ARCHIVÉ -  Transcription

 

 

 

 

 

 

              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 RÉGLEMENTATION 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 29, 2005                    Le 29 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 RÉGLEMENTATION 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 Noël                       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 29, 2005                Le 29 septembre 2005

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

 

PRESENTATION BY / PRÉSENTATION PAR

 

Cogeco Cable Canada Inc.                         1058 / 5600

 

Shaw Communications Inc.                         1105 / 5873

 

Rogers Communications Inc.                       1185 / 6341

 

Québecor Média Inc. / Vidéotron Télécom ltée     1268 / 6844

 

EastLink Telephone                               1329 / 7227

 

                  Gatineau Quebec / Gatineau (Québec)

‑‑‑ Upon resuming on Thursday, September 29, 2005

    at 0930 / L'audience reprend le jeudi

    29 septembre 2005 à 0930

5595             THE CHAIRPERSON:  Order, please.  À l'ordre, s'il vous plaît.  Good morning, everyone.

5596             Madame la secrétaire...?

5597             THE SECRETARY:  Thank you, Mr. Chairman.  Bonjour, tout le monde.

5598             Please note that Panel 14, Rogers Communications Inc., traded places with Panel 16, Cogeco Cable Canada Inc.

5599             Nous allons procéder maintenant avec Cogeco.  Thank you.

PRESENTATION / PRÉSENTATION

5600             MR. MAYRAND:  Thank you.

5601             Good morning, Mr. Chairman and Members of the Commission.  I am Yves Mayrand, Vice-President Corporate Affairs, Cogeco Cable Inc.  With me today are, on my left, Ron Perrotta, Vice-President, Marketing and Sales; on my immediate right, François Audet, Director, Telecommunications and, to his right, Michel Messier, Director, Regulatory Affairs, Telecommunications.

5602             Merci de nous recevoir dans le cadre de cette importante audience publique.

5603             As you probably know, Cogeco launched its digital phone service last June in the cities of Burlington, Oakville and Trois-Rivières.  We have since rolled it out to Windsor, Drummondville and St-Hyacinthe.  This new service is essentially offered to residential customers.  At this time, we plan to extend it gradually to most cities served by Cogeco, hopefully by December 2006, but obviously only where we can have a reasonable expectation that the service will be economically viable in the long run.

5604             The outcome of this proceeding is just as vital for us as the outcome of the VoIP proceeding.  We waited for your decision and we relied on it for our own decision to enter into the residential local telephone market.

5605             In that decision, you confirmed that local VoIP services, dependent or independent of access, should be regulated as local exchange services.

5606             Of more direct relevance for the current proceeding, the Commission decided to deny the ILEC requests for forbearance from the regulation of local VoIP services.  Without ambiguity, the Commission based its determination on the fact that eight years after local competition was officially introduced the ILECs continue to be the dominant providers of local exchange services in Canada.

5607             The local market data recently released by the Commission has confirmed this undeniable fact.  Indeed, at the end of 2004, the ILECs accounted for 97 percent of revenues for local residential services on a national basis and continued to hold almost 100 percent market share in several local residential markets.

5608             There is no guarantee of financial success in the local telephony market, nor are we seeking such a guarantee from the regulator.  All we are asking for in this proceeding is predictability and consistency of the rules set by the Commission and a fair chance to roll out our service throughout our service area and to capture a sustainable position in the market as a new entrant before you leave it all to market forces.

5609             Competition should have a decent opportunity to take hold in the local telecommunications market before forbearance occurs.  Indeed, you must consider not only the establishment of competition but also the continuance of competition.  The benefits of that competition should extend to all regions of Canada, not just the largest cities in the country.  That is what the Telecommunications Act clearly contemplates, and it makes sense.

5610             The public interest would not be served if you did not make the right call the first time and you had to re-regulate because competition, and particularly facilities-based competition, did not take hold in the local telecommunications market across Canada.

5611             As a member of CCTA, Cogeco fully supports CCTA's proposed local forbearance framework and criteria.  We would like to focus our presentation today on the barriers that we must still overcome for effective entry into the core residential market of the incumbent telephone companies.

5612             François...?

5613             MR. AUDET:  Thank you, Yves.

5614             Cogeco operates cable systems dispersed throughout the provinces of Québec and Ontario, that embrace 83 exchanges in 41 LIRs, involving some metropolitan, but mainly mid-sized and smaller urban and rural areas.  This geographic diversity creates a particular challenge for Cogeco to expand its telephony offering throughout its serving territory.

5615             While urban metropolitan areas are likely to provide reasonable penetration and yield satisfactory economics, smaller centres remain a challenge.  Cogeco plans to roll out its telephony offering gradually to most of its territory by the end of 2006, but smaller markets will likely remain unaddressable under the current interconnection regime.

5616             Further, Cogeco needs to obtain PSTN connectivity to all ILEC exchanges where it wishes to provide its telephony offering.  Instead of establishing its own local interconnection LIR by LIR, exchange by exchange, Cogeco has opted to obtain its PSTN connectivity through an arrangement with a third party, namely Telus, in a manner that assures compliance with Decision 2005-28.

5617             Cogeco believes that direct interconnection is an option in the long run, as it may provide better control over costs and more operational flexibility.  However, despite the improvement brought by the establishment of LIRs, Cogeco is still of the view that the current local interconnection default model would have been uneconomical for Cogeco in almost all the local markets that it services due to higher initial capital cost and insufficient returns.

5618             This remains a high barrier to entry for a carrier that primarily serves the residential telephony market, particularly outside of the large metropolitan areas.  In smaller markets, it has become critical to create synergies with a partner whose business model is highly complementary to our own.

5619             In this regard, Cogeco submits that it is urgent that a new VoIP-to-VoIP interconnection model be implemented to reduce the barrier imposed by the current default local interconnection model.  VoIP-to-VoIP interconnection should be inspired by the highly successful and efficient IP peering model that has developed between nearly all ISPs, where no compensation is paid, and where traffic is exchanged in neutral third-party controlled locations.

5620             It should be noted that Telus does not operate as a CLEC throughout Bell's territory and, therefore, significant time and effort is required for Telus to establish the necessary interconnections with Bell.  As a result, Cogeco's deployment schedule is lengthy, and one of its critical elements is Bell.

5621             It is a priority at Cogeco to assure telephony service reliability.  To this end, we are improving electrical powering of HFC network active components, we are building redundancy in key telephony network elements, including headend equipment, softswitches, trunking gateways, routers, and servers.  Likewise, we are splitting a number of optical nodes to increase network capacity.  This represents significant reinvestment in our networks.

5622             In order to be able to provide telephone service meeting CLEC requirements, Cogeco has also had to implement several business processes related to the portability and activation of telephone numbers, the provisioning of the emergency services database, the availability of equal access, directory listings, and the list goes on.

5623             These business processes have had to be developed, put in place, refined and automated.  These processes are new to Cogeco and require major modification, development and testing of our provisioning systems on an ongoing basis, as well as substantial learning for our staff.

5624             In light of these challenges, the contrast with Bell is overwhelming.  Last March Bell launched its Digital Voice Service, renamed Digital Voice Service Lite, in three cities in the Province of Québec.  Six months later, not only did Bell announce that this service will be available throughout the provinces of Ontario and Québec, but it also announced that its new Digital Voice service, offered initially in Toronto and Hamilton, will be extended within a month in major Ontario and Québec cities.

5625             This demonstrates that Bell has a deployment capacity that is vastly superior to that of a new entrant in the local market such as Cogeco.  It is currently impossible for a cable company like Cogeco to deploy competitive services at the same pace throughout the same footprint.

5626             Ron...?

5627             MR. PERROTTA:  Thank you, François.

5628             We are entering a mature market still highly dominated by an incumbent carrier with a 125-year heritage in telephony.  The incumbent as also had eight years to prepare for real competition in the field.

5629             The real question is this:  Will new entrants be able to build a critical mass of customers for their alternative telephony offerings in order to be in a position to compete on a sustainable basis against the incumbent telephone companies?

5630             Despite the initial interest for voice over IP and cable telephony services, nobody can really predict at this time how long it will take for sustainable penetration levels to be achieved by new cable entrants.  Consider some findings of the POLLARA consumer research filed by Bell, conducted across Canada this year, at the end of January, with regard to VoIP service.

5631             The vast majority of respondents, 95 percent, have at least one concern with voice over IP services; 60 percent cited reliability of service; 56 percent security; 42 percent quality of connection; and 42 percent cited the costs of purchasing the necessary equipment.

5632             Only 47 percent of respondents expressed an interest in acquiring VoIP services for their home if the cost was the same or less than their regular telephone service, but 73 percent of these respondents said they would replace their primary line service.

5633             44 percent of respondents believe that VoIP services will be less expensive than their current phone service and the average discount they expect is 43 percent.

5634             Finally, 40 percent of Québec respondents and 39 percent of Ontario respondents cited Bell Canada as their first choice for voice over IP service provider, far ahead of any other providers which ranged between 1 and 20 percent individually.

5635             These findings are instructive.  First, they confirm once again that VoIP services are clearly considered by consumers as substitutes for traditional local phone services.

5636             Second, concerns about the quality, reliability and security of voice over IP services held by the vast majority of the population must be overcome for voice over IP services to gain critical mass as a replacement for their traditional local wireline phone service.

5637             Third, the findings confirm that customers are very reluctant to switch unless offered significant savings in their decision to replace their phone services.  The conclusion is clear, to make inroads in the residential telephony market, new entrants need to offer substantial savings for a comparable service offering to a potential customer's current phone service.

5638             Finally, and perhaps most striking of all, is the high level of customer inertia to switch to an alternative voice over IP telephone service provider.  Almost three-quarters of respondents are inclined to stay with their traditional telephone company, either with a traditional service or a voice over IP service.

5639             The initial pace of growth for competitive voice over IP services is fuelled primarily by a limited pool of early adopters and dissatisfied telephone company customers.  To build critical mass, alternative voice over IP providers will need to educate, convince and convert a fair portion of the generally satisfied mainstream customers of traditional phone services.  This will no doubt require expensive customer acquisition efforts and costly mass marketing campaigns.

5640             But educating and converting consumers is not the only marketing challenge.  A major challenge is also overcoming the ILECs' retaliatory marketing efforts designed to impede the progress of competitive VoIP providers.

5641             Consider Bell marketing tactics deployed to counter the emergence of competitive VoIP services:

5642             With the 1,000 minutes of North American calling for only $5.00 per month launched in June 2004 and only recently discontinued, aiming to increase the loyalty of its customers through bundling and reduce the attractiveness of VoIP offerings, Bell succeeded to lock up 406,000 customers on two-year contracts.

5643             Two months before the release of the Commission voice over IP decision, Bell launched its own voice over IP service.  This month, Bell announced a price reduction of approximately 10 percent for its initial digital voice service, renamed Digital Voice Lite.

5644             Simultaneously, Bell also launched its new Digital Voice service in Hamilton and Toronto.  By positioning this offering as a digital service delivering "superior quality and reliability", Bell now tried to retain customers who are interested by the features offered by VoIP services by capitalizing on customer concerns about VoIP services.

5645             Finally, in addition to the pricing flexibility provided by the approved confidential ranges of rates which enable Bell to quickly respond to competition, Cogeco notes that Bell is further trying to obtain the ability to better target customers by province before it can do it by local markets.

5646             It is clear that Bell will expand its retaliatory marketing efforts to protect its market share if it is given the means to deploy more aggressive and narrowly targeted marketing strategies.

5647             Bell has already proven in the past in other markets that it is capable of developing efficient winback campaigns with targeted pricing and promotions to defend its position.

5648             Clearly, current competitive safeguards related to marketing activities are more than ever necessary to permit new entrants to overcome the barriers related to customer inertia and the ILECs' targeted retaliatory marketing efforts where nascent competition is the most vulnerable.

5649             Furthermore, an immediate all-out price war should be avoided in the local telephone market.  It will only lead to the implosion of competition and the remonopolization of the local residential market.

5650             Since residential customers are very price sensitive and the operating margin to permit the recovery of fixed capital costs in a reasonable period of time is low, there is no manoeuvring room for competitors to survive such a preemptive strike by incumbent telephone companies, specifically against a "deep pocket" competitor like Bell, which is 50 times ‑‑ yes, 50 times larger than Cogeco.

5651             It is therefore critical that the Commission prevent targeted low pricing and winbacks by incumbent telephone companies from stifling the establishment of sustainable competition in local residential markets.

5652             Certainly in order to create the conditions for the emergence of sustainable competition, new entrants must have the opportunity to demonstrate the quality and reliability of their services and to get a viable foothold in residential local telephony markets before the incumbent telephone companies are deregulated.

5653             Forbearance was never intended as a licence to kill off competition, with an ex post autopsy of dead competitors taking place once the bodies are cold!

5654             Michel...?

5655             MR. MESSIER:  Thanks.

5656             In its recent past decisions the Commission recognized that significant barriers to entry remain in the local market, limiting the ability of competitors to effectively resist anti-competitive behaviour by incumbents.  Specifically, Cogeco notes the following:

5657             The winback rules were extended in the residential market to 12 months, recognizing that the winback activities increase churn, which is especially detrimental to CLECs as they do not have a large stable base of customers capable of funding the CLECs' ongoing operations.

5658             Several competitive safeguards were imposed with respect to the ILECs' promotions, recognizing that the ubiquitous nature of the ILECs' operations enables them to offer lower promotional prices to target the customers of competitors in areas where competitors have introduced local services, with major consequences for competitors and little risk to themselves.

5659             The rate de-averaging policy which precludes targeted pricing reductions in small geographic areas within a rate band was reaffirmed, recognizing that this practice could deter entry into the local market where the ILECs continue to be the dominant service providers.

5660             These competitive concerns are still relevant today.

5661             At the 2005 Canadian Telecom Summit, held last June, you stated, Mr. Chairman, that while price deregulation is the Commission's intended end-game in local telephone services, it was also important for the Commission, since VoIP offers the prospect of real competition:

                      "... to stay the course and to ensure that the market is not prematurely deregulated ..."

5662             Given that:

                      "... incumbents are so dominant and capable of nipping that competition in the bud."  (As read)

5663             Cogeco partage entièrement cette position.  Cogeco reconnaît qu'à terme, les forces du marché elles-mêmes devront réguler les marchés locaux.  Mais pour le moment, reconnaissons que nous sommes encore loin de l'atteinte de cet objectif.

5664             Dans la Décision 94-19, le Conseil a conclu que "des preuves confirmant l'élimination des principales entraves à l'entrée en concurrence et l'existence réelle de la concurrence ou son établissement dans un délai d'un à deux ans" devaient être examinées, afin d'établir si la concurrence dans un marché s'annonce durable et suffisante pour protéger les intérêts des usages.  Cette condition est toujours d'une grande pertinence.

5665             Précis, simple à administrer, forçant l'établissement d'une base factuelle appropriée, et cohérent avec le cadre d'abstention réglementaire en place, Cogeco soumet que le cadre d'abstention proposé par l'ACTC pour les marchés locaux rencontre parfaitement cette condition.

5666             MR. MAYRAND:  Let me summarize our position.

5667             First, the incumbent telephone companies clearly dominate the local telephone market in our footprint by any yardstick.  That is simply an undeniable fact.

5668             Second, competition in that market has just started to deploy in the field, eight years after you adopted an official competitive framework for that market.  Competition must not just get started for forbearance to occur, it must be able to continue.

5669             Third, for competition to continue and be sustainable, new facilities-based entrants such as Cogeco must be able to roll out throughout the areas covered by their facilities within the incumbents' pervasive footprint, which they can only do local market by local market, and they must have a reasonable expectation of return on the investment required to roll out and grab a sustainable market share.

5670             Forth, a number of very real technical, marketing and behavioural barriers must still be overcome by new entrants before completing that roll out and grabbing a sustainable market share, and that is also an undeniable fact.

5671             Fifth, the rules of competitive engagement must remain clear and consistent, including on forbearance.  You set the basis rules in 1994 under the authority of the same Telecommunications Act that governs us today.

5672             The final point, you should not roll the dice and hope that competition will take hold based on academic theories, you should make sure, in our respectful submission, that actually happens.

5673             Thank you very much.  We will be pleased to answer your questions.

5674             THE CHAIRPERSON:  Thank you.

5675             Vice-Chair French.

5676             CONSEILLER FRENCH : Merci, monsieur le président.

5677             D=abord, bienvenue à ces auditions, messieurs Perrotta, Mayrand, Audet et Messier. Très heureux de vous avoir avec nous.

5678             Je voudrais d=abord vous faire parler un petit peu plus de votre entreprise puisque vous êtes un peu dans une situation assez unique. C=est-à-dire que vous opérez dans deux grands marchés : Québec et Ontario.

5679             Je voudrais d=abord vous demander de nous décrire un petit peu plus vos zones de desserte et vos différents réseaux et le défi qu=est le vôtre, soit d=opérer dans des marchés assez distincts.

5680             M. MAYRAND : Je vais demander à Ron de vous brosser un tableau aussi succinct que possible parce que c=est relativement varié, effectivement, comme situation.

5681             Ron ?

5682             M. PERROTTA : Merci.

5683             Oui, comme vous avez constaté, nous avons des territoires assez dispersés à travers le Québec et l=Ontario. Des marchés secondaires. Nous n=avons pas des grands marchés comme Montréal, Toronto, Vancouver, Calgary, et cetera.

5684             Alors, nos zones de desserte principales, disons, dans le Golden Horseshoe, Burlington, Oakville, Hamilton, St. Catharines. Nous avons aussi une présence à Windsor, Kingston, Belleville. Comme marchés principaux en Ontario.

5685             Au Québec, Trois-Rivières, Rimouski, St-Hyacinthe, Drummondville. Ce sont nos plus grands marchés au Québec. Et nous avons aussi comme zone de desserte certains systèmes dans les Laurentides, Valleyfield, et cetera. Et le Bas Saint-Laurent, certains réseaux aussi.

5686             Alors, notre clientèle, elle est un petit peu variée aussi. Elle est différente que celle dans les grands marchés.

5687             Elle se porte un petit plus âgée, un petit peu moins technologiquement ouverte à des nouveaux changements et développements.

5688             Et cela nous amène à considérer des stratégies de mise en marché très particuliers pour nos clients cibles, qui sont essentiellement un petit peu différents au Québec et en Ontario.

5689             Alors, ce sont les grandes lignes de nos défis.

5690             CONSEILLER FRENCH : Est-ce que les caractéristiques les plus distinctives se désagrègent par les frontières provinciales ? Ou est-ce qu=il y a des différences à l=intérieur du marché ontarien, par exemple ?

5691             M. PERROTTA : Nous avons fait des études de marché pour bien connaître toute notre clientèle, et ce que nous constatons essentiellement, c=est, ce qui est le plus important, ce n=est pas nécessairement les différences entre le Québec et l=Ontario comme tels, mais plutôt entre les grands marchés et les plus petits marchés.

5692             Et nous avons ce genre d=information sur lequel nous nous fions pour axer nos communications parce que, comme j=ai expliqué, notre clientèle est un petit peu plus âgée et un petit peu moins technologiquement ouverte à des nouveaux développements.

5693             Mais la différence primaire, ce serait entre, je dirais, la grandeur du centre par rapport à sa population.

5694             CONSEILLER FRENCH : D'accord.

5695             Alors, la segmentation est surtout par la taille du marché ?

5696             M PERROTTA : La taille du marché parce que, étant donné que nous occupons, que nous avons des zones de desserte différentes au Québec et en Ontario et nous avons deux divisions d=opérations, le Québec et l=Ontario, nous avons voulu essayer de développer une vue commune à travers l=ensemble de nos marchés pour voir essentiellement quel est le potentiel de chacun de nos marchés pour nos services.

5697             Alors, nous avons établi une segmentation commune. Et c=est de cette segmentation là que nous faisons le constat que je vous ai expliqué ce matin.

5698             CONSEILLER FRENCH : Maintenant vous avez introduit les -- ce n=est pas le bon mot en français -- vous avez offert, vous avez décidé d=ouvrir le marché du * voice over IP + pour vos différents marchés.

5699             Est-ce que le packaging, le prix des différents aspects du produit est identique dans tous vos territoires qui sont actuellement sur IP ?

5700             M. PERROTTA : Nous avons deux prix. Nous avons un prix pour les marchés en Ontario et un prix pour les marchés au Québec.

5701             Et ceci relève du fait du * purchasing power + relatif de chacun de nos marchés, et c=est consistent avec le * pricing + que nous avons pour nos services télévisuels et nos services Internet, qui sont un petit peu moins chers au Québec aussi, en reconnaissance du * purchasing power + relatif de nos marchés québécois par rapport à nos marchés ontariens.

5702             CONSEILLER FRENCH : Alors, est-ce que vous diriez que c=est non seulement un avantage pour vous, mais également pour les clients ?

5703             M. PERROTTA : Un avantage ? Dans quel sens ?

5704             CONSEILLER FRENCH : Vous avez la possibilité de tailler vos produits pour les clients à partir de leurs caractéristiques particulières ?

5705             Et cela est un avantage pour vous parce que vous vendez davantage parce que l=utilité marginale et le pouvoir d=achat diffèrent entre les différents marchés ?

5706             Vous êtes capable de rencontrer les attentes des clients différemment dans les différents marchés ?

5707             M. PERROTTA : Si le sens de votre question c=est, est-ce que nous avons une contrainte du type d=un prix moyen sur une bande de services définis qui recoupent les deux provinces, sans doute.

5708             Je vous dirais que nous l=approchons d=une perspective tout-à-fait différente, qui est que pour nous, en fait, nous devons nous adapter à une contrainte de pouvoir d=achat moindre dans le marché québécois, de façon générale, qui nous force, en fait, à encourir dans certains cas des coûts additionnels pour avoir une offre différenciée.

5709             Idéalement, je pense qu=on souhaiterait avoir une offre aussi uniforme que possible. Mais en réalité, le marché nous impose des contraintes. Et ce sont des contraintes qui nous imposent des coûts également.

5710             CONSEILLER FRENCH : Et je vous dis qu=en économie, on dirait que c=est un avantage non seulement pour vous, mais également pour les clients qui ont des * packages + appropriés à leur pouvoir d=achat.

5711             M. PERROTTA : Je ne prétendrai pas débattre avec vous sur le terrain économique, parce que je ne suis pas économiste, mais sans doute que nos clients apprécient les niveaux de prix que nous leur offrons respectivement en Ontario et au Québec.

5712             CONSEILLER FRENCH : Alors, en abordant la question de l=abstention de réglementation, c=est important pour le Conseil de considérer les différents aspects du marché que vous dites essentiellement hétérogène ou hétéroclite.

5713             Nous devons donc considérer cette grande concurrence que vous avez évoquée à plusieurs reprises dans vos commentaires initiaux, soit le face-à-face entre vous et l=ILEC en question (c=est Bell).

5714             On doit se poser la question, Ne serait-il pas avantageux pour les clients d=avoir, tout comme les vôtres, les clients de Bell, d=être adressés par les * packages + et les offres de services particuliers à leurs caractéristiques ?

5715             M. PERROTTA : D=abord, permettez-moi de préciser sur la question de l=homogénéité ou de l=hétérogénéité des marchés.

5716             Je pense qu=on a parlé strictement de petites variations de prix dans notre offre de services qui est émergente -- Ça fait trois mois à peine qu=on offre le service téléphonique -- entre deux provinces.

5717             On n=a pas parlé d=absence d=homogénéité ou de problème d=hétérogénéité à l=intérieur de chacune des provinces, et certainement pas entre circonscriptions locales.

5718             Alors, je voulais faire cette précision là pour commencer.

5719             Ceci étant dit, je pense que, bien que nous comprenions que le Conseil soit assurément préoccupé par les bénéfices que la concurrence doit apporter aux utilisateurs, aux usagers -- donc, aux consommateurs.

5720             À notre point de vue, la question fondamentale de toute cette procédure, de cette audience publique, c=est quel est le compromis, s=il en est, qu=il faut accepter sur les gains de prix à court, même à très court terme, pour certains petits groupes de consommateurs par rapport aux avantages plus larges de la concurrence sur une période plus durable.

5721             Je pense que c=est ce que la loi vise à obtenir dans le cadre de l=abstention de réglementation. Pas des gains très ciblés de prix pour certains consommateurs choisis par l=entreprise dominante pour de courtes périodes de temps.

5722             CONSEILLER FRENCH : Je pense que vous avez très bien saisi l=enjeu. Et c=est là où je veux en venir.

5723             Il y a évidemment un coût à court terme pour les clients qui sont privés d=offres de services de la part des entreprises que vous dites dominantes qui ne pourraient -- qui n=ont pas la liberté et la flexibilité complète d=offrir de tels * packages +, de telles offres de services.

5724             J=aimerais vous faire parler un petit peu de ce genre d=échange, de * trade off +, que vous venez d=évoquer, puisqu=il me semble important, et c=est un peu injuste envers vous puisque vous êtes les seuls qui ont cette situation de concurrencer une entreprise en selle, en place, une entreprise titulaire, dans deux marchés qui sont, dites-vous, très différents et donc où vous revendiquez à juste droit la possibilité d=établir des prix qui sont taillés pour les différents marchés.

5725             C=est tout simplement de discuter cette question là, qui est devant nous essentiellement, puisque les entreprises de téléphonie traditionnelles nous disent que nous privons, nos contrôles privent, les clients de bénéfices que, vous dites si bien, sont à court terme, mais sont néanmoins importants, au nom d=un rendez-vous avec le destin quelque part dans l=avenir où on serait en mesure de permettre, d=après vous, une pleine concurrence.

5726             C=est justement notre question. Où est ce rendez-vous avec le destin et quels seraient les critères nécessaires pour l=identifier quand il arrive ?

5727             M. MAYRAND : Bien, voici notre perspective sur le rendez-vous avec le destin. 

--- Rires / Laughter

5728             M. MAYRAND : Vous savez, nous avons, grâce à vos décisions de 1994, et particulièrement celle de 1997, un cadre officiel pour la concurrence dans les marchés téléphoniques locaux.

5729             Alors, nous avons eu ce cadre là pendant une période de huit ans. Je pense qu=on en a fait abondamment référence au cours des procédures.

5730             Et vous êtes à même de constater, et c=est strictement un constat, nous ne faisons pas de jugement, nous ne portons pas de jugement sur les raisons qui ont fait qu=au cours de ces huit années la concurrence sur le terrain a fait défaut de se réaliser.

5731             Nous avons donc eu une longue période d=attente. À partir du moment où le feu vert a été lancé par le Conseil, et je vous dirais que nous sommes -- nous arrivons précisément au point de jonction que le Conseil envisageait en 1997, c=est-à-dire au point où l=entreprise concurrente qui dispose d=installations de télécommunications, telle que le câblodistributeur est effectivement en mesure de commencer son entrée sur le marché.

5732             Alors nous sommes exactement à ce point là. Les annonces d=entrée en concurrence sont récentes. Dans notre cas, ça fait un petit peu plus de trois mois que nous y sommes. Dans certaines parties géographiques de ce marché.

5733             Et je pense que le sentiment en général que vous pouvez avoir de ces procédures -- il y a des commentaires des différentes parties -- c=est que le marché évolue assez rapidement avec les avantages que procure, entre autres, la téléphonie sur IP.

5734             Cependant, nous devons, nous, les nouveaux venus avec des facilités de télécommunication, nous devons établir un glacis -- en anglais, a * beach head + -- que nous pouvons soutenir face à la concurrence des grandes entreprises établies telles que Bell Canada.

5735             Et je vous dirais que ce glacis, il faut le tenir, si nous voulons étendre notre offre de services le plus rapidement possible à l=intérieur des zone de desserte que nous desservons et que les compagnies établies desservent.

5736             Alors, je ne vois pas un horizon tant infini pour y arriver. Je vois cependant une situation où il y a dominance des compagnies établies. Clairement, partout. Toutes les mesures possibles et imaginables, au moment où nous nous parlons.

5737             Et je vois une période relativement courte -- je ne peux pas la quantifier exactement en termes de mois ou d=années - où le glacis doit être établi, et doit être solidement établi.

5738             Alors, c=est ce qui fait pour nous, les nouveaux venus, la différence entre une campagne réussie ou un désastre. Et sans sombrer dans le dramatique, il n=y a personne en tant que nouveau venu, et certainement l=entreprise que je représente, qui veut passer à l=histoire comme ayant eu son Dieppe plutôt que son Normandie. Hein ? On se comprend.

5739             Alors, ce n=est pas --

5740             CONSEILLER FRENCH:  Merci beaucoup, Monsieur Mayrand. C=était très clair.

5741             M. MESSIER : Si je peux me permettre d=ajouter un commentaire avec le rendez-vous avec le destin, sur cette question.

5742             Récemment Bell nous a un peu forcé la main à ce rendez-vous avec sa demande récemment sur laquelle on a eu à se prononcer dans une procédure assez rapide, à savoir d=avoir la possibilité d=offrir des prix différents pour son nouveau service, son * digital voice service +. Des prix distincts pour l=Ontario et le Québec.

5743             Et notre première réaction a été fortement de voir une grande réaction sur la possibilité de, quelles sont les conséquences ? Vers où on se dirige ? À partir du moment où on fait se premier pas là.

5744             Notre grande préoccupation, et là est le compromis puisque dans nos interventions nous avons finalement reconnu que, oui, il pouvait y avoir des prix distincts pour les provinces et que Bell était la seule entreprise au Canada qui ne pouvait pas pratiquer des prix différents pour les provinces -- mais là, pas que nous ne voulons pas franchir.

5745             C=est celui d=avoir des prix distincts dont l=objectif ne serait pas de rencontrer les besoins ou des particularités des consommateurs, mais bien plutôt strictement de protéger ses parts de marché face à un nouveau venu qui entre dans le marché.

5746             Et cela, les pratiques au niveau du * winback +, au niveau la possibilité d=avoir des prix très ciblés par marché, ouvriraient cette porte là et pourraient mettre en cause la concurrence qui semble présente.

5747             Alors, cela est un niveau de compromis que nous n=acceptons pas présentement. 

5748             CONSEILLER FRENCH:  Monsieur Messier, je vous remercie beaucoup.

5749             Cela a été un jugement nuancé, et c=est apprécié, ces nuances là.

5750             Là où je vous trouve moins nuancé, c=est la comparaison entre vous et Bell, où Bell est 50 fois plus grand que vous.

5751             N=est-il pas le cas que, essentiellement, Bell concurrence non seulement vous, mais quelques autres compagnies quelque part ?

5752             Et êtes-vous seul contre ce géant ?

5753             Donc, est-ce que cette comparaison là est vraiment légitime ou non ?

5754             M. MESSIER : En ce qui concerne ce qui se passe dans notre territoire, elle est très légitime parce que nous, bien entendu, on fait concurrence avec une grosse machine.

5755             Chaque matin que je me lève, je sais que mes dépenses marketing seront dépassées grandement par mon concurrent. Alors, * it is a fact of life. + On vit avec.

5756             Mais, la comparaison, pour nous, parce que c=est nous qui travaillons dans nos marchés, elle est très juste, à mon avis.

5757             CONSEILLER FRENCH : La comparaison est peut-être très juste pour vous motiver le matin, mais maître Michael Sabia ne se lève justement pas en pensant à vous. And that is the point.

5758             Tout ce que je vous dis, c=est que c=est un morceau de rhétorique qui sied mal avec la subtilité et l=honnêteté avec lesquels vous avez répondu à mes questions.

5759             Encore une fois, ils concurrencent Vidéotron, ils concurrencent Rogers, ils concurrencent Mountain, et cetera. Pas juste vous.

5760             Cette comparaison là est hautement trompeuse, dans la mesure où elle est supposée de nous informer sur les décision de réglementation d=un marché.

5761             MR. MAYRAND:  Alors, Monsieur French, je suis tout-à-fait, d=emblée, prêt à reconnaître que Bell a d=autres concurrents dans sa zone de desserte que nous.

5762             Je pense que ce que nous exprimons, et en fait, dans la mesure de temps, on a rajouté une note qu=on n=a pas lue évidemment lorsqu=on a fait la présentation.

5763             Mais on réfère en fait au concept de * deep pockets +, excusez l=expression anglaise. Et c=est vraiment l=image d=EBITDA comparative.

5764             Alors, quelque soit la façon dont vous feriez une répartition des marges bénéficiaires respectives, notre constat à nous, et nous vous soumettons, le problème que nous avons, c=est que la compagnie établie a énormément de latitude financière pour dépenser sélectivement sur les quelques clients que nous réussirons à obtenir dans la première phase de déploiement de notre service téléphonique.

5765             Voilà le sens de l=argument.

5766             CONSEILLER FRENCH :  Oui, je le vois.

5767             Justement, je veux vous poser une question sur la page 9, où vous dites :

                      "Bell has already proven in the past in other markets that it is capable of developing efficient winback campaigns with targeted pricing and promotions to defend its position."

5768             I don't deny that for a minute, but I would like to know more about exactly what you were referring to, if you could tell us what you had in mind when you raised that.

5769             MR. PERROTTA:  A recent example would be in the Laval area, in the Montreal area, of ExpressVu pricing we believe in response to Videotron Voice over IP service where the outbound telemarketing offers to satellite customers for ExpressVu two‑receiver solution was, I believe, as low as $17 or $18 for a regularly priced $35 or $36 product.  That was selectively offered in a very specific area.

5770             That is the first one that comes to mind.  I think some of my colleagues here with longer corporate memories in the telecommunications industries would harken back to the long distance example.

5771             COMMISSIONER FRENCH:  The $5.00 for a thousand minutes, for example.  Or are there others?

5772             It is a matter of information.  I am not trying to ‑‑

5773             MR. PERROTTA:  It would be others.  The $5.00 was basically offered to everyone.

5774             COMMISSIONER FRENCH:  It is the targeting, Mr. Perrotta, that I am trying to get a grip on.  It is important for us because everyone who comes before us with your set of interests is going to tell us the kinds of things you have told us, and much depends on how much we believe that an incumbent has the opportunity to genuinely target on small demographic slices and small slices of market.

5775             In practice, if all we are doing is being told that they will fight us on their market against our market, we say that is called competition.  You really have to make an additional case.  The additional case is that the very large resources of an incumbent generated by history will be unduly focussed on a very small set of markets in order to explicitly deny the opportunity to establish the beachhead that Mr. Mayrand evoked.

5776             I am absolutely not trying to take a position on this question.  I am just saying this is absolutely at the core of this case.  So anything you can tell us about it is helpful.

5777             You have given us one good example.  Are there any others that come to mind?

5778             MR. PERROTTA:  In our other product categories, high speed internet and television services, when we compete against Bell Canada there is one advantage that Bell has that we don't have.  They have a complete telephone record of the entire customer base.

5779             By and large all of our customers are Bell customers, but the inverse is not necessarily true.

5780             Consequently, a lot of the targeted winback offers occur on an outbound telemarketing basis, so there seldom is ever any printed material available.  It is very targeted insofar as they are working with their database of customers.  They know what the history has been, so they can put together a targeted offer.

5781             Consequently, there is always reports we get from the field of what is happening.  We try to do some mystery shopping, and it is hit and miss in terms of what is a rogue agent in the fog of war offering something versus what is a conscious strategy.

5782             There are numerous examples of attractive pricing on internet or attractive pricing on ExpressVu in our other services offered on an outbound telemarketing basis that leads us to believe that this is certainly a well‑oiled machine.

5783             COMMISSIONER FRENCH:  How do they bill that, Mr. Perrotta?  With a billing requirement of, I don't know, 7 or 8 million residential customers in the two provinces, how would they bill those precise specified focussed offers?

5784             MR. PERROTTA:  I think you would have to ask them that question in terms of their billing systems.  If they are like most other operators, CSRs or supervisors have opportunities to make manual adjustments on invoices.

5785             Beyond that, I really couldn't comment on how they go about it.

5786             COMMISSIONER FRENCH:  I wish I had had that when I was the Vice‑President of Residential Services for Bell in Quebec.

5787             Mr. Messier.

5788             M. MESSIER : Sur l=efficacité des campagnes de * winback + de Bell, le seul exemple que je voudrais apporter, et puis pour l=avoir vécu personnellement et pour avoir eu plusieurs témoignages dans les fonctions que j=occupe, on sait au niveau du marché des appels interurbains que Bell, aussitôt que quelqu=un a décidé de passer chez un concurrent, en moins de 48 heures, il va recevoir ou il peut recevoir un appel chez Bell directement lui offrant soit, parce que déjà on a son pattern d=appel -- donc, lui proposant un plan qui est davantage adapté à son profil, lui proposant aussi des montants forfaitaires pour revenir chez Bell dans une période très courte.

5789             Alors, si on applique cela dans le marché local, où on est en train -- on est entré -- où on a démontré à nos clients qu=on a un service qui est fiable, principalement si vous regardez les perceptions dont on a fait part par l=étude POLLARA sur cette forme alternative que représente le * voice over IP +, que ce soit offert par un câblo ou par d=autres, bien vous avez là des clients qui sont très réceptifs et très fragiles et qui sont très sensibles aussi à leur motivation pour avoir changé de fournisseur à un escompte de prix.

5790             Alors, si Bell revient très rapidement et rapidement lui offre exactement ce qu=il faut pour sécuriser le client, bien écoutez, on va avancer à petits pas. Sinon, on va reculer.

5791             CONSEILLER FRENCH : Monsieur le Président, cela termine mes questions. J=apprécie beaucoup la franchise avec laquelle vous avez répondu.

5792             Je veux juste dire, avec votre permission, Monsieur le Président, que -- je vais prendre l=occasion publique de dire à monsieur Audet que votre père est un grand homme des communications au Québec. J=ai beaucoup de respect pour lui, et puis il a contribué énormément au développement des communications.

5793             Merci beaucoup.

5794             M. MAYNARD :  Nous lui transmettrons ce message.

5795             Merci.

5796             THE CHAIRPERSON:  Thank you.

5797             Commissioner Cram.

5798             COMMISSIONER CRAM:  Welcome, gentlemen.

5799             In your three‑four month life of VoIP, I am assuming you have had some churn.  Did you find the reasons for the churn?  When people leave you, did you ask them?

5800             MR. PERROTTA:  We have been obviously monitoring this.  In terms of the reasons why people have left, some have been change of mind.  Some have been moves.  It is very early results.

5801             There is not enough of a base to establish sort of key drivers at this point.  Quite frankly we have had some SNAFUs on installation on our side where people have said they have just cancelled because we couldn't get there on time because we have a lot of other things happening.

5802             So it is a little early to say what are the key drivers at this point.  I suspect that over the life of the product, it will settle in pretty much like the rest of our products in terms of reasons for churn.

5803             COMMISSIONER CRAM:  Mr. Audet?

5804             MR. AUDET:  If I may add, one thing that we have seen happen from time to time is because of the backlog for LNP transactions at Bell, we typically find out ‑‑ we take an order today.  We schedule installation for a week from now.  Normally, we would expect that halfway through that period we know that we will be able to install on the projected date.

5805             As it turns out, we usually find out in the evening of the day before.  If we don't get the confirmation in time, we have to cancel and that is a contributor to churn.

5806             COMMISSIONER CRAM:  Thank you.

5807             THE CHAIRPERSON:  Thank you.

5808             Monsieur le vice-président Arpin ?

5809             CONSEILLER ARPIN : Merci, Monsieur le Président.

5810             Vous avez répondu à monsieur French, à une question concernant vos différences de prix entre l=Ontario et le Québec.

5811             Est-ce que vos coûts sont aussi différents entre l=Ontario et le Québec ?

5812             M. AUDET : Certainement. Au Québec, la composante d=appels que d=autres traitent interurbaine, voyez-vous, nous, on ne fait pas cette distinction là.

5813             Notre prix inclut les cinq services accessoires les plus appréciés dans le marché. Les plus répandus.

5814             Et la zone de couverture locale qui est offerte est le Canada au complet et les 48 États contigus des États-Unis. C=est une zone d=appels locale très étendue.

5815             En pratique, on observe que, au Québec, il y a une nettement plus grande proportion des appels qui se limite au territoire du Québec, comparativement à, disons, en Ontario, où il y plus d=appels vers d=autres provinces ou vers les États-Unis.

5816             Donc, effectivement, oui, Monsieur, il y a une différence de coût.

5817             CONSEILLER ARPIN : Est-ce que c=est une des raisons pour laquelle vous motivez votre différence de prix ? Ou si c=est la capacité de payer des abonnés ?

5818             M. AUDET : Cela fait sans doute partie aussi de l=équation, Monsieur.

5819             M. MAYRAND : Je voudrais juste ajouter, Monsieur Arpin, que ce sont évidemment des prix d=entrée que nous avons mis de l=avant pour depuis, en fait, un petit peu plus de trois mois.

5820             Alors, je réserverais le jugement sur la solidité de la structure des prix et des différences qu=il pourrait y avoir, mettons, entre nos zones de service au Québec et celles de l=Ontario.

5821             Et je vous rappelle que, évidemment, ce sont des prix qui ne sont pas différenciés à l=intérieur de l=une ou de l=autre province.

5822             CONSEILLER ARPIN : Merci.

5823             LE PRÉSIDENT : Merci.

5824             Madame Noël ?

5825             CONSEILLÈRE NOËL : J=ai juste une question, une petite question.

5826             Vous offrez un service, comme vous avez dit, Monsieur Audet, avec les cinq capacités les plus --

5827             M. AUDET : Populaires, oui.

5828             CONSEILLÈRE NOËL : -- ce que les gens préfèrent et vous offrez cela pour un prix global alors que Vidéotron qu=on va voir tout à l=heure offre un produit qui est tout nu.

5829             M. AUDET : Hm-hmm.

5830             CONSEILLÈRE NOËL : Ils offrent un service à 14,99 $ et toutes les options sont effectivement en option.

5831             Est-ce qu=il y avait une décision -- comment vous êtes arrivé à ce choix d=option ou d=offre de services ?

5832             M. AUDET : On a examiné la chose depuis, en fait, plusieurs années. En fait, depuis très longtemps, comme vous le savez.

5833             On avait déjà fait un essai de téléphonie IP qui a couru de 1999 à 2001.

5834             CONSEILLÈRE NOËL : Je me rappelle. À partir de Trois-Rivières.

5835             M. AUDET : Ça fait très longtemps qu=on étudie le modèle d=affaire de la téléphonie. À mon sens, et c=est peut-être relié à la grosseur de nos marchés, je ne le sais pas. Vidéotron pourra vous dire si son expérience est différente pour la grosseur de marché qu=ils contemplent.

5836             Mais certainement, dans notre cas, un service à ce niveau là, on n=en voyait pas l=intérêt.

5837             Je dirais, philosophiquement, l=attitude qu=on a pris est qu=on aime mieux offrir plus de valeur à notre client pour un prix donné que d=essayer de juste jouer sur le prix.

5838             Enfin, c=est une approche qu=on a pris corporativement.

5839             CONSEILLÈRE NOËL : Est-ce que le fait que -- bien, Rogers n=avait pas annoncé sa -- ou est-ce que Rogers avait annoncé sa façon de pénétrer le marché quand vous avez lancé votre produit ?

5840             M. AUDET : Notre prix avait été établi avant le lancement de Rogers.

5841             CONSEILLÈRE NOËL : Je vous remercie.

5842             LE PRÉSIDENT : Merci.

5843             Madame Cram ?

5844             COMMISSIONER CRAM:  I am back; I'm sorry.

5845             Commissioner French and I were discussing the cable penetration rate.  In Quebec, isn't it 57 percent?

5846             MR. AUDET:  Basic cable penetration in our market is 53 percent now.

5847             COMMISSIONER CRAM:  Fifty‑three?  In all of your markets, including Ontario?

5848             MR. AUDET:  Ontario is 50 percent.

5849             COMMISSIONER CRAM:  Fifty percent and 53.  Thank you very much.

5850             THE CHAIRPERSON:  Thank you.

5851             Counsel.

5852             MR. WILSON:  Thank you, Mr. Chairman.

5853             I have three questions that I want to follow up on:  your experience in the marketplace thus far, although taking into account, as you discussed with Commissioner Cram and Vice‑Chair French, that is a small slice of experience, at least as far as the telephone business thus far.

5854             I will start with churn rates, following up on your discussion with Commissioner Cram.

5855             This is a small slice of data yet, but have you noticed whether there appears to be any relationship between the churn rate in the telephony business and the churn rate in the cable business in the sense of if a customer turns from telephony, if you lose them for telephony, are you noticing that you are also losing them for the cable side of the business?

5856             MR. PERROTTA:  It really too early to tell that.  I couldn't answer that question.

5857             MR. WILSON:  We have had some discussion in particular in the CCTA, whose approach you have indicated that you agree with, about the notion of measuring market share in terms of households served.

5858             In your experience, does a household generally speaking get all of their services from one provider or are the services likely to be splintered across two or three providers?

5859             MR. MAYNARD:  It is a little hard to answer that question in terms of understanding what basket of services underlies your question.

5860             MR. WILSON:  I am thinking in terms of the kinds of services we have been talking about here: so your basic telephone service, your video service, the internet service, that basket of services that we have been discussing in the hearing.

5861             On a household basis do those tend to come from one supplier or is more of a heterogenous kind of situation?

5862             MR. PERROTTA:  The multi‑service households with one supplier is clearly the Holy Grail that all of us are trying to achieve.  I think there have been a number of statements made by various different operators in telecom space in terms of their progress in going from single services to multi services.  I think the reality is that the second service that you add is a good one.  I don't think a lot of people have made great progress on three and four services.  There is probably a healthy dose of first service and double service households.  I am not entirely sure that there would be a preponderance once way or another, depending on which supplier you are looking at.

5863             MR. WILSON:  I have one final question, and I may know the answer to this based on the discussion that you had with respect to local number ports.

5864             The kinds of customers that you are getting, are those generally former ILEC customers or are you attracting a lot of what I will call new customers, maybe young people that are moving into the telephony market for the first time?

5865             MR. AUDET:  I would say that any measurable sales are with customers transferring from Bell to us.  Brand new customers would be such a small percentage.  It is not something that has bubbled up to our attention.

5866             MR. WILSON:  Those are my questions, Mr. Chairman.

5867             THE CHAIRPERSON:  Thank you, gentlemen.

5868             We will take a very brief break now, five minutes, and resume with the next panel after that.

‑‑‑ Upon recessing at 1027 / Suspension à 1027

‑‑‑ Upon resuming at 1035 / Reprise à 1035

5869             THE CHAIRPERSON:  Order, please.  À l'ordre, s'il vous plaît.

5870             Madame la secrétaire.

5871             LA SECRÉTAIRE:  Merci, monsieur le Président.

5872             We will now proceed with panel No. 15, Shaw Cable Systems.

PRESENTATION / PRÉSENTATION

5873             MR. SHAW:  Good morning, Mr. Chairman and Commissioners.  My name is Jim Shaw and I am CEO of Shaw Communications.

5874             With me today on the panel are Peter Bissonnette, President of Shaw; Ken Stein, Senior Vice‑President, Corporate and Regulatory Affairs; Michael D'Avella, Senior Vice‑President, Planning; and David McKeown, Consultant to Shaw.

5875             Let me start by thanking the Commission for this opportunity to present our views on the development of a competitive and vibrant local telecommunications market.  We and other participants in this proceeding have filed extensive comments on the framework and criteria the Commission should consider to determine when it is appropriate to forbear from regulating the local exchange services of the incumbent, monopoly telephone companies.

5876             We consider this a critical proceeding and the framework and criteria the Commission establishes for local forbearance will have a significant impact on how successfully competition evolves in the local telephone market.

5877             What we would like to focus on today are the business and operating realities of entering the local residential telephone market and what our company has to do in order to enter this market with a reliable, credible and competitive telephone product.

5878             We would also like to address some of the ongoing challenges we face in rolling out our telephone service and provide the Commission with a sense of the significant capital and operating investments we are making to ensure we have a viable and successful service offering.

5879             Let me say at the outset that our company is committed to providing a reliable and credible phone service.  Our customers want an alternative to their local provider and we are answering the call.

5880             On February 14th, or Valentine's Day, we launched Shaw digital phone in Calgary, our first telephony market, followed by Edmonton on April 20th and Winnipeg on July 28th.  With these markets launched, about 35 percent of our basic customers will now have access to Shaw digital phone.

5881             In the next year or so, we will be launching digital phone in most of our major markets including Vancouver, our single largest operating unit.  We also plan to offer Shaw digital phone in smaller communities like Red Deer, Canmore, Prince George and Cranbrook.

5882             By any measure we are still in the early stages of our telephone deployment, with less than eight months of operating experience.  While we are encouraged by the initial results, it is far too early to judge how well this market will evolve and whether our customers will have the continuing confidence in us to provide them with local telephone service.

5883             As you know, the start‑up of a new business is not a new undertaking for Shaw.  Our experience with new start‑ups such as Star Choice, which took us into the satellite business, and new service offerings such as high speed internet, have been positive examples of the ability of our people to launch new products and services that have gained the support and confidence of consumers across Canada.

5884             It took over five years to put Star Choice on a solid financial footing and the company has only recently begun to generate a return on the billion dollars we invested in Star Choice.  We now have close to 840,000 Star Choice customers and about 1.1 million high speed internet customers.

5885             We have been pleased with this success and the lessons learned have been put to good use in the launch of digital phone.  This is, without a doubt, our largest challenge to date.

5886             Peter.

5887             MR. BISSONNETTE:  Mr. Chairman, Commissioners, our decision to launch a competitive local telephone service was motivated largely by the need to ensure that we had the ability to provide our customers with a package of voice, video and data services.  In this new competitive environment our success is increasingly driven by our ability to package various products and services and to provide customers with a steady stream of new and innovative products and services.

5888             It took us two years to conduct the business analysis, assess technologies and back office systems and understand the investments and operational requirements that would be needed to offer a competitive local telephone service.

5889             In developing and launching our local phone service, we faced significant challenges in implementing interconnection arrangements with the incumbents, striking agreements with local authorities for E911 services, developing processes for local number portability and establishing a long distance    carriage and termination agreement.  The process is complicated and lengthy.

5890             The incumbents are effectively the gatekeepers to the PSTN and they determine when and how you, as a new entrant, can offer a competitive local service.  Even with all the Commission's policies, regulations and rules governing these interconnection arrangements, the telcos ultimately determine your launch date.  Remember, the incumbent telephone companies are not only the incumbents, they are also a monopoly, and they run the system.

5891             For over 100 years they have done an excellent job and the system they built enjoys the confidence of all Canadians.  But that's exactly the point: they run the system.  So not only are we trying to compete with them, we have to compete on their terms and we have to operate in an environment that they control.

5892             As we considered our options and the process of becoming a CLEC on our own, we quickly came to the conclusion that we simply could not put ourselves in a position where the incumbent set the timetable for competitive entry.  We decided, therefore, that in order to get our telephone product to market on our timetable, we would use the services and facilities of an established CLEC.  So we chose BellWest to provide us with interconnection to the PSTN, to help us port numbers and provide long distance carriage and termination.

5893             If we tried to perform all of the functions of a CLEC on our own, we would probably still be negotiating with the incumbents for interconnection.

5894             MR. D'AVELLA:  Thank you, Peter.

5895             There is no question that the development of PacketCable specifications by the cable industry, primarily through CableLabs, has made telephony services over cable networks an economically viable and technically sound proposition.

5896             As we continue our Digital Phone deployments and as the customer base grows, over the next several years we will be investing well over $350 million in rolling out this new service.

5897             Telephony will continue to be our single largest capital project for at least the next four to seven years.

5898             We have also made significant investments in human resources, hiring and training over 650 new employees to support our entry into the telephone business.

5899             These investments are being made, in part, on the understanding that the Commission will continue to ensure that competition in the local exchange market can develop and take hold.

5900             Our greatest concern is that premature deregulation of the phone companies could kill local competition before it gets started.

5901             In our view, the Commission must ensure that local competition is firmly established, vibrant and sustainable before the telcos are forborne in the provision of local telephone services.  We can't see this happening for at least another three to five years.

5902             In developing our telephone services, we took the view that in order to be competitive with the incumbents we would have to offer a primary line service that would be as reliable as theirs.  This meant that we would have to make investments in plant upgrades, backup power supplies, new provisioning and back office systems, customer premise equipment, softswitches and, on top of all of that, we had to overlay a new PacketCable network.

5903             My point is that this is not a simple voice application riding on an IP network.  Shaw Digital Phone is a replacement for your local telephone service, and customers expect the same level of reliability and quality, at a competitive price, if they are going to switch their telephone provider.

5904             MR. STEIN:  Let me deal with the competitive response of the telcos to this point.  We have found that telcos use every means, tool and tactic at their disposal to stymie competition.  We know this from our experience in competing against them in the internet access business and, more recently, in the video market.

5905             We understand where they are coming from.  None of us wants to lose any customers.  Even in these early days of local competition, though, we are seeing the results of telco anti-competitive behaviour.

5906             Aggressive winback campaigns that include offers of free services for up to a year.

5907             Telemarketing campaigns designed to win back customers that have recently switched to Shaw, within days.

5908             Misinformation about the quality and reliability of our telephone product.  Some telcos have been telling our customers that Shaw Digital Phone does not support E911, that the service doesn't work in a power outage and is unreliable because it makes use of the internet.

5909             This is another reason why I believe it is critical that we have all of the tools and vehicles at our disposal, like local avails to inform our customers about our products and services.

5910             There are delays and outright denials in porting numbers.

5911             There is inadequate and inconsistent capacity within the LNP process.

5912             There are refusals to port the numbers of customers who also take other telco products like internet and television.

5913             There are unacceptable delays in interconnecting contiguous exchanges.

5914             In the city of Calgary, for example, we have not been able to offer Shaw Digital Phone in Airdrie and Okotoks, two communities that are essentially suburbs of Calgary.

5915             We have similar problems in Edmonton, where Telus delays extending interconnection to St. Albert and Sherwood Park, leaving large gaps in our coverage area.

5916             On average, it takes Telus 97 days to respond to an application from Shaw for access to Telus support structures.  That is 67 days longer than the tariffs permit.

5917             On average, it takes 259, or eight months, to have an application approved and work completed.

5918             Finally, last week we heard of a winback offer by MTS to a customer that signed up with Shaw.  Our customer was offered a $73.31 bundle, including local phone service, five calling features, high‑speed internet and long distance throughout North America at no additional charge.  Needless to say, this bundle was not filed for approval and is not generally available to MTS customers.  We are still investigating.

5919             This is only a partial list, and these are early days, of the telcos anti-competitive tactics.  The Commission is well aware of the litany of access issues we face on a day-to-day basis, including local number portability.

5920             MR. BISSONNETTE:  "Local Number Portability" -- LNP -- is an acronym we learned as we entered the telecom business.  From our experience, the telcos' acronym for that is "Let's Not Play".

5921             The current LNP mechanism is ineffective.  The system is inefficient and subject to the vagaries of the telco's LNP process.

5922             We effectively need the incumbent's approval to port a customer's telephone number.  Without it we can't install a customer.  We believe that the telcos need to be removed as the arbiters and gatekeepers of the LNP process.

5923             In a world where we are competing with the telcos for voice, video and data customers, the telcos require nothing from Shaw in order to acquire a video or data customer.

5924             In the video business, for example, the telcos can build out their networks, acquire programming and customer premise equipment, and provision and service customers without seeking Shaw's approval for anything.  Their entry into the video business is completely unfettered and unencumbered.

5925             The management of the broadcasting system is much more diverse, with numerous players, none of whom control the system.  The only issue that had to be dealt with to encourage competitive entry was the inside wire.  The CRTC decided that it belonged to the homeowner, and that was that.

5926             The success and growth of the Canadian DTH market, with 2.5 million customers, is a direct result of the CRTC's active role in ensuring that competitive entry would be facilitated.

5927             MR. SHAW:  Historically, the Commission has opened up monopoly-based telecommunications markets to competition in a gradual and orderly manner.  As a result, we have healthy, vibrant, and sustainable facilities-based competition in a variety of telecommunications and broadcasting services.

5928             The local phone market is not among them.

5929             We believe that the Commission is taking the right approach in establishing a framework and criteria for local forbearance, but it is far too early in the game to consider local forbearance.

5930             Local competition has just started.  Only 35 percent of our customers even have access to Shaw Digital Phone.

5931             We have been in the telephone business for only eight months.

5932             We have significant investments ahead of us to complete our deployments of Digital Phone, including deployments in small communities that may never see a competitive alternative if the telcos are forborne.

5933             These investments are being made on the assumption that the Commission will ensure that local, facilities-based competition will evolve and take hold.

5934             The telcos have the opportunity, incentive and capabilities to delay, impede and deny competitive entry.  Our real world experience is clearly evidence of telco anti-competitive behaviour.

5935             The telcos control critical elements of the business, including access to the PSTN, interconnection, local number portability, and access to support structures.

5936             We need access to all communications tools at our disposal, particularly local avails, in order to inform our customers of our products and ensure they know that we can provide them with a reliable service all the time.

5937             The telcos don't need any transitional measures.  They already have them.  They compete in every market segment -- voice, video, data, wireless, residential and business.  They have ubiquitous service offerings and the ability to bundle services and target specific market segments.  They have substantial cash flows to compete on any level and in any market, and have no barrier to entry in any of our markets.

5938             Nothing precludes them from offering a VoIP service.  Bell's launch of Digital Voice demonstrates this.

5939             We are not asking for protection.  We are confident in our abilities to compete successfully.

5940             Shaw's culture has always emphasized growth, customer service and entrepreneurship.  We are prepared to take the risks and make the investments to provide our customers with choice.  All we are asking for is an opportunity to compete fairly.  Let the local market evolve and let competition take hold before you unleash the telcos.

5941             Thank you, Mr. Chairman, that completes our remarks today.

5942             THE CHAIRPERSON:  Thank you.

5943             Commissioner Williams.

5944             COMMISSIONER WILLIAMS:  Good morning, Mr. Shaw and Shaw panelists.  Welcome to this hearing.

5945             I will be asking a variety of both specific and general questions this morning.  If some of my questions are of a nature that you feel your response would include competitively sensitive material, you can certainly file this information with the Commission on a confidential basis.

5946             Let's begin.

5947             In your oral presentation this morning you gave us the general overview of your entry into the telco arena.  Could you please discuss your experience to date, outlining the variety of uncompetitive barriers that you have experienced within the first eight months of this new business venture?

5948             MR. SHAW:  We have been involved in the hearing, and earlier this week we listened to Manitoba Tel, who has promised us number porting for weeks and weeks and weeks.  I think they even told the Commission the other day that they are porting numbers.

5949             I am glad to report that yesterday we got four ports done in one day, and we have been at it since July.

5950             I am not saying that they are not working on it, but they come up with things like:  The person who was hired to be in charge of number porting is a retired MTS employee and works half-time, one week on, one week off.

5951             There are various delays.

5952             We see all sorts of problems in the local area, where they just really don't want to deal with us.  If you, in turn, are a data customer -- a DSL customer, let's say -- that port is denied because you are a DSL customer.

5953             If you are a TV customer, that port is also denied because you are a TV customer.

5954             What we are seeing is, any way to take advantage of the rules to slow down what they would be perceiving as a competitor in the local arena, or what they would be perceiving as us taking away their customer, seems to be happening across the board.

5955             MR. BISSONNETTE:  It is interesting, because from the beginning -- of course, we have a softswitch, the PacketCable softswitch, and just in the testing of that softswitch the first response was, "That is not a traditional switch, so it will probably take us two months to garner confidence that the switch will actually work on our network," even though that switch is certainly being used by others in the industry.

5956             Jim mentioned that it took us eight weeks to have somebody actually doing the SS7 signaling tests, because that person had retired and they had nobody else in the whole company who could actually do SS7 signaling.

5957             It is interesting, on the porting, as you mentioned, we have certainly expressed that to the Commission.  We continue to have problems.  We continue to see porting.

5958             As Jim mentioned, we had four the other day.  They are doing just enough to ride on that line that they are doing something.  They are very nice people, but they are doing everything they can to stymie us.

5959             Interestingly enough, the day after we launched the service the Winnipeg Police came out and said that they have a concern about VoIP services in general because E911 doesn't work.

5960             When the power goes out, this happens.

5961             You are competing with the internet.

5962             All of that misinformation is being promulgated by MTS.

5963             Our customers who are in the porting process are sitting like fish on the docks, waiting to be pulled back by MTS.  They say, "We can't get you their number."  In the meantime, they are trying to win back these customers.

5964             I have a litany of examples, if you want specific customers and specific dates, where the customer has said, "We would like to come over to Shaw and try your Shaw Digital Phone service."  In the interim, when their number is not being ported -- we have to identify to them that, unfortunately, there is going to be a timeframe beyond what we would expect to be normal for the number to be ported -- there are direct winbacks that are being made to those people.

5965             We get calls from them saying, "We have changed our mind.  MTS has offered us free long distance.  They have offered us a $10 discount on their wireless product."

5966             So every conceivable way of either deferring or coming back with winbacks we have experienced with them.

5967             The other incumbent that we deal with, of course, is Telus in Alberta and in British Columbia, and we have a backlog of over 5,000 customers who have told us that they want to come and enjoy our service, but they cannot be accommodated because their numbers can't be ported.

5968             We have met with senior people within the company, and they have said they will do their best to try and improve that, but, frankly, the numbers they are now porting are about half of what would be necessary just to keep up with the kind of transitions that customers from Telus to our Shaw Digital Phone are experiencing.

5969             So constant delays.

5970             We launched, as we mentioned, in Edmonton.  Sherwood Park is an integral part of Edmonton.  Sherwood Park can't get our service because the interconnections between ourselves and the incumbent can't be accommodated.

5971             When we launched in Calgary, Okotoks and Airdrie, and when we launched in Vancouver -- half of Vancouver is not available because we can't be accommodated on their interconnections.

5972             So an LIR, which we have talked about, is important, but we can't even get an LIR interconnected.

5973             COMMISSIONER WILLIAMS:  Let's continue with this topic of porting.

5974             What percentage of your customers want to retain their numbers, so that you in fact need porting?

5975             Are there any other actions you are taking to deal with your backlog?

5976             You have customers who want service.

5977             MR. BISSONNETTE:  Initially, about 40 percent of our customers were prepared to take a new number, but 60 percent -- as you know, some people have had their number for 10 or 15 years, and it is a very important part of their lives.

5978             They have said, "We want to come over to Shaw -- "

5979             You should know that we talk to our customers every day.  Jim calls five customers a week.  Michael does.  I do.  We are hearing directly from them.

5980             The reason we do that is because we want to make sure that when we launch our service our customers see that service as being reliable, and if they have any issues, they can talk to one of us, and we can certainly facilitate any cure for any problems they might have.

5981             The number is sacred to them.

5982             Since we have seen the delays in our launches in Alberta, some customers are saying, "I can't wait any longer.  I am going to take a new number."

5983             The ratio now is that 60 percent of our customers are prepared to take a new number, but 20 percent of them are doing it begrudgingly.  They would love to have their old number back.

5984             We have met with Telus and we have suggested:  Because you have a manpower issue, a constraint with your strike, why don't we preserve that number for our customers, have them come over to us, and they will take a new number, and when your strike is over, let's give them the old number back.

5985             That doesn't work for them.

5986             Customers that are now taking new numbers -- as you know, part of the tariff of a telephone company is to put a recording on that number, which says, "The number you have called is no longer in service.  The customer's new number is this."

5987             They aren't doing that, so those customers are going into a bit of a vacuum, and you can understand why there would be a reticence to take a new number.

5988             It is a frustration, and what is happening now is that the customer is saying, "I can't be bothered to wait any longer.  I am not even going to bother.  I am going to go back to the incumbent."  We have lost an opportunity.

5989             COMMISSIONER WILLIAMS:  When you lose the opportunity, a potential phone customer going back to the incumbent, I understand that some of your packages are offered in a bundle, so do you also lose other parts of the bundle or risk other parts of the bundle or risk damage to your brand?

5990             MR. BISSONNETTE:  Absolutely.  Customers are really attracted to our service by virtue of our bundles, and many customers are coming to us and they are bringing those other services with them.

5991             The reverse happens, of course, when we can't satisfy their need to maintain their number, so the services that they had chosen to also bring over as part of the bundle are lost to us.

5992             We, essentially, have no place in their home.

5993             MR. SHAW:  We call these customers, really, to get a feel of the marketplace, to know what the competitor is doing.  Because we can mess up too.

5994             One of the things that customers say to us that we find encouraging is, "This is really great."  They think that competition in the local arena is great.  They think that you, as the Commission, have got it right.  For once, it is something that gives them a better option and better pricing and more features.

5995             What we are finding is that they then get frustrated by the process and say, "The thing is messed up like it used to be," when we in Canada and the Commission and the players have a chance to get it really right, so that it works well.  We lose that opportunity, to some degree, and I don't think it looks good on us, or on the regulatory system in Canada either.

5996             But right now, when we talk to them, they are supportive of the group.  They think that you guys have made good decisions, and they are seeing some results in the marketplace.

5997             Guys in the smaller towns are saying, "I have never even seen long distance competition" ‑‑ in Fort MacMurray or Prince George or Red Deer.  They are dying for it to come there, yet we still can't get the big city to run right.

5998             So it is going to be really hard for us if we can't get the area, generally, like Calgary, Edmonton, Vancouver, Victoria, to run right.  Then, it will be really hard for us to make the next move out to the smaller guys, who want it even more desperately than they want it in Calgary and the other larger centres.

5999             COMMISSIONER WILLIAMS:  What has the effect been of the Telus labour unrest in the west in regards to your ability to attract customers?  Then, I guess, once you have attracted them, to get them connected and convert them.

6000             COMMISSIONER WILLIAMS:  What has the effect been of the Telus labour unrest in the west in regards to your ability to attract customers, and I guess once you have attracted them to get them connected and convert them?

6001             MR. SHAW:  I guess that we have taken the approach that Peter has met with senior people at Telus and I have talked to Darren at various times.  We have done a couple of things.

6002             We said that we weren't going to what I call "pile on".  So we haven't done a lot of advertising about our telephone service, because it is just too frustrating for somebody that wants to port  their number and we can't and we can't fulfil them and it just looks bad on us.

6003             We have probably slowed the process down to some degree.  There is some demand there.  We are conscious of their labour dispute and are supportive of where they are going with that.

6004             So we are really kind of, Peter, on hold to some degree, aren't we?

6005             MR. BISSONETTE:  We are.

6006             Recognizing that there are some manpower constraints, we have actually proposed a methodology with respect to LSCs and LSRs that would require as little manual intervention as possible.  There is a process with the Canadian Numbering Association that would allow us to do that, but unfortunately it hasn't been embraced.

6007             We really would hope that ultimately there is absolutely no reliance one on the other for number portability, because that is the huge stumbling block that we have right now.

6008             COMMISSIONER WILLIAMS:  Back to the number portability, are you doing anything innovative to try to sign up a customer in the event that you can't give them a number?  Do you offer any incentives?  Do you do anything in that area?

6009             MR. BISSONNETTE:  Yes.  We have called all of those 5,000‑plus customers that are still waiting for their number to be ported and we have offered them an opportunity to come onto our service for a month for free, try it out, take a new number.

6010             Some have actually been attracted to that.  But again, it just goes to the sanctity of the number that many have still said "no".

6011             September is our busy season.  New homes are being constructed or finished construction, people are moving in and they have said, "I have to have a phone".  So they are taking our number because they really, truly want to come and enjoy our service.  They take our internet service and they take our other services and this just makes sense to them.

6012             COMMISSIONER WILLIAMS:  How fast is this backlog building in terms of, say, a percentage or an actual number?

6013             You can use your discretion on how you answer that.

6014             MR. BISSONNETTE:  Yes.  We are being satisfied now at a level of about 50 percent of what the demand is.  We have a backlog of over 5,000 customers which will take, at the rate that they are being ported now, some several months to deal with in the absence of any other sales.

6015             COMMISSIONER WILLIAMS:  So will these customers wait several months?  Is your service that attractive to them?

6016             MR. BISSONNETTE:  Many aren't.  Many are going back.

6017             COMMISSIONER WILLIAMS:  What are the key attractions of the Shaw service versus the current alternatives?

6018             MR. BISSONNETTE:  We offer same-day/next-day service.  We can do that.  When a customer takes a new number and they phone us today, tomorrow in most cases we have actually installed their telephone service along with any other services that they might have.

6019             They tell us that they love the long distance that goes with the services.  We have many customers in our areas that come from Newfoundland and now they can talk to their parents in Newfoundland unlimited whether it is Saturday, Sunday, three in the morning, two in the afternoon.  They love the plan.

6020             COMMISSIONER WILLIAMS:  So you have unlimited, what, free long distance?

6021             MR. BISSONNETTE:  It is unlimited long distance, North America included; that's right.

6022             Service calls are included.  We don't charge customers.  If they have a problem with any of our services, it is included with their subscription with our services.  They really like that.  They call us up and we will dispatch a technician to address their concerns.

6023             If they have concerns with their internet ‑‑ many people load new software and something goes wrong ‑‑ we have technical support staff there 24 hours a day to help them.

6024             That is a really integral part of our brand, the service orientation of our company.  That is attracting companies to our telephone services.

6025             COMMISSIONER WILLIAMS:  What is the typical take‑up in each household?  Do they just call you for a phone or are they already a cable customer?

6026             MR. BISSONNETTE:  It is an interesting ‑‑

6027             COMMISSIONER WILLIAMS:  What do they want when they call?

6028             MR. BISSONNETTE:  Many are already cable customers who take our internet services and take all of our other video services and they trusted us because they have had our internet service for some time and they want to try this new Shaw digital phone service.

6029             Interestingly enough, there is a portion of customers that are now coming to us that have never been a customer of Shaw and are taking our bundled products because they have heard about them.  The telephone product was what essentially moved them into our direction and they said, "We have never really had a need" but when they are coming on they take everything.

6030             COMMISSIONER WILLIAMS:  Your historical churn rates in cable you are familiar with.

6031             Is the churn rate in your new phone business similar or are there any differences?

6032             MR. BISSONNETTE:  The churn rate between when we get a customer and when they get ported, that is in question right now.  Once our customers come on I think it is probably too early.  There is a traditional churn rate that goes to people moving from their homes, so you are going to churn from one address to another.

6033             MR. SHAW:  We would think it would be pretty close to the same as cable once we kind of get operating, which is going to be in 1.5, 1.8 percent a month.

6034             COMMISSIONER WILLIAMS:  1.8 percent a month.  That is of ‑‑

6035             MR. SHAW:  Basic.

6036             COMMISSIONER WILLIAMS:  ‑‑ the two million customers you have?

6037             MR. SHAW:  That will be of the percentage we have.

6038             COMMISSIONER WILLIAMS:  Yes.

6039             MR. SHAW:  So if we are only 35 percent deployed ...

6040             COMMISSIONER WILLIAMS:  Yes.

6041             MR. SHAW:  Now is the easiest time in the market because you get all the people that are the early adopters who want to try it.  No different than when satellite came, all the people who didn't like their cable provider moved right away.  No different.  That is probably what we are seeing with RBOCs.

6042             COMMISSIONER WILLIAMS:  You talk about within 35 percent of your cable marketplace.

6043             Will you eventually offer service in your entire cable operating area?

6044             MR. SHAW:  Yes, we will.  The one fact, we just finished on our high-speed.  We have been at it, I think we were talking seven years and a bit, really, really hard at it.  We just finally moved the deployment down to a level where communities with 1,000 homes have high-speed.  So it has taken us that long to get down to that far.

6045             In in the small reaches of Alberta and Saskatchewan and British Columbia and all these little towns, it will probably take that long in Shaw's whole network, but what will happen in the first probably two to three years is that 95 percent of our market will be deployed.  It is the last 5 percent that will take us some work to get to as we have little fibres and little different interconnects and switches and stuff.

6046             COMMISSIONER WILLIAMS:  At what percentage of the phone market or percentage of your current customers that take phone do you believe your company will achieve breakeven in the phone business?

6047             What percentage is required to get a return on this, I guess, $350 plus‑million you spoke about earlier?

6048             MR. SHAW:  Yes.  I can answer that question.  It is a little bit hard in that you are layering on lots of products onto one line so it is like trying to find where actually the profit comes.

6049             We have stated our goal.  We think as long as the regulations ‑‑ and we can fix this number porting thing a little bit up, we think we will be at 20 percent penetration of markets deployed three years after they are deployed.  So from a three‑year date ‑‑ and I think we have gone public with that number ‑‑ I would think that we start showing what I will call positive EBITDA, I would say right around the 10 percent level, which we think is very achievable, whether that is in year one or two.  Probably not in year one but maybe in year two.

6050             COMMISSIONER WILLIAMS:  Okay.  Can you now please discuss some of the challenges that your company has also experienced in the area of access to municipal rights‑of‑way and access to support structures in rolling out your phone business?

6051             MR. BISSONNETTE:  Access to support structures obviously is fundamental for us, particularly as we are launching our telephone business where it is really important that we continue to segment our nodes.  I know that the folks from Cogeco talked about that.  But node segmentation:  the smaller the node, the higher the quality, the more reliable the service.

6052             What we are running into now ‑‑ and this is not a phenomena of the labour dispute in Alberta or British Columbia ‑‑ over the last two years the access to support structures is becoming more and more difficult.  The reasons for not providing access to support structures are becoming more and more vague.

6053             Typically, we have a process called a P408 process where we apply to the telephone company to run our cable from point A to point B.  Within a timeframe of about 60 days we should hear back from then saying, "Yes, we have facilities there and, yes, you can access those support structures".

6054             What we are hearing now is, first of all it is taking upwards of a year to hear back from a telephone company about an application.  What they are saying now is a new twist, it is that, "The make-ready will have to be done, but it is not in our best interest to do that.  Even though you are going to pay for the cost of making that make-ready and overlashing that cable, we decided it is not in our best interest to do that".

6055             So that is one.  That is a very vague response and we don't know what the response to that is.  We have to look for alternative routes.

6056             The other one is our capacity induct systems.  We have now done a 50‑year plan and because of that plan we think we might need those support structures in 20 years from now and so therefore we can't afford to give you access into those support structures.  So find an alternate route.

6057             There are just more and more ways of putting roadblocks in our way to have infrastructure that is absolutely critical to us providing our telephone service.  So that's a problem.

6058             We met with the Premier of B.C. the other day to talk about our role as a third party usually leasing facilities from a hydro company or from a telephone company and the need for us to have interconnections to serve the kind of communities that Jim just talked about in some of the smaller communities.  We need to have support structures.  We need to have some kind of status, if you will, on those support structures in order to place our facilities.

6059             So we have a situation, as you know, in Vancouver where the City of Vancouver had denied us access to critical facilities to launch our telephone products in the city.

6060             Thunder Bay is another example, where we have been whipsawed between the hydro company and the telephone company, who happen to both be owned by the city, with respect to getting access.  So when we launched our internet services in Thunder Bay, we had to actually use creative approaches like AML microwave, digital microwave that would allow us to use wireless approaches to get into critical hubs as opposed to being able to place fibre optic networks.

6061             We don't want to sit here whining in front of the Commission.  We have challenges.  We are prepared to deal with those challenges.

6062             Where you can help us by maintaining regulations that force incumbents to at least act in a certain way, that is going to help us to make entry into the market in a meaningful, meaningful way.

6063             COMMISSIONER WILLIAMS:  Okay.  That is a perfect segue into the final set of questions that I have.

6064             In order to rule out your competitive product, what would be the ideal regulatory environment that the Commission could provide to ensure that, one, when we did forbear, as is our eventual goal, that it is at a time that is fair to all, that would produce meaningful and sustainable competition.  With what specific criteria do you think?

6065             What advice can you give us from your company's point of view for the ideal environment in order for your company to grow in this new competitive marketplace?

6066             MR. SHAW:  Well, I guess the first thing we think is that the Commission does have this right.  So we are not here saying you have it wrong; we are here saying you have it right.  The stuff that you have in place now, with some minor tweaking, can take this to the next level.

6067             I think our number one issue that we are always most frustrated with is when there is a problem between us and the RBOC and the customer is in the middle, because we value that relationship.  At the end of the day I guess we are all just here because of those customers and because of Canadians and that is why we do what we do.

6068             So probably the most frustrating would be the number porting issue.  If we had to rank them, I think the facilities, while it is frustrating, some of the approaches that are taken we do find ways around that.  We are pretty creative.  We can always dig in our own fibre if we have to.  While it is more money and maybe not how we should go, we tend to do that.  So we have been able to find ways around those things.

6069             So I think any time we can err on the side of the consumer in Canada we are going to win.  The whole system wins.

6070             These companies are of larger size.  Telus won't kill Shaw and Shaw won't kill Telus.  I think there is lots of market for everybody here.

6071             We have seen some market expansion just by these products across the board so I think we are pretty good there.

6072             I guess we really think that it is time in this area that consumers benefit.  We need a little more time just to get a little more footing under us.  We are not the protectionist type so we think there will be a time to forbear and we just think that it is just a little bit early now in our recognition of this.

6073             Ken, do you want to add anything to that?

6074             MR. STEIN:  I think the basic point to be made from a regulatory point of view is that people try to come up with simple models, whether they are amoebas or charts as to the competitive environment.  It is actually, as we found when we entered into the DTH business, the Commission actually did that correctly, because the issue wasn't just a simple 5 percent/100 percent kind of rule.  There are a whole range of other things that were put in place.

6075             It's interesting, the telcos are asking for transitional arrangements and more flexibility.  Actually, what happened in the DTH market was that the entrant got all the flexibility and the incumbent, the cable companies, actually the Commission tightened up on us.  So the telcos are asking for the reverse.

6076             I think the key issue that seems to be ignored in the competitive models is the fact that they run the system.  The thing we have learned over the past couple of months is that all the rules, all the regulations with respect to interconnection and LNP, et cetera, don't mean very much, that really you have to build a relationship in order to try to make it work and all the rules and regulations don't really help.

6077             I know Telus complains ‑‑ not complains, but basically says they do have a labour issue and we are very sensitive to that in terms of resources, but yet they have the resources to put in the telemarketing.

6078             So we find that within days of people being ported that they are being phoned by a Telus telemarketing firm saying, "Geez, you switched.  Why did you switch?" and "How would you be incented to come back?"

6079             They have the resources to do that, but they don't have the resources to have somebody sit at a terminal and do a number port.  That just seems to me to be just strictly anticompetitive.

6080             So how the Commission can help in that is to basically do as it has.  The Commission has had a tremendous success record in introducing competition to this country.

6081             When you look at Winnipeg.  Winnipeg is the most competitive television market in the world. People have seven choices as to how they get their television in Winnipeg, they have fundamental choices as to how to get their high‑speed internet, and they are going to have fundamental choices about how they are going to get telephone service.  This is going to be the best example of competition in a telecommunication and broadcasting system in the world and we are getting screwed up by number portability.

6082             Two days after we launched the service MTS says, "Oh, we can't port high‑speed internet customers.  We can't port television customers".  Well, I mean, Jim went in there a month before to give them kind of a hint that we were coming.

‑‑‑ Laughter / Rires

6083             MR. STEIN:  So they have reacted.  Then when you see the emails that we get from people about the offers.  I have got some.  They tell my sister that she had to change all her inside wire, which is wrong.

6084             So I think the thing is that it is that specific targeting.  If they came at us with huge promotions and we were able to deal with it on that basis, that would be fine.  That would be a real fair competitive thing.  But it is the targeting that they are able to do and the running of the system in a way that is to their advantage and to our disadvantage and the targeting of the customers who are lost that is a real disadvantage.

6085             I think that the more that the Commission can just basically indicate to them that the system has to be managed in a way that encourages new entrants in competition and that customers have to be treated equally, that the more the Commission takes that approach and doesn't get bound up with simplistic rules ‑‑ you know, an amoeba is a single‑cell animal with no brain and I think that that kind of approach just doesn't fit.

6086             The Commission has it right.  The Commission has it more right about competition in this business than in most other businesses in this country.  So we don't want to go the route of the airline business or other kinds of businesses which have followed theories which have failed.  The Commission's experience in this area has been very good and applying that experience to this area is what is required.

6087             Thank you.

6088             COMMISSIONER WILLIAMS:  Thank you very much, panellists.

6089             I think that concludes my questions, Mr. Chair, although I may think of one or two more.  I reserve the right to come back later.

6090             Thank you.

6091             THE CHAIRPERSON:  Thank you.

6092             Commissioner del Val...?

6093             COMMISSIONER del VAL:  Thank you.

6094             I found your presentation very helpful in the examples you gave of customers expressing interest, changing, sort of the hurdles that you face, but it sounds like you do have a lot of interest in the service that you have offered in Alberta.

6095             MR. SHAW:  Yes.  There is a fair amount of interest, but understanding there has been no local competition and really no ability.  Edmonton has never really had any competition in the local arena, to a large degree.  So there is a lot of pent‑up, I would say, in the early days of launch of these products, as well as in Calgary.  Plus, we are probably a little more advantaged by the fact that Alberta is experiencing quite a large boom right now and so cities like Edmonton and Calgary are really, really building out fast.

6096             COMMISIONER del VAL:  So inertia isn't really a problem for you as a cableco, is it, but but for your complaints about violations of winbacks.

6097             Inertia isn't really a problem for the cable company.  That wouldn't be a problem you face then?

6098             MR. SHAW:  It might not be a problem short term, but longer term it will be sustainable.  It's just like if you go to a store and you order some clothes and they don't come for two months and they don't come for four months.  You go back to the store and say, "Well, gee I would like my money back".  How many people are you going to tell about that experience or that store?  That is kind of what we are dealing with.  We are dealing with the fact that we come, we promise we can port your number.

6099             You know, before we used to say we could have it done ‑‑ I forget, 10 days, Peter, something like that ‑‑ and we were pretty well on track.  Then the next thing you know we are phoning you back to say "Well, it's two weeks", then we are phoning you back to say "Well, it's three weeks", then we are phoning you back and saying "Well, we have an offer, do you want to take our number"?

6100             We were getting so creative in the end, we were going "Okay, we will let you pick your number".  So if you have family you could be, you know, 2221, your brother could be 2222, and you could be 2223, that kind of thing.  It is kind of just to come up with something that we could offer and, of course, we could put that in in a day or two.  The other one they go, "No, but I want my number."

6101             I always say this to my mom and dad ‑‑ I shouldn't say this but they are not here so I can say it ‑‑ you finally talk a senior citizen into coming over and then they have a senior's moment, which means they basically forget everything you have told them, and they don't understand.  They say, "Well I don't understand why you can't port my number here.

6102             COMMISSIONER del VAL:  But all those examples are examples of the difficulty in actually getting the customer and retaining.  It is not inertia.  It is because there is a lot of talk about just inertia, people not even considering switching.

6103             So that is not really a problem that you as an established cableco faces.

6104             MR. SHAW:  Right.  Not that we have seen yet.

6105             COMMISSIONER del VAL:  Okay, thanks.

6106             The Competition Bureau proposed dividing the product market into primary lines and secondary lines.  I also note in your presentation your goal to be a replacement for local telephone service.

6107             I will try to break this down.

6108             First, what do you think of the Competition Bureau splitting the products market for residential service into primary and second lines?

6109             The second question will be:  Do you think that there is a good market for you in the second line residential market?

6110             MR. SHAW:  We initially have looked around at other companies that launch what I would call a secondary line offering first, converting over to a primary line.  We felt that in marketing that with an inferior product and just trying to compete on a second-line basis would not be where our company should go.  So, in turn, while we might offer you a second line that restricts long distance on it, because you want it at a discount, we think our service should be totally primary line with all the features that any other line should have.

6111             Ken, I don't know if you have ‑‑

6112             MR. STEIN:  I think the model just gets too complicated, because as you try to apply that model in any given circumstances people use secondary lines in a whole bunch of different ways and there is a lot of change that goes on.  There are also different features.  You can have the same telephone number and get a secondary fax line with using a feature rather than having a secondary line.

6113             So there is a lot of different ways of achieving a secondary line and there is probably a lot more change within households in terms of how they do that.

6114             So we felt that in terms of entering into the market what we wanted to go after was the market that is there and that market is the primary line market.  AJim says, it also gives you the quality features.

6115             But to try to trace through secondary lines would be trying to judge whether the cell phone is a primary line or the secondary line as well.  So I think it just gets overly complicated and I don't think people really look at it that way.  I don't think people look at there is a primary market or a secondary market.  Maybe economists do or academics do, but I don't think individual homeowners do.

6116             COMMISSIONER del VAL:  It's funny that you say that, because in my simple mind as just a consumer in a household I actually thought that first line and secondary line, you know, it actually had some appeal, because you would think that, okay, if there is the inertia with the primary line with the incumbent telco and then, you know, say if I have the computer ‑‑ most households have computers ‑‑ with high-speed internet from cable, the secondary line would be the perfect place to try out my teen phone.

6117             So I don't see that as an economist's view, I am just seeing it as a simple consumer's view.

6118             MR. SHAW:  No.

6119             COMMISSIONER del VAL:  So I'm just wondering, am I missing something?

6120             It strikes me that sort of we don't want competition until we want it perfect, we want the perfect scenario, we want the primary line.

6121             MR. SHAW:  No, no, no, and we offer primary line now, that is all we offer.  You can use it as a secondary line if you want, that is your choice.  You might pull it into your household and say, "Well, I'm keeping my main Telus number and I'm using Shaw as my long distance number, so when everybody makes a long distance call they walk over to the other number and use it.  It is mainly outgoing when you do long distance, so does it really matter that the other one is for incoming?

6122             So I think lots of people do that.  It is just we made the decision that we are not going to have someone go and say, Well, I tried to call 9-1-1 on that service and it didn't work" or "I tried to call 4-1-1 and it didn't work".  So we want it fully featured, but by no means has that slowed us down at all.

6123             COMMISSIONER del VAL:  Okay.  Those are my questions.  Thank you very much.

6124             THE CHAIRPERSON:  Thank you.

6125             Commissioner Cram...?

6126             COMMISSIONER CRAM:  I see Red Deer is on the map.  I guess my brother will be pleased.

6127             Why isn't Saskatoon on the proposals too?

6128             MR. BISSONNETTE:  Saskatoon is on our radar map.

6129             COMMISSIONER CRAM:  Oh, okay.

6130             MR. BISSONNETTE:  It is a matter of getting the interconnects that are necessary to provide us, as a CLEC, with interconnects to the telephone network in Saskatoon.  So they are clearly on our map.  They will be launching.  We are doing the kinds of things we have to do now, the lead time ‑‑ I think we talked about two years to announce the telephone switch, the lead time typically has been in a year to get those kinds of things resolved with the telephone company.

6131             MR. SHAW:  I would say that of Shaw's major systems ‑‑ let's go with a cable system above 20,000 to 30,000 ‑‑ above that everyone will be launched within a year.  So Saskatoon is on there, we didn't write it in the thing, but it is on the list.

6132             It is a little more complicated one because Bell doesn't have an interconnect agreement, so it is one of the ones we have to do directly with SaskTel.  We have held talks with them already and that process is starting to get under way.

6133             So it is more just a function of the ability to get the interconnection agreement, get our status and then work ahead and then you will see actually Prince Albert and Moose Jaw and Swift Current and all those place launch.

6134             COMMISSIONER CRAM:  So you are partnering with BellWest, but you are also competing with BellWest in Alberta.

6135             Is that right?

6136             MR. D'AVELLA:  Bell West is essentially a wholesale provider of access services and a variety of other things.  Their focus is largely the enterprise and small and medium sized business markets.  So they are not really in the residential telephony market.  They see this largely as a wholesale business for them, which they are very happy to have.

6137             COMMISSIONER CRAM:  When I get to some of these questions I wonder if you could file, I guess on a confidential basis, your basic penetration rate in Calgary, Winnipeg, Saskatoon, and then your high-speed penetration rate as a percentage of the basic?

6138             I know you have high penetration in your internet, but it is just it would be ‑‑

6139             MR. SHAW:  Do you want us to file all the systems?  It is just as easy to file them all.

6140             COMMISSIONER CRAM:  Is it?  If it is just as easy ‑‑

6141             MR. SHAW:  All the bigger ones or all the Class 1's.

6142             COMMISSIONER CRAM:  The bigger ones.

6143             MR. SHAW:  How about all Class 1's?

6144             COMMISSIONER CRAM:  Sure.

6145             MR. SHAW:  Okay.

6146             COMMISSIONER CRAM:  Thank you.

6147             Thank you, Mr. Chair.

6148             THE CHAIRPERSON:  Thank you.

6149             Commissioner Langford...?

6150             COMMISSIONER LANGFORD:  Thank you, Mr. Chairman.  I don't have many questions.

6151             Welcome, folks, to beautiful downtown Gatineau.

6152             I was wondering what your plans are for competing in the central business core of some of these large cities you talk about.  I'm not really up to speed on your cable footprint in some of the western cities, but I know that in some of the eastern cities it is not as strong right in the central business core.

6153             I wonder if you could just bring me up to speed on where you are on that?

6154             MR. SHAW:  I guess that is certainly a longer term picture.

6155             Short‑term cable's main strength is in the fact that it is a residential provider and that it has very good extensive fibre optics throughout almost all residential areas in Canada to a large degree, all the bigger ones for sure, and that it has always resisted a bit going downtown because you have had a lot of costs and certainly not as many subscribers and some people frown on the idea of having a TV in their office.  I certainly don't, but some other people do.

6156             So gradually, as we wire in what I will call our high-speed SO/HO, small-office/home-office, we start to penetrate these areas around the edge, mainly the industrial areas and stuff.  So it is a growing factor.

6157             I think once we have reached competition on the local side or in what I call the residential side you would see the next move would be some more competition come into probably the small and medium business side, with some creative type offerings for probably businesses with under 10 employees, maybe under 20 and work from there.

6158             I wouldn't see cable as being a great provider of the large enterprise units at this time.  But, you know, if you would have asked me five years ago if we were going to go head-to-head in local with the local incumbent I would have probably told you no also.

6159             COMMISSIONER LANGFORD:  What would it take to get in to some of these large officer towers now?  Would you have to work some kind of agreement with someone else, one of the other CLECs, or how would you do it if you did decide to do it?

6160             MR. D'AVELLA:  Access is certainly part of it.  As Jim said, we do have fairly extensive fibre networks throughout our major centres.

6161             But the bigger issue for us is selling a large business is a completely different undertaking.  We don't really have the culture and the resources to do it.  We would obviously have to staff up to do it and hire the right expertise.

6162             The switch that we bought, the softswitch platform that we have for our residential customers, will probably do some of the small business type applications up to a certain number of lines, but if you are going to provide services like IP Centrex and start dealing with more complicated enterprise offerings, it is another investment in a switch.

6163             COMMISSIONER LANGFORD:  So who would be the competitors for that sort of business in the big cities where you are doing residential?

6164             MR. D'AVELLA:  Well, it is the incumbents.  In our territory, it is obviously BellWest.  I believe SaskTel has a venture out there called Navigata that competes against us.

6165             We do some business through our Big Pipe division that essentially provides bacall fibre but that is a large pipe business, it is not really a very sophisticated switching type business.

6166             COMMISSIONER LANGFORD:  Another question totally unrelated, but when you get down the food chain on the questioning it is pretty hard to get them coherent.

6167             You have been talking about selling VoIP to people who are interested in doing long distance.  You talk about your customers who are Newfoundland families.

6168             How many service request have you gotten for area codes that are not the area codes in which the phone is located?  In other words, perhaps for Newfoundland's area code or for something somewhere else in the world or in Canada.

6169             MR. D'AVELLA:  I don't think we have had any, Peter, or very few.

6170             We have been very very careful in our marketing message that this is a primary line service that replaces your local line.  So I think we finally got it through most peoples' heads that this is not Vonage or any VoIP offering or anything like that where you can port a different area code.

6171             We could certainly do that.  It is an offering that we could provide if we wanted to, but as Jim and Peter have said that is not where we thought our customers' hearts were at initially.  All of this stuff is certainly going to evolve and there will come a time when we can certainly provide that offer if we think there is a market for it.

6172             COMMISSIONER LANGFORD:  So you are not providing it now, though you could?

6173             MR. D'AVELLA:  No.  It is tied to a specific address, it is a land line, it is a fixed land line.

6174             COMMISSIONER LANGFORD:  Now for kind of a complicated and vague question, but at least it will be the last, mercifully.

6175             When the kind folks from the Competition Bureau came in the other day to give us some insights into how they operate they talked about one of the aspects or one of the negative fallouts from possible forbearance that they thought we should look at or would be one of the things they would look at if they were in our shoes.

6176             What they talked about was the notion that if we forbore too early it was conceivable that the incumbents could drive one or more competitors right out of the market.  But they thought that might be countered in the case of the cableco competitors in the sense that you and the other cable companies have so much of your invested infrastructure utilized already for other products.  You named them today, internet and television and whatever.

6177             So I guess my first question would be can you imagine a scenario ‑‑ you have only been at this for eight months I know, but you have some customer base ‑‑ can you imagine a scenario under forbearance where you would look at this new business venture of yours, look at your 600-and-some new employees and just say "This is no longer worth it" and go back to your core businesses which are television and internet providing?

6178             MR. SHAW:  Only one example comes to mind, it was back in the early days.  We talked Michael here into moving out to Edmonton and we were going to start‑up what was called MetroNet, which later became a different kind of company.  We created this company and in turn it was going to deliver wireless internet, wireless phone and wireless video.  Well, after about a year of torturing ourselves, or maybe it was two years, we finally turned it off.

6179             Also, we were a big component in GT Telecom, which was a bypass provider in the large arena.  It also failed, costing us multimillions of dollars.  Basically the pricing model just couldn't work.  As I look through that model, I don't see any of those guys around any more.  The only people who seem to buy them are the guys who want their tax losses because they have lost so much money that it helps MTS' balance sheet to buy Allstream or otherwise no one would even buy them.

6180             I think you would have to ask Bill about Sprint, but certainly a lot of damage was done in that arena.

6181             So I would think that you need to give the incumbent, no different probably than the satellite guys, enough time to just have enough inertia that the business can grow and then gradually just pull away.

6182             COMMISSIONER LANGFORD:  That is what you would like but it hasn't quite, with respect, answered my question.  Perhaps you can't.  If you can't, that's fine.

6183             Can you imagine a scenario at this point ‑‑ you must have sat around kind of blue‑skying when you got into this and I assume when you do that you look at all the pluses and you look at all the negatives.  Assuming, just for the sake of argument, forbearance today, you go back to your headquarters in the west, what could happen that might ‑‑ and if nothing, I mean if you are in forever that's fine.

6184             MR. SHAW:  No, no.

6185             COMMISSIONER LANGFORD:  What might happen that could drive you out of this aspect of the business?

6186             MR. SHAW:  I think what would happen is that you would probably maintain your existing base and work with that, but it might preclude future investment so you would have to ‑‑ I and Peter and the boys sit in front of the Board and we have to justify to our shareholders our investment and hurdle rates and things like that.  So what it will do is probably it will limit expansion more than it would pull back the initial investment.

6187             I would think that initially we are already deployed.  We have the work services up and running.  I tend to think that we would either slow it down so it was a lot slower deployment and/or we wouldn't deploy markets and then we would have to make a decision on which markets, was it economical and which markets wasn't.  Saskatoon might be, but Moose Jaw might not or Red Deer might not.

6188             So we would start making market-to-market choices, depending on how close you are ‑‑ a whole bunch of technical things like how close you are to the fibre, what the switch can handle, can the Calgary call centre handle it, how do we hook you up?  So it will just force a different level of decisions.

6189             I think what we have initially deployed here won't ever go away.

6190             COMMISSIONER LANGFORD:  Thank you very much.

6191             THE CHAIRPERSON:  Thank you.

6192             Commissioner Pennefather...?

6193             COMMISSIONER PENNEFATHER:  Thank you, Mr. Chairman.

6194             Good morning, gentlemen.  I have a somewhat related question.  I thought at first it was the same question, but it is the timeframe again.  You proposed on page 10 of today's presentation:

                      "We can't see this happening for at least another three to five years."

6195             I am assuming the "this" is a point at which we could forbear.  Correct?

6196             MR. SHAW:  Yes.

6197             COMMISSIONER PENNEFATHER:  Was that the meaning?

6198             MR. SHAW:  Yes.

6199             COMMISSIONER PENNEFATHER:  In your discussion with Commissioner Langford I think what you were describing, Mr. Shaw, is a point of sustainable competition.

6200             Is that correct?

6201             On what basis do you choose the three to five‑year timeframe

6202             MR. D'AVELLA:  The three to five‑year timeframe is really a collection of things that essentially says, "Look, we have still have to build this out, we still have to deploy some of our larger systems, we have real issues in terms of interconnection."

6203             Those of you who are familiar with Edmonton, not being able to serve Sherwood Park, which is a very, very large component of Edmonton, is a real deficiency in terms of our ability to provide service in that city.  So we have got to get these problems solved.

6204             Quite frankly, we have been at this interconnection issue with both our partner and with Telus for well over a year and we still have no date as to when Sherwood Park is going to get interconnected.

6205             That is just one example.  We have a series of holes in Vancouver that have to be filled before we can provide service in the entire city.  We have yet to deploy our largest system in Vancouver.

6206             So there is a lot of work that has to take place over the next call it 12 to 24 months before we can confidently say, "Yes, we have got a functioning system here, we have the interconnection agreements in place.  LNP actually works, or it works better than it does now, and we are confident this business is going to build out and grow.

6207             COMMISSIONER PENNEFATHER:  Would you describe that period of three to five years as a transition regime and, if so, would you see any other safeguards or any other steps the Commission could take?

6208             I think, Mr. Stein, you were saying that we have it right.  The panel is saying we have it right, but that all the rules don't mean very much, as I heard you say.

6209             Could you just clarify that for me and if that would be steps in a ‑‑ as you know, a transition regime has been proposed.

6210             MR. STEIN:  Right.  Well, I think that for us part of this is the fact that the ILECs over 120 years really have come to the point where in terms of dealing with municipalities and rights of ways and their own structures that they do manage that system and that what we have to make sure of, with the help of the Commission, that we get into a position where that system is being managed for the benefit of all and that it is being managed for the benefit of competition.  In our view, there are a lot of issues that we are going to have to go through that are going to take the time to be able to sort that out.  That is not going to happen in the next two years, it seems to us, it is going to take a period of time.

6211             Second, it is the same thing with dealing with municipalities.  The Commission has been an immense help in dealing with municipalities, but when it comes down to it you still have to negotiate with the mayor and the city council, and you still have to deal with their lawyers and you still have to work it out.

6212             When it works, it works really, really well on that basis.  That is what we mean.  That is the kind of working relationship we want to get to.

6213             COMMISSIONER PENNEFATHER:  One last point.

6214             There has been considerable discussion about market share as an indicator or a trigger for either steps in a transition period or a point of forbearance.

6215             Do you have any comment on market share?

6216             Mr. Shaw, I heard you say 20 percent penetration after three years of service being deployed would be considered to be a sustainable position, as I heard you.

6217             Generally speaking, is that a step we can take?

6218             MR. SHAW:  I think a market share penetration step is a better step than a date picking one, because the date picking one is always open to so much manipulation, maybe even on both sides.  I don't know that.

6219             I think market share argument worked well in the satellite cable thing.  I think with such dominance in local and wanting to bring competition in so much the number needs to be quite a bit higher than that number, the old 5 percent deregulation rule, but I would think 20 percent would be a pretty fair number.

6220             COMMISSIONER PENNEFATHER:  Thank you very much.

6221             Thank you, Mr. Chairman.

6222             THE CHAIRPERSON:  Thank you.

6223             Commissioner Duncan.

6224             COMMISSIONER DUNCAN:  Good morning.  I just have three quick questions.

6225             I was interested, following the discussion over the last few days, to just get your reaction on whether a duopoly is going to be sufficient to ensure the degree of competition in the market that we need or whether it is going to take more than two facilities‑based competitors.

6226             I was told that in the cellular market it actually took the entry of a third competitor to really ensure that the prices got to the best level ‑‑ prices and service, I'm sure.

6227             MR. SHAW:  I guess we are kind of viewing it as we have to walk before we run.  Certainly in video, as we were talking about in Winnipeg, there are two illegal competitors, two legal satellite competitors, a telco competitor, and a cableco  competitor, over the air and sky.

6228             As I said, that is a lot.  So I don't know how many actually we need and I do not know the perfect model, but I do know that this is a very, very positive step and all the responses that we have received from consumers have suggested that it is a positive response.

6229             So whether a third one would help bring even more?  Possibly.  I don't know.  But I think let's get one started well and then if the third one could come in I guess that would be a good move, too.

6230             COMMISSIONER DUNCAN:  All right, great.  Thank you.

6231             With respect to the Competition Bureau, as I understand it they are suggesting that we would have to give careful consideration to the variable costs of the competitors, the facilities‑based competitors.  I'm curious to know whether you think that we will confidently be able to arrive at numbers, or get numbers that we can rely on that would prove that your variable costs were less, for example, than the Bell, assuming that was the right answer.

6232             But are we going to be able to get numbers that can be relied on that would be comparable?

6233             MR. McKOEWN:  I think there is a great concern about any new costing methodology.  The Commission has had lots of experience with introducing costing methodologies.  Phase 2 and Phase 3, you know, come to mind.  The Commission has spent a lot of time looking at those, and not only after implementation but examining whether or not they are doing the proper job.

6234             I think you need to take that as an indication of the difficulty it is in determining the costs.  It is not a precise art.  There is no precise number.  I think the best you can do is get a feel for the relative costs for companies, but that may not be enough for the type of thing that the Competition Bureau is doing.

6235             So we don't think that is the right criteria to examine the market.

6236             COMMISSIONER DUNCAN:  I appreciate that.  Thank you.

6237             One last question.  The resellers suggested yesterday that they should have access to your video service in order for them to be able to bundle and offer a truly competitive service.

6238             I understand there would be lots of hoops to go through to get to that point, but I'm just sort of wondering your initial reaction to that.

6239             MR. SHAW:  One, it would be pretty hard to decouple that, just in the nature of the distribution network, but there is lots of ability for them to partner up with a video partner.

6240             Bell ExpressVu partners up all the time.  I'm sure StarChoice would partner with them as the video provider to complement their signal.  Some of the wireless guys.  I don't see any reason why the telco would not do it as part if they wanted.  I think there is lots of opportunity for them to bundle.

6241             They can also go to a form of delivery on their own where they lease a line and deliver their own product.  So I think they have some options there.

6242             We don't tend to feel that resellers will be sustainable over a longer period of time just because as the market gets more competitive we feel that margins are going to squeeze down and there won't be enough margin for someone to incrementally resell your service.  So we think that down the road it is going to just be based on the facility‑based.

6243             They also can build facilities, too.  We saw lots of people do it in the old days with MetroNet in the City Vancouver and lots of people getting in.  There are lots of new wireless technologies with all the WiFi and that that they can look at.

6244             So I think they have lots of opportunities, Commissioner.

6245             COMMISSIONER DUNCAN:  I appreciate that.  Thank you very much.

6246             THE CHAIRPERSON:  Thank you.

6247             Gentlemen, just a few questions or maybe comments.  Mostly these questions are on Mr. Stein's portion of the presentation.

6248             Included in there, particularly in respect of winbacks and interconnection, it is difficult to know how to calibrate these points.  On the one level they are general statements, aggressive winback campaigns, and so on.

6249             I guess I am not inviting more precision here because this really is not a fact‑gathering dispute settlement process, and yet we do have those processes at the Commission where if you do have specific concerns about the rules being violated you can go to.  We have the good offices ever Mr. Godin and company to try to minimize the formality of that, to try to work out as much as we can on an ongoing basis.  I know from your feedback on other occasions that has been helpful.

6250             So I guess what I'm really saying is, I'm just not sure how in this proceeding we can deal with those points.  If they are meant to be a general description of the difficulties in the marketplace, I understand.  If they are meant to be allegations that there have been violation of the rules I'm not sure this is the proper forum.  So I don't know.

6251             Naturally the ILECs whom you interface with will have an opportunity to comment in the next phase, but I don't want to dwell on that for both those reasons, the comments are general and because this isn't probably the appropriate forum.

6252             I would just like you to address that to perhaps clarify what this presentation was really intended to do.

6253             MR. STEIN:  Okay.  We have tried to resolve these issues, with respect.  We have had discussions with both MTS and with Telus with respect to the particular issues.  They come up on a daily basis.  They vary.

6254             At the beginning of the MTS there was quite a bit of misinformation and after some discussion with the Commission and with MTS that stopped and then it sort of came back again.  So it is an ongoing type of issue.

6255             The difficulty is. when you get into the market your processes necessarily have to take time and effort and filings to deal with.  So what we have tried to do is deal directly with the companies.  After this session ‑‑ Mr. Peirce, for example, the other day announced that we had in place a process to deal with the porting issue with respect to internet and television services.

6256             I think MTS did agree in our discussions with them that this was probably an oversight on their part and it was their responsibility.

6257             But what I'm saying is, all the rules and regulations, even though the CRTC had very clearly laid out that that was not to be a barrier to number porting, and even though Allstream itself had made filings in that regard over the past years, still that day of launch it was an issue.

6258             So I think it is more that we are not raising it, we recognize this is a consultation and we are basically saying that these are ongoing issues that indicate that rather than the incumbents saying here is how the system can work best so that we can do this, they are going the opposite way.  That has been a bit of a shock to us in terms of how it operates.

6259             MR. SHAW:  So they were just really to give a general parameter of just what is happening in the marketplace.  We wanted to come really from a consumer and a functional point of view rather than brought up as a specific problem with something we wanted to file on them or anything.

6260             THE CHAIRPERSON:  I guess if you have specific complaints about violations ‑‑

6261             MR. SHAW:  We will deal with that.

6262             THE CHAIRPERSON:  ‑‑ of the winback rules then you should be dealing with us separately and raising those and giving an opportunity for parties to comment.

6263             MR. SHAW:  Right.

6264             THE CHAIRPERSON:  We set up the expedite process and I think that has worked rather well.  Below that, the good offices process that helps to skate a lot of these disputes in to the boards, which I hope works also.

6265             So I am basically taking the bulk of your material, Mr. Stein, as basically saying:  Quite apart from the rules and the criteria this is what it is like in the trenches and you should know that so that as a background to what you are doing, we still will face a lot of these problems that may not be caught on the radar screen of rule violation in the letter, but may well go to the spirit of it and you should know that.

6266             Is that a fair summary?

6267             MR. STEIN:  Yes, it is.  If I could just make a general point on the winback rules, et cetera, that in the broadcasting side we were not removed from the winback conditions as cable companies until the DTH had about two million subscribers.

6268             So it wasn't like when we had thousands or right at the beginning of the market entry.  I think what we were trying to point out is that these specific examples are examples of things that happened in the early days in the trenches, as you say, but they are indicators that it takes time to sort these things out and come to a balance in terms of how it works.

6269             THE CHAIRPERSON:  Thank you.  I have that point.

6270             Zeroing in in particular on the interconnection point on page 12, Airdrie and Okotoks and so on ‑‑ Okotoks, I am informed by Commissioner Cram ‑‑ that is all within the Calgary LIR and that was your point.  You are saying that notwithstanding that it is within the Calgary LIR that interconnection isn't complete and so accessibility to all points in that zone is not available.

6271             MR. STEIN:  Yes, exactly.

6272             THE CHAIRPERSON:  Okay.  I guess turning that on its head, does this raise a question as to the suitability of the LIR as the geographic area for market forbearance?

6273             MR. STEIN:  No, we still ‑‑

6274             THE CHAIRPERSON:  ‑‑ indeed in addition to the cost of rolling out your network, which we have established yesterday you have, you don't even have interconnection at this point.

6275             So supply conditions in that LIR are really not equal.  That is the other side, the flip side of the same coin of what you are saying, is it not?

6276             MR. STEIN:  We think the LIR is the best because it is the one that we have experience with for administrative reasons, et cetera.  There are going to be issues, obviously, within that, but we felt that the LIR, combined with a commitment to make the system work and to make the interconnection arrangements work properly, whether with BellWest or as a CLEC, would be the way to go.

6277             Sure, it is going to take time to do that, but you are not going to forbear immediately anyway, so hopefully we will have it sorted out by the time you do that.

6278             THE CHAIRPERSON:  Okay.  Good to hear that.

6279             One of the parties ‑‑ and I can't recall who it was now, I can't put my finger on it ‑‑ suggested that one of the reasons for not adopting the LIR was that Shaw, for example, was only serving the city of ‑‑ I think it was Calgary, if my memory serves me.

6280             Your answer would be that "We can't get interconnection in the balance of the LIR"?

6281             Would that be fair?

6282             MR. D'AVELLA:  The only reason why we launched it in Calgary is that is the only place the telco would actually allow us to launch.  They would not do an interconnection in Airdrie or Okotoks.

6283             We did raise the issue of what about this LIR concept that the Commission has come up with?  Shouldn't we be fine with the interconnect in Calgary?

6284             Well, they are not buying it.  They are insisting on interconnects in both Airdrie and Okotoks.  Those are like suburbs of Calgary.  It is not like we are going, you know, 50 miles out of the city.

6285             THE CHAIRPERSON:  Thank you.

6286             My final question is on your page 14, Mr. Bissonnette, where you reference the LNP mechanism.

6287             I take your point about the difficulties in porting.  You acknowledged also in the case of Telus at least labour issues were part of the problem.

6288             But you make a more general point, that you say that:

                      "We believe that the telcos need to be removed at arbiters and gatekeepers of the LNP process."  (As read)

6289             Of course at one level the number is assigned to a telco customer and therefore it has to be ported, so they have to be involved in the process.

6290             What else do you mean and would you elaborate on that particular point?

6291             MR. BISSONNETTE:  I think if we think in the ideal world where LNP-ing is not a difficult process and where in fact there is a neutrality to that process so that it does'nt become an opportunity for some other behaviour, aside from just transferring a customer from one provider to the other provider.

6292             So if we remove all of what we will call Machiavellian behaviour from it, if we could feel comfortable that when a customer says "I want to move from provider A to provider B", that number portability is absolutely not an issue.  When we feel comfortable that is taking place, as we do when a customer moves from one video provider to the other, we have dealt with any of the issues that may be barriers.  This one is a huge barrier.

6293             There are ways of doing this.  We have made a proposal to the incumbent that would really smooth out, if you will, some of that behaviour and it essentially becomes just a pro forma process.

6294             We go to the Numbering Association, "This customer wants to move".  There is a confirmation a that the customer wants to move and the number is reassigned through the Canadian Numbering Association from the incumbent to ourselves.  There is no opportunity for the other kind of behaviour that we are seeing now.

6295             THE CHAIRPERSON:  I see.  So the Numbering Association is now not involved is what you are saying?

6296             MR. BISSONNETTE:  They are involved, but through our CLEC partnership.  They could be involved directly with ourselves.  All that has to happen is that the incumbent has to say "We endorse that process."

6297             MR. D'AVELLA:  They are involved, but they are not the final arbiters.  It is the incumbent who says, "Yes, I see this local service request that you have made.  Peter Bissonnette is now moving to Shaw Digital Phone.  He lives at this particular address."  They actually send back information saying "We confirm that two of three of the pieces of information are correct.  It's good."

6298             What we suggested is, "Well, there is no need for you to confirm that.  We already know where Mr. Bissonnette lives and we will take responsibility for the data, because the issue is, when you inform the PSAPs of Mr. Bissonnette he still has to be at that particular address.  We are responsible for that, "we" Shaw and "we" Bell ‑‑ "we" Bell our partner that is.

6299             So we suggested to them, "Look, you guys don't even need to be involved in this process.  As long as NPAC has effectively announced that that number now resides on the Shaw switch versus the Telus switch, it should work, provided we take responsibility for the data.

6300             They are just not there yet, although we are trying.

6301             THE CHAIRPERSON:  Okay.  Well, hopefully this information will prove useful for the staff of the Commission to examine further.  Telus will obviously have an opportunity to comment as well.

6302             I think those are my questions.

6303             Counsel?

6304             MR. WILSON:  Just two quick questions, if I may.

6305             First, to follow up on your discussion with Commissioner Langford where there was some discussion in terms of the business market.  I think I understood from that discussion that while there may be some opportunities for your type of service in the sort of smaller businesses, the SOHO market, as we have heard, or that small business market, the larger business market just really isn't feasible for the type of service that you offer.

6306             For the Commission's purposes in looking at the service market for businesses, does that argue that rather than treating the business market as one market we should be looking to divide it between that smaller business customer segment and the larger business customers segment?

6307             MR. SHAW:  I don't know if we have done enough work to really answer that question for you totally, whether it should be segmented or not.

6308             Certainly, at initial blush, we will easily move into the small and possibly medium, but the large ones, there are just so much more complex in their requirements.

6309             We certainly right now are designing the system as residential-base services, meaning that the softswitch we picked and some of that stuff is more geared for a residential type of customer so we would have to start reconfiguring the network.

6310             I'm not saying we won't go there.  I'm saying I don't know if we have done enough work to give you the right answer.

6311             MR. WILSON:  My final question, just to follow up with respect to the information that you have undertaken to file in response to Commissioner Cram's question, can you just indicate when you will be able to file that information with the Commission?

6312             MR. SHAW:  In a  week.  Within a week, yes.

6313             MR. WILSON:  Mr. Chairman, those are my questions.

6314             THE CHAIRPERSON:  Thank you.

6315             Commissionaire Cram?

6316             COMMISSIONER CRAM:  Thank you.

6317             I don't know if you were here the other day when Yak was here, but they were discussing what the British Telecom regulator is doing, and that was doing a process to ensure implementation of an effective wholesale and interconnection before considering forbearing.

6318             Would you agree with me that what you have written on pages 12 and 13 seems to be precisely the reasons why we should do the same?

6319             MR. STEIN:  I'm always a bit reluctant to use the British examples only because it is such a different structure and their attempts to get at competition have had different rates of success than ours.  So I'm not sure I would --

6320             COMMISSIONER CRAM:  We have been a sterling success, for sure.

--- Laughter / Rires

6321             MR. STEIN:  Well, we have in areas.  They have different issues.  I always find these structural comparisons between ourselves -- you know, comparisons were made between Canadian cable and U.S. cable, which does  make sense in some ways, but it is not always the best comparison to make.  So it is difficult.

6322             We would look more at that model in terms of how it fits with this, but I wouldn't be willing to buy into it right off the top.

6323             COMMISSIONER CRAM:  The question is, though:  Should we be looking at the effectiveness of our rules on the wholesale business and interconnection and ensuring its effectiveness before we even look at forbearing, given what you have here?

6324             MR. STEIN:  I'm not exactly sure I understand what you mean in terms of wholesale?

6325             COMMISSIONER CRAM:  Resale.

6326             MR. STEIN:  Resale?

6327             COMMISSIONER CRAM:  Yes.

6328             MR. STEIN:  I would think more to what our point is that we are more concerned about how the system operates from our point of view of being able to offer it at a retail level and how we can work out the interconnection arrangements and the system arrangements more than resale options.

6329             COMMISSIONER CRAM:  Yes.  That is why I was talking about effective interconnection and then also the wholesale side too.

6330             MR. STEIN:  Yes.  But we would look at it more from the interconnection point of view than from a resale point of view.

6331             COMMISSIONER CRAM:  So my question then is:  Do you think we should be looking at ensuring adherence to our interconnection requirements and perhaps tweaking some of the rules and ensuring that works before we get into forbearance?

6332             MR. STEIN:  Absolutely.

6333             COMMISSIONER CRAM:  Thank you.

6334             THE CHAIRPERSON:  Thank you.

6335             We will take our lunch break now and resume at 1:10.  Nous reprendrons à 1 h 10.

--- Upon recessing at 1206 / Suspension à 1206

‑‑‑ Upon resuming at 1313 / Reprise à 1313

6336             THE CHAIRPERSON:  While we are waiting for the rest of the panel to join us, the Secretary asks that I request of parties who do not wish to make a final statement tomorrow to let her know so she can do some planning.

6337             So if you do not intend to make a statement tomorrow ‑‑ we will assume you do unless you let her know.  Thank you very kindly.

6338             Order, please.  À l'ordre, s'il vous plaît.

6339             Madame la secrétaire.

6340             THE SECRETARY:  We will now proceed with Rogers Communication Inc.  Thank you.

PRESENTATION / PRÉSENTATION

6341             MR. ENGELHART:  Mr. Chairman, Commissioners, my name is Ken Engelhart with Rogers Communications.

6342             I am happy to have with me today Bill Linton, at my right; Dave Watt beside Bill; Jean Brazeau to my left; Don Bowles to his left.

6343             I am going to ask Bill to speak first about the experience of a CLEC operating in a Canadian market, and then I will address the important public policy issues at stake in this proceeding.

6344             MR. LINTON:  Mr. Chairman, Commissioners, as you know, I was the President of Call‑Net, which is now Rogers Telecom.

6345             Consistent with the local competition framework established by you, Call‑Net uses ILEC local loops to provide service.  Now that we are part of the Rogers family, we have started to provide service over cable facilities where they are available.

6346             However, it is our intention to be a national service provider, and therefore we will continue to use ILEC local loops for the foreseeable future.

6347             This afternoon I am going to describe both a good day and a bad day as a local service competitor.  By a good day, I mean a day when the networks and the systems are all working and the ILECs are providing essential services and facilities in line with the quality of service standards that you have established.

6348             On this good day I sign up in the neighbourhood of a thousand customers, and that costs over $200,000.  Of these customers, about 100 do not get switched over correctly or on time by the ILEC.  This requires us to recontact these customers and face their ire.

6349             I also discover that about 20 of these customers are served by what is called ILEC remotes, and that we will either not be able to serve them at all or, if we can, it will take several months for the ILEC to install the required equipment.

6350             Also on this good day, out of my total base I have about 750 existing customers who are completely out of service for various reasons, but mostly because of loop problems.  Of these 750, about 150 have been without service for greater than 24 hours.  These people are mad and they are phoning us constantly.

6351             That is a good day.  Now let me tell you a little bit about a bad day ‑‑ and there have been a lot more bad days lately than good days.

6352             On a bad day I have had to scale back my marketing activities because of the difficulties I am experiencing in obtaining loops importing customers.  So I am signing up fewer customers to begin with.

6353             As many as 50 percent of the people I am signing up and that I have persuaded to take my service do not get transferred because the ILEC systems are not working properly.  So that is 50 percent.

6354             Today I have a backlog of about 5,000 customers that are waiting to get transferred, and the backlog is growing daily.  I can't even tell these customers when they will get transferred, so a good number of them lose patience and they cancel our service even before it has commenced.

6355             I have customers who have been without service for over a week and are so mad that they are going to cancel not only their phone service but also any other service they receive from Rogers.

6356             This description doesn't even begin to deal with the ILEC's aggressive winback campaigns.  We often lose as many as 500 customers a day for this reason alone.

6357             Some before you are going to argue that our experience reflects the operation of a normal competitive marketplace.  Others will argue that cable telephony will change everything.  I disagree.

6358             First, in a normal competitive marketplace there is no incumbent provider that starts with all of the customers while we have to win them from him one at a time.  Because they started with all of the customers, the ILECs know who they are, they know where they live and they know what they value in telecommunications services.

6359             In a normal competitive marketplace it is not difficult to use a better deal to pry a customer loose; yet in the local telephone market the ILECs have customer inertia working for them.  There is a segment of customers who are price sensitive and open to switching.  However, local phone service is an essential service. The substantial majority of customers are not looking to switch, which means we must work harder to open their minds to competitive alternatives.

6360             In a normal competitive marketplace, one so‑called competitor does not control essential inputs to another's business.  The ILECs are increasingly using remote switching technology in many areas.

6361             This means that our customers have to wait months for the ILEC to install the necessary equipment to use our service.  That is where the ILEC co‑operates.  Where it refuses to co-operate, we are simply unable to serve those customers.

6362             Cable companies are not immune from this dependence on ILECs.  With all of the customers, the ILECs start with all of the phone numbers.

6363             When a number must be ported, it must be ported from an ILEC, and that is where the normal competitive process can become abnormally slow and unreliable.

6364             In a normal competitive marketplace, one so-called competitor is not able to hold on to virtually all of the customers simply by targeting its marketing campaigns at the very few customers that have left the monopoly.

6365             The Commission has found many of the ILEC winback tactics to be anti-competitive, and has put in place a number of safeguards.

6366             Unfortunately, on many occasions the ILECs have been found wanting in their adherence to these rules.  At last count, there are at least six formal applications which have been brought before the Commission to deal with this problem.

6367             There is an attachment to our remarks today that you will see, which is this card.  This is the latest example of an ILEC winback activity.  It is a little card that Bell Canada is sending to those customers who have switched to a competitor, and they are not waiting any length of time to send this card.

6368             I am not sure whether this is onside the rules or offside the rules, but it does demonstrate the lengths to which the ILECs will go to retain each and every last customer they lose.

6369             Before I turn you over to Ken, I would like to relate a recent incident.

6370             One of our customers called to cancel his local service with us.  As is our practice, we asked why.  The reason he gave is one we are used to hearing.  He was given an irresistible offer by Bell.

6371             But this offer even caught us off guard.  Bell offered to waive his activation fee and provide a $75 credit and three months of local service for only $40.

6372             We are pretty sure that they aren't supposed to do that, but we, of course, lost that customer.

6373             When confronted, the ILECs like to put these excesses down to the existence of what is called rogue agents within the ranks of their customer service agents.  Given how often we are encountering this behaviour, they must be employing more rogue agents than they are normal agents.  This is not a normal competitive behaviour.

6374             From where I sit, this market is not ready for transitional measures, let alone forbearance.  While the ILECs have a variety of proposals, all of them would result in deregulation, in a situation where they maintain an overwhelming incentive and ability to maintain their market share.

6375             I want you to think of what my day would be like if the ILECs in an unregulated environment could target customers immediately and offer them any sort of incentive not to switch.  The high level of customer churn that would result would be disastrous for all competitors and for competition.

6376             MR. ENGELHART:  We have had a lot of discussion in this proceeding about anti-competitive conduct, and a lot of economic analysis on whether anti‑competitive conduct makes sense.  You have heard a lot of information from the ILECs and from the Bureau, saying that anti-competitive conduct doesn't make sense.  The theory as to why it doesn't make sense is that it costs a lot of money to drive a competitor to exit the business, and then afterwards you have to raise your prices, or, in other words, recoup the money you have lost, and you can never recoup, because if you do try to raise prices, the people who exited will come back in or they will sell their assets to someone else.

6377             That is the theory you have been presented with.

6378             We feel that this argument is flawed for five reasons, as I will explain.

6379             The first flaw in the theory that you have been presented is that most of the models -- all of the models that this is based on start in a world where there are, in the words of economists, no economic rents, no super-normal profits.  Companies are just making a normal profit.

6380             Then they predate.  Now they are making less than a normal profit.

6381             After they finish that, the company exists, but they can't just go back to the pre-predation level.  If they go back to that level, they are just making a normal profit again.  They have to raise prices above the pre-predation level in order to recoup those losses.

6382             That is the theory.  That is why the Bureau even said in their remarks that you could cure predation for all time by just passing a rule that would say that you can't ever price above the pre-predation level.

6383             But all of those models are not the situation we are dealing with.  The situation we are dealing with involves phone companies that have 97 percent of the residential market, and 94 percent overall.  They are sitting on $4 billion a year of EBITDA.

6384             The last time we had a look at what that profit level represented was at the end of the first price cap hearing, and then it was over 16 percent return on equity.

6385             We no longer keep a split rate base of competitive and utility, so nobody knows if it has gone up or down.  But if it has stayed the same, that is an economic rent.  That is a juicy $4 billion block of EBITDA, and all they need to do, all they want to do, all they are trying to do is hang onto it.

6386             There is no need ever to raise prices above the pre-predation level.  That is not what you are trying to do.  You are trying to hang onto that $4 billion of profit for another year, another month, another day.  You are trying to hang onto that monopoly.

6387             A numerical example.  Say that you spent $25 million on an anti-competitive pricing campaign, and that delayed the decrease in the profit level by 10 points.  That $25 million investment would get you $400 million in profits each year.  So it can be a very productive strategy.

6388             The second point.  This strategy really only works at the outset of competition.  It really is true, as the ILECs' economists and as the Bureau say to you, that once the competitor is established in the market, it is really expensive to dislodge them.  It takes a lot of money and a lot of effort, and it is probably never going to work.

6389             The time to do it is now.  The time to do it is at the outset of competition.  That's when you have an opportunity to persuade a few entrants to exit, or even just to not expand, just to stay where they are and retrench their efforts.

6390             Three.  The theory that all of our costs are sunk is really not true.  People have talked to you about, "Ted Rogers said that this didn't cost very much."  Our public statements are that we spent $200 million on the initial capital to get started.  Believe it or not, in our world that isn't a lot of money.  We spend, in many years, $1 billion on network.

6391             So it is true that the initial going‑in cost, which needs a refresh at some point as you get more subscribers, is not a huge amount of money, but the variable costs are quite high with our architecture.  You have to spend incremental variable capital with each subscriber you add.  Our public statements put that at $300, including the truck roll.

6392             Another point, as was raised the other day, is that every new entrant has those variable costs of sales and marketing.  You have to spend $100, $200, $300 per additional customer.

6393             That is something the incumbent doesn't have.  The incumbent already has all of the customers. They have to spend a little money to get the switchers back, but it is not that $300, $200, or what have you, of variable sales and marketing costs.

6394             Then we have normal variable costs ‑‑ cost of sales, technical support, maintenance, engineering, operations and billing.

6395             I haven't sat down and done the comparison between us and them -- and that comparison of variable costs is very important in the Bureau's methodology -- but if you look at Aliant/Bureau-36 in this proceeding, it says that their prices are 70 percent above their short-run marginal costs.

6396             So the ILEC's variable costs appear to be fairly modest.

6397             The fourth point is a very important point.  This is something that Professor Ross talked about yesterday.  It probably really is true that if you had to predate by lowering all of your prices everywhere by 30 percent, it probably would be so horrifically expensive for the incumbents that it never would work.  That is why targeting is so critical.  Targeting is the key to make this thing work.  You don't lower everyone's prices, you just go after the areas where the new entrant has gone and, most importantly, you just go after the people who have already left.  That's called winback.

6398             This is precisely why the Commission's rules are designed to avoid this type of conduct.  You have rules against de-averaging which prevent geographic targeting, and you have rules against winback which prevent them from going after each and every customer that leaves.

6399             If you are spending $300 on variable cost, and half of your customers are captured in a winback campaign, that means $600 per net add.  Now your business plan really starts to go down the drain.

6400             This is why we see the ILECs talking about really nothing other than getting rid of the winback rules and getting rid of the rule against de‑averaging.  They talk about it in this proceeding, in the telecom policy review, there are court applications, and there are speeches in other proceedings.  This is precisely why they are so fixated on this issue.

6401             Fifth.  The idea that we are going to keep our network lying fallow, in case prices go up, having exited the business, is something that economists say in textbooks.  It is not the way the real world works.  Once you have shut down a business, you have shut down a business, and you put that channel into some other application or service.

6402             The idea that we are going to sell a channel on our cable network, again, this is not the real world.  That is not the way it works.

6403             I want to leave you with the position of Bell ExpressVu on winback, because that is the part of the Bell organization that has acted like a new entrant.

6404             Unlike the part of the Bell organization that is here, they are enthusiastic supporters of the winback rules.

6405             It was Stentor that asked for them in 1998.  Bell ExpressVu supported them in 2003.  They have asked for an extension to 12 months.  They have asked for rules against promotions.

6406             Here is a description from this year's Canadian Communications Reports from a Bell ExpressVu official:

                      "You invest a lot of money in a building to put a facility in there, to market to the building, and so on.  When you make that investment, you have to count on a certain penetration just to break even.  It really doesn't matter if it's a TV service or anything else.  When you're selling to a building, you have to count on a certain penetration level just to break even.  If you open a donut store or something in the lobby, you have to assume a certain volume of sales to make your presence worthwhile.  And if the donut store next door came along and suddenly said, 'Don't buy donuts from him.  I'll give them to you for half price,' you have no opportunity then to make a business.

                         So are you going to go into another building and lose money there too?  The cable company can chase you all over town until you run out of money.  (The revised winback rule) is another measure that the Commission has put in place to give competition an opportunity to get established."

6407             THE CHAIRPERSON:  I take it that you are available for questions at this point.

--- Laughter / Rires

6408             MR. ENGELHART:  Yes, we are.

6409             THE CHAIRPERSON:  Thank you.

6410             Commissioner del Val.

6411             COMMISSIONER del VAL:  Thank you.

6412             I will direct most of my questions to the panel, and then you can decide who amongst you is best to answer.

6413             You have the benefit of having heard many parties go before you, so I think I will probably organize my questions in dealing with the questions arising from the parties' different responses in the oral part of the hearing first.

6414             Yesterday Chairman Dalfen asked questions of the CCTA, and I see that in many of your written submissions you support the CCTA's position.  I want to know whether you agree with CCTA's responses yesterday to Mr. Dalfen's questions, generally.  Would you have answered any of those questions differently, or would you like to add to any of those answers?

6415             MR. ENGELHART:  Absolutely, we agree with all of their responses.  I would not have anything substantive to add.

6416             It is a small point, but I would emphasize the point they made that our 30 percent test, based on households, is administratively really simple.  If you are just saying, "How many houses no longer have the ILEC service," it is much simpler than having to get everybody in the business to file monthly or quarterly reports, which is really complicated.

6417             We really think it measures the thing you are looking at, which is how many people have exercised a choice.

6418             COMMISSIONER del VAL:  On that note, I want to understand a little bit more about your business, following up on what you said about households.

6419             Do you find that the customers you acquire on local service are mostly your existing customers for cable service?

6420             MR. ENGELHART:  Yes.  The service is available to any home that our plant passes.  So you might not take any service from us other than telephony, but typically, yes, it is people who get cable from us.

6421             MR. WATT:  I would like to add one thing.  In this situation, as you know, Rogers Communications acquired Call-Net at the beginning of July, so we really have a two-pronged approach to the local telephone market.  We have a large operation outside the cable footprint territory making use of unbundled local loops, which Bill can speak to.

6422             Then, as Ken has said, within the cable franchise area we have begun to roll out in the Toronto/Mississauga/York region, and the Oshawa area.

6423             COMMISSIONER del VAL:  Yes.  Thank you.  That's a good point.

6424             On the switches -- you are taking over the Call-Net part of the service, and your own, Rogers. Are most of the customers that you are acquiring switching from the ILEC, or are they new?

6425             MR. LINTON:  The vast majority of customers are switching from the ILEC.  There are some moves who are new numbers, but the majority are migrates from the ILEC.

6426             MR. ENGELHART:  To add to that, if you see someone porting their number, that is a pretty good sign that they have migrated from the ILEC, and it is 75, 80 percent or more that are porting their number, so that is a pretty good indication.

6427             COMMISSIONER del VAL:  That was exactly my next question.

6428             The percentage of churn in the local service, how does that compare to, say, the percentage of churn in cable?

6429             MR. LINTON:  Traditionally -- and we have been in the local business for a couple of years now, unlike some of the other cable companies -- our churn is somewhat higher than normal cable churn.

6430             Normal cable churn is between 1.5 to 2 percent, and telephone churn has been 2 and sometimes as high as 3 percent per month.

6431             COMMISSIONER del VAL:  I suspect that I know the answer to the next question, but I will ask it anyway.

6432             Why do you think the churn is higher?

6433             MR. LINTON:  One of the major reasons is coverage.  Because the facilities for local service are mostly in urban areas, as people move out to the suburbs, sometimes we don't cover those areas.  So we lose a percentage because of move out of an area that we can service.

6434             Secondly, whenever you get into a new market like this, you get very price conscious customers first, and some of those price conscious customers are so price conscious that they decide not to pay you.  We probably have a slightly higher churn in that area than the traditional cable base or the telephone base.

6435             COMMISSIONER del VAL:  I am trying to break it down in terms of the takers of your local service.  What percentage of those would be taking it on as a standalone and what proportion would be as part of your cable packaging?

6436             MR. LINTON:  On the Call-Net or Sprint Canada side, where the largest base is, there are over 350,000 local lines.  That was the main product.  So the people who originally signed up for that service were taking local and long distance, and a few of them were taking a wireless offering from Fido.

6437             Now, on the cable side we are finding the vast majority of them are just bundling it into their existing services with Rogers.  I don't think, because it is early in the market, we have a lot of statistics on whether it is just cable only or people with Rogers cable and Rogers wireless.  So I think that would come out and in the future we would have better information.

6438             COMMISSIONER del VAL:  Thank you.

6439             Following up on your oral presentation, I grouped the problems into three areas:  the local number portability, violation of winback rules and loop problems.

6440             Could you comment on of the three what is your biggest problem or are they equally big?

6441             MR. LINTON:  The problems we have vary based on almost the month.  It is not so much ‑‑ I think you have hit the nail on the head.  These are issues that for the most part there are rules in place now.  If those rules and the quality of service standards were being followed, then we wouldn't really have a problem with any of these things.  As Jim Shaw said, we would be able to work around them.

6442             So our difficulty with each one of those things is where the ILECs are not following the established rules of service, whether it is winbacks, whether it is loop available, LSRs, et cetera, et cetera.

6443             COMMISSIONER del VAL:  Okay.  Also, then, would you agree with Mr. Shaw that as a computer operator for you the biggest problem ‑‑ inertia is not really a problem, it is just retaining?

6444             MR. LINTON:  No, inertia is a problem.  Remember that it is an enormous market.  Every Canadian household has a phone.  I think there have been statistics provided to you in this hearing that says based on work that Bell has done there are over 50 percent who really don't have any intention of looking at an alternative.  So we are really looking at the other 50 percent.

6445             So inertia is a big issue and to get over inertia we have to differentiate ourselves.  We do it right now through bundling with other products.  We do it certainly through promotions and pricing.  In the future we are going to have to do it with differentiated features.

6446             COMMISSIONER del VAL:  How did you ‑‑ sorry.

6447             MR. ENGELHART:  Sorry.  If I could just add to that?

6448             I think Mr. Shaw said they haven't seen it as a problem yet and that is probably fair.

6449             When you first launch these things you see a different profile of customers.  When the phone lines first open you always get a few hundred calls from your competitors and the consultants and then the next wave is ‑‑ you do get, bless them, a small proportion of the people who just hate your competitor and have been dying for that choice.  But once you get through that fairly small group you get into a group that are very, very price sensitive and they just want the deal.  They are the people who are really susceptible to winback campaigns, too, because they are just after the deal.

6450             Then, after you get through those price‑sensitive people, you start to hit that sort of inert group of customers that are just very reluctant to switch.  To some extent it is a credit to the incumbents that they have managed to build up this reputation and this brand name that people do not want to switch their phone service from them.

6451             COMMISSIONER del VAL:  Thank you.

6452             Back to Mr. Linton.

6453             You mentioned 50 percent, I am wondering what that number is based on.

6454             MR. LINTON:  Bill was speaking first from Call‑Net experience, but with respect to the record in this proceeding I believe that Bell filed the Decima survey result.  I believe it was in response to a Bureau question.  They went out in a fairly large sampling and asked people how interested they were in voice over IP.

6455             That is a little bit different than what Bill has been selling with the unbundled local loops.

6456             I won't have these numbers absolutely precise, but I believe the numbers were in the order of 10 percent of the people were very interested, 25 percent of the people were somewhat interested and then the remainder were either indifferent, to not interested, to absolutely opposed to the idea.  That is the source of the information so it is on the record.

6457             COMMISSIONER del VAL:  Great.  Thank you.

6458             The competitor's footprints.  Back to the Telus model.  I just wanted to explore that with you.

6459             The competitor's footprint, if you were in a development like Concord Pacific, Pacific Place in Vancouver, the old EXPO site, and you had wired the buildings for cable, and you are getting the buildings, building by building, despite the fact that you have wired every building, what would you consider your footprint?  The fact that you have wired them all or would you see your footprint as just one building on the site if you just got that building?

6460             This is also following up on Commissioner's Langford's own question.

6461             MR. ENGELHART:  It does get sort of philosophical at some point.  How many angels can dance on the head of a drop wire?

6462             Having announced that we are going to provide service throughout all of those buildings and having wired them, you could really say at that point that is your footprint, or you could say, as your question suggested, it is only as you flip on the switch building by building that it really becomes part of your footprint because it is only at that moment that you have customers and sales.

6463             You could take it back a step and say, just the fact that it is in your serving territory makes it part of your footprint before you have launched it.

6464             So I would say that if you are going to do that Telus model I think it has to be the place where you are actually able to sell is your footprint.  I think for the purposes of what they are talking about that makes the most sense.

6465             COMMISSIONER del VAL:  I think it was MTS in their oral presentation sort of said, "We wouldn't want to provide that type of information" about competitor's footprint and all.

6466             What would your response be to that?

6467             MR. ENGELHART:  I guess just stepping back a bit, for our Ontario systems it doesn't make as much difference as it does for a lot of other people.  The most dramatic example is Metro Toronto.  It is an exchange. ot is an LIR and it is an overlapping area, and it is an amoeba, too.

‑‑‑ Laughter / Rires

6468             MR. ENGELHART:  So no matter what test you were using, Metro Toronto would be part of the market.

6469             In a lot of our areas because our cable systems are so heavily clustered we sort of cover most of the LIR.  For us in Ontario it doesn't make that much difference.  In New Brunswick and Newfoundland we get some of those big host remote maps like EastLink have where the question gets a little bit more dicey.

6470             But in Ontario, I think the way we have looked at it is, as the CCTA said, you have to start by defining what the market really is.  What really is the market?  People don't launch phone service in an exchange.  Although Metro Toronto is one exchange, there are five exchanges in Mississauga.  Nobody would launch a phone service in the Clarkson exchange.

6471             So a market in the sense of where are buyers and sellers interacting to exchange products and services, typically you would think of a very big community or a local calling area or something like that.  There are problems with local calling area.  So it seemed to us that the LIR was the best, crispest way of doing it, certainly in our Ontario systems.

6472             So I have stepped back a bit and I'm not sure if I have answered your question, but if I haven't please repeat it and I will drill down.

6473             COMMISSIONER del VAL:  I was asking could you comment on MTS' position on if the criteria was the footprint, that the cable companies may be reluctant in providing that type of information and how would you feel about that?

6474             MR. ENGELHART:  Regulators are pretty good at getting information out of regulated companies and we provide a lot.  I don't think that would be an overwhelming problem.

6475             As I did say in response to your first question, with all of these methodologies it does get extremely messy and extremely awkward and a lot of people are giving a lot of information.  That is why in our view saying 30 percent of the households that the ILEC passes but no longer serves is way easier, but could we get you that information, I'm sure we could.

6476             COMMISSIONER del VAL:  Thank you.

6477             Still on the issue of the footprint, I think Ms Blackwell of CCTA yesterday was talking about the shifting sands of the footprint and said the member companies would be able to sort of elaborate on the problem.

6478             Could you please?

6479             MR. WATT:  What I think Ms Blackwell was referring to was the expansion of our roll out.  For example, a comment was made on Monday that in the case of Rogers with the information we filed it looked like we were serving 55 percent of the exchanges in the LIRs that we had identified.

6480             We went back and looked at that number that evening and what we found was that with respect to the four LIRs that we launched on July 1st ‑‑ the four I have named already, one of them York region ‑‑ showed us in 15 exchanges out of 26 exchanges in that LIR.

6481             However, on September 1st we filed plans to expand to another eight exchanges in that LIR and the only two we are not going to serve are places where we don't have cable plant.  Uxbridge is owned by another cable company, et cetera.

6482             So certainly for the next two to three years I think the Commission is going to be faced with expansion, probably on a monthly even bi‑weekly basis, with exchanges being added to fill holes in as we expand.

6483             So I think that was really what Ms Blackwell was getting at, that this would be an ever‑changing geographic territory over the next ‑‑ it could be longer than three years.  Mr. Shaw this morning said it might take him five to get to some of the smaller locations in British Columbia, et cetera.

6484             COMMISSIONER del VAL:  On that issue of the shifting sands and expansion of the footprint ‑‑ and I believe Mr. Dalfen on Monday was having a discussion with Telus, using the Telus test, still on that issue if you have reached 5 percent ‑‑ then if you expanded your footprint a little bit you would no longer reach the 5 percent.  So this is the whole fear of gaming issue.

6485             Why don't you comment on that, first, the fear of gaming?

6486             MR. ENGELHART:  I guess if the test is 5 percent the game might be over anyway.

6487             But, in general terms, these ideas that the regulatory department tells the marketing people how to sell their product and when to flip off their efforts.  It is a myth.  It is not the way the real world works.

6488             So no, if you are in a business to get customers you are trying to get more and more.  I find this whole notion that people are going to game the system this way and that way to be doubtful.  Never say never, people can do things, but I don't think it is that big a concern.

6489             I do think that you do have these constantly‑shifting sands and it does get to be a bit of a mess, but I am doubtful that people are going to be gaming it.

6490             COMMISSIONER del VAL:  While we are still on the issue of geographic market, on your comments just earlier:  Do you think we are looking at a situation where the geographic area for ‑‑ we couldn't have the same sort of definition of geographic market for the entire country?  Do you think maybe, say for Nova Scotia, we are going to have to use something different from an LIR but we could for Ontario or parts of Ontario?

6491             MR. ENGELHART:  Let me use New Brunswick so the EastLink people don't get mad at me, but I think you are looking at kind of a big extended community area.  To me, that is the market for local phone service.

6492             If you are going to provide local phone service in the Toronto area you would provide it in the GTA.  That's what you would do.  You wouldn't launch in Clarkson and then have to advertise in the Toronto Star.  Your ads would be going all around the city just to serve that little small area.

6493             You would never build up any kind of reasonable scale if you were just doing it in an exchange.  It would be kind of a non‑starter.

6494             The area that people would enter, the kind of areas where I think economists would say the local market likely is taking place, is some sort of big community and sort of the surrounding areas.

6495             Toll free calling area, if it didn't have the sort of administrative problems, would work and LIR I think works in places like Ontario.

6496             In New Brunswick, if you want to stick with that idea of an extended community, then because of their host‑remote architecture and what that has done to the LIRs, the LIR probably won't work.

6497             COMMISSIONER del VAL:  Okay.  Still on the issue of geographic market, I think by now you have heard everyone's views on each of the proposals and their weaknesses and strengths.

6498             Firstly, I wonder whether you, one, have anything different to add to what has been said already.

6499             Second, which is more important for me, can you think of any fixes for any of the proposals, you know from footprint to be in a province, because we have heard all of the problems from the unserved pockets to the administrative problems.

6500             Do you have any fixes for any of the proposals?

6501             MR. ENGELHART:  First of all, I agree with the comments that the CCTA made that you have got to start with some notion of what a market really is.  You don't start with the economic players in the market because that is the second part of the test.

6502             So you really have to first ask yourself what the market is and, as I described it, it would be some sort of a large community.

6503             In New Brunswick, where that doesn't work, I would go to toll‑free calling area and just pick the big city as the home base and use toll‑free calling area for my test.

6504             The problem with the holes I think is something you address in Oart 2 of the CCTA test.  Part 1 is:  Are we at 30 percent?  If we are, you go to Part 2.

6505             Part 2 is you look at the situation.  Is this working?  Is this something we really could say we should forbear?  It is in Part 2 of that test that you would look at the holes and you would go, "What is going on in these holes?"

6506             Some of the parties in this proceeding say, "Well, in a year or two mobile wireless substitution is going to be huge and access‑independent VoIP is going to be huge".  I am not one of those people, but I could be wrong.  Those things might be huge in a couple of years and you might be able to look at the holes and say, "Well, there is enough competition from those other sources that we don't have to worry about it" and lest I not forget the unbundled loop providers that are also going to be serving those holes.

6507             So you might be able to conclude, "Well, we don't think the holes are a big problem".  If you conclude that they are, the only fix that I have heard in this proceeding that would work is some sort of a cap, some sort of a price cap.

6508             I think it is a reasonably practical solution.  It seems like cheating, sort of, to say we are forbearing but we are putting in a cap.  It seems something less than ideologically pure but I think it would solve the problem.

6509             COMMISSIONER del VAL:  Okay.

6510             Going back to the Telus two-facilities and the 5 percent test, if we were to adopt that test where in your jurisdictions, the jurisdictions served, the markets served by Rogers, would you already be there already?

6511             MR. ENGELHART:  So that would be 5 percent of the customers have migrated to our facilities‑based platform?

6512             COMMISSIONER del VAL:  Lines, 5 percent have lines.

6513             MR. ENGELHART:  Oh, well no where.  I mean, we just launched on July 1, so it wouldn't be ‑‑

6514             MR. LINTON:  Well, facilities‑based. Nowhere on the cable plant and quite a few places on the unbundled loop plant, if you call it that.

6515             For instance, in Brampton, which is the place that we have the highest penetration, we are in excess of 10 percent penetration, but there is less inertia in Brampton than there is in Forest Hill.

6516             COMMISSIONER del VAL:  Okay.

6517             MR. ENGELHART:  Bill, like any good salesman, likes to brag about his product, but I think in terms of the Telus test it does not include those unbundled loop vendors.

6518             COMMISSIONER del VAL:  Yes.

6519             MR. ENGELHART:  So in terms of the Telus test it would only include those customers that are on our cable plant.

6520             COMMISSIONER del VAL:  Yes, exactly.

6521             Based on the full facilities‑based, that part of the test you are saying that none of your markets have reached that threshold yet?

6522             MR. ENGELHART:  Not at all, no.

6523             COMMISSIONER del VAL:  Okay.

6524             MR. WATT:  No but, frankly, actually at the current time, having just started July 1st, the majority of our customers are employees on our cable plant telephony service.  We are just getting going and there have been the usual start‑up problems and issues and we are working through those and are progressing, but we have minimal penetration.

6525             COMMISSIONER del VAL:  Are there any ‑‑ a lot of winbacks happening with your employees?

‑‑‑ Laughter / Rires

6526             MR. ENGELHART:  Actually, it's interesting you should mention that, because Edward Rogers did bring in a brochure that he had gotten a week later and asked me if this was allowed and I said, no.  So we have contacted our employees and asked them to send us any material that they have received and so we are working on that.

6527             COMMISSIONER del VAL:  I have to give credit where credit is due, that was Mr. Williams' humour.

6528             I believe it was Cybersurf, in their presentation, that said that your Call‑Net does own some access, that have the last mile of that?

6529             MR. LINTON:  The only last mile we have is in the business market, the commercial areas.  It is not in residential areas.

6530             COMMISSIONER del VAL:  Okay.  Then, on the business side, I guess this is not ‑‑

6531             Just thinking of the cable, would you be using the cable plant?  Is that part of your strategy in terms of attacking the business market?

6532             MR. ENGELHART:  Yes, it is.  Commissioner Langford the other day alluded to Willie Sutton saying that you rob banks because that is where the money is.  The cable industry is strange in that it mostly targets its efforts on residential areas, even though there is a lot of money in the business areas.  So historically, we have had a very poor footprint into the business areas.

6533             Because you don't bill to all those business locations when you first roll out your service it can be very expensive to hit those areas.  You know, you have a couple of customers who want a couple of circuits in a strip mall and the engineers tell you, "Well, it will cost us $20,000.00 to tunnel down and build across".  It is just crazy sometimes.  Sometimes it is very cheap.

6534             So we are moving into industrial parks and we are moving into the commercial areas that interlace the residential areas, but it is very slow.  The footprint is still very poor.

6535             Of course, bringing the Call‑Net, now Rogers Telecom Group, into it with the facilities that Bill mentioned and their business sales force and their expertise and their systems we think will help accelerate that process, but it is very much still a work-in-progress.

6536             COMMISSIONER del VAL:  Thank you.

6537             On the business market I think Aliant had proposed four product markets, the basic business service, which is single‑line, multi‑line and then small Centrex, 30 or less.

6538             Are you familiar with the four groups?

6539             MR. ENGELHART:  Yes.

6540             COMMISSIONER del VAL:  Yes.  Aliant submitted that the relevant market determination must be based on the market structure in the area under consideration and that this may not be the same in all markets.

6541             First, do you agree with Aliant's proposed segmentation of the four product markets?

6542             That is the first question.

6543             Did you want to answer that first?

6544             MR. ENGELHART:  Yes.  Dave?

6545             It makes sense to me.  I don't know if you have anything to add, Dave.

6546             MR. WATT:  We supported the CCTA proposal in our proposal, which was a simple breakdown between residential and business.

6547             We didn't feel we had a deep enough understanding of the business market, Bill certainly has a deep understanding of it.  But our belief was that there is some flexibility granted at the current time in the enterprise market area and we were concerned about actually making the product market so small that again targeting would be easier for the telephone companies to accommodate from a financial perspective.

6548             MR. ENGELHART:  If I could just add one comment to Dave's on the subject of Centrex.  I may be a question or two ahead, I;m not sure, but I worry about Centrex resale being counted as part of the market share loss, especially when Centrex is its own market definition.

6549             Centrex resale has always seemed to me to be not really competition, in the sense that it is not something that was allowed in the local competition decision.  It is something that has been allowed since 1987.  It doesn't really involve much other than an arbitrage opportunity.

6550             I think the Centrex resale is a big part of the 12 percent of the market that is registered in the Commission's annual report to the Governor in Council on competition in the business sector.  It is probably 25 percent of the business loss that you see.

6551             As I say, it is more just some bookkeeper in an office ordering a bunch of lines and parcelling them out than it is a real form of competition.  So I worry about that.

6552             COMMISSIONER del VAL:  That sort of makes me think more that the just business local exchange service category seems very large.  The segmentation of the different services with products within that market, the competition for those may not be the same from ‑‑ period may not be the same ‑‑ and then they may also vary from jurisdiction to jurisdiction.

6553             MR. ENGELHART:  In the sort of business world it is not unusual to have in a telecom company a senior vice‑president of consumer services, a senior vice‑president of enterprise and a senior vice‑president of small and medium business.  Those are very often seen as very different segments.

6554             You have a different type of sales force, you have a different marketing channel to go after small and medium business.  For the enterprise segment it tends to be a lot of RFPs, it tends to be a lot of personal contact.

6555             For the small and medium business segment it is very hard to have the channels to reach them if you are a new entrant.  You can do telemarketing and you can do different things, but it is an awkward segment to reach.  So in that sense I take your point that the entire business segment in one fell swoop may be a bit big for what we would call a market.

6556             MR. WATT:  One thing that would have probably helped us in starting this is if we did have more information with respect to what the market losses have been in differentiated business markets.  There are something like 800,000 lines being served by competitors in total, a couple hundred thousand resold Centrex included in that 800,000.

6557             We don't really know whether that 600,000 or that 800,000 is principally located in the large business, which would indicate that there is a greater degree of competition, or whether it is spread more uniformly across the small and medium sized business.

6558             You may well have that information, so you would have more insight into that.  I think as you think about this the break point, picking up on Ken's point, probably would be from a single product market down to a two‑product market differentiated by size.

6559             COMMISSIONER del VAL:  Okay.  I think on your final argument you propose breaking the market down into Centrex and digital trunk services.

6560             Is that a change?  I just want to clarify what your proposal is.

6561             MR. WATT:  We suggested that you would want to look at that.

6562             COMMISSIONER del VAL:  Okay.  I see.

6563             MR. WATT:  Our position that still stands is to keep it simple and have it residential and business, a two‑product market, but having regard to our imperfect knowledge about the business market we thought we should leave it open to you.

6564             COMMISSIONER del VAL:  Thank you.

6565             MR. BRAZEAU:  Just to add a little bit on the Centrex issue. of you look at Centrex, Centrex has very similar characteristics as a local line.  So if you look at product characteristics you would probably want to include Centrex as part of your local line.

6566             That is sort of why we thought that you would include them in that category.

6567             COMMISSIONER del VAL:  Thank you.

6568             In Shaw's oral presentation this morning they suggested three to five years before they ‑‑ in a nutshell, how I read it was that they need three to five years at least.

6569             How much time do you think you need?

6570             MR. ENGELHART:  I think Jim Shaw said really a market share test would be better.  I think it would be better than a timeframe.

6571             So the market share does two things really.  It tells you that that percentage of customers in that market have exercised a choice.  It is not a theoretical thing.  They have said, "Yes, I like this alternative better than that alternative."  So it gives you some confidence as a regulator that consumers are protected, because what could be better evidence that consumers have choices than that they have exercised those choices?

6572             COMMISSIONER del VAL:  Yes.  I am just referring to Mr. Shaw's presentation on page 10 that says:

                      "In our view, the Commission must ensure that local competition is firmly established, vibrant and sustainable before the telcos are forborne in the provision of local telephone service.  We can't see this happening for at least another three to five years."

6573             My question was:  How long do you think?  Do you see also three to five years or do you think it is longer or do you think it is shorter?

6574             MR. ENGELHART:  It is very hard to predict how well our services will be received, but to get to the 30 percent level that we think is appropriate I think Jim has about the right timeframe.  It could be more, it could be less, but he is certainly in the ballpark.

6575             COMMISSIONER del VAL:  Yes.

6576             MR. WATT:  Just bearing in mind, of course, with regard to our test that it includes not just our market share, but wireless, people who only use wireless in the home, VoIP providers, et cetera.  It is a combination of all the substitution.

6577             COMMISSIONER del VAL:  Thank you.

6578             MR. ENGELHART:  I will give you the reference in your final submission if you need it, but your proposal was that 30 percent should be the threshold if the relevant market is the LIR and that if the geographic market is smaller, for example, in exchange a higher share threshold would be needed.

6579             So if the geographic market was the exchange, what do you propose would be your threshold?

6580             Would 30 be still appropriate?

6581                  MR. ENGELHART:  Bear in mind that Ms Yale on behalf of Telus said that across their operating territory they are already 10 percent of the homes that they have passed that are not served by Telus lines.  So they appear to already be at 10.

6582             So we thought 30 was appropriate for the LIR.  If we went down to an exchange, as we said, it would be something higher than that, so I would say something like 35.

6583             COMMISSIONER del VAL:  Thank you.

6584             MR. WATT:  One of the considerations you are going to have to deal with here with respect to LIRs is, you you do have, as Ken mentioned earlier, a LIR like Toronto which is one exchange which is over a million households.  In that case, the exchange and the LIR, the market share, the 30 percent is going to be the same in a territory of that size.

6585             The concern is, with exchange, that in a small exchange it would be relatively painless for the telephone company to target in that exchange.  So you want to have a fairly sizeable population base so that there is some discipline imposed there.

6586             COMMISSIONER del VAL:  Thank you.

6587             Where you have rolled out local exchange service, have you used the same local calling area as the ILECs?

6588             MR. WATT:  Yes, we have.

6589             COMMISSIONER del VAL:  Was EastLink's proposal was that it was so as to lessen the burden arising from interconnection arrangements.

6590             Was that also your reason?

6591             MR. WATT:  Excuse me.  I answered from the cable telephony perspective.  We are using the same local calling areas.  Bill has pointed out that Rogers Telecom uses different local calling areas and he can elaborate.

6592             MR. LINTON:  For example, when we launched Barrie we made it a local calling area with Toronto, so our differentiation was that you could make a local call to Toronto from Barrie and that was how we promoted the service and attracted customers.

6593             COMMISSIONER del VAL:  I see, okay.

6594             MR. ENGELHART:  So in answer to your last question, the interconnection decision and the definition of the local calling area are probably independent decisions.  So you interconnect where you are going to interconnect and then what you define as your local calling area is really how you program your billing software.

6595             COMMISSIONER del VAL:  Okay.  I wasn't referring to the interconnection decision, but I have your answer anyway.  Thank you.

6596             On the first day, The Companies, when Mr. Bibic in his presentation ‑‑ this was again talking about the 5 percent.  At that time I think we said perhaps you would like to comment on this.  I will read you what was said:

                      "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."

6597             I will just quote the first example here.

                      "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."

6598             Can you comment on that?  Did you want the reference to the transcript?

6599             MR. ENGELHART:  No, no.  I remember.

6600             I don't like to say anything disparaging about our brother in the broadcasting sector, but when they use the word "dominant" in those proceedings they are not using it in the sense of market dominance as it is used in the telecom sector.  I think what they generally mean is "big".  They are big.

6601             There is no question cable is big, so I don't think that the fact that the broadcasting decisions have used the word "dominant" a few times is really that relevant of a question.

6602             I think the issue, as we have discussed in our evidence, is that when that test was passed there were already 20‑25 percent of the homes that were not served by cable and that 5 percent brought us up to 25 percent.

6603             I believe Mr. Bibic's comment was that this was a clever argument that had been invented after the fact, but Mr. Watt was at that hearing so he can tell you what he said at the time.

6604             MR. WATT:  Yes.  You can go back and check the transcript.  I will give you the reference.

6605             Basically, the Commission was well informed as to what the market share coverage of homes passed was by the cable industry at that time.

6606             It was October 9, 1996.  It is page 700 of the transcript, and I will quote myself.

                      "We currently only have a 76 percent market share of television homes.  So for whatever reason, 24 percent of the homes in Canada choose to use an alternative to the cable network.  Many people think that we have 100 percent market share."

6607             So certainly the Commission at that time understood the market position that we were in.  We are not presenting revisionist history in our argument to you here today.

6608             THE CHAIRPERSON:  Mr. Watt, nobody on the Panel was here at that time.  Can you refresh my memory as to whether the Commission picked up those words of wisdom in its decision.

6609             MR. WATT:  I would have to go and check to be absolutely certain.

6610             THE CHAIRPERSON:  You only checked the transcript.

6611             MR. WATT:  Absolutely.  That is what I had with me.

6612             You should never speculate when you are testifying, but I would speculate that specific reference wasn't made to that.  I believe it was pretty much just the decision as to what the test would be, which is fairly typical of many of the broadcasting decisions, and then it goes on to the rule-making phase.

6613             COMMISSIONER del VAL:  In the Competition Bureau's proposal that the residential market be divided into first-line market and then another market that includes second lines, mobile wireless services and VoIP, what do you think of that proposal?

6614             MR. ENGELHART:  I think they are bringing a degree of scientific rigour to what is sort of disappearing as a relevant group of customers, which is the second lines.  So second lines really spiked up when fax machines got popular and when dial-up internet got popular.  Now, as those two technologies are waning, the second line market is crashing.

6615             It doesn't seem to me to be that important.

6616             It does, however, reinforce just how messy things are when you are working in lines and how it is a little bit cleaner when you are working, as we propose, with homes.

6617             MR. WATT:  I think the Aliant panel said the second lines are only 2 percent penetration in their territory.  I believe Bell and Telus at one time were up around 8 or 9 percent but that has declined to 5 or 6 percent.  It is not a large enough market to make an economic business plan on.

6618             COMMISSIONER del VAL:  The Competition Bureau also proposed that it may be appropriate to compare the incumbents' and the entrant's operation cost in a forbearance determination.

6619             Can you comment on that, please.

6620             MR. ENGELHART:  They seem to be very focused on variable costs.  That seemed to be what they said was the thing that they worried about the most.

6621             As I indicated in our presentation, just because of the nature of our network architecture and the fact that we are a new entrant, our variable cost is fairly high.  It is just the way the cable telephony works.

6622             You harden the plant and introduce various components and back-up power, but then you have to add incremental capital as you sign up each customer.  So the variable costs are significant there.

6623             The other thing that you cannot overlook is that any new entrant in the communications business has these big variable sales and marketing costs.  It is something that just can't be ignored, that you are in a very different position when you are the incumbent and you start with all those customers.

6624             Do you need to do the full‑blown thing that the Bureau does, where they get all of your business plans and all of your financial statements and everything, and you sit down with your accountants and all that?

6625             I am not sure you need to do that.  It probably is worth you having some understanding of the differential underlying costs of an incumbent twisted pair provider and a new entrant cable telephony provider.

6626             COMMISSIONER del VAL:  What do you think of the proposal by the Consumers Group of that transitional regime?

6627             MR. ENGELHART:  It troubles us quite a bit.  In cable we saw that after we were forborne the winback rules still continued on.  In the MDU market we still have those rules.  Then last year, or this year, a brand new rule was added.  A brand new winback rule was added in the cable MDU market, which prohibits us from talking to any customer in a building, whether they were ever our customer or not, for 90 days after ExpressVu signs an access agreement.  And that is in addition to the 90-day winback rule that exists in those buildings.

6628             We are still living with those rules.  As Mr. Stein said this morning, that was in an environment where satellite had some real advantages over cable.  They were allowed to offer time-shifted signals; we were not.  They, because they were digital, could provide theme packs; we couldn't.

6629             They had a lot of regulatory and technology based advantages to their service, and despite that, after forbearance we continued to have these winback rules.

6630             I am troubled by the idea that you would get rid of the winback rules or the rule against de‑averaging before forbearance takes place.

6631             Market power is market power.  If the phone companies have market power --

6632             COMMISSIONER del VAL:  Yes -- I'm sorry.

6633             MR. ENGELHART:  I was rambling on.

6634             COMMISSIONER del VAL:  No.  I was referring to the Consumers Group's proposal on the transitional regime where you have the two thresholds: below a certain threshold, don't even come here; and then above.  That regime.

6635             I don't know whether we got a bit sidetracked there.

6636             MR. ENGELHART:  You are right.  I was thinking you were referring to their stepped regime for elimination of the rules.

6637             I will let Mr. Watt respond.

6638             MR. WATT:  Actually, I do believe that the stepped approach is sort of a transitional approach leading through to the end game at 10, 15 and 20 percent removing certain tests along the way.

6639             We think the problem with that is that you won't actually get to the end game.  So we don't agree with the Consumer Group's transitional proposal.

6640             COMMISSIONER del VAL:  I think we heard the flip side of the coin earlier from the ILECs, and I think there was also a discussion regarding why EastLink has made inroads and no one else has.  And one of the responses was that is a business decision that the other cablecos chose to make.

6641             What would you say to a suggestion that the continued sort of status quo and forbearance for an indeterminate period of time with no end in sight could actually be a disincentive for the cablecos to invest in telephony?

6642             You can wait for as long as you stay under a threshold.  You have time.

6643             MR. ENGELHART:  Like I said before, I think this idea that the regulatory department is going to gain the system by telling the marketing department what to do is a myth.  They are going to go out and sell as much as they can, as fast as they can, and they are not going to worry about it.

6644             If we get to the forbearance threshold, that is where we get.

6645             I certainly believe that when it is appropriate, forbearance is the thing to do.  Let market forces operate.

6646             We had transitional rules in the wireless market to prevent the incumbents from exercising market power, the no head-start rule, the no joint marketing, the structural separation rule.  Once we got to a certain critical size, those rules were gotten rid of and competition has worked well.  I think it can do the same here.

6647             MR. WATT:  The one thing I would add with respect to the EastLink experience is we must always remember that they have achieved this success with the safeguards that have been in place.  We can't assume that that type of success would be achieved in the absence of those safeguards.

6648             COMMISSIONER del VAL:  How is it that they have been able to achieve that success with so much more speed than elsewhere in the country?  Why is it not happening here?

6649             MR. ENGELHART:  The technology that they use is circuit switched.  The way it works is that the telephone switches the telephone companies have are looking for twisted pairs coming into them.  So using the Nortel cornerstone product, you can convert a coaxial plant to look to a Class 5 switch as though it is a bunch of twisted pairs.

6650             So they have entered using that circuit switch technology, as has Cox in the United States.  Both Cox and EastLink feel they made the right technology choice and are happy with it.

6651             Every business case that we put together looking at that technology ended up looking really bad, and we felt we simply had to wait for IP as our entry point.  With IP we were able to leverage on the internet platform that we had already built for our high speed internet business, and we were able to use soft switches instead of traditional telephone switches.

6652             So it seemed to us, and to most cable operators, to be the appropriate thing to wait for that technology.

6653             That is how EastLink has got out ahead of everyone else.

6654             MR. WATT:  EastLink, as Ken said, was not alone.  A very large corporation in the States, Cox, took the same route, the same path.  As Ken said, we looked at the market from our perspective over the last ten years, and we have entered when we did.

6655             I know Lee Bragg is testifying later this afternoon.  I think he would be able to explain why.

6656             COMMISSIONER del VAL:  Thank you.

6657             What do you say about switching from retail to wholesale regulation of local services?

6658             MR. ENGELHART:  Well, it doesn't really make any sense.  The Commission's regulatory plan has facilities-based competition at its core.  We think that the work that Bill is doing and Jean is doing and the work that Rogers Telecom is doing is very important.  We intend to keep using those unbundled loops all across Canada, and we are going to keep that platform in place; so not to take away at all from the importance of wholesale regulation.

6659             If I could draw a strange analogy, I would say that wholesale regulation is the icing on the Competition cake.  You still need facilities-based competition as the bulk of that cake.

6660             If competition is going to work, it has to have at its core facilities-based competition.  Wholesale regulation does nothing to protect a facilities-based entrant that is being confronted with anti-competitive conduct, nothing at all.  It probably doesn't do anything for the vast bulk of customers who, let's face it, only 3 or 4 percent have taken advantage of the unbundled loop offers that they have received.

6661             COMMISSIONER del VAL:  Thank you.

6662             When we are talking about market entry, do you think the nature of the entrant, whether it is a cableco, a standalone non-facilities-based provider, should they be treated differently?

6663             MR. ENGELHART:  To me, when you are talking about safeguards against anti-competitive conduct, what counts is the incentive and ability of the incumbent.  I don't think the Commission looked at Bell ExpressVu and examined their characteristics when they put in the cable winback rule.  I don't think the safeguards depend really on what the entrant looks like.  It depends on what the incumbent's abilities and incentives are.

6664             COMMISSIONER del VAL:  On the safeguards, do you think the safeguards should be the same in all forborne markets?  Do you think they can be identical across all markets?

6665             MR. ENGELHART:  I would think so, yes.

6666             COMMISSIONER del VAL:  In a forborne environment, do you foresee selling basic local service on a standalone basis?

6667             MR. ENGELHART:  Absolutely.  If somebody calls up today and wants a local phone from us and doesn't want cable or internet or anything else, we will provide it.  And we would always do so.

6668             COMMISSIONER del VAL:  On consumer protection, I think it was Aliant's Ms Tulk who said all providers should share in the obligation of providing services to the less abled, the less fortunate of our society, for example, phone bills in braille.

6669             What would Rogers say about assuming that obligation?

6670             MR. ENGELHART:  I believe we already do that for our able customers.  I agree with Aliant that social obligations should apply to all market participants.

6671             COMMISSIONER del VAL:  So in a forborne market you would have no problem in having exactly the same sort of social obligations as an ILEC would.

6672             MR. ENGELHART:  That is correct.  We see that even after forbearance there is a role that remains for the Commission to enforce those social obligations.

6673             COMMISSIONER del VAL:  Good.

6674             MR. WATT:  Actually, you could look at our response to ARCH, No. 3, where we describe what we do for Rogers wireless now.

6675             I don't believe that these are mandated by regulation, but I could be wrong on that.  There is a good description as to what alternatives we do provide there.

6676             COMMISSIONER del VAL:  I think those are my questions.

6677             Thank you very much, Mr. Chairman.

6678             THE CHAIRPERSON:  Commissioner Langford.

6679             COMMISSIONER LANGFORD:  Thank you very much.

6680             I have just a couple of areas.  You have been very patient with us, and we are grateful, but there are a couple of areas I want to touch on.

6681             I have a couple of clarifications first.

6682             Mr. Engelhart, in talking about the footprint problem with my colleague, struggling with the sort of Telus notion and where it might fit in, and she brought up the example of Pacific Place, if you roll out to one tower or if you roll out to two towers, you used an expression I didn't understand and I would be grateful if you could clarify it.

6683             You said it has to be the area where you are actually able to sell.  I don't think I quite understand that.

6684             MR. ENGELHART:  If you take the three layers I talked about with Commissioner del Val, you could talk about where you are going to enter, where you have plant and where you have actually flipped the switch and turned on that building.

6685             It is that latter group where you could actually sell.  It is when you have live circuits going into that building that you could actually sell to those customers.

6686             COMMISSIONER LANGFORD:  So simply having a network, fibre and coaxial, or whatever rolled out, wouldn't be enough.  You would actually have to have sold one or be almost on the cusp of selling to your first customer?

6687             MR. ENGELHART:  I am interpreting what I think Ms Yale means, because we are talking about the Telus test.

6688             COMMISSIONER LANGFORD:  Yes.  We interpreted it differently.  That is why I am interested.

6689             MR. ENGELHART:  I think what Telus means is that the reason they are promoting their version is that it is in that place that a customer actually can choose between A or B, where supplier A and supplier B are both selling to that customer.

6690             That is why I believe that the Telus test would imply or would mean that you are actually live and selling to that customer.

6691             COMMISSIONER LANGFORD:  All right.  We will find out.  They will be back tomorrow and maybe they will clarify that point.  It could also be, of course, that everyone else in this room understands it but you and me -- and that wouldn't be unprecedented either, probably.

6692             I have another question on the notion of this footprint, and really the confusion only arises with your company.  That is not your company's fault.  It is just the way it is made up.

6693             I am not quite sure how it would work, in the sense that they are talking about a footprint of a facilities-based producer.  I don't have any problem with that with your cable footprint and where it is actually functioning, but I don't quite know -- and maybe you don't either -- what would happen as you tag on the Call‑Net parts of it, which are facilities-based for some places, particularly in the business sector, but only facilities-based up to the last mile in other places.

6694             I don't know whether you could give me any idea, with a specific example, of where it might be possible, using the Telus test, to take your normal cable footprint and then add on a piece that would come from the traditional CLEC side.

6695             MR. ENGELHART:  I think the Telus panel was fairly candid that their test probably wouldn't operate in the business market, that it really was there for the residential market.

6696             So I am not sure that the presence of those facilities that Rogers Telecom has in the business market would mess up the Telus test.

6697             In the residential market they really are an unbundled loop provider, and as I understand the Telus test, we would just ignore that part of Rogers Telecom in mapping the geographic market that Telus has proposed.

6698             COMMISSIONER LANGFORD:  But there are some buildings that you would have that are business, even though it is "probably".  I didn't feel that in answering Commissioner Noël's question on business versus residential that Ms Yale was categorical, and I think there was a sense of "probably" as well.

6699             Are there buildings, for example ‑‑ whole buildings -- where Call-Net, if I can call it that for the sake of this discussion, has a facilities base and more than 5 percent of the customers?

6700             MR. ENGELHART:  Yes.

6701             COMMISSIONER LANGFORD:  There are.

6702             So conceivably, then, that could be an area, as they call it, in which an application for forbearance could be made.

6703             MR. ENGELHART:  Yes.

6704             COMMISSIONER LANGFORD:  Thank you.

6705             I have one last question which is totally unrelated to the last discussion.  I put this question to the CCTA yesterday, and I think that Mr. Hennessy suggested, having valiantly tried to answer it, that I put it to you, so I will.

6706             There has been much discussion, both by learned and distinguished economists and by mere mortals such as ourselves, about the whole notion of the mischief of predatory pricing in forbearance situations, where the big guy eats the little guy, or tries to, and you spoke about it at length today.

6707             One of the examples of forbearance that I can think of -- and, I suspect, after yesterday's discussion that you can too -- is the forbearance in the cable market, where, in fact, prices didn't go down, they went up, and the big consumer benefit -- unless it is going to be defined in some way that you brought comfort and succour to them through new offerings or something, but in terms of cash in their pockets, the consumer benefit never happened.  The big fight never happened, and prices went up.

6708             One, is there some way you can explain that to me?  Two, explain why it isn't a relevant precedent for the proceedings we are dealing with today.

6709             MR. ENGELHART:  I suspect that Mr. Watt will probably want to add a bit, and maybe I can't give you a complete answer, but let me identify some of the factors that you would want to consider.

6710             One which Dr. Crandall pointed out to you was, you really probably can't look at just the price of the service, you have to look at it on a per‑channel basis.  So you add TVA and APTN and OMNI 1 and a couple of other local channels, and if you have 20 channels and you have added five -- it is a bandwidth business.  We are selling bandwidth, so you have just increased the cost considerably.  That is one factor.

6711             Another factor, I think, which came out in questioning from Commissioner Williams, is that when you have, as we had, the rate regulation applying only to basic and not to the other parts of the service, you would expect that when the cap came off, basic might float up a bit to get more in line with costs.  I think that the ultimate package and things like that have not gone up in price nearly as much as basic.

6712             I think the third thing is, when markets operate, the pricing looks more like what markets look like than what regulated prices look like.

6713             So you have things like bundle discounts and other discounts that have come in, which are more market-type rate reductions than they are ones that regulators would put on.

6714             Those are three factors.  I am not sure it is a complete answer to your question.  I don't know if Dave has any other points.

6715             MR. WATT:  I would probably add two other points for consideration.

6716             One is that basic subscribers, on a standalone basis, are only about 20 percent of our cable base.  The other 80 percent subscribe to one or more tiers, so they are in a package of a sort.

6717             As Ken mentioned, the prices of those packages -- sometimes they went up, sometimes they stayed the same.  So there wasn't a uniform increase.

6718             The other point I would make is that we have standardized a lot of our basic rates.  We had a great many systems, with widely divergent rates, based on the CAPEX regime of earlier years and the number of channels being carried, et cetera.  So we tend to pretty much now standardize all of Ontario at one rate.

6719             New Brunswick and Newfoundland are at different rates.

6720             COMMISSIONER LANGFORD:  Did anybody see their rates go down in that standardization process?

6721             MR. WATT:  I can't say for sure.

6722             COMMISSIONER LANGFORD:  What is your best guess?

6723             MR. WATT:  My best guess is that there might be one or two systems, and that would have been the extent of it.

6724             COMMISSIONER LANGFORD:  There was no profit in this.  It was all just necessary because of things like OMNI being foisted on you, and just because you needed to be administratively a little more nimble.

6725             MR. WATT:  You would be familiar with the Rogers' financial statements, and bottom line profit has been a fleeting item over the years.

--- Laughter / Rires

6726             COMMISSIONER LANGFORD:  Yes, I know.  Maybe you should do less baseball and more cable.

6727             Is there anything to learn from this?  In the proceeding we are doing now, will this be bad news for people who don't have a bundle down the road, for people who only want local service?  Are they going to find things, to use the term of Mr. Engelhart, floating up because they have been constrained?

6728             MR. ENGELHART:  If you want a lesson, I would say, certainly, when you are going to forbear you should be comfortable.  That is why we proposed the 30 percent share test, followed by the second part of the test, where you take a look at it.

6729             We are not big fans, just like the ILECs are not big fans, of re-regulation.  I think when you do it, you should be confident that this is the right thing to do, and market forces will protect people.

6730             COMMISSIONER LANGFORD:  So that is a yes, things could go up for the equivalent of the basic subscriber.

6731             MR. ENGELHART:  Oh, yes.  I disagree with the phone companies when they say, "Oh, those cable guys.  This whole thing is about rates going down."

6732             I could see the ILECs raising their rates if they were forborne today, and using winback to come after us.  That wouldn't surprise me.

6733             COMMISSIONER LANGFORD:  Could you see big discrepancies between low income subscribers who really can only afford basic and people who can go for the platinum package in some big bundle?

6734             MR. ENGELHART:  Cable is a bit different from a lot of businesses, because all of the channels come to your home whether you buy them or not.  So cable operators have a kind of natural economic incentive to get you to buy the big package.

6735             Now, people often don't want to, and they hate you, so you have to, obviously, make a bunch of smaller packages available if you are going to be a responsive supplier.  But there is that kind of natural tendency to want to sell more rather than less.

6736             Telephone is a bit of a different architecture.  When you talk about bundles of totally different services on different architecture, I am not sure that the same kind of incentives exist.  But when markets operate, they don't operate like regulators operate, they operate like markets operate, and the pricing will be different.

6737             COMMISSIONER LANGFORD:  Thank you very much.

6738             Those are my questions, Mr. Chair.

6739             THE CHAIRPERSON:  Thank you.

6740             Commissioner Noël.

6741             COMMISSIONER NOËL:  I have a short question for Mr. Linton.

6742             Mr. Linton, Mr. Engelhart mentioned in answer to a question by Commissioner del Val that the footprint of cable in the geographic business centres, in downtown locations, was not very wide, but could expand.

6743             Do you foresee that the more CLEC‑type footprint of the former Call-Net would be the vehicle of choice to compete in the business market, as opposed to increasing the cable footprint in the downtown core of business activities?

6744             MR. LINTON:  The plan is to use both.

6745             We have acquired all of Group Telecom‑sold assets in eastern Canada through a very complicated transaction that gives us thousands and thousands of miles of fibre and access to, I think, 1,800 buildings in the urban areas in the cities in the east.

6746             So we will use our facilities to get into most industrial buildings.

6747             For small business, we will use the cable plant, wherever it is available, as the last mile access for those types of customers.

6748             COMMISSIONER NOËL:  Thank you.

6749             THE CHAIRPERSON:  Thank you.

6750             Commissioner Cram.

6751             COMMISSIONER CRAM:  Thank you.

6752             Footprints.  I don't think anybody has talked about this.  What is the footprint of Inukshuk?

6753             I saw that it was going to cover 40 cities and 50 towns, one of which, I hope, is Indian Head.

6754             Would you like to give that information on a confidential basis?

6755             I would just like to know what the footprint is going to be.

6756             MR. ENGELHART:  We certainly can identify it on a confidential basis.  I can tell you that there is a very aggressive roll-out schedule in place that is going to cover a lot of places.

6757             COMMISSIONER CRAM:  And it would be a facilities-based fixed to mobile?

6758             MR. ENGELHART:  That is correct.

6759             COMMISSIONER CRAM:  Fixed to wireless.

6760             MR. ENGELHART:  Yes, thank you.  Fixed to wireless, yes.

6761             COMMISSIONER CRAM:  It is Thursday already.

--- Laughter / Rires

6762             COMMISSIONER CRAM:  Are you giving access-independent VoIP?  Are you selling that, or is it access-dependent VoIP, your own internet and VoIP?

6763             MR. ENGELHART:  On the Rogers' cable platform it is access-dependent.  There is nothing access‑independent.

6764             In fact, it is not being sold or marketed as a VoIP service at all.  It uses VoIP underlying technology.  It does not use the internet in any way.

6765             There will come a later phase where we will start adding things like an area code from Vancouver or Montreal or Hong Kong.

6766             So we will start doing those things in a later phase.

6767             I will let Bill address the Call‑Net platform.

6768             MR. LINTON:  Last year we launched a VoIP product, which we haven't put much marketing behind, but it is access-independent, similar to Vonage.

6769             COMMISSIONER CRAM:  On the cable side, can you also give me your basic cable penetration and your high-speed penetration as a percentage of your basic on a confidential basis in the top 10 markets?

6770             Is that possible?

6771             MR. LINTON:  Yes, we could do that.

6772             Basic cable is about 69 percent overall, and then internet high-speed is about 43 or 44 percent of our basic penetration.  But we will give it to you by the 10 top systems.

6773             COMMISSIONER CRAM:  Thank you.

6774             MR. ENGELHART:  We can sell telephony to someone who is not buying the high-speed internet.  It runs on a similar IP platform, but you don't have to be an internet customer to get our telephone service.

6775             COMMISSIONER CRAM:  The issue, then, is just bandwidth, the amount of bandwidth you have to have for it.

6776             MR. ENGELHART:  That's right, but in our case, as a matter of fact, the telephone channel is a separate 6 Mhz channel.  But even if they shared a channel, you could provide someone with telephone service without necessarily selling them internet service.

6777             In fact, as I indicated before, you could buy no cable, no internet from us, and we could, and would, sell you telephony.

6778             COMMISSIONER CRAM:  Thank you.

6779             On the household versus second lines ‑‑ or lines ‑‑ another penny dropped when you were talking, Mr. Engelhart, about second lines crashing.

6780             If the number of second lines are decreasing because people don't need them for their fax or their dial-up, any model that is predicated upon a loss of share of lines, that loss of share could easily be somebody dropping their second line.

6781             MR. ENGELHART:  Yes.  If you move away from households and work with lines, it is messier for you as a regulator to calculate the share loss.

6782             COMMISSIONER CRAM:  Because a person simply not wanting a line would be a loss to the ILEC, and if that is how we count it --

6783             MR. ENGELHART:  That's right.

6784             Putting words in my colleague's mouth at the ILEC, they might say:  If someone does disconnect their second line because their teenagers don't need a teenager line because they are all using their cellphones, that is substitution and it should count.

6785             We are saying:  No, it shouldn't count, because that house still has a phone line from the ILEC.

6786             So in terms of making a competitive choice, they haven't made it.  They haven't made it until that house is no longer served on a wireline basis by the ILEC.

6787             COMMISSIONER CRAM:  Before, with Commissioner del Val, I think you said that if all of the rules were in place, and if you had quality of service in accordance with the standards, life would be wonderful.

6788             Are you asserting, as MTS Allstream is, that there should be a record of good quality of service, and there should be a record of being a good boy, or girl, in the sense of no complaints being filed and approved for a certain period of time?

6789             MR. LINTON:  I believe ‑‑ and someone will tell me that I am right or wrong -- that there are records right now.  The quality of service standards that we get from the ILECs are measured on a monthly basis, or a quarterly basis, and are provided to the Commission.

6790             COMMISSIONER CRAM:  No, what I mean is, are you saying that, as a precondition to us forbearing ‑‑ that is what MTS Allstream is saying ‑‑ as a precondition, there has to be a good record of adherence to quality of service standards, and there has to be a record of complaints, or no complaints, for a certain period of time before we would consider forbearance?

6791             MR. ENGELHART:  I think what we said was that that is one of the package of things you would look at in the second part of the test.

6792             Having passed the 30 percent threshold, you would look at those things.

6793             Dave is pointing me to paragraph 85 of our argument, which talks about this.

6794             Yes, it says that that is a bunch of the things you would look at in the second part of the test that you would want to be satisfied on.

6795             COMMISSIONER CRAM:  What would satisfy us, then?

6796             Two years of good quality of service? Up to standard?  No complaints in a year?  Or no substantiated complaints in a year?

6797             MR. ENGELHART:  We didn't specify a rule like that.  I think it is a question of looking at it and saying, "Is this part of the market working," so that we are satisfied that this is an appropriate thing to do, to do forbearance.

6798             COMMISSIONER CRAM:  Thank you very much.

6799             Thank you, Mr. Chair.

6800             THE CHAIRPERSON:  Mr. Engelhart, I am wondering if I have heard your answer to Commissioner Cram right.

6801             If I have two Bell lines in my house, one for a phone and for a fax, and I decide to take off the second line because I don't use fax much anymore and switch to Rogers' service, that still gets counted as an ILEC household and the fact that I now have Rogers' second line service gets zero in the competitor's column?

6802             MR. ENGELHART:  That's absolutely correct, but I think that if you had made that choice ‑‑ you know, there aren't very many people who are doing that.  I just think that's an extraordinarily small sub‑set and not worth worrying about.  Most people are getting rid of a second line.

6803             The typical story would be you just realized it is silly to have a fax machine in your basement and you are getting rid of the fax machine completely; unlikely that you are replacing it with a Rogers line.

6804             THE CHAIRPERSON:  But in fairness, we are trying to consider competitor market share and you are not giving the competitor column any share there where in fact there has been a substitution in effect made.

6805             MR. ENGELHART:  You are absolutely correct.  But on the other side of that coin, if you were that consumer who got rid of your fax line just because you didn't like the fax machine anymore, then on the ILECs test that would count as a loss of market share, which perhaps it shouldn't.  So you are sort of weighing those two inappropriate or unfair aspects when you are looking at the two tests and I think that latter category is much more prevalent and therefore a much bigger concern to worry about.

6806             THE CHAIRPERSON:  I am not understanding your point.

6807             MR. ENGELHART:  If you looked at lines only, then when people got rid of their fax machine just because it is an old technology, it would look like the ILECs were losing market share.  They weren't really.  No one is substituting anything.  It is just people were getting rid of their fax machines and people are getting rid of their dialup, period.

6808             So by looking at lines it is as though the ILECs are losing market share but really they are not.  So that's wrong and that's a reason to reject lines as an appropriate test.

6809             On the other hand, as you have correctly pointed out, if you look at homes as we do, then in the scenario that you posited, the ILECs share loss would be underrepresented because someone ‑‑ you have just got rid of your fax line from Bell, replaced it with a fax line from Rogers and that wasn't counted. I guess what we are saying is, looking at the likelihood of those two errors you get into a lot less trouble when you use the homes test because there is lots of shrinkage of the second line market and, I would say, substitution of second lines would be very rare.

6810             THE CHAIRPERSON:  Well, rare or not, I don't understand how you could not count it, because we are talking about the same market as you have defined it.  You are just not counting any gain to the competitor there or any loss to the ‑‑

6811             MR. ENGELHART:  Well, it is the simplicity of the homes test.  You know, you are saying, "Is this a home that's not served anymore by the ILEC?"  I suppose we could add a layer of complexity and try and figure out, you know, second line losses but it gets very complicated.

6812             So I agree with you that it is not methodologically pure, but I am saying that it is very practical, it makes the measuring very easy and it is a very small source of error.

6813             THE CHAIRPERSON:  Believe me, methodological purity is not what I am concerned about here.  I am concerned about establishing fairness.

6814             But I think I have your point.

6815             Commissioner Noël.

6816             COMMISSIONER NOEL:  I don't think anybody mentioned it, but what is happening with City Fido?  Are you still using that product to gain market shares in the residential market?

6817             MR. ENGELHART:  Yes, City Fido, which is based on zone‑based pricing, we still have zone‑based pricing to zones and the prices were changed.  I believe there are plans afoot to change them again.

6818             It is interesting, and I don't think the numbers are public, but looking at the number of people who actually ported their lines to City Fido, ported their phone numbers to City Fido, I was sort of surprised by how small it was.  So if you take porting as a proxy for substitution, I was really surprised by the fact that it doesn't look like there was that much substitution.

6819             I think a lot of City Fido customers thought, "This is just a great package of minutes that I can use in the city as a cell phone".  Not that many of them were getting rid of their wireline phone.

6820             COMMISSIONER NOEL:  And it was where, Vancouver, Toronto and Montreal?

6821             MR. ENGELHART:  Yes.

6822             COMMISIONER NOEL:  Thank you.

6823             THE CHAIRPERSON:  Thank you.

6824             Counsel.

6825             MR. WILSON:  Thank you, Mr. Chairman.

I just have a couple of questions.

6826             If I can take you back to your discussion of sort of the composition of the business market that you had with Commissioner del Val?  I want to focus just for a second on sort of what we have described as the enterprise customers, the big ones.  I think, Mr. Engelhart, you referred to them, normally the people that are going out with RFPs and so forth.

6827             With sort of respect to that sort of segment of customers and, if you were here when MTS Allstream did their presentation, they talked about how they felt that the ILECs had a stranglehold on these customers and it was very difficult if not impossible to get them to migrate away from the ILECs.

6828             With the experience that you have in the business market, I wonder if you can comment on the possibility that in part that stranglehold may come because of the various sorts of terms and conditions in terms of termination penalties; length of contract that are inherent in the ILEC tariffs, and for that group of customers, in fact, forbearance may stimulate competition because those customers may then be able for themselves to negotiate terms and conditions that allow them to migrate more easily.

6829             MR. LINTON:  I think everybody, or we would certainly agree with MTS Allstream that that very high enterprise market has been dominated by the ILECs and it is a very difficult market to crack, especially on local services.  I don't think it is a regulatory thing and I don't think it is really contractual.

6830             The issue there is more relationships and that is that the very largest customers are doing business with the very largest telephone companies.  It would be very difficult for one of the large banks to give all of their business to MTS Allstream.  Now, that doesn't mean that we don't all get a little bit of the business to keep the ILECs honest and pricing right, but the large enterprises are not suffering from lots of competition and low pricing and that sort of stuff.

6831             I don't know if that answers your question.

6832             MR. WILSON:  No, I think that does.

6833             The only other question was with respect to the information that you undertook to file in response to Commissioner Cram's question.  Can you just give me a sense in terms of timeframe of when you will be able to file that with the Commission?

6834             MR. WATT:  We will say Wednesday now and if we can't do it ‑‑ next Wednesday and if we can't do it we will get back in touch with you quickly.

6835             MR. WILSON:  That's fine.  Thank you very much.

6836             Those are my questions, Mr. Chairman.

6837             THE CHAIRPERSON:  Thank you.

6838             We will break now for 15 minutes.  Nous reprendrons dans 15 minutes.

‑‑‑ Upon recessing at 1508 / Suspension à 1508

--- Upon resuming at 3:31 p.m. / Reprise à 15 h 31

6839             THE CHAIRPERSON:  Order, please.  À l'ordre, s'il vous plaît.

6840             Madame la Secrétaire.

6841             THE SECRETARY:  Thank you, Mr. Chairman.

6842             Nous allons maintenant poursuivre avec le panel numéro 17, Québecor Média Inc./Vidéotron Télécom ltée.

6843             Merci.

PRÉSENTATION / PRESENTATION

6844             M. GINGRAS : Monsieur le Président, Monsieur le Vice-Président, Télécommunications, membres et personnel du Conseil, mesdames et messieurs, bonjour.

6845             Je suis Yvan Gingras, Vice-Président exécutif, Finances et Opérations, et Chef de la Direction financière de Vidéotron ltée, filiale à part entière de Québecor Média.

6846             Comme vous le savez, Vidéotron est le plus important télédistributeur au Québec et, depuis peu, un joueur dans le marché de la téléphonie locale résidentielle.

6847             Mon équipe et moi représentons également Vidéotron Télécom, une entreprise de services locaux concurrente, spécialisée en télécommunications d'affaires.

6848             Permettez-moi maintenant de vous présenter les personnes qui m'accompagnent.

6849             À ma droite, Manon Brouillette, Vice‑Présidente, Marketing et Développement de nouveaux produits, de Vidéotron; à mon extrême droite, Philippe Wauthy, Directeur, Développement de produits de téléphonie, de Vidéotron; et à ma gauche, Dennis Béland, Directeur, Affaires réglementaires, Télécommunications, de Québecor Média.

6850             Il y a environ un an, mon collègue Serge Gouin, alors Président de Québecor Média, comparaissait devant vous à l'occasion de la tenue des audiences publiques du Conseil sur les services de voix sur IP.  Il vous a alors parlé de notre vision en téléphonie locale, de l'importance d'un cadre réglementaire approprié afin de nous permettre de mettre en oeuvre cette vision.

6851             Depuis, le Conseil a émis une série de décisions qui nous apparaissent sages et équilibrées.

6852             Vous avez, notamment, statué que les services de voix sur IP, qui ressemblent à de la téléphonie locale, remplissent les mêmes fonctions et sont mis en marché de la même façon, sont effectivement des services de téléphonie locale et devraient être réglementés comme tels.

6853             Vous avez, par ailleurs, raffiné et réaffirmé un certain nombre de garanties spécifiques pour préserver la concurrence, en particulier, ce qui touche les prix planchers, les regroupements de services, les promotions et la reconquête de clients.

6854             Vous avez, en outre, instaurer une série de procédures administratives simplifiées conçues pour aider les titulaires à concurrencer de façon plus efficace sur le marché de la téléphonie locale.

6855             En ce qui nous concerne, après des années d'attente, Vidéotron a finalement décidé de faire le saut en téléphonie résidentielle.

6856             Nous sommes ici, aujourd'hui, pour vous dire que jusqu'à maintenant, ce projet va bien.  Beaucoup de consommateurs apprécient notre offre, et plusieurs d'entre eux ont choisi de couper leurs liens historiques avec le titulaire.

6857             Pour ces personnes, la véritable concurrence en téléphonie locale est finalement arrivée, mais nous sommes encore loin du jour où l'extrême domination des titulaires actuels sera chose du passé, et nous sommes encore bien loin du jour ou nous n'aurons plus besoin de garanties contre les comportements anticoncurrentiels.

6858             En date du 31 août dernier, nous comptions 75 000 clients aux services de téléphonie par câble de Vidéotron.  C'est un bon début.  Nous sommes encouragés.  Toutefois, ceci représente moins de 1 pour cent du nombre de lignes résidentielles en service chez Bell.

6859             Ne soyons pas dupes.  Une seule campagne de reconquête bien financée est bien ciblée de la part de Bell dans un environnement déréglementé, et notre base de clients pourrait fondre comme neige au soleil.  Voilà la réalité.

6860             Bell et les autre titulaires ont tenté de cacher cette réalité de diverses façons.  Par exemple, ils ont fait valoir que Vidéotron fait partie d'une famille corporative beaucoup plus large, contrôlée par Québecor, laissant ainsi entendre qu'une entité de cette taille est dotée de la solidité financière nécessaire pour résister à toute tentative de Bell de maintenir sa dominance.  À notre avis, un tel argument manque de perspective.

6861             Afin de clarifier la situation, il suffit de mentionner que 78 pour cent des revenus totaux de Québecor Inc. proviennent de Québecor World, la société d'imprimerie du groupe.  Québecor World a des usines dans 17 pays en Amérique du Nord, en Europe, ainsi qu'en Amérique latine.

6862             Les sociétés Québecor World et Québecor Média, bien que toutes deux des filiales de Québecor, possèdent des actionnaires sans contrôle important et distinct, soit de nombreux investisseurs dans le cas de Québecor World et la Caisse de dépôts et de placements du Québec dans le cas de Québecor Média.  Cette structure corporative fait en sorte que les fonds d'une filiale ne peuvent être utilisés pour financer les activités de l'autre filiale.

6863             Comparons, alors, des pommes avec des pommes.

6864             Ainsi, pour Bell et Vidéotron, respectivement, nous avons additionné les revenus provenant de la téléphonie locale, de la téléphonie sans fil, de l'accès internet, et de la télédistribution, soit le quatuor des communications de l'avenir.

6865             Dans le cas de Bell, les chiffres incluent Bell Mobilité et ExpressVu.  Dans le cas de Vidéotron, ils comprennent Vidéotron Télécom.

6866             Les résultats sont assez convaincants.  En 2004, le poids financier total de Bell dans le marché des communications représenterait près de 18 fois celui de Vidéotron, 16,8 milliards de dollars contre 950 millions de dollars.  Aucune analyse sérieuse de l'environnement concurrentiel ne pourrait être menée sans prendre en compte une asymétrie financière de cette ampleur.

6867             Certains économistes vous diront que Bell ne dispose d'aucun incitatif pour mettre sa puissance financière au service d'objectifs anticoncurrentiels.  Malheureusement, une telle perception ne correspond pas à la réalité.

6868             À cet effet, voici un exemple puisé de mon expérience personnelle.

6869             Le printemps dernier, j'ai assisté au Salon de l'habitation à Montréal.  Je me suis rendu au kiosque de Bell ExpressVu, où l'on m'a fait l'offre suivante, sur papier, pour un contrat de deux ans, incluant plus de 100 canaux de qualité numérique pour seulement 17 dollars par mois, location gratuite d'un récepteur de base, location gratuite d'un récepteur vidéo personnel ou haute définition, un bon d'essence PétroCanada d'une valeur de 100 dollars, et un crédit égal aux frais initiaux de 49,99 dollars.

6870             Vous trouverez, en annexe à notre présentation, une copie de cette offre.

6871             En plus, on m'a aussi offert un téléphone cellulaire prépayé gratuit, accompagné d'une valeur initiale de 30 dollars en temps d'antenne.

6872             D'après mes calculs, avec une telle offre, Bell perd environ 500 dollars pour la durée totale du contrat.

6873             Si Bell est prête à faire une telle offre pour gagner des parts de marché dans un marché qu'elle ne contrôle pas, imaginez ce qu'elle sera prête à faire pour conserver ses parts dans un marché qu'elle contrôle.

6874             Il est tout simplement illusoire de penser qu'une analyse de la déréglementation puisse être menée dans l'abstrait, sans égard à la position concurrentielle des joueurs actuels dans le marché, en particulier, le titulaire.

6875             Dans l'est du Canada, le poids géographique et financier de Bell représente la principale caractéristique du marché.  Ce fait devrait, à notre avis, être déterminant lorsque viendra le temps pour le Conseil d'établir les règles concernant les marchés géographiques et les critères de déréglementation.

6876             Un autre domaine où des théories économiques nébuleuses, sans rapport avec la réalité pratique, pourraient s'avérer dangereuses est celui des coûts irrécupérables.

6877             D'une part, il y a ceux qui soutiennent que ces coûts irrécupérables sont négligeables dans un nouvel environnement de voix sur IP.  Ces derniers évoquent des images de fournisseurs de voix sur IP lançant leurs services à partir de leur garage.  L'idée est, évidemment, de plaider pour une déréglementation immédiate puisque, selon eux, le marché fait déjà l'objet d'une vigoureuse compétition provenant de toute part.

6878             D'autre part, il y a ceux qui reconnaissent que les coûts irrécupérables peuvent, en effet, s'avérer substantiels, mais qui affirment du même souffle qu'une fois irrécupérables, ces coûts ne représentent plus une barrière à l'entrée.

6879             Ces personnes vont même jusqu'à suggérer que, toute proportion gardée, plus les coûts irrécupérables sont élevés, plus grande est la probabilité que le nouveau venu tiendra bon dans le marché face à d'éventuelles pratiques de prix abusives de la part des titulaires.

6880             Les tenants de ce point de vue ne suggèrent pas nécessairement de la déréglementation immédiate, mais plutôt une attitude modérée à l'égard d'une déréglementation hâtive, dans la mesure où, selon eux, une fois lancé, le nouvel exploitant ne voudra pas retirer ses billes.

6881             À notre avis, le premier de ces deux arguments, celui des coûts irrécupérables négligeables, est carrément inexact.  Les coûts irrécupérables de Vidéotron en téléphonie locale sont considérables, aussi bien au départ que par la suite.  Des services de téléphonie locale résidentielle efficaces et fiables, pleinement équipés pour livrer une concurrence à un titulaire omniprésent, ça ne se lance pas à partir d'un garage ou d'un sous-sol.

6882             Quant au second argument, celui selon lequel les nouveaux venus seraient dans un sens piéger par des coûts irrécupérables, il nous apparaît peu judicieux.

6883             Nous suggérons respectueusement au Conseil de se demander si l'intérêt du public serait bien servi par un environnement concurrentiel local dans lequel les concurrents non-titulaires resteraient dans le marché uniquement parce qu'ils n'ont nulle part où aller.

6884             Est-ce bien là la vision que nous avons de la concurrence entre exploitants de services de télécommunications au Canada?

6885             Une économie productive a un besoin vital de services de télécommunications efficaces et modernes.  Les télécommunications représentent également une industrie particulièrement dynamique et à très forte intensité de capital.

6886             À cet égard, de nouvelles vagues d'investissement dans les réseaux seront nécessaires dans les années et dans les décennies à venir.  L'intérêt public exige, donc, des concurrents efficaces, financièrement solides, et non des concurrents fragilisés, afin de garder le Canada à l'avant-garde de l'évolution technologique.

6887             Une concurrent durable dans les télécommunications locales ne sera pas possible si on permet au titulaire d'utiliser son incomparable poids financier pour mener des stratégies ciblées et anticoncurrentielles afin de maintenir ses compétiteurs régionaux dans une situation de faiblesse prolongée.

6888             Voilà pourquoi nous avons conclu que la seule définition viable et pertinente d'un marché géographique soumis à la déréglementation locale est la totalité du territoire d'exploitation des entreprises titulaires de services téléphoniques locaux.

6889             Quant aux critères de déréglementation applicables sur un territoire donné, nous avons proposé qu'une part de 80 pour cent du marché sur l'ensemble du territoire du titulaire, calculée en fonction du nombre de foyers et non du nombre de lignes, soit le seuil en-dessous duquel le Conseil devrait envisager une déréglementation des services locaux.

6890             En mettant de l'avant cette proposition, nous affirmons candidement une évidence, à savoir que les titulaires devront perdre des clients avant que l'on puisse parler d'une concurrence durable.

6891             Ce qui nous permet une évidence n'est est pas une pour les titulaires.  À leurs yeux, la seule menace de la concurrence devrait suffire au Conseil pour qu'il renonce à réglementer.

6892             Dans le cadre du marché d'affaires locales, par exemple, Bell a soutenu le plus sérieusement du monde qu'une concurrence solide continuerait d'exister.

6893             Même si Bell devait rafler la totalité des contrats auprès des grandes entreprises, tout ce qui compte, c'est qu'il y ait eu des soumissions concurrentes pour chacun de ces contrats que Bell aurait gagnés, et j'imagine que quelqu'un qui croit sérieusement à cette proposition a suivi avec passion les dernières élections cubaines.  Cette personne peut trouver la compétition partout.

6894             Cette vision des titulaires d'une concurrence sans perte de clients trouve également son expression dans une part de marché extrêmement faible : le 5 pour cent qu'ils proposent comme seuil pour leur déréglementation du marché téléphonique local.

6895             Compte tenu de leur taux de pénétration de près de 100 pour cent dans ce marché, les titulaires voudraient bien nous faire croire que les conditions d'une concurrence durable se trouve établies lorsque 95 pour cent des foyers continuent de verser consciencieusement leurs paiements mensuels dans les coffres de l'ancien monopole.

6896             Accepter cette proposition reviendrait à permettre aux titulaires de maintenir un avantage financier déjà écrasant sur l'ensemble de leurs concurrents.

6897             Aucun câblodistributeur n'a jamais profité d'une domination aussi absolue dans son taux de pénétration.

6898             Par exemple, dans le cas de Vidéotron, seulement 60 pour cent environ des foyers sont abonnés à nos services de câblodistribution.  En ce qui concerne nos services d'accès internet haute vitesse, cette proportion tombe à environ 24 pour cent.

6899             Nous réitérons notre conviction à l'effet que si nous voulons une émergence d'un marché de concurrence durable, il faut qu'une portion significative des clients de la téléphonie locale cesse de gonfler à chaque mois les coffres des titulaires.

6900             Comme nous l'avons dit plus tôt, Québecor Média est d'avis qu'une proportion significative de clients pourrait équivaloir à 20 pour cent des foyers.

6901             D'autres participants à ces audiences, en particulier, l'Association canadienne des télécommunications par câble, ont même soumis des témoignages convaincants provenant de d'autres secteurs de l'activité économique et d'autres juridictions qui donnent à penser qu'une perte de marché de l'ordre de 30 pour cent serait, en fait, plus appropriée avant de procéder à l'analyse qualitative de l'opportunité d'une déréglementation.

6902             J'aimerais souligner que notre proposition d'un seuil de 20 pour cent est fondée sur deux conditions-clés.

6903             Tout d'abord, une définition des parts de marché basée sur le nombre de foyers, c'est‑à‑dire une définition de la part du marché du titulaire qui soit égale au nombre de foyers abonnés à ses services de téléphonie locale, divisé par le nombre total de foyers abonnés à des services de téléphonie locale dans un territoire donné.

6904             Puis deuxième condition, un marché géographique pertinent qui comprend la totalité du territoire desservi par le titulaire.

6905             Il va de soi que si la décision du Conseil ne retenait pas ses conditions, soit en adoptant une définition des parts de marché fondée sur le nombre de lignes d'accès plutôt que le nombre de foyers ou en établissant un marché géographique réduit par rapport à l'ensemble du territoire desservi par le titulaire, nous soumettrions alors que le seuil de marché approprié pour procéder à une analyse de l'opportunité d'une déréglementation devrait se situer plus près de 30 pour cent.

6906             En conclusion, Monsieur le Président, mesdames et messieurs les commissaires, nous sommes venus ici pour vous dire que nous avons obtenu jusqu'à maintenant des solides résultats en téléphonie locale.  Plus de 75 000 foyers québécois profitent déjà des avantages d'une véritable concurrence entre exploiteurs de réseaux, mais ce succès ne doit pas être tenu pour acquis.  Notre présence dans le marché local résidentiel représente toujours moins de 1 pour cent de celle de Bell.

6907             Comme je l'ai souligné plus tôt, il suffirait d'une seule campagne de reconquête bien financée et bien ciblée de la part de Bell dans un environnement déréglementé et notre base de clients pourrait fondre comme neige au soleil.  C'est la réalité à laquelle nous faisons face.

6908             Nous sommes toujours au stade des balbutiements dans notre présence en téléphonie locale.  Notre part de marché est, somme toute, encore marginale et sans comparaison avec l'omniprésence de Bell.

6909             Nous sommes fort encouragés par les succès que remporte notre produit.  Toutefois, ce succès n'est pas étranger au fait qu'une portion de la clientèle de Bell est insatisfaite et réceptive à toute offre de la concurrence, quelle qu'elle soit.

6910             À notre avis, il est bien trop tôt pour conclure que nous avons atteint une dynamique de marché où la dominance n'est plus présente et où le titulaire n'a plus les moyens de poursuivre des stratégies anticoncurrentielles désastreuses pour l'émergence d'une compétition viable.

6911             Seul un exercice judicieux de vos pouvoirs réglementaires vous permettraient de faire en sorte qu'une véritable concurrence en téléphonie locale ne soit pas tuée dans l'oeuf.

6912             Merci de votre écoute.  Nous sommes disposés à répondre à vos questions.

6913             LE PRÉSIDENT : Merci beaucoup, Monsieur Gingras.

6914             Madame Noël.

6915             COMMISSAIRE NOËL : Bonjour, madame et messieurs.

6916             Monsieur Gingras, j'aurais peut-être quelques petites questions avant d'aborder les questions plus fondamentales, des questions par rapport à votre présentation d'aujourd'hui.

6917             Vous nous dites, à la page 2, que certains ou plusieurs d'entre eux ont choisi de couper leurs liens historiques avec le titulaire, en parlant de vos nouveaux clients à la téléphonie locale.

6918             Est-ce que vous pouvez nous donner, sans dévoiler des données ultra-secrètes, une proportion des gens qui ont décidé de couper tout lien avec Bell -- appelons le chat, le chat -- ?

6919             M. GINGRAS : Comme on a un service de première ligne, on n'a pas de données précises à cet égard, mais on pense que la presque totalité de nos clients ont coupé tous les liens avec Bell, en termes de lignes téléphonique.

6920             COMMISSAIRE NOËL : Et ça, c'est le service que vous avez lancé en janvier ou février, je crois, sur la Rive sud?

6921             M. GINGRAS : Le 24 janvier sur la Rive sud de Montréal.

6922             COMMISSAIRE NOËL : Le 24 janvier sur la Rive sud, que vous avez étendu à Laval ensuite un peu plus tard, et qui est maintenant disponible sur la partie ouest de l'Île de Montréal?

6923             M. GINGRAS : Il est disponible depuis la fin juillet sur la totalité de l'Île de Montréal et depuis le début juillet dans la région de Québec.

6924             COMMISSAIRE NOËL : D'accord.  Et à quel rythme...  Là, vous nous parlez de 75 000 abonnés à la fin d'août.  À quel rythme hebdomadaire ou mensuel est-ce que vous... parce que plus vous augmentez le territoire dans lequel vous offrez le service, je suis sûre que votre take-rate, pour parler un bon anglais, augmente, il y a de plus en plus de clients à chaque semaine qui...

6925             M. GINGRAS : Oui, on a maintenant environ 62 pour cent du territoire de Vidéotron qui est...

6926             COMMISSAIRE NOËL : Qui est ouvert?

6927             M. GINGRAS : ...qui est ouvert, sur lequel on accepte... on déploie la téléphonie, et le rythme de croisière actuel est alentour de 5 000 clients par semaine.

6928             COMMISSAIRE NOËL : Cinq mille... cinq ou sept?

6929             M. GINGRAS : Cinq.

6930             COMMISSAIRE NOËL : Cinq, d'accord.

6931             Maintenant, à la page 3, vous parlez... alors, les 75 000 seraient devenus à peu près 95 000 à l'heure où on se parle?  On est le 29 septembre.

6932             M. GINGRAS : À peu près.

6933             COMMISSAIRE NOËL : D'accord.

6934             Maintenant, vous nous dites que ça... à la page 3, vous nous dites que ça représente 1 pour cent du nombre de lignes résidentielles en service chez Bell.

6935             Ce chiffre de 1 pour cent, vous le calculez sur l'ensemble des lignes résidentielles de Bell dans l'ensemble du Québec et de l'Ontario ou dans les régions que vous desservez?

6936             M. GINGRAS : C'est sur l'ensemble des lignes de Bell.

6937             COMMISSAIRE NOËL : Au Québec et en Ontario?

6938             M. GINGRAS : Au Québec et en Ontario.

6939             COMMISSAIRE NOËL : Vous ne trouvez pas que, étant donné que vous offrez le service juste au Québec que de mettre la partie ontarienne, qui est encore plus importante que la partie Québec des lignes de Bell, dans l'équation, vous arrangez les chiffres pour qu'ils vous servent un petit peu?

6940             M. GINGRAS : C'est des chiffres qui étaient disponibles.  On n'a pas de segmentation, mais on pense que quand même dans la réalité, quand même le chiffre doublerait ou triplerait.  Ça serait quand même un chiffre qui est encore très faible en relation avec une part de marché.

6941             COMMISSAIRE NOËL : Oui.

6942             Maintenant, si on prenait le territoire desservi par Vidéotron, puis on essayait de voir...  Les territoires desservis par Vidéotron, si on les surimposait sur les territoires desservis par Bell, est-ce que le nombre de lignes résidentielles de Bell diminuerait encore un petit peu?

6943             M. GINGRAS : On serait peut-être alentour de 3 pour cent.

6944             COMMISSAIRE NOËL : O.K.  Alors, on vient de tripler.  C'est parce que je trouvais que 1 pour cent, c'était un chiffre qui était un petit peu bas.

6945             Maintenant, quand vous allez à la page 4, vous nous dites qu'en 2004, le poids financier de Bell dans le marché des communications représentait 18 fois celui de Vidéotron.

6946             Ça, c'était avant le lancement de votre service de téléphonie... de voix sur IP?

6947             M. GINGRAS : Effectivement, c'est des résultats de 2004.

6948             COMMISSAIRE NOËL : Merci.

6949             Et si on va à la page 5, vous parlez de votre expérience personnelle au Salon de l'habitation.

6950             Est-ce que cette offre de Bell, est‑ce que vous n'avez pas porté plainte au Bureau de la concurrence là-dessus?

6951             M. GINGRAS : Oui, en effet, on a porté plainte au Bureau de la concurrence.

6952             COMMISSAIRE NOËL : Et est-ce que le Bureau de la concurrence a statué sur votre plainte?

6953             M. GINGRAS : Je ne pense pas qu'ils ont statué actuellement.

6954             COMMISSAIRE NOËL : Ils n'ont pas statué encore?

6955             M. GINGRAS : Non.

6956             COMMISSAIRE NOËL : C'est ce que je voulais savoir.

6957             Maintenant, c'est une offre superintéressante, sauf que ce n'est pas une offre qui était mise dans les journaux là, ça été offert au Salon de l'habitation pendant neuf jours, c'est ça?

6958             M. GINGRAS : Effectivement.

6959             COMMISSAIRE NOËL : Merci.

6960             M. BÉLAND : Effectivement, c'est une offre ciblée.

6961             COMMISSAIRE NOËL : C'est une offre ciblée?

6962             M. BÉLAND : Oui.

6963             COMMISSAIRE NOËL : Je pense que... ah! non, une petite question de détails.

6964             Monsieur Gingras, dans votre présentation... moi, je suivais avec le texte, et vous...  À la page 11, au premier paragraphe, à la fin, vous parler de... vous dites, pour procéder à une analyse qualitative de l'opportunité d'une déréglementation, on devrait se situer plus près de 30 pour cent, et vous avez dit 40.

6965             Est-ce que c'était un lapsus ou...

6966             M. GINGRAS : C'était sans doute un lapsus.  Excusez-moi.

6967             COMMISSAIRE NOËL : C'était un lapsus significatif.

--- Rires / Laughter

6968             M. GINGRAS : Je m'en excuse.

6969             COMMISSAIRE NOËL : D'accord.  Non, c'est juste que je me posais la question.

6970             Alors, voilà pour les questions que j'ai par rapport à votre présentation d'aujourd'hui.

6971             Maintenant, si on allait explorer peut-être un peu plus la définition de territoire que vous avez élaborée, et qui est, je pense, abrégée par rapport à ce que j'ai vu -- à moins que vous l'ayez changée -- qui est abrégée dans votre présentation d'aujourd'hui, par rapport à ce qu'il y avait dans vos mémoires écrits, et je vous réfère au paragraphe 51 de vos commentaires du 15 septembre.

6972             Vous mentionnez comme seuil déclencheur dans ces commentaires-là... au paragraphe 51, vous mentionnez comme seuil déclencheur d'une demande d'abstention pour demander la déréglementation une perte de marché d'au moins 20 pour cent, et cette perte doit être couplée à deux conditions additionnelles, c'est-à-dire que la perte en question soit basée sur la notion de foyers plutôt que sur la notion de lignes d'accès et qu'elle soit calculée sur l'ensemble du territoire du SLT.

6973             Alors, dans le cas qui nous occupe, c'est-à‑dire votre cas, on parle du territoire de Bell Canada, donc, Québec et Ontario, y compris -- vous me corrigez si je me trompe là -- mais Québec et Ontario, y compris les zones de dessertes à coûts élevés?

6974             M. GINGRAS : Oui, effectivement.

6975             COMMISSAIRE NOËL : Merci.

6976             Vous ajoutez, cependant... puis ça, vous l'avez refait dans la présentation d'aujourd'hui.  Vous ajoutez, cependant, que si les critères devaient être différents, par exemple, un territoire plus restreint ou fondé sur des lignes d'accès, il faudrait augmenter la part de perte de marché à 30 pour cent pour pouvoir enclencher un processus d'abstention de réglementation et une analyse qualitative.

6977             Maintenant, dans vos commentaires du mois de juin -- et je vous réfère au paragraphe 8, qui est repris au paragraphe 58 de vos commentaires de septembre -- vous proposez un triple test, et aujourd'hui, je vois un test double, mais je ne vois pas la troisième patte de votre test.

6978             Alors, il y avait, d'abord, la perte de 20 pour cent des parts de marché dans l'ensemble du territoire, une preuve à l'effet que l'offre de service et les conditions de la demande dans l'ensemble du territoire de Bell Canada, dans le cas qui nous occupe, soient telles que l'abstention soit devenue nécessaire, et une mise en oeuvre graduelle de l'abstention par région d'interconnexion -- je réfère au LIR -- par région d'interconnexion locale, en autant que la part du marché dans chacune de ces régions d'interconnexion locale, soit la part du marché du SLT, soit en bas de 70 pour cent.

6979             Maintenant, je vous réfère aux arguments finaux...

6980             M. GINGRAS : Oui.

6981             COMMISSAIRE NOËL : ...du 15 septembre, paragraphe 51, et je vais le citer parce que j'ai de la misère à juxtaposer ces deux options-là :

                      "To the extent the Commission's determinations might deviate from these conditions, either by adopting a definition of market share based on access signs rather than households or by setting the relevant geographic market at something smaller than the entire ILEC territory, then we would submit that the market share loss thresholds for proceeding with a qualitative forbearance analysis should tend closer to 30 percent."  (As read)

6982             Est-ce à dire que si on décidait de limiter le territoire de façon plus petite, on n'aurait pas à rencontrer le premier test, qui est de perdre 20 pour cent des parts de marché sur l'ensemble du territoire de Bell, zones de desserte à coûts élevés comprises?

6983             M. BÉLAND : Vous avez bien vu que notre position a évolué avec le temps.  Donc, je vais reculer, puis je vais expliquer pourquoi.

6984             Au mois de juin, quand on a proposé, effectivement, le processus à trois étapes, la troisième étape, qui était le test de 30 pour cent par RIL, c'était une étape qui essayait de répondre à la problématique des clients orphelins.  Donc, la problématique que si on adopte, comme on propose un territoire très élargi qui est le territoire de desserte de la compagnie titulaire, qu'il y a un risque de clientèle orpheline dans des régions éloignées.

6985             On a essayé de palier à ce problème-là en proposant un genre d'étape, une troisième étape à la fin du processus.

6986             Depuis ce temps-là, on a vu des propositions des autres intervenants qui parlent notamment de ce que l'on considère maintenant comme étant un mécanisme beaucoup plus direct et facile qui est le mécanisme d'un prix plafond.

6987             Donc, notre troisième étape pourrait bien être remplacée par un simple prix plafond sur le prix de service de base de la compagnie titulaire et donc, n'est plus nécessaire.  Ça, c'est le premier point.

6988             Donc, on revient à un processus à deux étapes : un trigger, un plancher de part de marché perdu, suivi par une évaluation qualitative de la situation.

6989             Tout ce qu'on disait avec l'autre paragraphe que vous avez cité concernant le paragraphe 51 de notre argument final où on parle des deux conditions derrière notre estimé de 20 pour cent comme trigger de perte de part de marché, ce qu'on est en train de dire dans ce paragraphe-là, c'est si vous n'acceptez pas nos conditions pour cet estimé de 20 pour cent, ces conditions étant un territoire élargi, l'ensemble du territoire du titulaire, et une définition de part de marché basée sur des foyers et non les lignes, si jamais vous n'acceptez pas ces deux conditions-là, si vous allez plus vers des territoires plus restreints ou vers une autre définition de part de marché qui est basée sur les lignes, à notre avis, le trigger de perte de part de marché doit monter.

6990             C'est ça le fond de notre position.

6991             COMMISSAIRE NOËL:  D'accord.  Mais, à ce moment-là, vous abandonnez le troisième test qui était l'entrée graduelle, mais qui était à 30 pour cent aussi.  C'est ça que j'ai de la misère à...

6992             M. BÉLAND:  Oui.  Nous croyons qu'il existe un autre mécanisme qui a été proposé par d'autres intervenants qui, à notre avis, est beaucoup plus directe et simple.

6993             Si vous avez une crainte par rapport à la protection des clients orphelins, vous mettez...

6994             COMMISSAIRE NOËL:  À la manière d'une réglementation par plafonnement des prix, un plafond.

6995             M. BÉLAND:  Mais une très simple réglementation de part de marché.

6996             COMMISSAIRE NOËL:  Oui, oui, oui.  C'est ce que je dis : *à la manière de+ et non pas un régime de plafonnement des prix avec tous les attributs qu'on lui connaît à l'heure actuelle.

6997             Maintenant, avez-vous fait des calculs pour savoir quel serait le résultat de votre test *A+ par rapport à un test *B+ sur le nombre de clients que la compagnie titulaire devrait perdre avant de rencontrer soit un des tests, soit l'autre?

6998             Est-ce qu'il y aurait un différentiel dans le nombre de clients perdus?

6999             Et je vais vous dire pourquoi je regarde ça.  Parce que si vous prenez l'ensemble du territoire de Bell Canada qui comprend l'Ontario et le Québec, alors, à ce moment-là, il faudrait tenir compte de tous les intervenants ou de tous les nouveaux concurrents dans tous ces territoires-là.  Ça fait des données assez difficiles. 

7000             Je trouve que c'est grand le Québec puis l'Ontario.  Juste le Québec c'est 18 fois la France et ajouter l'Ontario là-dedans, on est rendu à 40 fois la France à peu près.

7001             M. BÉLAND:  Mais pour bien cerner la question, disons qu'on a deux options.

7002             Une option, c'est un test de 20 pour cent de perte de part de marché sur le territoire dans son ensemble et l'autre test, c'est un test de 30 pour cent de perte de part de marché dans un C.R.I.L. à la fois.

7003             Disons que ce sont nos deux choix.

7004             COMMISSAIRE NOËL:  Et ce qui est le test qui est proposé par l'A.C.T.C.

7005             M. BÉLAND:  Oui.  C'est...

7006             COMMISSAIRE NOËL:  D'accord.  Et vous pouvez vivre avec un ou l'autre de ces tests-là?

7007             M. BÉLAND:  Oui.  Et pour répondre à votre question qu'est-ce qui va déclencher quelque chose en premier, disons, entre les deux tests, on ne sait pas.

7008             Parce qu'on pourrait imaginer une situation où des concurrents percent vite dans certains C.R.I.L. et, donc, le test de 30 pour cent déclenche une déréglementation plus rapide que le test 20, mais on pourrait imaginer le contraire aussi.

7009             COMMISSAIRE NOËL:  Intuitivement, je vous dirais que peut-être, parce que dans des régions plus densément peuplées, ça va... où les gens ont plus, où le câble est rendu parce qu'il faut quand même se rendre compte que le câble ne rejoint pas tout le monde.

7010             M. BÉLAND:  Oui, mais les endroits densément peuplés ont la majorité de la population aussi qui va contribuer au 20 pour cent.  Donc, ça pourrait aller plus vite ou moins vite, selon...

7011             COMMISSAIRE NOËL:  Exact, exact.   Ça peut jouer dans les deux sens.  C'est pour ça que je vous demandais si vous aviez évalué les deux, si vous aviez fait des calculs dans le temps pour voir si...

7012             M. BÉLAND:  Notre calcul n'est pas basé sur la...

7013             COMMISSAIRE NOËL:  ... si l'un ou l'autre avait le même impact au niveau de la clientèle?

7014             M. BÉLAND:  Notre calcul n'est pas basé sur la vitesse avec laquelle la déréglementation va arriver.  C'est plus basé sur notre croyance profonde qu'il faut que le titulaire perde une portion significative de sa clientèle avant de permettre l'abstention.

7015             COMMISSAIRE NOËL:  Et si je comprends bien, le critère alternatif que vous nous proposez, c'est le C.R.I.L., la région d'interconnexion locale, au point de vue géographique?

7016             M. BÉLAND:  On vous propose le territoire dans son ensemble. 

7017             COMMISSAIRE NOËL:  Mais vous pourriez vivre avec.

7018             M. BÉLAND:  On vous indique que si vous choisissez l'autre, le pourcentage doit être plus élevé.

7019             COMMISSAIRE NOËL:  Le pourcentage doit être plus élevé, mais c'est en se fondant pour la zone géographique sur le C.R.I.L. et non pas sur les circonscriptions individuelles ou des zones d'appel local.

7020             M. BÉLAND:  Si vous voulez notre opinion sur ces deux possibilités-là...

7021             COMMISSAIRE NOËL:  Oui.

7022             M. BÉLAND:  ... je pourrais peut-être demander à mon collègue Philippe de parler un peu des circonscriptions.

7023             Moi, je dirais, prenons l'option des circonscriptions comme territoire de référence, moi, à mon avis, les circonscriptions téléphoniques, c'est un peu comme ZaZa Gabor.  

7024             COMMISSAIRE NOËL:  Comme?

7025             MR. BÉLAND:  ZaZa Gabor.  Do you remember ZaZa Gabor?  ZaZa Gabor was someone who was famous for being famous.

7026             COMMISSAIRE NOËL:  Ah! bon!

7027             MR. BÉLAND:  And telephone exchanges, they...

7028             COMMISSAIRE NOËL:  Ça ne s'est pas rendu jusqu'à Montréal.

7029             MR. BÉLAND:  Telephone exchanges, they're relevant because they're relevant.  What I mean by that is like ZaZa, you would be less and less interested in what is happening with her life, but she would keep popping up on Entertainment Tonight every once in a while because she was famous for being famous.

7030             COMMISSAIRE NOËL:  C'est parce que vous regardez la télévision en anglais, vous, monsieur Béland.

7031             M. BÉLAND:  C'est ça.  And telephone exchanges are like that, they were created at a point in time, they had relevance at that point in time, they keep popping up for different regulatory reasons, but they really have no relevance any more to anything meaningful.

7032             Je pourrai demander à Philippe d'expliquer un peu la pertinence des circonscriptions pour notre réseau.

7033             M. WAUTHY:  Les circonscriptions téléphoniques sont un héritage du passé qui reflète le déploiement des réseaux téléphoniques dont ils se faisaient au milieu du siècle dernier et c'est encore ce qui dicte finalement nos interconnections principalement, basé sur ce découpage historique.

7034             Force est de constater que c'est devenu un paradigme puisque pour la population en général, ça a bien peu de signification d'appartenir à la circonscription téléphonique de Montréal si j'habite dans Notre-Dame-de-Grâce ou de Dorval si j'habite à trois kilomètres de là.

7035             Et les contraintes associées à la portabilité des numéros, si on avait, par exemple, à déployer un réseau téléphonique aujourd'hui, probablement que ce ne serait qu'une seule grande circonscription sur l'ensemble du territoire.

7036             COMMISSAIRE NOËL:  Vous êtes trop jeune pour vous rappeler de Hunter puis Crescent.

--- (Rires / laughter)

7037             M. BÉLAND:  Puis en terme de marketing, de services, en terme de comportement de clients dans un environnement, de mobilité, de nomadicité, et caetera, et caetera, les circonscriptions téléphoniques, au fond, n'ont aucune pertinence pour un réseau moderne, à part le fait qu'elles existent.

7038             COMMISSAIRE NOËL:  Et la zone d'appel local, qu'est-ce que vous en pensez?

7039             M. BÉLAND:  Comme il y a d'autres intervenants qui l'ont expliqué, ça a peut-être plus d'attrait comme ensemble géographique naturel, sauf qu'il y a des problèmes administratifs reliés au fait qu'il y a des chevauchements, et caetera.

7040             Donc, ça semble être moins facile à adopter comme entité d'absentium.

7041             COMMISSAIRE NOËL:  Maintenant, si on essaie de définir le marché par rapport aux produits plutôt que le marché géographique comme on a fait depuis tout à l'heure, au paragraphe 14 de votre argument final du 15 septembre 2005, vous dites que le marché d'affaires que vous considérez comme un marché distinct... que vous considérez que le marché d'affaires est... -- je vais remettre mes lunettes, je vais peut-être capable de me lire -- que vous considérez comme un marché distinct du marché résidentiel, le marché d'affaires.

7042             Est-ce que vous êtes d'avis qu'il devrait être segmenté? 

7043             Alors, vous voyez deux marchés, vous, quant aux produits : le marché d'affaires et le marché résidentiel.  Est-ce que vous pensez que le marché d'affaires devrait être segmenté de façon plus pointue, un peu à la manière dont Aliant le caractérise; c'est-à-dire service d'affaires de base, monolignes, services multilignes Centrex pour partie d'entreprise dans la première catégorie.  Deuxième; le Centrex pour entreprises moyenne, soit de 31 à 1 500 accès.  Centrex pour les grandes entreprises à plus 1 500 accès et les circuits numériques.

7044             Est-ce que vous voyez un avantage ou un désavantage quelconque à segmenter plus avant le marché d'affaires, en terme de segment de marché?

7045             M. BÉLAND:  C'est une idée qui semble avoir un certain attrait.  Nous, on aurait deux inquiétudes quand même par rapport à cette idée.

7046             Premièrement, aussitôt qu'on commence à segmenter trop les marchés, on augmente les possibilités de ciblage, de stratégie, d'attaque ciblée de la part des titulaires.

7047             Deuxièmement, je ne suis pas sûr que les lignes qu'on pourrait tracer entre ces segments-là du marché des affaires sont si claires que ça.

7048             Donc, il y a probablement énormément de chevauchement entre ces trois ou quatre catégories et disons qu'il y en a une qui est déréglementée avant une autre, ça ouvre des possibilités, je ne dirais pas... je n'appellerai pas ça du gaming nécessairement, mais disons des incitatitifs.

7049             COMMISSAIRE NOËL:  Du "twickage".

7050             M. BÉLAND:  Des incitatifs à déplacer des clients d'un marché à l'autre, selon est-ce que c'est réglementé ou déréglementé.

7051             COMMISSAIRE NOËL:  D'accord.  Maintenant, juste question de produits aussi.  Qu'es-ce que vous pensez de la proposition de la Commissaire à la concurrence de marché des premières lignes, des deuxièmes lignes?

7052             On a tous entendu les propos de Rogers à cet effet-là et d'autres intervenantes, mais qu'est-ce que vous pensez, vous, de diviser le marché entre un marché... on parle du marché résidentiel là, entre un marché de la première ligne puis la deuxième ligne?

7053             M. BÉLAND:  Encore une fois...

7054             COMMISSAIRE NOËL:  Je pense qu'en quelque part dans votre texte vous nous répondez de façon assez claire là-dessus, mais je voulais juste que vous nous le précisiez.

7055             MME BROUILLETTE:  En fait, si vous me permettez, c'est clair que d'un point de vue commercialisation d'un produit, on branche des maisons.  Donc, c'est clair que cette notion-là pour nous, de la manière que... en fait, les sondages, ce qu'ils nous ont démontré, c'est que la deuxième ligne, souvent c'est perçu comme une option.

7056             Donc, nous, on attaque vraiment des foyers.  Alors, je pense que le marché c'est dans cet ensemble-là qu'on devrait le voir.

7057             COMMISSAIRE NOËL:  Et ce que vous nous avez dit, que monsieur Gingras nous a dit au début, c'est que la majorité de vos clients ont substitué totalement le service de Bell au service de Vidéotron.  C'est ça?

7058             MME BROUILLETTE:  Tout à fait, oui.

7059             COMMISSAIRE NOËL:  Madame Brouillette, j'avais une question que je voulais vous poser et ça vient de m'échapper, mais ça va revenir.  Ah! oui, c'est ça.

7060             Par opposition à COGECO et Rogers, vous avez décidé d'offrir votre produit sur une base de... passez-moi l'expression, "stand-alone" et d'offrir des options qu'on peut greffer à son choix.

7061             Est-ce qu'il y avait... quel avantage voyez-vous à cette façon de procéder par rapport à une offre de service où on offre un produit tout enrobé?

7062             MME BROUILLETTE:  En fait, il y a différents éléments à l'intérieur de ça.  Si on regarde la stratégie de fond de Vidéotron, l'ensemble de nos produits, de la façon dont on bâtit nos offres, c'est vraiment à la carte.

7063             Si on pense, entre autres, à la télé-distribution, nous sommes le seul câblo-distributeur à offrir des packages donc de chaînes à la carte.  Le consommateur peut choisir via la Grille de canaux et se monter sa propre offre de service.

7064             Si on parle, entre autres...

7065             COMMISSAIRE NOËL:  En numérique.

7066             MME BROUILLETTE:  Pardon?

7067             COMMISSAIRE NOËL:  En numérique?

7068             MME BROUILLETTE:  En numérique, tout à fait.  Mais lorsqu'on regarde Internet, encore là, on offre des packages, par exemple, de vitesse sur demande, donc encore là, dépendant du besoin du consommateur, c'est le besoin d'accéder à un débit plus rapide pour une certaine période -- on parle, entre autres, 48 heures -- il peut acheter à la carte justement le niveau de débit dont il a besoin.

7069             Alors, lorsqu'on a planifié la tarification dans notre service de téléphonie, c'est clair qu'il est important pour nous d'être en lien avec cette stratégie de fond et l'ensemble des sondages qu'on a effectués avant de déployer le produit ont démontré que le consommateur, il voulait avoir le choix.

7070             Donc, effectivement, on est allé vers une approche d'une ligne résidentielle de base et à ça peuvent s'ajouter des services.

7071             On croit que le consommateur est plus libre dans ce cas-là et, à prime abord, c'est ce qui semble faire le succès dans notre offre.

7072             COMMISSAIRE NOËL:  Oui, parce que vous avez quand même un rythme de croissance assez impressionnant.

7073             MME BROUILLETTE:  Assez intéressant.

7074             COMMISSAIRE NOËL:  Monsieur Gingras, vous nous avez parlé des coûts irrécupérables dans votre présentation de cet après-midi. 

7075             J'aimerais ça entendre vos commentaires sur la proposition de la Commissaire à la concurrence à l'effet qu'une des conditions du test qu'elle applique, elle, dans ses propositions serait que les coûts variables de la fourniture sur les deux réseaux sont semblables ou que le coût du nouveau venu est inférieur et la capacité d'aucun des deux réseaux n'est limité.

7076             Qu'est-ce que vous pensez de ce test qui est proposé par la Commissaire à la concurrence?

7077             M. GINGRAS:  Je trouve que c'est quand même un exercice assez fastidieux à démontrer et s'assurer qu'on compare les mêmes choses, surtout que je pense dans les deux cas les réseaux -- en tout cas, dans le cas de Vidéotron on transporte un ensemble de produits et services dans le même réseau avec des services à la clientèle groupés --  ça fait que déterminer ou d'identifier des coûts variables propres à un produit est un exercice qui demanderait énormément d'allocation, somme toute, arbitraire.

7078             COMMISSAIRE NOËL:  En ressources.

7079             M. GINGRAS:  C'est-à-dire c'est assez difficile de prédire un résultat et d'en faire un élément pertinent.  Je pense qu'au bout de la ligne, c'est la part de marché et la pénétration réelle sur le marché qui va dire si on est un concurrent crédible ou non.

7080             COMMISSAIRE NOËL:  D'accord.  Maintenant, dans un tout autre ordre d'idée, les compagnies -- appelons-les *les compagnies+, c'est-à-dire Bell et Télébec, ont soumis que dans certains pays européens et de l'hémisphère sud, notamment la Nouvelle-Zélande et l'Australie, on avait... on était passé d'une réglementation des tarifs de détail à une réglementation des tarifs de gros.

7081             Est-ce que vous pensez que c'est une solution qui est envisageable?

7082             M. BÉLAND:  Pour répondre tout simplement, la revente, parce que c'est ça la réglementation des tarifs de gros, c'est quelque chose qui facilite la revente puis la revente, ça ne nous intéresse pas ni Vidéotron Télécom ni Vidéotron fait de la revente.  Ce sont des compagnies dédiées à "facilities-based" 100 pour cent.

7083             Donc, j'ai entendu lors de cette audience, par exemple, je crois que c'était la première journée, le commentaire retourné à la problématique des poches de clients orphelins, j'ai entendu un intervenant qui a dit, mais le câblo qui a ces poches-là, il va juste louer quelques books locaux de la compagnie titulaire puis il va remplir ses poches-là.

7084             Le business de location de book local, Sprint Call-Net, Rogers Telecom, son nom actuel, il...

7085             COMMISSAIRE NOËL:  Il va peut-être changer de nom encore.

7086             M. BÉLAND:  ... il pourrait vous en parler.  Ce n'est pas un business qu'on décide de lancer parce qu'on a une poche à remplir dans son réseau.

7087             Nous, si on nous disait demain qu'on doit embarquer dans la location de book local, moi, la première chose que je ferais, ce serait d'aller demander à Ken Engelhart si je peux engager l'équipe réglementaire de Rogers Telecom, c'est la première chose.

7088             Ensuite, on engagerait l'équipe d'ingénieurs de co-localisation de Rogers Telecom.  C'est une grosse démarche de se lancer dans la revente de télécommunications de book local et ça ne nous intéresse pas.

7089             COMMISSAIRE NOËL:  Est-ce que... vous avez fait allusion, monsieur Gingras, à la présence il y a à peu près un an de monsieur Gouin à cette tribune dans le cadre du dossier de la voix sur IP.  Je me rappelle de ses remarques préliminaires qui étaient assez cinglantes sur ce qu'il pensait de la revente, si je me rappelle bien, on parle de pique-assiette et preneur de marché, est-ce que ça se peut que ma mémoire soit fidèle?

7090             Je n'ai pas le transcript devant moi, c'est de mémoire.

7091             M. GINGRAS:  Je pense que l'idée générale est assez fidèle.

--- (Rires / laughter)

7092             COMMISSAIRE NOËL:  C'était justement à cet effet-là que je lui avais demandé s'il avait mangé du lion pour son petit déjeuner parce que...

7093             Alors, si je comprends bien, vous ne croyez pas que la revente, même si c'est pas vous qui deviendrait le locateur d'un book local pour compléter le trou dans votre réseau, mais que ça soit un revendeur qui fonctionne comme revendeur sur une base générale, vous ne croyez pas à la revente dans l'équation pour la concurrence.

7094             Ou si vous voyez une possibilité que, par exemple, de la voix sur IP indépendante de l'accès soit une façon de faire baisser les parts de marché de la titulaire?

7095             M. GINGRAS:  Bien, la technologie de la voix sur IP va être sans doute une avenue beaucoup plus simple.  Pour notre part, à l'heure actuelle, on doit dire qu'on est fortement orienté sur le déploiement actuel d'une stratégie facility base.

7096             COMMISSAIRE NOËL:  Maintenant, il y a plusieurs intervenantes qui nous ont parlé d'au moins trois entreprises dotées d'installations pour être un des éléments déclencheurs d'un test d'abstention de réglementation.

7097             Est-ce que vous pensez que le marché est capable d'absorber trois concurrents dotés d'installations dans le même marché ou si vous croyez que deux concurrents dotés d'installations c'est suffisant?

7098             M. GINGRAS:  Je pense que deux concurrents dotés de facilités, c'est une question de fait aujourd'hui qu'il n'y a pas beaucoup d'autre alternative, c'est-à-dire en terme de facility base.

7099             COMMISSAIRE NOËL:  On ne sait jamais.

7100             M. GINGRAS:  Maintenant, on parle beaucoup d'émergence de nouvelles technologies, du WiMAX, de voix sur IP,  fait que tous ces produits-là, toutes ces offres-là vont être aussi des choses accessibles sur le marché qui va laisser quand même un choix.

7101             COMMISSAIRE NOËL:  Est-ce que vous croyez que, éventuellement... on a entendu hier les entreprises Utilities... UTC, Utilities Telecommunications of Canada Competitors, qui est venu nous parler.

7102             Est-ce que, à votre connaissance, Hydro-Québec, au Québec entre autres, s'enligne vers une participation dans le marché de la téléphonie?

7103             M. GINGRAS:  Hydro-Québec regarde actuellement ses options pour l'accès Internet.  Une fois cette chose-là fait sur l'accès Internet, est-ce qu'ils vont prendre la décision d'y ajouter une voix sur IP par-dessus?

7104             Je pense qu'on est... je sais qu'Hydro-Québec examine leurs options face aux technologies nouvelles sur les lignes d'alimentation électrique.

7105             COMMISSAIRE NOËL:  Émergentes.  Je vous remercie.

7106             Maintenant, peut-être que j'aimerais juste avoir vos commentaires très rapidement sur les mesures de protection en matière de concurrence, soit les promotions et les reconquêtes. 

7107             Est-ce que vous pensez qu'une fois l'abstention de réglementation enclenchée, qu'on doive maintenir ces mesures de protection ou si vous voyez une fenêtre de temps sur laquelle devrait être *phase out+?

7108             M. BÉLAND:  Vous parlez précisément de l'idée d'une période de transition où ces mesures sont affaiblies...

7109             COMMISSAIRE NOËL:  Oui, oui.

7110             M. BÉLAND:  ... progressivement avant l'abstention?

7111             COMMISSAIRE NOËL:  C'est ça.

7112             M. BÉLAND:  Manon pourrait peut-être répondre à ça.

7113             MME BROUILLETTE:  Bien, écoutez, pour être bien franche avec vous, j'ai vraiment, moi, le sentiment qu'on est déjà en période de transition.

7114             On regarde, tout à l'heure, on vous a présenté une offre qui a été fait récemment.  Cette même offre-là a été déployée quelques semaines après notre déploiement de notre service de téléphonie dans la région de Québec.

7115             Donc, on voit que Bell est déjà actuellement bien équipée pour faire face à notre entrée en téléphonie via des offres très agressives dans les autres secteurs produits qu'ils ont.

7116             En parallèle à ça, on a constaté lors de nos différents déploiements régionaux que Bell avait... très rapidement pouvait se retourner et faire des investissements publicitaires massifs pour nous contrer.

7117             Si on prend l'exemple de la rive sud, lorsqu'on a déployé le 24 janvier, deux semaines après Bell avait nolisé l'ensemble des panneaux d'affichage collés à nos panneaux de Vidéotron et l'ensemble des journaux locaux, avec une campagne qui discréditait directement notre produit.

7118             COMMISSAIRE NOËL:  Ça devait être les journaux de Transcontinental.

7119             MME BROUILLETTE:  Je ne répondrai pas à ça. 

7120             Par ailleurs, ils ont récemment lancé des produits de Voice over IP.  Donc, j'y crois, pour être une fille de marketing, je ne vous cacherai pas que, actuellement, Bell est un compétiteur direct en téléphone et ce ne sont pas seulement une entreprise monopolistique de laquelle on doit aller chercher des clients.  On doit garder nos clients parce que, actuellement, ils sont très agressif sur le marché.

7121             COMMISSAIRE NOËL:  Est-ce que vous avez expérimenté, parce que ça fait déjà quand même neuf mois que vous êtes...

7122             MME BROUILLETTE:  Bien, huit mois, oui.

7123             COMMISSAIRE NOËL:  ... huit mois, oui, le 24 janvier, huit mois que votre produit est sur le marché.  Est-ce que vous avez ressenti ce qu'on appelle ici dans notre jargon le *turn+?

7124             MME BROUILLETTE:  Bien, en fait, c'est clair que j'ai eu certains indicateurs dans mes autres produits.  Ceci étant dit, pour la téléphonie, il est un peu tôt pour être en mesure de tirer des conclusions de substance parce que, effectivement,  fait seulement huit mois.

7125             Ce qu'il ne faut pas oublier, c'est que sur le territoire de la province de Québec, on a une situation particulière dans le temps juillet-août, en fait, juin, juillet, août...

7126             COMMISSAIRE NOËL:  Oui.

7127             MME BROUILLETTE:  ... qui vient influencer vraiment les données.

7128             COMMISSAIRE NOËL:  On connaît ça.

7129             MME BROUILLETTE:  Donc, c'est clair que, nous, on attend vraiment d'avoir une année complète pour être en mesure de tirer des conclusions importantes face à ça.  Donc, je ne saurais vous répondre à l'heure actuelle.

7130             COMMISSAIRE NOËL:  Juillet, le 1er juillet, la grande transhumance.

7131             Maintenant, questions qui ont été soulevées par ARCH, c'est-à-dire la disponibilité de services pour les personnes qui souffrent de handicaps.  Est-ce que votre offre de service répond à ces exigences-là ou à ces demandes?

7132             M. BÉLAND:  Notre offre de services pour le moment est pas mal alignée sur le service de Bell.  Il ne faut pas s'en cacher.

7133             Ceci étant dit, c'est sûr que les technologies IP en général offrent beaucoup de potentiel en ce qui concerne les nouveaux terminaux, les nouveaux modes de transmission, et caetera pour les personnes avec difficulté.

7134             Nous, on n'est pas sûr, honnêtement, que c'est la matière à cette audience de regarder ces questions d'accès-là.  L'important pour vous, présentement, c'est probablement de garder vos pouvoirs selon la Loi, pour pouvoir imposer des conditions sociales aux joueurs.  D'ailleurs, on n'a pas...

7135             COMMISSAIRE NOËL:  Et, d'après vous, ça devrait être à tous les joueurs?

7136             MME BROUILLETTE:  D'ailleurs, on n'a pas de problème à ce que ce genre d'obligation sociale soit imposé de façon non discriminatoire, si je peux dire, entre compagnies, entre LEC, mais de là à parler spécifiquement des besoins puis quelle technologie pourrait répondre à ces besoins-là, on n'est pas sûr que c'est vraiment le forum ici pour répondre à ça.

7137             COMMISSAIRE NOËL:  D'accord.  Mais peut-être juste une question de savoir, vous me dites que les terminaux ont des capacités plus raffinées pour adresser les problèmes de certaines personnes qui souffrent de handicaps.

7138             Est-ce que vous avez l'intention, puis je pense que je m'adresse à madame Brouillette, éventuellement, de faire savoir aux diverses associations, par exemple, que ce soit les mal-entendants, les mal-voyants, et caetera, quelles sont les caractéristiques propres à votre offre de service qui puissent combler certains besoins qui sont mal servis par le bon vieux téléphone noir?

7139             MME BROUILLETTE:  C'est clair que notre objectif, c'est vraiment de répondre à 100 pour cent des attentes de notre clientèle.  Si c'est une grosse démarche d'entrer en téléphonie, donc, on procède actuellement progressivement.

7140             Notre produit à l'heure où on se parle est sensiblement comparable au produit de Bell.  Donc, il répond à certaines obligations.

7141             Ceci étant dit, on va évoluer avec le temps et se conformer davantage à l'ensemble de ce que nos clients demandent.

7142             COMMISSAIRE NOËL:  Moi, ce sont mes questions, monsieur le président.  Merci beaucoup, madame, messieurs.

7143             LE PRÉSIDENT:  Merci.  Monsieur le vice-président Arpin. 

7144             COMMISSAIRE ARPIN:  Aujourd'hui, on a entendu les comparutions de COGECO, de Shaw, de Rogers, qui nous ont fait part de leurs difficultés avec les entreprises titulaires dans leurs secteurs.

7145             Vous, si vous nous dites, monsieur Gingras, que vous êtes capable d'accommoder 5 000 clients par semaine, est-ce que vous avez des difficultés avec... parce que vous avez un lien d'interconnexion quand même avec les entreprises titulaires.

7146             Incidemment, qui est votre fournisseur d'interconnexion?

7147             M. GINGRAS:  Nous, on est parti d'une compagnie soeur qui est Vidéotron Télécom qui est un CLEC, lequel a grandement facilité notre classement de téléphonie qui avait déjà en place une infrastructure, une multitude de points d'interconnexion.

7148             Ça fait que les ajouts pour couvrir l'ensemble du réseau qui n'était pas nécessairement par Vidéotron Télécom, naturellement on fait face aussi à des échéanciers et des délais dans l'obtention de ces choses-là.

7149             Alors, en ce qui a trait à la portabilité des numéros, on a eu des issues de temps à autres, on les a réglées, ça fait que, généralement, les choses... on a réglé nos problèmes en cours de route.

7150             On demeure, cependant, toujours fortement dépendants du titulaire.  On doit négocier, argumenter et s'assurer qu'on procède, mais à date on a réussi à le faire sans entrave majeure. 

7151             On a des inconvénients, comme le 1er juillet qui est la plus grosse période de déménagement au Québec, bien on ne peut pas faire de portabilité parce que les switches de Bell sont fortement sollicitées aussi,  fait qu'ils se servent en premier.    Ça fait que, nous, ça pose un problème de déménagement pour nous, ça fait que partout on est... on vit tout de même la même situation de dépendance, mais, somme toute, on n'est pas dans une situation où on a des problématiques majeures.

7152             COMMISSAIRE ARPIN:  Merci.  C'est tout.

7153             LE PRÉSIDENT:  Merci.  Madame la conseillère Cram.

7154             COMMISSAIRE CRAM:  Bonjour.  Je vais parler en anglais, s'il vous plaît, parce que je suis gênée de parler en français.

7155             I wanted to ask, you were very articulate in your first brief about winbacks and if I gave you three choices, I want you to tell me which is your first choice.

7156             We would do as PIAC suggested, we would allow winbacks at 80 percent and then, deregulate later at 70 percent, as choice number 1, so winbacks first.

7157             Choice number 2 is allow the ILECs to have winbacks at the same time their prices are deregulated or Choice number 3, allow deregulation first and winbacks later.

7158             So, which of the three would you choose and why?

7159             MR. BÉLAND:  It's interesting that we just described our menu self-serve approach to services and the Commission is giving us a self-serve approach to the regulatory framework, it's interesting.

--- (Rires / laughter)

7160             MR. BÉLAND:  Tough question.  Manon will probably want to expand, but I think the principal point I would make in response to what you're saying is that we would rank, in terms of the tools that the ILEC can use to target us, and if I can use the word "abuse us", winbacks ranks very high for them as an effective tool because you look at the offer we show attached to our presentation...

7161             COMMISSIONER CRAM:  And I want it, but I noticed it expired.

7162             MR. BÉLAND:  ... $100.00 in gas; maybe $200 in gas next week.  If you can take that sort of offer and target it down to calling the people who have left you and offering them their free terminals and their gas and they're throwing a cell phone, that becomes -- and with the financial power of Bell behind that, it's almost impossible to fight that.

#                So, you know, I would say that I would rank your options the most favourable to us is keep that winbacks in place for a good long time.

7163             MME BROUILLETTE:   Je suis entièrement d'accord avec toi, Dennis, et ça m'amène à revenir sur un point du début, lorsqu'on parlait du territoire de Bell versus notre territoire.

7164             Je pense que ce qu'il faut prendre en considération, c'est que si nous sommes un petit joueur lorsqu'on parle de territoire, comparativement au titulaire, lorsqu'on parle de winbacks eh! bien, ils peuvent prendre le pouvoir financier qu'ils ont à l'extérieur de notre territoire pour financer des offensives très agressives et pour venir nous attaquer.

7165             Donc, c'est clair que le winback actuellement pour nous c'est... bon, premièrement, on vit avec, c'est une réalité.  Je pense que tous les représentants vous ont amené quelques exemples de ce qu'ils ont vécu.  On a déjà de la difficulté à faire face à ça.

7166             Alors, imaginez s'il n'y a pas de réglementation en place, on va être encore plus mis en problème.  Donc, je pense que le winback, effectivement, c'est la chose à préserver.

7167             M. BÉLAND:  I would also point out that $200.00 in gas is worth more today than it was four months ago.  That's a deal.

--- (Rires / laughter)

7168             COMMISSIONER CRAM:  Less, yes.  Can a person get your Voice over IP without getting your high speed internet?

7169             MME BROUILLETTE:  Oui, définitivement.

7170             COMMISSIONER CRAM:  Oui.  Okay.  So then you would be able to sell it to all the 50 percent penetration?

7171             MME BROUILLETTE:  Oui, tout à fait.

7172             MR. BÉLAND:  To all the 100 percent of people who got the cable access.

7173             COMMISSIONER CRAM:  Yes.  O.K.  Merci bien, monsieur le président.

7174             LE PRÉSIDENT:  Merci.  Madame Pennefather?

7175             COMMISSIONER PENNEFATHER:  Merci, monsieur le président.  Juste pour clarifier. 

7176             Madame, vous venez de parler d'une période tantôt, d'une période de transition comme si on est là-dedans dans le moment.  Dans ce sens-là, madame Cram vous a demandé que pendant cette période-là de transition, est-ce que vous prévoyez des changements, si on retient winback, promotions, et ces aspects-là, est-ce qu'il y a d'autres éléments auxquels on peut toucher?

7177             Parce que je prends pour acquis que votre seuil c'est 20 pour cent et après ce 20 pour cent, c'est possible d'aller de l'avant et il n'y aura plus de safeguards, comme on dit en bon anglais.

7178             Est-ce que j'ai bien saisi votre position?

7179             MME BROUILLETTE:   Si on ramène ça à ce pourcentage-là, on s'entend que la 20 pour cent, c'est en fonction du territoire global.  Il faut revenir sur un 30 pour cent si on vient sur un territoire plus restreint.

7180             Ceci dit, tout à l'heure, ce que je faisais référence, j'ai le sentiment qu'on est en période de transition, mais c'est clair que ce n'est pas vers là qu'on veut aller.

7181             Ceci dit, si on y va par une démarche de dire winbacks versus déréglementation, j'opterais pour dire le minimum requis serait 20 pour cent, par la suite on commence à déréglementer le winback et ensuite la tarification.

7182             COMMISSAIRE PENNEFATHER:  Mais tantôt aussi, je pense que vous avez dit, je ne sais pas qui, que vous ne voulez pas parler d'une période de temps.  Vous parlez plutôt d'un 20 pour cent part de marché comme trigger pour vraiment cette décision.

7183             Mais est-ce que vous pouvez nous donner une certaine idée de quant ce moment sera devant nous, le 20 pour cent, ou est-ce qu'on continue dans une... en effet, une réglementation?

7184             M. GINGRAS:  C'est un petit peu difficile même pour nous de prédire ce comportement-là.  On pense ou on sait qu'il y a un certain nombre de clients du titulaire qui attendaient une alternative.  Il y en a une aujourd'hui.

7185             C'était la question qu'on se posait aussi initialement lors du lancement du produit, à quelle vitesse, les gens qui ont un intérêt à quitter le titulaire, à quelle vitesse qu'ils vont se manifester et comment va se répartir cette clientèle-l<.

7186             Ça fait qu'on a... on ouvre un territoire, un boom, ça redescend après, l'historique est relativement courte, donc quelle est la preuve, quel va être la vitesse qu'on va réellement croire une fois qu'on va avoir ramassé ce qu'on peut appeler *la clientèle facile à obtenir+ qui n'attend qu'une alternative? 

7187             Il y en a un certain nombre, une fois passé ça, à quelle vitesse va être la croissance, je pense qu'il est trop tôt, on ne le sait pas encore.

7188             COMMISSAIRE PENNEFATHER:  Merci.  Merci beaucoup, monsieur le président.

7189             LE PRÉSIDENT:  Merci.  Monsieur Arpin.

7190             M. ARPIN:  Vous revenez toujours sur le territoire de la titulaire.  Si je me limite au territoire du Québec, est-ce que vous avez des... parce que vous êtes exclusivement au Québec, est-ce que vous avez des cartes superposées qui démontreraient votre territoire par rapport au territoire de la titulaire et si vous en avez, pouvez-vous les déposer sous pli confidentiel?

7191             M. BÉLAND:  Nous avons fourni, en réponse à un interrogatoire, je n'ai pas le numéro devant moi, une carte de notre réseau, mais ce n'était pas superposé sur les C.R.I.L. ou les circonscriptions des compagnies de téléphone.

7192             On pourrait essayer de le faire dans un sens pratique.  Je ne sais pas si on a les moyens cartographiques pour le faire, mais, oui.

7193             MME BROUILLETTE:  Oui, on pourrait faire ça, oui.

7194             M. BÉLAND:  On pourrait vous produire une telle carte et vous allez voir d'ailleurs que notre couverture de réseau de câble touche aussi les territoires de Télébec et de Telus Québec.

7195             LE PRÉSIDENT:  Messieurs, madame, est-ce que vous étiez  présent pendant la présentation de Rogers ce matin?  Oui?

7196             M. BÉLAND:  Oui.

7197             LE PRÉSIDENT:  Est-ce que vous avez obtenu une copie de leur présentation orale?  Il y a un attachement là à cette présentation de Bell.  Est-ce que vous l'avez devant vous?

7198             MME BROUILLETTE:  Vous parlez de la carte?

7199             LE PRÉSIDENT:  Pas la carte; un attachement d'un message qui... oui, c'est ça.

7200             MME BROUILLETTE:  C'est une promotion, oui.

7201             M. WAUTHY:  Mais ce n'est pas une promotion, c'est un...

7202             MME BROUILLETTE:  Bien, une note, un contact.

7203             COMMISSAIRE NOËL:  C'est une petite carte de monsieur Blouin.

7204             LE PRÉSIDENT:  Un attachement.

7205             COMMISSAIRE NOËL:  C'est une carte de monsieur Blouin.

7206             LE PRÉSIDENT:  L'attachement 1, oui.  Est-ce que vous avez vu la même sorte de carte chez vous à Québec?

7207             M. BÉLAND:  Oui.  Nous avons même déposé une application Partie 7, concernant ce qu'on considère comme étant une tentative de reconquête.  Donc, je ne suis pas sûr que c'est le moment approprié pour en parler.  C'est devant le...

7208             LE PRÉSIDENT:  Je ne pense pas.

7209             M. BÉLAND:  ... c'est devant le Conseil.

7210             LE PRÉSIDENT:  Merci.  Monsieur le conseiller juridique.

7211             MR. WILSON:  Sorry.  Just one quick question, Mr. Chairman, with respect to the information that Vice Chairman Arpin asked.

7212             Can you just give us some sense of when you will be able to file that with the Commission?

7213             MR. BÉLAND:  And perhaps we should clarify as well.

7214             Votre désir, monsieur Arpin, ça serait de superposer notre couverture sur les circonscriptions ou les C.R.I.L. des compagnies titulaires?

7215             COMMISSAIRE ARPIN:  Mais, vous, vous avez parlé du territoire de la titulaire, donc c'est l'ensemble de C.R.I.L., c'est comme ça que vous l'avez défini?

7216             M. BÉLAND:  Oui.  O.K.  Donc, notre territoire versus le territoire des titulaires.

7217             COMMISSAIRE ARPIN:  C'est ça.

7218             M. BÉLAND:  Une semaine, si possible?

7219             COMMISSAIRE ARPIN:  Merci, monsieur le président.

7220             LE PRÉSIDENT:  Merci beaucoup.  Ce sont nos questions.

7221             Madame la secrétaire.

7222             LA SECRÉTAIRE:  Merci beaucoup, monsieur le président.

7223             We will now proceed with panel No. 18, EastLink Telephone.

7224             THE CHAIRPERSON:  Did you call this item?  I think you did.

7225             THE SECRETARY:  Yes.

7226             THE CHAIRPERSON:  Please proceed.

‑‑‑ Pause

PRESENTATION / PRÉSENTATION

7227             MS MacDONALD:  Good afternoon, Mr. Chair, Commissioners.  My name is Natalie MacDonald and I am the Director of Regulatory Matters at EastLink.

7228             With me is Lee Bragg, Co‑CEO of EastLink.

7229             We are here today to provide our comments on a proceeding that has the potential to significantly impact the future of competition in local exchange markets.

7230             EastLink is one of the first CLECs to provide a competitive residential local telephone service and it is the first to do so over its cable network.  We have made significant investments in order to provide this service and have forced challenges at various steps along the way.  EastLink has played a significant role in contributing to the development of competitive local telephone options for consumers early on and through that early contribution has provided others with insight into the challenges of the business.

7231             EastLink was also the first company to offer bundled services to consumers and not long afterward the term "bundle" became a regular household name, with all ILECs now offering bundles to consumers.

7232             The importance of sustainable competition cannot be overstated.  Mere entry means nothing unless it is sustainable.  In EastLink's view, the Commission must always keep this objective in mind when analyzing the argument and evidence before it.

7233             EastLink proposes the following regime for determining future forbearance applications:

7234             1.  That the geographic market be no smaller than the province, at least in the Atlantic region.

7235             2.  That the forbearance determination be based on a two‑part test.  The first stage is a determination that the ILEC no longer serves at least 30 percent of the market.  The second stage requires an assessment of the ILEC's market power, which involves consideration of various factors.  Even with a loss of 30 percent of the market, an ILEC may still be in a position to unduly impair competition.

7236             If this stage 2 assessment indicates ongoing market power, then it will still be too early to forbear.  EastLink also proposes that the Commission consider the investment made by the entrant.  If the entrant has not had a decent opportunity to recover some of that investment, competition may not be sustainable.

7237             Sustainable facilities‑based competition can occur where efficient competitors are able to enter the market on a business case that makes sense; where competitors are able to respond to, and discipline, incumbent behaviour.

7238             This can only happen where the incumbent is faced with competitors who exist across a broader area.

7239             Some parties suggest that if the market is larger, then there will be some pockets of that area where no competition exists.  In EastLink's case, EastLink is offering service throughout Nova Scotia and Prince Edward Island, so we reach many rural areas.  If the test is properly defined, forbearance will occur only when the competition is pervasive enough throughout the market so that ILECs will be less likely to differentiate even in these smaller pockets.

7240             There is a greater risk in selecting a smaller geographic market because it gives Aliant (in our case) free reign to target smaller areas, while allowing it to justify its higher prices or its current prices in regulated areas.

7241             In EastLink's view, decisions should not be made solely on theories.  Instead, the Commission must look at the facts as they exist.  Various parties have presented theories about market dynamics, ILEC responses to competition and opinion on the potential or lack thereof of ILECs acting anti‑competitively.  While these theories may be useful to guide the Commission, the more important evidence in assessing how the ILECs will respond in a forborne environment is through past experience and an understanding of the current environment.

7242             For example, some ILECs say they need to be forborne soon or consumers will lose out.  They say there is evidence of competition and it is not fair to deny them the ability to compete without regulation.

7243             The facts are:

7244             Canadians experience some of the lowest telephone rates in the world.

7245             There has been very little growth in local telephone competition since the Commission set the landscape in Decision 97‑8.

7246             Earlier CLECs have gone out of business.

7247             The Commission created more rules because of the slow growth of competition and ILEC behaviour that impeded that growth.

7248             Companies need a viable business case to enter these markets, with an expectation that they will not be facing giant forborne ILECs very soon after entry.

7249             There are significant barriers to entry ‑‑ even after the initial investments are made.

7250             Consumers now have far more options today than they have had before.

7251             ILECs have significant flexibility in offering multiple services and packages today.

7252             The ILEC's business is not at risk if forbearance is not granted soon.

7253             These facts illustrate there is no real urgency at this time to grant forbearance.

7254             Second, the incumbents and their experts also argue that if a facilities‑based competitor has already entered the market, then it is unlikely to exit.  The Commission must not be convinced by this argument.

7255             The fact is that while EastLink may have spent the money to enter the market, there are ongoing costs and barriers to maintain this business and these costs continue when EastLink loses customers due to ILEC winbacks.

7256             If customers keep switching, an entrant may be less able to continue responding to the ILEC's pricing strategies, since it will continue losing money with little likelihood of keeping that customer in the long term.

7257             Even if the entrant does not exit the market, it may choose not to grow the business but instead to focus on other services.  Or it may choose to stop responding to ILEC targeting so the ILEC gains back most of the market.  If that happens, true competition would not really exist.

7258             Theorists suggest this will not happen, but it does happen in the real world.

7259             EastLink has, for example, turned off cable systems in some areas when a business was no longer economical.  To suggest that if an entrant goes out of business there will be another party to come and use that facility is also wrong.  Since cable companies would still operate the cable and internet business.  New entrants would have little incentive to enter and consumers will be less likely to switch after experiencing exit by others.

7260             There are dangers in presuming that an entrant who has built the facilities is secure when that entrant is facing a regional incumbent with size, scope and synergies across four provinces.  Aliant can use its resources across its entire region to target the subsets of its territory where a competitor exists.  The existence of a facilities‑based competitor does not negate the damage large incumbents, such as Aliant and Bell, can cause to them.

7261             Will Aliant engage in predatory behaviour?  We have every reason to believe it will.  The economic theory presented seems to suggest that predatory pricing would not be profitable since the ILEC would still need to recover these costs later.  We say this is not the case.

7262             If Aliant is able to target a very small area with deep discounts, it has already benefited by winning back those customers, maintaining prices for its services in other areas, limiting the likelihood of further customer losses by sending a message to EastLink that if there is a price war it will win every time and sending a message to potential entrants that entry will not be profitable.

7263             When Aliant wins back a customer from EastLink we have lost the costs incurred in initially gaining that customer.  In order to win that customer back or any new customer EastLink must be prepared to offer those customers a better deal and incur the administration, marketing and advertising costs to do so.  In many cases, the customers who leave the incumbent are price sensitive.  It is this price sensitivity that also makes these exact customers more inclined to switch back to the ILEC if faced with sweet deals and incentives.  There is little benefit of incurring such costs when those hard won customers will merely switch again when Aliant offers another deal, making ongoing responses to winback unaffordable.

7264             It is far easier for ILECs to engage in this behaviour if they are freed‑up to target smaller areas through deep discounts and winback activity.  Aliant's desire to engage in winback activity is obvious considering the various applications it filed for removal of winback restrictions and it has applied for promotions seeking to waive service charges of installs.

7265             The fact that Aliant wants to have forbearance on an exchange basis also illustrates a desire to target smaller areas.  Aliant is capable of offering reduced prices to its customers today and its choice not to file tariffs for lower prices is indicative that it would prefer to target this activity to smaller areas.  Again, facts and not theory are more telling in determining how ILECs will respond in a forborne environment.

7266             I now turn to Lee Bragg to speak generally about EastLink's business and the ongoing barriers to offering local phone service.

7267             MR. BRAGG:  Thanks, Natalie.  Good afternoon, Mr. Chairman and commissioners.  Thank you for the opportunity to be here today.  I somewhat feel like all this is a little bit of my fault, but I hope we can get over that.

7268             We looked at entering the local telephone market about six years ago and I myself built the business plan and there were some huge huge hurdles at that point in time.  Capital was the biggest issue, trying to get availability of funds to be able to invest in a new business opportunity like this and it took a ton of capital.  The majority of our banks who we were involved with and our other family members who were making the decisions thought we were a little crazy to attempt this.  The simple things of even trying to buy equipment from some of the vendors like Nortel, who were not used to dealing with private organizations they were, as Ken Stein talked at one time about the ILECs controlling the system, it even went as far down into controlling the equipment vendors, you know, who to the best of their ability had Chinese walls at the time to separate what different competitors are selling gear to, but it was very evident that that was a challenge.

7269             Even hiring the people, I mean we were cable guys, we didn't really know much about the telephone business.  We knew it was a potential opportunity, but we needed to be able to attract the right people to be able to run a telephone system let alone over a cable plant and in parts of those individuals that we had credibility, that we were going to be successful enough that, you know, to make a move and be employed by us was going to be a fruitful career.

7270             We had interconnect issues like everybody else early on with the ILEC, LD carriers, 9-1-1 service, others, I mean we were very early into this, so we were forging a lot of paths and there were a lot of challenges.  Again, it was tough but one of the biggest hurdles to overcome was the issue how will the ILEC react.  We understood at the time, you know, certainly there were much much larger than we were and had huge market dominance in this area and we felt, you know, there was a huge issue if they targeted against us, at our size, a simple thing of just making not only offers to the customers but offers to our key employees, we had identified that as a huge risk.  If they pulled a half a dozen key people out, I mean, we could not continue in the business.

7271             We knew they were bigger, deeper pockets controlled the market, but we got our heads around all those issues and we got our heads around the financial issues as well as the staffing, but it was still how are we going to get a foothold against this larger, well‑entrenched incumbent?  But, for this, we relied on the Commission's desire to develop a framework for the sustainable competition and local telephone market.  I mean, we knew that that was, you know, that was a desire for the country and for the Commission that, you know ‑‑ so there is an opportunity, there is some protection for us, there is how we can get into this business.

7272             We understood it was not a guarantee for success and we still have to run a quality system, provide good customer service, trucks have to show‑up on time, we have to give the customers a value proposition in order to come over to us and that part was certainly our job.  But we felt it was the Commission's job to create that environment and hold the incumbent at bay long enough for a competitor to gain that sustainable foothold.  I think sustainability is the key for this whole thing.  And I really don't think that that job is done, that really we have an environment to allow somebody to have sustainable competition.  We have heard from a lot of the other people about the targeted winbacks which are very dangerous in a small market, that the incumbents target against us.

7273             When I talk about sustainability, we have had great success ‑‑ I mean, a lot of people out there will talk about our numbers, we have great penetration in certain markets and certain issues but, I mean, really we have had success at entering the business and that is the key for us.  All we have done is we have entered the competitive telephone market and we have been at it for five years, but we still have relatively small market share compared to the people we are fighting against.  But successful entry is not really sustainability.  I mean, we need some time and we need a sizeable market share in order to have the incumbent respect, from a pricing and a targeting policy, that they can't just push us out.

7274             But again, all that being said, we are in the business now and we are continuing to deal with the high incremental capital costs to acquire and install each individual customer, the continued cost to operate the network ‑‑ it is not cheap to run, the people we had to hire are expensive ‑‑ and provide that reliable telephone service.  It is because of some of those high incremental costs and some of the targeting activity that we have seen that it is, you know, EastLink and myself are investors ‑‑ and a small number as they are ‑‑ we are very concerned about the possibility of the existing safeguards being removed, again we are not ready yet.

7275             The concept of forbearance based on the local exchange would be an absolute disaster for us.  It is far too small an area to measure when determining sustainable competition.  The size of the ILEC versus the competitor has to be considered.  I mean, there are unique situations around the country, but Aliant is a much much larger organization than we are and their ability to cross‑subsidize out of other markets to target on an exchange basis, to me, it is obvious.

7276             A 30 percent loss in any given exchange is not that material for them, given the size of some of the exchanges we are talking about.  They can easily target those customers with the promotions and winbacks, slowly win the customers back on an exchange by exchange basis.  We have talked a lot about predatory pricing.  I mean, are they going to go in and offer free service for year, which would be very obvious to win the customers back?  They don't need to do that.  They only need to offer something in the $10.00 or $15.00 a month ‑‑ if they get all their customers back in 10 years it is the same issue for me, I am out of business, maybe I am out of the telephone business.  It is the issue on that exchange that they can use those outside customers, outside to help balance off and target that area.

7277             It has been suggested that we can withstand more intensive marketing by the ILECs due to our sunk capital costs and that would mean we would not abandon the customers or shut systems off in a particular area if this is dropped, but that is absolutely not the case.  It is still a very fragile business opportunity for us and we will exit the telephone business if we don't think it has financial viability.  I mean, we went in it because we said well how are we going to grow our business, how are we going to provide more products and services to our residential customers?  Local telephony was obvious, but we are in business to make some money and if we are not making money there, we will focus our resources elsewhere.

7278             We are a cable company and we are not like a long distance carrier that sort of had a purpose ‑‑ one product network that if they went broke or went out of business somebody else could gather‑up that network and use the facilities to offer service again.  It is just bandwidth to me, I have lots of reasons to use that bandwidth.  If I can't operate the system and make a dollar or if I think, and that is the key issue, if it looks like the environment has changed such that I can't continue, we will stop, we will repatriate those channels, we will sell the switch, we will move on, we will sell more high speed internet and we will put more video channels on, that is a relatively easy decision.

7279             We had a loose discussion with our families, said well, you know, all the capital sinking into the telephone business, maybe we should go buy Bell shares or Bytel shares, I mean that is a way to be in the telephone business, but I would like to prefer ‑‑ we would be a better alternative.

7280             Telephone is a product and, you know, it is not the end of the world for us if we get out of it, it has to be a viable business.  We need a base of customers, to be able to hang onto that base of customers, to support our ongoing operational costs and that is sort of the foundation that we built the business on when we talk about, you know, why a 30 percent penetration in an individual exchange ‑‑ that is not a foundation to build a business on, that is just not enough.

7281             If we end‑up in a churn battle, moving customers back and forth, again, we will soon do the math and be out of the business because churn is a huge cost for us, again, due to the incremental capital costs and the ongoing operational costs of the customers.  We are in a very incremental business about how we acquire our customers.  It will be a business decision and no different than what Natalie talked about earlier.  I mean, we have shut cable systems off, we have handed in licenses, I mean we have done that and not at the point where we see we are losing money, we have done a couple of them when we see, you know, here is the trend, let us get out now while we can.  So we have ‑‑ I am not sure ‑‑ three licenses so far and hopefully no more.

7282             But that is the point, sustainability is the issue.  I want it, I mean, I think the Commission wants it, I know our customers want it, I am not so sure the ILECs want it, but in the long run I think it makes them better competitors as well to have sustainable competition.

7283             We exist in an environment now with very aggressive pricing.  We have a $9.00 local telephone offer on the table for some of our bundled customers.  We know Aliant has a $10.00 offer for wireless for bundle.  I mean, we use those individual prices to help attract customers within bundles and they are usually for a period of time, sometimes three months, sometimes six months, but that is pricing.  I mean, the pricing, the aggressive pricing doesn't bother me, it doesn't concern me.

7284             I mean ‑‑ I will get in trouble here ‑‑ but theoretically, they have some boundaries around their local telephone pricing, but when the put it in a bundle and they have a technical requirement to tie it to DSL and all their other products are tied to DSL, I mean, I have my head around that, it doesn't really matter.  I mean, that is just the price that is in the market, but it is across the entire market, I can deal with that.  It is the target marketing in a particular exchange, in an area of Truro or in Amherst or in Oxford where they can just go in and bang bang bang, hit individual customers and offer them and take them away and then, hey, it is a disincentive for me to go into other exchanges, but it is a disincentive for me to continue with the entire business.

7285             One of my comparisons was ‑‑ you know, early on I think they didn't take us seriously nor did others, and we got a certain amount of market share from whether it was, you know, we have talked about sort of the ILEC haters, there is 5 or 6 percent there, there is some very price sensitive people, there is students.  I mean, we climbed up and got through some hurdles I think before people really took us seriously about being in this business and that was the first few years.  But now, we are absolutely under the spotlight.

7286             What happens when you take it down to defining the market by the exchange is not only ‑‑ suddenly we go from being under a spotlight to a magnifying glass.  They can just take that magnifying glass underneath the spotlight and begin to focus on us.  It is just, I mean, it is like burning ants when you are a kid, that is what happens.  The spotlight we can deal with, because it across a wide enough market that we can handle that.  It gives them some market discipline about the promotions they have in the pricing.

7287             As I said earlier, the successful entry is not the same as successful sustainability.  I mean, we do not have the economic foothold right now to counter Aliant's market dominance and their economic power, their sheer size.  So, I mean, I am not an accountant or an economist or a lawyer, I am a businessman, we have heard lots of numbers and economic theory and comparisons to other markets and products, but at the end of the day it is ‑‑ you know, it has been eight years since the regulations have allowed somebody to enter into the business, there is only a minute portion across the entire market of competition and it is really ‑‑ it is just very early.

7288             So I am going to hand it back to Natalie to make a few more comments.

7289             MS MacDONALD:  The Commission should not debate on whether the ILECs ‑‑

7290             THE SECRETARY:  I am sorry, you are exceeding your allocated time.

7291             THE CHAIRPERSON:  Do you want to conclude in a few sentences please?

7292             MS MacDONALD:  Sure.  I guess the main point we have been making is after hearing all of this, you know, our position is that the Commission should not really be debating on whether the ILECs are going to engage in certain behaviour.  The real question is when they do it will competition be able to respond and that is really the point to be made.  There has been a lot of debate on will they do this and will they do that?  We know they are going to act to winback their customers and the question is will competition be able to respond to that?

7293             THE CHAIRPERSON: Thank you.  Commissioner Cram.

7294             COMMISSIONER CRAM:  Thank you.  I wanted to talk ‑‑ we heard a little bit from Telus the other day about how you launched and some of the choices you made in launching.  I mean, it was circuit switched and I will get to that later.  But you chose, I gather, to have all of the options in?

7295             MR. BRAGG:  That is right.  All the features bundled together.

7296             COMMISSIONER CRAM:  And one price?

7297             MR. BRAGG:  One price.

7298             COMMISSIONER CRAM:  Including long distance?

7299             MR. BRAGG:  No, we had a separate long distance deal, separate bill for long distance.

7300             COMMISSIONER CRAM:  Through a reseller?

7301             MR. BRAGG:  Through a reseller, that is right.

7302             COMMISSIONER CRAM:  And when did you first launch and then how did you expand?

7303             MR. BRAGG:  Our first launch area was Halifax in oh I would say half the city and then, you know, based on some success ‑‑ and when I say success, it wasn't so much success of gaining customers, it was success of just making it work ‑‑ then we sort of rolled out to the rest of the area of Halifax.  In the first year ‑‑ we had a unique market strategy ‑‑ the first year we sold it as a standalone service, we did not bundle it in and we targeted students.  I had a couple of reasons why I liked to do that.  Students tend to be very sensitive to price, I mean, they would rather buy a case of beer than buy voicemail, and they all go home at the end of the year, so if we really screwed it up we could start over again in the next year.

7304             So we felt it was a very flexible sort of customer base to use as a bit of a living trial to determine whether we could do this.  And again, there were all the issues of number portability, interconnect with the 9-1-1 guys, all that stuff that we had to solve, could we run it, could we keep the network up, I mean, network reliability was a big issue, but we did do that, launched in Halifax.  Didn't really gain ‑‑ I am not sure how many customers we had, 1,500 in the first year or something like that ‑‑ and then figured, you know, alright we know what we are doing now, it is time to roll this in.  We heard always from customers, why can't I get everything for $100.00, why can't we get everything for $100.00?  And so that is when we formulated or came up with well let us have bundled services for $99.95 I think at the time for $100.00.  And to answer your question, we threw the features in because, you know ‑‑ I get in trouble ‑‑ we had half the marketing guys, the features are all margined, I mean there is no cost to providing the features, so half the team said, you know, that is where the gravy is.

7305             But there are also ‑‑ there is operational issues with sorting through all the features for the customers, what is on, what is not, so I am a very operationally focused guy and like things simple, so I said let us just give them away, it doesn't cost anything, it is a value proposition, easy, easy to maintain, one number on the bill, you know, we are pretty simple guys, so it was easy that way.

7306             COMMISSIONER CRAM:  And you say that I guess Aliant sort of thought you would go away or something?

7307             MR. BRAGG:  Nobody thought we were going to be successful.

7308             COMMISSIONER CRAM:  The first couple of years you were just in Halifax.  So if Aliant had reduced their band A rates to be competitive, if their costs allowed that, what would have happened to you?

7309             MR. BRAGG:  That is a good question.  We were under the impression that they had a provincial rate.  We didn't think that they were going to, across the entire city of Halifax, lower their rate.  That was when we were just in Halifax.

7310             They had spent so much time in the past trying to get away from these different rate bands and balance out their rates across the province that we thought just because we happened to show up on the scene, are they going to undo all that?  Not likely on day one.  So we felt we had some time in order to justify putting a value proposition in front of the customers that would allow us to get a little bit of market share.

7311             COMMISSIONER CRAM:  Does the circuit switch have, in terms of costs vis‑à‑vis VoIP ‑‑ I don't know if you know VoIP costs very well or not.

7312             MR. BRAGG:  Too well.

7313             COMMISSIONER CRAM:  Too well.  Is it a one‑to‑one ratio, your switched costs, your circuit switch costs, or is it higher than VoIP?

7314             MR. BRAGG:  It is higher than VoIP.  That is part of the challenge of VoIP.  There are so many ways you can do it, whether you want to do back‑up power in the customer premise or not, or try to do network back‑up power ‑‑ that is a little more costly ‑‑ whether you use a separate customer premise equipment for the voice service or the internet, or combine them; whether it is an indoor unit or an outdoor unit.

7315             There is a tonne of ways you can take capital costs out.

7316             Vonage V over IP, they don't have any capital costs hardly.  They send you a cheap deal in the mail.  You plug it in and you utilize somebody else's infrastructure versus ‑‑ I will use Rogers for an example because I know what they are doing reasonably well.  They are putting capital in place and dedicated equipment, and they are building a proper network that is going to be reliable and is going to work.

7317             Part of the challenge is that from the equipment provider's standpoint, VoIP has taken off so the price of the equipment is going down, where the circuit switch guys who we were in with early are somewhat stagnant with Cox or big buyers.  We are not as big as Cox in the U.S. or Japanese companies, some guys in Chile and I think in Spain.

7318             Still the capital cost of our equipment is a little higher.  It is robust.  It is very reliable.  It works well.  Switches aren't cheap.  So that is why the capital for us is a little higher.

7319             COMMISSIONER CRAM:  Can you give us a number?  If VoIP is one, what would the cost ‑‑

7320             MR. BRAGG:  I know our costs ‑‑ and I think we have submitted some of the costs.

7321             We are somewhere between $700 and $1,000 a customer for our capital.  The VoIP guys are all over the map.  They are likely half as much as that, but some could be up a little more; some are down a little.

7322             COMMISSIONER CRAM:  There would be a different recovery of capital or recovery issue for you than with the VoIP people.

7323             MR. BRAGG:  That's right, but VoIP wasn't an option when we started either.

7324             COMMISSIONER CRAM:  I know.

7325             When you launched and now, how do you market?

7326             MR. BRAGG:  We market it from a telephone product.  We market it as a standalone telephone product.  We also market it within our bundles.

7327             Really, bundling is likely the most prevalent way we market.

7328             COMMISSIONER CRAM:  Maybe I should have said where do you market it?  Do you market it in newspapers?

7329             MR. BRAGG:  Oh, where.  We market it on our own, some of our own facilities.  We do some billboard, telephone.  We will buy commercial space on Global and ATV.

7330             The reality is word of mouth is one of our biggest sellers.  I have never done an analysis so much.  Some of our marketing guys would say Aliant outspends us 15 to 20‑to‑1.

7331             COMMISSIONER CRAM:  In Nova Scotia, is there one newspaper?

7332             MR. BRAGG:  Not really.  There are a lot of regional newspapers.

7333             I guess The Chronicle Herald would be considered more or less the provincial paper, for want of a better word.  It is a Halifax‑based paper, but it goes out across the province.

7334             There is the Halifax Daily News that is quite prevalent in the Halifax metro area and a lot of other small, when I say regional, sort of county‑sized papers.

7335             I would say The Halifax Herald, which is the provincial paper, would be where we would spend the majority of our ‑‑ I don't want to call it global marketing as opposed to if we were just to launch in an area of New Glasgow, we would also advertise in the local New Glasgow paper.

7336             We do a fair bit on radio stations as well.

7337             COMMISSIONER CRAM:  Your marketing in the paper is addressed at the provincial level.

7338             MR. BRAGG:  Yes.  It is the same when we do mail drops by postal code.  We know that they are going to land on the doorsteps of people who are slightly outside of the cable serviced area, no different than the newspaper is going to show up.  You get used to this in the cable business.  You always have the rider "in cable serviced areas only" or "call your cable company to find out if you are under the footprint".

7339             COMMISSIONER CRAM:  Then you say you use radio spots.  Are the contours of the radio equivalent to the province or do they get all around the province, up to Cape Breton?

7340             MR. BRAGG:  Not one radio station.  You would have to advertise in multiple.  There are typically more market radio stations.

7341             Like in Sydney in Cape Breton there is a radio station that would ‑‑ I don't know what the contours are.  I feel like I should have one of our marketing guys here who buys the advertising.

7342             COMMISSIONER CRAM:  I wanted to talk about sustainable and that issue.

7343             I don't think we are in the business in telecom of making people whole, as we seem to do with programmers.  On the other hand, I don't think we want to see phoenixes coming out, because that would virtually kill investment in telecom.

7344             So where do we go?

7345             Somewhere in between there we have sustainable competition.  I don't know where and market share doesn't answer for me because you are really concentrating on how strong you are and that you have to retain that strength to be able to fight.

7346             MR. BRAGG:  How strong I am certainly is relevant, but a bigger issue ‑‑ really, when I talk about the market share issue, it is how weak they are.

7347             If I have 5 percent and somebody else has 5 percent, certainly I am a lot weaker with 5 percent than I am with 30 percent.  But if there are six of us with 5 percent, that is still sort of the equivalent level of weakness for the incumbent that gives them the same effect of having some discipline in the market.  There is competitive foothold enough.

7348             When we talk about 30 percent, I want to make clear that that is not me getting 30 percent; that is them losing 30 percent.  It doesn't really matter where they lose it to.

7349             I think I am pretty good at what I do, and I will get the majority of that 30 percent, I hope.  Maybe Bill Linton is going to come in and sell local loop over my system, but I will have to deal with him next.

7350             That is the key.  It is my responsibility, if I buy high‑cost capital.  We may transition to VoIP.  We have that option at some point in time as well, and I am not suggesting that you should write me a cheque for $150 million and give me my money back, but just give me the opportunity to operate in a manner that I can try to get my money back.

7351             COMMISSIONER CRAM:  So we shouldn't concern ourselves with whether or not you are cash flow positive, anything like that.

7352             MR. BRAGG:  That question leads down eventually to what is the number and what is the timeframe and what is the cash flow?

7353             I don't know because the economics are going to be different for every competitor.  My economics are different than Shaw's and Rogers' and Bell's and Telus'.  They are all different situations.

7354             The best I could reasonably conceive of is across a reasonable ‑‑ if I have a reasonable base of customers across the market that I am servicing, which is ‑‑ I know we have positioned the province, but personally I lean toward the Videotron style.

7355             I am competing against Aliant, all of Aliant regardless of where they are.  So I need enough market share that I can sustain myself.

7356             Is 30 percent in a given exchange enough?  No, that is not enough.  Again, it is the magnifying glass.  They can just stomp me out at each step.

7357             If I had 20‑30 percent across the market, I think I am big enough that I can survive.  If I am crappy at running the system and I am wasteful and I am not very efficient, I don't deserve to get my money back.

7358             I think it is a consideration.  We were in early so I think that has a bit of an effect.  It is too difficult to try to say here is your return; it should be five years after you invested X number of dollars.  That is too hard to do.

7359             COMMISSIONER CRAM:  You talk about time to build and develop customer loyalty in your final brief, at page 4.  Also in your test you have a wait time; that after a certain amount of share is lost, there is a wait time and you say that should be decided on a case‑by‑case basis.

7360             Should we on this wait time recognize the fact that you are a cable company, that you have a brand, that you have loyalty and so shorten it compared to others?

7361             MS MacDONALD:  If I may, the suggestion on the wait time, it really gets into an analysis of what is the market power of the incumbent we are dealing with in a given scenario.

7362             In our particular situation we would say that you need to look at the party and you need to look at the competitor.  It may be that when you look at the circumstances in that stage two, which is what is the market power of the party that you are competing against ‑‑ and in our case we are dealing with Aliant, which spans across four provinces.  We would say that, notwithstanding the fact that we had built cable facilities, that should not be a deciding factor that would warrant a reduced period of time.

7363             We are not necessarily saying what that period of time is so much as when you hit that threshold there is another analysis, and you have to say:  What are the real circumstances here?  How big is Aliant?  Is there really potential for them to act in a way that the competitor who has entered the market can sustain that?  That is really the key.

7364             So when we talk about looking at what part of the investment has been recovered, or if any has, and when we look at what the situation of EastLink is, we say you just need to look at all of the circumstances.

7365             We have provided some information in the submissions, particularly in the June 22nd submission, about some of the other examples of why Aliant's scope and scale across the four provinces does have an impact; examples in terms of responding to major emergency event issues that can also impact churn, the speed with which Aliant can respond to those situations as compared to a smaller competitor.

7366             We merely say that when you are looking at the forbearance analysis, it does have to happen on a case‑by‑case basis because you could have a competitor the size of, to exaggerate, a convenience store and then you could look at EastLink and you could look at other competitors.

7367             When you are EastLink dealing with an incumbent that spans four provinces and is owned by Bell, we have a lot more worries when we are talking about once you hit that threshold.  We just think it is really warranted to look at those other issues.

7368             MR. BRAGG:  I dreamt up a scenario which would concern me about hitting the threshold and why you would have to look at it.  The other day I was thinking ‑‑ we had some little discussions and we talked about some of the issues on our wireless real competitors or Voice over IP, third party and should that count if the competitor is losing market share or not?

7369             There has been a variety of opinions, whether it is second line or not, about what is losing market share and what is not.

7370             One of the things that popped into my head that concerned me is if Bell owns or controls Aliant, if Bell offers a Voice over IP service over Aliant's DSL and Aliant loses 30 percent of their local lines to its parent, does that trigger something?  Is that reasonable?

7371             Once the trigger is there, you have to look at the situation and say:  How did it happen?  Is it reasonable what has gone on here?

7372             COMMISSIONER CRAM:  When we are at the trigger and you are at that test, does the test include the same thing as MTS was proposing: that the Q of S standards have been adhered to for a certain period of time and that the ILEC didn't have any sustained complaints against it?

7373             MS MacDONALD:  I will start with that and if Lee wants to add anything, he can.

7374             I would suggest that we look at the first stage and that gets you into the analysis.  Then the second stage has to do with market power.

7375             In that part of the analysis the questions are:  Can this competitor sustain this incumbent?  When you do that, you can't help but say:  What is the incumbent likely to do in this situation?

7376             When you are asking that question, you look at quality of service and you say:  What have they done in the last year?  We don't necessarily think that quality of service indicators should be a point where you say:  Oh, they have met the quality of service indicators.  Well, things are okay.  They are not going to do anything.

7377             That might be a factor, and that might be an argument that a competitor makes and says:  Look what they have been doing in the last year or so.  I don't think that should be the determining criteria, but certainly it can be something that is raised as an indicator of the potential for the incumbent to act in a way that will unduly impair competition.

7378             COMMISSIONER CRAM:  You are using the province.  Would you agree that that may not necessarily be the same geographic area across the country?

7379             I know you want Aliant territory.

7380             MR. BRAGG:  There has to be a manageable way to do this, that's right.  Is province right across the country?  To be honest, I haven't given it a whole lot of thought.  I really don't know.

7381             I typically am more concerned with what Aliant can do to me as opposed to what Telus could do to Shaw ‑‑ no offence to my friends at Shaw.

7382             MS MacDONALD:  Perhaps I could comment as well on the issue of the province.

7383             We note the CCTA's position, which is based on an LIR, and I think there is a lot of value in looking at the position in the sense that we are dealing with a framework proceeding here.

7384             If you are looking at let's start with the framework and work with that framework, it makes sense to look at a geographic market definition that has some practical realities like:  Who are we dealing with?  What are the consumers' patterns?  Municipal boundaries and that sort of thing are all incorporated into that.

7385             It makes sense that it provides for a practical avenue for competitors to provision service throughout that area.  So the CCTA has made that case.

7386             Our position on the province is not really inconsistent with that.  In fact, it is quite consistent with it.  If you look at the position as a framework proceeding, then you can look at the individual circumstances of competition in various areas across the country.

7387             I might add that a lot of the different companies have put forward various positions on this should be the geographic market or that should be the geographic market, but when you really take an arbitrary definition ‑‑ for example, an exchange.  Well, an exchange in Nova Scotia may be quite different from an exchange in Alberta in larger centres.  Even if you think you are taking the same criteria and applying it across the board, you really are not because the components in each area across the country might have a completely different picture.  They might tell a different story.

7388             I would say, as a framework proceeding, there are a lot of advantages in terms of ease of administration, et cetera, with the LIR.  Then you can work up from that or down from that, if necessary, depending on the circumstances of the market.

7389             We would say in our particular area, Nova Scotia is an area that warrants combining those LIRs and we think that the province is a really important consideration that the CRTC should be looking at.

7390             We look at the pricing of Aliant across the province.  In fact, I think in many cases their bundles have been consistent across their territory, but I know their local pricing is the same across the province.

7391             We price the same across the province.  The services have been provided throughout.  EastLink is building its network, and we offer service throughout most of the province of Nova Scotia and in Prince Edward Island.  In fact, we are in, as of now, all LIRs in Nova Scotia.

7392             So we would suggest that there is a lot of reasons why the province makes sense, and we are able to supply a service across the province.

7393             For those reasons, we feel that it is warranted in our particular case.

7394             COMMISSIONER CRAM:  You said the same price throughout.  I am fascinated by the fact that you are actually in what is called a band F and a band E in the high‑cost service areas and you charge the same rate.

7395             It just doesn't sound feasible to me.  Is it an actual money‑making proposition for you?

7396             MR. BRAGG:  Once the network is in place, again because so much of our capital is incremental based on the customer, it doesn't really matter where the customer is.  If I can reach them with the wire, that is a smaller element of the capital cost as opposed to the box they have to put inside the house and then facilities back in the headend to pass the signal link back to the switch.  That is all incremental based on each customer.

7397             We have fibred together all the systems.  The relative network is there, so it really doesn't matter where they are.  It is a different story if somebody said: why wouldn't you consider building a new network in some of those less dense areas?  That is where we have some challenges.

7398             COMMISSIONER CRAM:  A different issue.  Yes.

7399             You said when you were first talking, Mr. Bragg, that you have cleaned out ‑‑ you have the ILEC haters.  That is, you said 5 per cent to 6 per cent.  Then you have the price conscious.  How many per cent is that?  What do you think?

7400             MR. BRAGG:  Maybe another 5 per cent to 10 per cent.  It can be a variety in different markets.  It might be a little higher in our market.  We are so university dense.  We have a lot of students who I would categorize as price sensitive.

7401             COMMISSIONER CRAM:  Yes.  I was listening to Mr. Engelhart and it sounded like then you are into what he called the inert.  Are you anticipating a plateau now?  I know you are rolling out so ‑‑

7402             MR. BRAGG:  That is a good question because that was one of the issues that I didn't like about an exchange basis and why we continue to grow outside of our original footprint.  I simplify it and say a little bit.  Each incremental customer was harder to get than the last.

7403             As you get up through the ‑‑ whether it is the early adopters or the ILEC haters or the price sensitive ones.  And you get into the, as I say, my Aunt and Uncle who hardly know how to run the VCR, it is hard to convince them about what does a cable company know about delivering telephone service.  We try to simplify it and say it is exactly the same telephone service as the other guy, but it becomes harder and harder to get each incremental customer.

7404             That being said, it is often easier for me to gain my next thousand customers in a brand new territory than it is on top of the previous 5,000 or 10,000 customers I might have in Halifax.  It is our incentive on why often we continue to grow out.  There is a new batch of ILEC haters out there.  You know.  You kind of get used to that.

7405             COMMISSIONER CRAM:  That is why you are moving out.

7406             What was the impact on you of the Aliant strike?  That was last year.  Was it last year or ‑‑

7407             MR. BRAGG:  Good and bad.  I say it was good in the short term because certainly they had a struggle to do their own work so during that period of time I think it did push some more customers to us because they ended up feeling some stretched out timeframes.  Although, we did some sampling.  It was amazing how fast they hook people up in Halifax compared to Moncton where we weren't were.  I think they were rejockeying some folks around.

7408             That being said, in all fairness, they did a good job working with us on trying to balance from a number portability standpoint how we were moving customers back and forth.  The reality is we have built a pretty good operational relationship with Aliant.  We may fight like cats and dogs from a regulatory or a marketing standpoint, but when it comes down to getting through a lot of this stuff, I mean we have had five years, we have learned.  We have had to learn, they have had to learn about how to get this stuff done, and we have done that.

7409             During the strike we were pretty upfront.  I mean we were pushing them to stay you need to move more numbers over to us.  You need to be able to move more numbers over to us.  They would push back and say, you know, we have everybody we can doing this.  We worked through it, so I think we did end up with a bit of a blip, a benefit of getting more high-speed Internet and more telephone customers than we would in the short term.

7410             It had the opposite effect in the long term where we continue to update and grow our markets or rebuild our systems in order to launch high‑speed Internet or telephony, we are a little bit at their whim again, because whether we are on Aliant poles or Nova Scotia power poles, Aliant controls the communications space so we have to apply to them for make‑readys to get on to get our systems updated and I think all their system engineers were doing installs and service calls.

7411             So our projects in order for us to grow our footprint really slowed down, so at the end of the day it was about a balance roughly:  the customers we were getting in the short term was affected our longer term ability to grow and grow into more markets.

7412             COMMISSIONER CRAM:  After was there an increase in churn or did you notice it?

7413             MR. BRAGG:  On a percentage basis I don't recall there being a greater ‑‑ that they switched back.  We dealt with some of this during a hurricane.  I don't know whether it is Maritimers, but there weren't that many customers that we found went for spite and just say, oh, you know, I'm mad at Aliant, they couldn't hook me up; I'm going to go to Eastlink then go back to Aliant.  I mean the customers in that area, they don't seem to want to take advantage of somebody when they are down a little bit.

7414             We found that during the hurricane.  We had some issues.  Well, you know, Aliant I think targeted a few of our customers, but it didn't work, so we weren't going to target their customers unduly.  I mean we inherited ‑‑ I mean they just came to us because we were able to hook them up.

7415             COMMISSIONER CRAM:  You then talk about you don't want any transitional regime, which I am going to call sort of like a half pregnant argument.  You either have competition or you haven't I guess.  That is sort of your argument, isn't it?

7416             MR. BRAGG:  Yes.

7417             COMMISSIONER CRAM:  Then you seem to say that you are already half pregnant because of ‑- not you, Mr. Bragg ‑‑

7418             MR. BRAGG:  I hope not.

7419             COMMISSIONER CRAM:  -- because of that one particular tariff that we approved, CRTC 2005‑25.  Maybe you can explain that tariff to me and provide us with I guess percentage increases in churn as a consequence.

7420             MS MacDONALD:  The specific reference to that has actually been filed in a portion of our submission on September 15, and particularly referred to at paragraphs 48 and 49.  That particular information has been filed on a confidential basis, but it does have an illustration of some of the impact of that particular tariff.  Basically, it was a tariff that was approved for waiving service charges I believe for reconnects or enhanced consumer access service.

7421             In July, Aliant started a promotion whereby customers who switch back are not charged installation fees and receive a $50 credit toward their long distance bill.  This was I understand something that they had been offering in the market.  That was particularly, that was in the context of the value package.

7422             Around the same time Aliant had been offered ‑‑ had been approved for an interim tariff for a promotion that would, in effect, weigh the service charges for consumers switching into an enhanced consumer access bundle.  It shows that there is a blip, a peak of customer loss, shortly after that point in time.  According to our marketing department and the analysis that they had performed, which had been filed, it was indicated that it seemed to be in and around the same time that this was approved, so there was an expectation that there was a connection with that.  That was what we had referenced.

7423             The intention of showing that wasn't so much to say that we are in a transitional regime, but it does certainly illustrate that Aliant does have the flexibility to make applications to the CRTC and get approval on some of those applications in order to provide competitive services and compete with Eastlink even in a regulated environment.

7424             COMMISSIONER CRAM:  Has the steepness of the trend from July to August continued from August to September?

7425             MS MacDONALD: I don't have the details of that information here today.  It is certainly something ‑‑

7426             COMMISSIONER CRAM:  Maybe if you could provide it in confidence.

7427             MS MacDONALD:  Certainly.

7428             COMMISSIONER CRAM:  Give us the real number, the loss, if you give it confidence.

7429             Your point is that they have already got enough leverage right now.

7430             MS MacDONALD:  Yes.  I think the main point being that our real concern is about the kind of behaviour that Aliant could engage in on a very very specific basis in smaller areas if forborne, that they aren't really hurting ‑‑ and consumers aren't really hurting today as has been stated in their presentation.

7431             COMMISSIONER CRAM:  Cable basic penetration in Nova Scotia and PEI, if you can give me that.  You don't need high speed for your service.

7432             MR. BRAGG:  No.  That's right.

7433             COMMISSIONER CRAM:  Okay.  Would you have any ‑‑

7434             MR. BRAGG:  Sorry.  You said "cable penetration".  Cable penetration of total homes or cable penetration of our homes past?

7435             COMMISSIONER CRAM:  Of homes past.

7436             MR. BRAGG:  Okay.

7437             MS MacDONALD:  I believe we have provided, in one of the interrogatory responses, information with regard to homes past cable penetration.  Certainly, I can review that and I can provide anything that hasn't been already provided to the Commission on that.

7438             COMMISSIONER CRAM:  This churn that you had, do you normally have an exit interview with people on that?

7439             MR. BRAGG:  Usually.

7440             COMMISSIONER CRAM:  Do you find out why?

7441             MR. BRAGG:  We try.

7442             COMMISSIONER CRAM:  So the marketing department or somebody I guess in July and August would have been asking people why they were moving on?

7443             MR. BRAGG:  Yes.  We do.  I mean not so much the marketing department, but that is a part of when somebody calls to disconnect.  We try to capture why, whether it is a pricing, is it an offer by somebody else, are you moving, what is the issue.  Because of the way our footprint is, you know, in the Maritimes people move all over the place and because we have so many students that move we really need to capture that to be able to measure what is incumbent behaviour versus just sort of the natural churn or student whim.  I don't know.  We really do try to ask those questions.

7444             It is easy to find out, well, I'm moving or what those issues are.  Then the other issues, customers don't often -- they don't often want to admit they were bought away by somebody else.  They will just say, oh, I didn't like the service or whatever.  We try to sort through some of that to figure out ‑‑ I mean some are very upfront because they want us to re‑offer something.  There are quite a segment of customers who ‑‑ they are the switchers.  They will go from one hundred dollar offer or one free this one free that and come looking for something from us.  They are quite upfront.

7445             COMMISSIONER CRAM:  When you lose a customer, presumably you had them, a good lot of them, before as a TV and an Internet customer.

7446             MR. BRAGG:  The majority of our telephone customers are cable customers although we don't ‑‑ I mean we will hook anybody up if they want it and I am not sure ‑‑ I don't know if we have the numbers.  There is a percentage of 6 or 8 or something like that, a per cent of our telephone customers who are just standalone telephone customers.

7447             COMMISSIONER CRAM:  When you lose them as a telephone customer, do you normally lose them as a TV or an Internet ‑‑

7448             MR. BRAGG:  More and more.  It has become a bundle versus bundle marketplace.  One of the issues we have, it is a big issue now, is the fact that we don't have access to a wireless product.  I mean we have an arrangement with Rogers where we resell a wireless I say to try to solve the economic issue with the customer, but it is not the same as having sort of the product branded the same, on one bill.

7449             We see real targeted activity on wireless, on the product that we don't have, within the bundle of the ILEC to try to pull our customers away.  But that is the effect because now we all have, well, with the exception of I don't have a wireless product and maybe the Rogers one is, but we all offer all the products now.  So it is easy to lift the whole ‑‑ whether it is a $150 a month customer and move them based on an offer on one product.

7450             MS MacDONALD:  If I may?

7451             Just going back to the question with regard to the bundles, we did file that information confidentially in an Eastlink interrogatory to the Competition Bureau, No. 28.  So that information, in terms of the breakout, has been provided.

7452             COMMISSIONER CRAM:  Yes.

7453             When they leave, what is your rough percentage of ILEC incentives going back beyond ‑‑ knowing it is an unreliable number.  I just wanted to get an idea.

7454             MR. BRAGG:  So I could tell you anything then.

7455             I just want to get the question clear.  Of the customers that we lose, how many of them are due to an aggressive Aliant offer?

7456             COMMISSIONER CRAM:  Yes.

7457             MR. BRAGG:  I am going to say all the customers that are controllable churn, meaning that we could have done something about versus somebody just moving, I mean usually it's an offer that gets them, but the issue is we are always going to trade customers back and forth for whatever reason, a different offer at a different point in time.

7458             An offer across the market, again, I can deal with and we will have some of that churn, and I will have a big offer or a special or telephone for six months for $9, and they will have get wireless for $10 for a year in a bundle.  Those things, that is normal business practice.  We will whittle each other down.  Again, as long as we are reasonably sustainable and they can't target at us we whittle each other down to where there is a comfortable level where we are dealing with closer to what our costs of operation are.

7459             It is the ones we don't really know about.  It's just when customers just disappear, we don't really know what sort of targeted activities ‑‑ suddenly we will see little spikes.  The ability to waive an install fee, to me that is a targeted winback activity in a sense because it is only those customers that would have gone to us that need the free install to come back.

7460             I don't know.  We can work on trying to sort out and give you a better number of what we think are a result of, I don't know what to call it, anti‑competitive behaviour or targeted winbacks or whatever.  I am not really here complaining saying they are doing it a lot.  That is the issue.  I don't want them to do it.  I don't want them to be allowed to do it.

7461             COMMISSIONER CRAM:  Okay.

7462             Then I wanted to talk about the social obligations.  Do you agree that you would have similar social obligations that both the ILECs and CLECs should have the same obligations?

7463             MR. BRAGG:  In general, when it comes to I guess most of the standard things that we have defined as social obligations.  We want to be a true telecom service provider and offer everything.  There is an issue around the publication of the phone book itself where we would submit that that is still, given the dominance that the incumbent has and the costs associated with being able to do something like that at our size, something they should still undertake to do.

7464             COMMISSIONER CRAM:  Thank you.  I have no more questions.

7465             It ran in my mind that you are Professor Bauer's empirical data in Canada.  Thank you very much.

7466             MR. BRAGG:  My numbers aren't so secret after all then.

7467             THE CHAIRPERSON:  Counsel.

7468             MR. WILSON:  Thank you, Mr. Chairman.  I just had two questions.

7469             In talking with Commissioner Cram and in your presentation you have highlighted a couple of points, the significance of churn and the cost of churn to you.  I am wondering if you could file with the Commission in confidence, if you wish, your churn rates let's say for the last five years in terms of the telephone business and also with respect to the cable business.

7470             MR. BRAGG:  We can do that.

7471             MR. WILSON:  Then just picking up on what you talked about in terms of initially sort of targeting the student market because of the nature of that customer base, do you have a sense at sort of this point in time what percentage of your customer base is sort of still composed of that sort of student type population?

7472             MR. BRAGG:  I couldn't tell you off the top of my head.  We could undertake to provide that because the majority of them do leave in the spring.  They all pop up.  We get a big spike in September when they all arrive and a decrease that ‑‑

--- Short pause / Courte pause

7473             MR. BRAGG:  I'm not likely going to tell you the exact number but I certainly can give you an indication of what that fluctuating body is.

7474             MR. WILSON:  Maybe your best estimate I guess would be fair.

7475             MR. BRAGG:  I can do that.

7476             MR. WILSON:  With respect to that and to the other information that you had undertaken to provide to Commissioner Cram, can you give us a sort of sense of what timeframe you would be able to provide that to us in?

7477             MS MacDONALD:  We can work toward a one week timeframe, but certainly if we run into some difficulties we can let you know.

7478             MR. WILSON:  Just let us know.

7479             Thank you very much.

7480             THE CHAIRPERSON:  Thank you.  Those are our questions.

7481             I think this brings the initial presentation phase of this consultation to a close.  We will resume at 9:30 a.m. tomorrow morning with the reply comments, shall we say, five-minute comments in reverse order, at 9:30 tomorrow morning, 9 h 30 le matin.

7482             MS MacDONALD:  Thank you.

7483             MR. BRAGG:  Thanks.

--- Whereupon the hearing adjourned at 1800, to resume

    on Friday, September 30, 2005 at 0930 / L'audience

    est ajournée à 1800, pour reprendre le vendredi

    30 septembre 2005 à 0930

 

 

 

 

 

 

 

 

 

  

 

                      REPORTERS

 

 

 

 

 

____________________      ____________________

Richard Johansson            Kristin Johansson

 

 

 

 

____________________      ____________________

Jean Desaulniers          Fiona Potvin

 

 

 

 

____________________      ____________________

Susan Villeneuve          Sandy Kelloway

 

 

     

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