your position on
that. The question really is on the
term in section 34(2), the interests of users.
1490
I am wondering what you would categorize under the interests of users,
competition sufficient to protect the interests of users. What do you understand that as
meaning?
1491
MR. BIBIC: I think the
fundamental premise of what underpins 34(2), in our submission, is that market
forces are best able to protect the interests of users, and the Commission
should rely on market forces where it finds that competition is sufficient. That, in and of itself, will protect
those interests.
1492
THE CHAIRPERSON: Right. It is those interests that I would like
to explore for a moment. I think
you address a number of points. You
talk about social and economic issues and that harkens back to the objectives of
the Act.
1493
So the interests are not purely economic, you would agree. The interests of users would be social
as well?
1494
MR. BIBIC: And there would
be technical interests. Users would
want networks to interconnect so that if you are on one provider's network and
you would like to talk to somebody on the other provider's network, sure, there
would be those interests as well.
That is not at issue in this proceeding.
1495
THE CHAIRPERSON: In your
view, does the principle embodied in section 27(2) of the Act, which is
effectively the time honoured rule against unjust discrimination, undue
preferences and disadvantages, and so on, is that an interest of consumers that
you think should be looked at by the Commission as being
protected?
1496
Should we read that into the interests of users, to not be discriminated
against unduly?
1497
MR. BIBIC: It is difficult
to answer that question without knowing how the Commission is going to interpret
going forward what unjustly discriminate means.
1498
There is absolutely nothing discriminatory in providing, for example,
different prices to different consumers depending on the state of competition
one faces. In fact, all of our
competitors do it, and the Commission acknowledged that that is not a problem in
forbearing from regulation of CLEC rates a while ago.
1499
If retaining 27(2) acted as a means to prevent a forborne incumbent from
differentially pricing, then I would argue quite the contrary. Retaining that power is against the
interests of users, and I think there is a lot of evidence on the record on that
point, including evidence we filed from policy makers around the world on that
point.
1500
THE CHAIRPERSON: I take your
point on that. I would argue that
it is while discriminatory, not unjustly discriminatory. And that is really the test, isn't
it. It is discriminatory on its
face in the example you gave.
1501
The same product, two customers, different prices, is on its face
discriminatory. That is not the
offence. The offence is for it to
be unjustly discriminatory and the exercise is justifying that discrimination,
which I think I have heard you on.
1502
If you have a different interpretation of that, let me hear
it.
1503
MR. BIBIC: I agree with the
way it was expressed, and it does roll freely off the tongue, except the magic
is in its actual application. The
rules currently prevent us from doing the very thing, Mr. Chairman, that
you described.
1504
THE CHAIRPERSON: Right. I understand that, but we are looking at
a forborne environment.
1505
What I would ask you is it seems to me ‑‑ and I could be wrong. But in practically all ‑‑ I think
there are one or two instances and you maybe cite them in your evidence; I don't
have it right before me now ‑‑ where the Commission in forbearing from rate
regulation has maintained section 27(2).
1506
I would ask you: In your
experience, are there any cases where the retention of that provision has in
your view hampered a competitive marketplace in the past?
1507
MR. BIBIC: Again, it depends
on its application. If we were to
be forborne yet the Commission prevented price differentiation along the lines
we have been discussing, then it would hamper the development of the competitive
market.
1508
There is no specific example I can point you to.
1509
Of course, as you know, Mr. Chairman, we are also saying that the
price discrimination rule should be lifted even without forbearance. We have made that submission in the
context of transitional measures.
1510
THE CHAIRPERSON: I take that
and I understand your apprehension.
I can't think of the application of 27(2) and forborne markets that would
have given rise to those concerns.
That is why I asked the question.
1511
MR. BIBIC: Perhaps it would
be easier for me to answer if you presented to me a fact situation where you
feel that the Commission might want to retain that power, because if it has
never come up then I would question why the Commission would want to keep
it.
1512
THE CHAIRPERSON: Well, ARCH
raises one, protecting people with disabilities, for instance. I assume your answer would be to use
section 24 for that.
1513
Is that correct?
1514
MR. BIBIC: There would
always be the ability for the Commission, in granting forbearance, to apply
conditions to that forbearance. And
in very many social policy cases, it may make sense provided again that the
conditions are applied in a competitively neutral manner and they should be
focused on the harm that you are seeking to address or the social objective you
are seeking to pursue.
1515
THE CHAIRPERSON: Right. If you don't have the express reference
to unjust discrimination, you can use section 24, and I guess at that point you
would have to use it in reference to the objectives of the Act without having
forborne from 27(2) and arguing that the competitive market should have taken
care of all cases of discrimination.
1516
I can see where a party like ARCH might consider that it might be an
added support to their position, but I hear what you are
saying.
1517
I am trying to locate it, but in your argument at one point you provided
us with a list, as you had in your submission, a series of powers that you
thought should be maintained.
1518
I can't locate it right off.
Maybe you can.
1519
Among the list of things that you dealt with were rates. It might have been the rates for
services to competitors. As we
discussed this morning, that category of services is not part of the present
proceeding.
1520
In your view, section 27(1) should be entirely forborne from. In other words, having found that the
conditions are such that the interests of users would be protected, we should
find that all rates should be in effect deemed to be just and reasonable in the
competitive environment.
1521
Is that correct?
1522
MR. BIBIC: Certainly where
we face competition or where Aliant would face competition in its territory from
the competitive providers, yes, the market will dictate what those prices are
and they will be just and reasonable by definition, in our
submission.
1523
THE CHAIRPERSON: Right. Even under your proposal of the
geographic area, and certainly under even a broader one, the issue of
discrimination ‑‑ we have addressed it indirectly ‑‑ you think that it
would be an undue interference with competition for that to be retained, the
pockets that we spoke of earlier?
1524
MR. BIBIC: I do and I do for
this reason. Let's take the
pockets, whether or not they are small and theoretical in our definition or
larger in some of the other geographic markets proposed.
1525
You have three potential scenarios with respect to the pricing to those
pockets. Prices remain exactly as
they are today for those pockets, and if those rates are just and reasonable
today they will be just and reasonable tomorrow, keeping in mind that charging
different prices to different consumers isn't unjustly
discriminatory.
1526
That is situation one.
1527
In situation two the rates go down by the same amount as the rates go
down for the competitors or the customers who face competition. That is good. It shouldn't be unjust and
unreasonable.
1528
The third scenario is that rates go up. What we are saying on that point ‑‑
and Drs. Gillen and Ross seem to agree ‑‑ is that is not going to happen,
given the structure of the environment.
Should it happen, the competitors will be more than happy to step in and
offer service to those customers and keep those prices back down to reasonable
levels.
1529
THE CHAIRPERSON: Thank
you.
1530
The paragraph I was referring to was 206 in your original
submission. It does refer to rates
for interconnection and call termination, as well as other
arrangements.
1531
Is your position similar to Aliant's, that in effect those rates ‑‑
the reference to them would imply keeping section 25(1) except that the exchange
that we had this morning was that those are not services within the scope of
this proceeding.
1532
Would that be your view?
1533
MR. BIBIC: Could you would
give me a moment to reread it?
‑‑‑
Pause
1534
MR. BIBIC: I apologize for
doing this to you, but now that I have read it, would you please repeat the
question for me.
1535
THE CHAIRPERSON: Your
reference to rates for those services, is it your position that that category
remains something that is outside the scope of this
proceeding?
1536
MR. BIBIC: It is outside the
scope of this proceeding.
1537
THE CHAIRPERSON: Turning
briefly to post forbearance criteria, the fifth question, I think again your
position is clear and I don't need to get further information except at perhaps
a higher level.
1538
The level is with such a low threshold, if one makes the
assumption ‑‑ and you may not feel it is that low. But if you assume that it is low for
purposes of this question and the market conditions are such that particularly
with your wireless customers as part of the numerator that you get back over 95
fairly quickly, I think your company's position is unless it is ‑‑ I forget
what you said. Compelling is the
word that remains in my mind.
Unless there is a compelling case for it, you should just leave it
be.
1539
So although you automatically are forborne at the 95 level, if it floats
back up to 96 or 97, you don't re‑regulate. You just let it go unless there is a
compelling fact based application to re‑regulate.
1540
Is that a fair summary?
1541
MR. BIBIC: Yes, that is and
maybe I can explain why, which is not necessarily in our
submission.
1542
There is a cost to regulation.
There is certainly a cost to re‑regulation, given the uncertainty it is
going to create as you flip‑flop between regulation and re‑regulation, depending
on whether or not you trip over that threshold or trigger.
1543
Who is to say that ‑‑ well, under our test there will be forbearance
once we are down to 94 per cent, 95 per cent. If we creep back up to 96 per cent, who
is to say that that is not as a result of superior competitive
performance?
1544
It ought to be the Commission's role to make sure it steps in in cases of
market failure. So if we regain
that share because of superior competitive performance, that is what is supposed
to happen. There will be no market
failure. There will be actually the
proper working of a market.
1545
It is for that reason that we should not, given all is well with the
costs, the regulation, there should not be a kind of going back and forth,
depending on whether or not you trip over that threshold
line.
1546
THE CHAIRPERSON: I guess for
a number of parties, a higher competitor share threshold might make them more
relaxed about the point you are raising.
At the 95 per cent level, it becomes fairly close to re‑monopolization
under the scenario we just discussed, so naturally the concern level
rises.
1547
MR. BIBIC: At this point I
think it is appropriate to take a step back and to think about the competitive
pressures that we are facing.
1548
That proposition that is put to me is in effect saying some competitors
might need kind of an umbrella or a cocoon so that they can grow up to be
strapping young men. In many cases
across the country we face competition from entities who certainly don't need
any type of protection, given their size, their customer relationships and their
networks that they have invested in to provide altogether ‑‑ well, not
altogether different services, but to provide cable television services and
broadband services.
1549
So those aren't the type of competitors who require any protection
whatsoever.
1550
THE CHAIRPERSON: Mr. Bibic,
the section of the Act we are speaking about doesn't deal with protecting
competitors at all, and that is not what it is about. It is about the interests of users. So this discussion is in that
context.
1551
I hear what you are saying, but I don't know that it is material to the
determination we have to make.
1552
MR. BIBIC: It certainly is
material, because the Commission does continually refer to the statement in its
decisions that it seeks to balance the interests of competitors, ILECs and
customers. I don't see that
objective in the Act personally.
1553
One could interpret many Commission decisions as trying to protect
competitors, in fact, so it is certainly germane. In the fact scenario I gave, where we go
from 94 back up to 96 per cent, there is no evidence there just by the mere fact
of crossing that threshold that user interests aren't protected. The 2 per cent of users might have come
back to the ILEC simply because the ILEC gave them a better service offering or
better price.
1554
That is not detrimental to the interests of users at
all.
1555
THE CHAIRPERSON: No. On the point about protecting
competitors, that wouldn't be an objective. Taking account of the interests of the
ILECs and the competitors and the users is indeed something that we do on an
ongoing basis.
1556
Your suggestion that the cable companies don't need protection suggested
that that was the aim of this proceeding.
I think the aim of this proceeding is to try and determine what is in the
interests of the users and to what extent forbearance should
ensue.
1557
As a means of getting there, naturally one looks to the environment that
one is in. There are competitors
there, and to the extent that their prematurity regulation occurs, there is an
effect on competitors which ultimately redounds to the disbenefit of
consumers.
1558
In that sense it is pertinent, but competitor protection per se is not
one of the objectives.
1559
MR. BIBIC: Hence the reason
for our submission that if the Commission seeks to re‑regulate, it should do so
after examining whether or not consumer interests have indeed been harmed rather
than simply re‑regulating once the magic number has been
crossed.
1560
THE CHAIRPERSON: I have your
position. I guess an appropriate
process is for forbearance applications again. Again it is fairly clear what your
position is: the automaticity and the data gathering methods. I don't have any particular questions on
those.
1561
I have also read the evidence on your transitional regime, and for the
moment I don't have any questions on those.
1562
Those are my questions.
1563
Commissioner Cram.
1564
COMMISSIONER CRAM: Thank
you.
1565
When you were talking with the Chair about the 5 per cent, it struck me,
and it struck me throughout this proceeding, that I have read, I think, all of
the economists' opinions ‑‑ and what an exciting read it
was.
‑‑‑ Laughter /
Rires
1566
COMMISSIONER CRAM: And yet I
have seen none, not one economist on behalf of any of the ILECs say that 5 per
cent was an appropriate number.
1567
I have seen economists, Dr. Bauer for PIAC, giving percentages, 80 and
70, I think, and the individuals for the CCTA giving actual numbers. I have never seen anybody have the
intestinal fortitude to actually say 5 per cent is a sufficient
number.
1568
I recognize, Dr. Ergas, that there are all these other issues, rivalrous
behaviour, et cetera, but nobody yet has said 5 per cent in any economic
expert report. Why is
that?
1569
MR. BIBIC: We have one here
and we could have asked Margaret earlier this morning.
1570
MR. ERGAS: In my case, the
reason I really didn't go to the 5 per cent number was because it appears to me
that that 5 per cent number, in part, draws on a precedent in Canada that I am
not horribly familiar with and have no claims to be horribly familiar
with.
1571
But if you put it to me as a question whether I think that 5 percent is
reasonable or unreasonable, I think it is a reasonable number. It is not a number that you can readily
derive as a matter of economics. I
mean, economics doesn't tell you that it should be 5 percent or 2 percent or 7
percent of 12 percent and I don't believe that any of the economists in these
proceedings have a formula which would allow you to calculate such a threshold
with that degree of accuracy and as a result a reasonable thing for an economist
to do, he is to not pretend to be able to be more precise than the discipline
allows us to be.
1572
However, what I do believe we can do ‑‑ and I think that on this
issue there is a relatively high degree of consensus amongst the economists of
almost all types involved in these proceedings ‑‑ what we can do is analyze
the conditions and forces that are at work in the relevant markets and come to a
broad view about those. And where I
think that consensus lies is that when you look at telecommunications in Canada
and worldwide and perhaps particularly so in Canada where you have so much
facilities‑based competition the conditions for competitive behaviour, the
conditions that would make for rivalry are very strong and the entry or
expansion barriers that competitors would face are low. And given those underlying conditions,
that creates a strong presumption that competitive markets will work. And given that strong presumption that
competitive markets will work and will work effectively, then if you do want to
define a threshold it is very reasonable in defining such a threshold for
removal of regulation of the provision of retail services to set that threshold
at some very low number. Seen in
that context, without pretending that there is science in 5 percent any more
than there is science in saying that people should be allowed to vote at age 18
and not at age 17.98 or drive at a particular ages, then that number seems
sensible.
1573
COMMISSIONER CRAM: Thank
you. Indeed, the only reason I have
noticed for the 5 percent given in this appears to be the cable
deregulation. It has been argued
that this isn't the same thing.
What is your response to that?
1574
MR. BIBIC: Well, I think it
is a little over simplification of our case to say that the whole 5 percent
rests on the cable deregulation tests, certainly in our case. I am not going to repeat what Henry said
or what I answered earlier in response to the Chair's question, but it is part
of the overall observation of the market.
1575
I think there was one interrogatory response which I found particularly
instructive and it came from Telus in response to someone's question. It was Dr. Khan saying for over 50 years
he has been urging people when they are assessing a state of competition to
simply take a step back and look at the market. And in markets where there has
been ‑‑ certainly where there has been cable entry the markets are very
competitive. So the 5 percent isn't
based only on cable deregulation.
The reference to the cable deregulation test was meant to indicate to the
Commission and the Commission agrees with these types of analyses. Because, again, in that case it wasn't
just picking 5 percent out of thin air, it was ‑‑
1576
COMMISSIONER CRAM: Mr.
Bibic, the question was tell me why you disagree with the cable companies saying
the 5 percent should not apply here.
1577
MR. BIBIC: Well, I will get
to that, but I also ‑‑ I just didn't agree with the
characterization ‑‑
1578
COMMISSIONER CRAM: Well,
that was the question.
1579
MR. BIBIC: ‑‑ but there was ‑‑ the
preface ‑‑
1580
COMMISSIONER CRAM: That was
the question.
1581
MR. BIBIC: ‑‑ Commissioner Cram, to the question was that from what
you have seen that the only reason for the 5 percent proposal is that is what
happened in cable deregulation and I am disputing that
premise.
1582
COMMISSIONER CRAM: I hear
you.
1583
MR. BIBIC:
Okay.
1584
COMMISSIONER CRAM: Now
answer my question.
1585
MR. BIBIC: The cable
companies state that it is different and my answer also went to that. It is not different. In that case, there was an examination
and a consideration and decision by the Commission that the cable cos were
dominant, which continues to be the Commission's view. Yet at 5 percent share loss coupled with
the availability of alternatives to at least 30 percent of the population in a
cable serving area, that that would indicate to the Commission that there were
competitive alternatives to customers in the cable serving area. So the principles are not
different.
1586
Now the cable cos eight years later or seven years later have come up
with again some creative math to say well the 5 percent test is in fact not 5
percent, it is something like 30 percent because you have to include in the
market over‑the‑air or off‑the‑air TV, you know, rabbit ears. Well that is kind of brand new and it
came eight years after the fact and the Commission certainly doesn't agree, I
don't believe, that over‑the‑air television is part of that market. Had over‑the‑air television been viewed
by the Commission as being part of the market there would have been no need for
the second part of the test, which is 30 percent availability of a competitive
alternative, because over‑the‑air TV is available to everybody
everywhere.
1587
COMMISSIONER CRAM: Is there
something ‑‑
1588
MR. ERGAS: If I
may ‑‑
1589
COMMISSIONER CRAM: ‑‑ that would allow us to distinguish or would
actually force us to distinguish between that, the cable test ‑‑ the dereg
test and telephony? And the reason
I say that is I don't think cable video is a necessity. It is entertainment. I think telephony is essential and if
the market, the telecommunications market, crashed as a result of our decision
it would be a far more serious issue.
1590
So would that not be a reason for treading more
carefully?
1591
MR. ERGAS: With all respect,
I suspect that there are many, many consumers who view television and all of its
forms as relatively essential. But
without wanting to ‑‑
1592
COMMISSIONER CRAM: But they
don't die if they don't have it.
1593
MR. ERGAS: I accept
that. Without wanting to go there,
it does seem to me that, if anything, the competitive conditions in
telecommunications are far more favourable to entry than they have historically
been in broadcasting and in cable provision. And if you look particularly at what is
happening to telecommunications at the moment in going forward, there is
enormous scout created by technological change for new entrance to and new forms
of services to come to the market and that is really what we are
seeing.
1594
So if you examine the evidence with respect to the markets that you are
discussing here, I suspect that entry conditions and inherently therefore
competitive pressures are greater and more favourable to competition developing
than may well have been the case at the time when you set that 5 percent
test. Indeed, there is some
evidence that has been put to you in these proceedings, particularly by Dr.
Crandall, who has the question of the costs of cable entrance and VoIP entrance
into the telecommunications market and finds that those entry costs and
expansion costs are extremely low.
And, as a result of that, the conclusion that I believe you could
sensibly draw is that the risk of forbearance leading to adverse outcomes to
consumers in this market would be really quite minimal.
1595
MR. BIBIC: Commissioner
Cram, I would point to paragraph 3(1)(b) of the Broadcasting Act which declares
the Canadian Broadcasting System to be a public service essential to the
maintenance and enhancement to the national identity and cultural
sovereignty. So there is certainly
a view that broadcasting is a public service essential in that respect. I know it is anecdotal of course, but
certainly ‑‑ be some people within our communities who would view
broadcasting to be more important to them than a
telephone.
1596
And let us take a step back and think about what would happen with
forbearance. It is not that local
exchange services would disappear, they would still be there and we would still
be offering them on an unregulated basis and prices may very well and in fact
will go down, so those services will remain.
1597
COMMISSIONER CRAM: You were
saying that ‑‑ I think you were saying or you were quoting in your
introduction today the people from Aliant who said that all of our forbearances
were wonderful successes and away we go.
It is true, we are looking at IXPL all over again, isn't
it?
1598
MR. BIBIC: The Commission is
looking at it, yes.
1599
COMMISSIONER CRAM: Yes, and
we are considering re‑regulating it.
So you can't say that really was one of our great successes, at least at
this point in time.
1600
MR. BIBIC: Well, I can
actually spend a lot of time debating the point with you as to whether or not
those markets should be re‑regulated if you wish. I think the evidence from the consumer
groups in that proceeding, the customer coalition was that Commission please
stay away, we are getting the benefit of full competition here and the prices
have gone down and we are happy.
1601
COMMISSIONER CRAM: I wanted
to talk about ‑‑ one of the experts talked about passive competition and
referred to some company in the United States who essentially passively competed
until the market share dropped to the necessary number and then went back to
marketing again. With a 5 percent
threshold that is pretty easy to do, wouldn't you think? You just sit on your hands until you
lose the market share?
1602
MR. BICKLEY: If I may take
this one. I think that concept is
not grounded in how any ILEC would behave or how they behave. In today's environment you can't roll
back technology. Customers have
choice. There is nothing we can do
to stop the broadband revolution, the IP revolution that has come. You look at the Eastlink's success, you
look at the Videotron's success. As
a matter of fact every cable competitor has said that overall that the demand is
exceeding their expectations, they are pleased with it, those types of
things. You can't sit back and do
that. It would be very damaging to
even engage in that type of strategy.
So you do everything you can to improve your service. Telecom is such a momentum business that
you can't start and stop stuff on a dime.
It is a very large organization and it takes very hard work to build
those processes and procedures and it is not something that you can start‑up and
shut down on a whim.
1603
MR. BIBIC: We couldn't
manage the market successfully in that manner any more than anybody else
could.
1604
COMMISSIONER CRAM: I am
going to go down to my normal questions that I need to figure out. I know you have 71 LIRs ‑‑ 79 LIRs
in your operating territory. Can
you, in the fullness of time, let me know how many exchanges, how many A
exchanges, how many B exchanges and the average number of people in each
exchange?
1605
MR. BIBIC: We can certainly
provide all of that in writing to you, absolutely.
1606
COMMISSIONER CRAM: It
sounds, Mr. Farmer, like the way you are talking about at least cable company
competition that cable companies are going into groups of exchanges at a
time. Is that what is
happening?
1607
MR. FARMER: Well, they have
indicated the exchanges which they intend to enter, but haven't indicated the
time period over which they are going to do it. So how many they are going to do at a
time it is not clear.
1608
COMMISSIONER CRAM: I guess
my last question is, because I am concerned about the differing sizes of
exchanges, if we put a minimum number population‑wise and simply left it to you
to pick the exchanges as a group or something would that pose problems? Now I don't know how many people are in
an exchange, but if we said 10,000 ‑‑ a minimum of 10,000 into groups of
exchanges, because it appears that Aliant is essentially applying for groups of
exchanges. That sort of would make
more sense than what are there, 2,800 exchanges in Canada?
1609
MR. FARMER: Well, let me
make sure I understand the scenario you are presenting. But just the fact, the number of people
or customers in an exchange, maybe that is ‑‑ it is really customers that
you were looking for?
1610
COMMISSIONER CRAM:
Yes.
1611
MR. FARMER: A range from the
very small to the very large, exchanges can be quite small, literally three
digits. And Toronto is extremely
large, so there is quite a broad range. But to clarify the question, am I correct
in interpreting your question to mean what if when we looked at groupings of
exchanges for a forbearance decision we only looked at groupings no smaller than
so many customers? Is that your
question?
1612
COMMISSIONER CRAM:
Yes.
1613
MR. FARMER: Well, I mean I
suppose one could do that. It would
leave a certain amount of leeway, of course, in terms of picking those. If the number was small enough then it
probably wouldn't be terribly onerous, but it all depends on the number. If you pick a large number and therefore
you are looking at large aggregations of exchanged necessarily, then you are
probably going to run into the same problem that we have talked about in the
local calling area in the LIR.
1614
COMMISSIONER CRAM: On the
other hand, even if it is a pass‑through kind of a system, I am not sure I would
be keen about seeing 2,000 applications for a forbearance
because ‑‑
1615
MR. FARMER: No, I understand
that. And probably in practice what
would happen was a number of exchanges would be identified at the same time
saying these meet the threshold, exchange by exchange, and you may do, you know,
several dozen at a time. So I
think, practically speaking, we are probably going to be in the same spot. The difficulty with aggregating
exchanges is, as I indicated, it is a question as to whether the competitive
conditions would be reasonably similar among them.
1616
COMMISSIONER CRAM: Thank
you. Thank you, Mr.
Chair.
1617
THE CHAIRPERSON: We are
through with our questioning for this panel. Since we haven't used up all the time we
are going to start at 9:15 tomorrow.
1618
Nous reprendrons demain matin à 9 h 15.
1619
Thank you very much to the panel.
‑‑‑ Whereupon
the hearing adjourned at 1720, to resume
on Tuesday, September 27,
2005 at 0915 / L'audience
est ajournée à 1720, pour
reprendre le mardi
27 septembre 2005 à
0915
REPORTERS
____________________
____________________
Richard
Johansson
Fiona Potvin
____________________
____________________
Jean
Desaulniers
Marc Bolduc
____________________
____________________
Johanne
Morin
Sandy Kelloway