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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
Review of regulatory framework for Northwestel Inc. /
Examen du cadre de réglementation
applicable à Norouestel Inc.
HELD AT: TENUE À:
Convention Centre Centre des congrès
High Country Inn High Country Inn
4051 4th Avenue 4051, 4e rue
Whitehorse, Yukon Whitehorse (Yukon)
July 10, 2006 Le 10 juillet 2006
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
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.
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
Conseil de la radiodiffusion et des
Transcript / Transcription
Review of regulatory framework for Northwestel Inc. /
Examen du cadre de réglementation
applicable à Norouestel Inc.
BEFORE / DEVANT:
Richard French Chairperson / Président
Helen del Val Commissioner / Conseillère
Barbara Cram Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Ronald Williams Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Madeleine Bisson Secretary / Secrétaire
Peter McCallum/ Legal Counsel /
Leanne Bennett Conseillers juridiques
HELD AT: TENUE À:
Convention Centre Centre des congrès
High Country Inn High Country Inn
4051 4th Avenue 4051, 4e rue
Whitehorse, Yukon Whitehorse (Yukon)
July 10, 2006 Le 10 juillet 2006
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
Presentation by the City of Yellowknife 8 / 52
Reply by Northwestel 51 / 283
Opening Statement by Northwestel 65 / 366
Opening Statement by UCG 73 / 404
Opening Statement by GNWT 77 / 430
Opening Statement by Telus 93 / 501
AFFIRMED: SCOTT ROBERTS 100 / 545
AFFIRMED: MARK WALKER
AFFIRMED: MURIEL CHALIFOUX
AFFIRMED: RHONDA KRAUSS
Examination by Northwestel 100 / 546
Examination by Consumers Groups 103 / 574
Examinatino by the Government of Yukon 167 / 1031
Examination by Telus 202 / 1241
Examination by the Commission 241 / 1523
EXHIBITS / PIÈCES JUSTICATIVES
PAGE / PARA
1 Table 1: Northwestel Actual/Forecast 102 / 572
Operating Revenues from 2002‑2007
provided by the Consumers Group
Whitehorse, Yukon / Whitehorse (Yukon)
‑‑‑ Upon commencing on Monday, July 10, 2006
at 0900 / L'audience débute le lundi
10 juillet septembre 2006 à 0900
1 THE CHAIRPERSON: Order, please. A l'ordre, s'il vous plaît.
2 Good morning, ladies and gentlemen. Welcome to this public hearing. My name is Richard French, I am the Vice‑Chairman of Telecommunications for the Commission. I am going to be the Chairman.
3 I am very happy to be here in Whitehorse and have this opportunity to hear your views on a number of important telecommunications issues.
4 With me on the Panel, on my immediate left, Helen del Val, Commissioner for British Columbia and the Yukon.
5 On my far left, Ron Williams, Commissioner for Alberta and the Northwest Territories.
6 On my immediate right, Barbara Cram, Commissioner for Manitoba and Saskatchewan.
7 On my far right, Andrée Noël, Commissioner for Québec.
8 We have a number of Commission staff here as well. You will see them in the front table at my left. Hearing Secretary Madeline Bisson, Staff Leader Christine Bailey; Legal Counsel Peter McCallum and Leanne Bennett.
9 Several years ago the Commission held a public hearing in Whitehorse. In that hearing the CRTC considered, among other things, the implementation of long distance competition in Northwestel's operating territory, a plan to improve the telecommunications network in the North, and the regulatory framework that would be appropriate for Northwestel.
10 Il y a plusieurs années, le conseil a tenu une audience publique à Whitehorse. Parmi les points abordés il avait été question de l'instauration de la concurrence dans le secteur de l'interurbain, dans le territoire d'exploitation de Norouestel, d'un projet pour améliorer le réseau des télécommunications dans le Nord et de l'adoption d'un cadre de réglementation approprié pour Norouestel.
11 In Telecom Public Notice CRTC 2006‑1, Review of Regulatory Framework for Northwestel Inc., the CRTC's first thought in the new year, the Commission initiated this proceeding, today's proceeding to establish a new regulatory framework to succeed to the one that has been in effect for the last six years.
12 Some of the issues that we expect will be discussed over the course of this hearing include the following:
13 a new regulatory framework proposed by Northwestel which focuses on the regulation of price changes rather than profits, called in telecom jargon "price caps";
14 rate changes proposed by Northwestel to local, long distance and other services prior to implementing this framework in 2007;
15 the appropriate amount of funding for the provision of service to high‑cost areas;
16 long distance competition in Northwestel's territory; and
17 various financial and other issues related to this proceeding.
18 We wish to hear as many views as possible. To this end, we will begin today by hearing from members of the general public. To the best of our knowledge there is no one present in the room at this point who wishes to be heard. If there is, if we err in that regard, please signal your presence to the meeting secretary, Madam Bisson, who is looking hopefully out over the audience. No.
19 After we have heard from those people, who are not manifesting themselves, we are going to go to a teleconference to Northwestel's offices in Fort Nelson and Yellowknife, or rather, in order, Yellowknife and Fort Nelson.
20 In the interest of ensuring that as many oral submissions as possible can be heard, the submissions will be limited to 10 minutes each.
21 When everyone is finished with their presentations, assuming those presentations take more than an hour, we will take a short break.
22 In any event, the next phase of the proceeding will be NorthwesTel being given the opportunity to respond to any comments heard today. NorthwesTel can also address any comments raised by the general public in its written reply, which is to be filed with the Commission by August 4th.
23 We don't expect that this phase of the hearing will go much beyond an hour.
24 After we hear comments from the general public and the response of NorthwesTel, if any, we will start with the cross‑examination phase of the hearing.
25 I would like to take this opportunity to specifically welcome those who will be joining us either in person or via teleconference this morning. We thank you for taking the time out of your busy day to be with us here. We would like to assure you that your comments are important and will be taken into consideration when the decision is made.
26 We look forward to what promises to be a very interesting and informative hearing.
27 At this point I would like to ask legal counsel to address the process that we will be following today.
28 MR. McCALLUM: Thank you, Mr. Chairman.
29 As stated by the Chairman, I am Peter McCallum, one of the Commission's legal counsel, and I have Leanne Bennett with me today.
30 As indicated in the Commission's organization and conduct letter that was issued on the 22nd of June, 2006, we plan to sit from 9:00 a.m. to 5:30 p.m. each day. We will take a lunch break of about an hour and a half, as well as a 15‑minute break at mid‑morning and at mid‑afternoon.
31 The hearing will conclude no later than Friday, July 21st and it may finish even sooner than that.
32 While we do not anticipate sitting into the evenings or the weekend, it may be necessary to consider these options. We will watch our progress and you will be advised of any changes to the schedule that become necessary.
33 Une salle d'examen publique située dans la salle de conférence A sera ouverte à toutes les parties et au public pour la durée de l'audience. Vous pourrez y trouver un exemplaire du dossier public de l'instance. La secrétaire de l'audience appellera chaque personne qui s'est préalablement inscrite auprès du conseil. Si vous n'êtes pas déjà inscrit, mais vous désirez venir aujourd'hui, allez en parler à la secrétaire de l'audience, s'il vous plaît.
34 As I said in French, there is a public examination room open to all parties and the public for the duration of the hearing. It is in Conference Room A. There is a complete copy of the public record of the proceeding there.
35 The hearing Secretary will call each person who is registered in advance with the Commission. If there is anyone here who hasn't registered in advance and who would like to speak today, please speak with her.
36 All submissions heard at this public hearing will be transcribed and will form part of the public record of this proceeding. To ensure the court reporters are able to produce an accurate transcript, please ensure your microphone is turned on ‑‑ by pressing the button ‑‑ when you are speaking and when you are finished, please turn it off.
37 When you are in the hearing room, we would ask you to please turn off your cell phones, pagers, Blackberries and other text messaging devices as they are an unwelcome distraction for participants and Commissioners, and they may cause interference on the internal communication system used by the translators and court reporters.
38 Thank you very much, Mr. Chairman.
39 THE CHAIRPERSON: Madam Secretary.
40 THE SECRETARY: Thank you, Mr. Chairman.
41 Three participants have registered and would like to present their views to the Commission today. Two of the participants are from Yellowknife and one from Fort Nelson.
42 We would like to start this morning with Mr. Van Tighem, Mayor of Yellowknife.
43 Mr. Van Tighem.
44 THE CHAIRPERSON: Good morning, Mr. Van Tighem.
45 We have an audio problem, I think.
46 Mr. Mayor, we are not hearing you.
47 Check, please, and make sure that our end is on.
48 THE CHAIRPERSON: I know they can hear us. The question is can we hear them.
‑‑‑ Technical difficulties / Difficultés techniques
49 Mr. Mayor, I am assuming you are speaking. Can you nod your head and indicate that you are hearing me.
50 All right. He is hearing me and we are not hearing him, Claude. Can we do something about that, please.
‑‑‑ Technical difficulties / Difficultés techniques
51 THE CHAIRPERSON: We are delighted to have both visual and audio connections to Yellowknife. Please proceed.
PRESENTATION / PRÉSENTATION
52 MR. VAN TIGHEM: Thank you very much. Good morning. My name is ‑‑
‑‑‑ Technical difficulties / Difficultés techniques
53 THE CHAIRPERSON: Mr. Mayor, we have a connection, but the audio quality is such that we are going to have to do some work. I am very sorry to interrupt you, but we are not hearing you clearly enough.
‑‑‑ Technical difficulties / Difficultés techniques
54 THE CHAIRPERSON: Let's try it at that level.
55 MR. VAN TIGHEM: We do appreciate the opportunity to present via videoconferencing, but we would also like to encourage and invite the Commission to visit us in Yellowknife, which, I might add, is one of the largest customer and revenue bases for Northwestel.
56 Our City and Territory are collectively experiencing the largest economic boom in Canada outside of the oil sands‑related projects in Alberta. Canada is now ranked No. 3 in the world for diamond production, due solely to two world‑class mines operating in the Northwest Territories and headquartered here.
57 The mining exploration sector is booming due to across‑the‑board commodity price records. Businesses in Yellowknife are operating at or near peak capacity to meet their ongoing needs. The ‑‑
‑‑‑ Technical Difficulties / Difficultés techniques
58 THE CHAIRPERSON: Mr. Mayor, if you want to proceed, we will see how we are doing.
59 MR. VAN TIGHEM: I think it has cleared up a bit. We were getting telephone ringing.
60 THE CHAIRPERSON: I am told it is better for folks here if they pick it up off the wireless audio.
61 THE CHAIRPERSON: Go ahead, Mr. Mayor. You were at the point of explaining the resource exploration boom.
62 MR. VAN TIGHEM: The Mackenzie Delta and all of these activities should bode well for telecommunications service providers throughout Northern Canada.
63 While the focus of these hearings is on a review of the regulatory framework for Northwestel, I would be seriously remiss if I didn't preface my comments by stating that the company has been a good corporate citizen, which is due, in no small measure, to their ongoing support for the business, social and cultural organizations and activities within their operating territories.
64 Of equal importance is their corporate culture, which encourages their employees to become actively involved in the community. From this perspective our community has certainly been the recipient of the dedication and talents of this collective workforce, and there are a lot of things that happen here because of them.
65 For this reason, and because we so highly value the contribution of their employees, we would anticipate that there is no gradual erosion of staff positions in departments away from Yellowknife and the territories, as it was a commitment of previous senior management.
66 At a time when our economy is booming it's difficult to understand why, again, a Pan‑northern company with Northwestel's operation and history and knowledge would not be looking to expand their senior management representation and augment their support personnel to the hotter economic sectors.
67 In item No. 6 the Commission states that in Decision 2000‑746 the Commission established effective January 1, 2001, the terms and conditions for long‑term competition in Northwestel's territory.
68 The competitive framework for Northwestel included a bundled, subsidized Carrier Access Tariff at a rate of $0.07 per minute.
69 I would like to respectfully submit that this decision, while being well intentioned, has only so far created the illusion of a competitive environment.
70 This competitive monopoly that is enjoyed needs to be improved onwards toward a level playing field establishing true competition.
71 The CAT rate proposed is in the right direction. However, we do maintain that it still needs to eventually be eliminated so that pure equal access competition may be considered by potential market entrants.
72 As well, all other monopoly cultural services that are acquired by potential competitors in order to provide this level of competition must be reasonably priced. Anything less than this in your final decision 2006‑01 will only continue to perpetuate the myth of a long‑distance competitive environment.
73 It's important to note that as a result of CRTC 2000‑746, southern telephone companies have changed their existing national long‑distance calling plans coverage.
74 Also it's important to note all long‑distance calling cards now come with a disclaimer written in small print, usually on the back of the card, which excludes Northern Canada, Northwestel's operational district, from the benefits of the cheaper rates advertised.
75 But what is most ironic is a recent Bell Canada prepaid calling card advertisement "Call those who mean the world to you", whenever you want for next to nothing, 5.5‑cents per minute anywhere in Canada and the U.S., and then on the back of this in the small ‑‑ at the very bottom of the page in smaller print it says:
"NOTE: Calls originating and terminating in Northern British Columbia, Yukon, Northwest Territories and Nunavut are subject to a surcharge of 14‑cents per minute and 11‑cents per minute respectively."
76 I believe that Bell Canada owns Northwestel, and at a time when Bell is advertising calls from anywhere in southern Canada to such exotic locales as Denmark for 6.1‑cents a minute; Japan, 7.5‑cents a minute; or New Zealand at 7.8‑cents per minute, a call on a calling card from Yellowknife to Rae‑Edzo, or Behchoko it's called now, a distance of around 100 kilometres would cost 30.5‑cents per minute.
77 This is an interesting comparative long‑distance environment that has been created.
78 We support the need for Northwestel to continue to be regulated. At the same time and in lieu of a competitive marketplace, we rely on the Commission to ensure that Northwestel is made to justify and ultimately be held accountable for their operational decisions.
79 We support the need for a continuation of SIP funding and we certainly recognize that this will need to rise as the CAT charge is reduced and eliminated.
80 We also support the introduction of a price regulation framework, however, given that competitors do not exist for any of the given services, we are somewhat reluctant to provide unqualified support.
81 While we understand the CRTC objectives as laid out in 2006‑01 background material, item No. 11, and fully agree with the principles stated, we would strongly suggest that this transition be a staged process, both for the benefit of Northwestel and their customers.
82 There is no suggested magic solution or formulas for a split rate base, however, we do feel that a fair split would be look at the monopoly local services and establish a fixed ROE combined with an element of SIP funding.
83 On the other side, all competitive or potentially competitive services, including long‑distance service, could fall under the umbrella of a price regulation framework.
84 We recognize, again, that there will need to be an element of SIP funding required to offset the reductions and eventual elimination of cap charges.
85 The pricing of these baskets and the ranges must clearly reflect the Commission's objective and principles previously stated. Without incentives and/or risk and under the current regulatory program there is no compelling reason for the company to be innovative, efficient or proactive.
86 In many respects, it has been our smaller communication service providers who have introduced the latest technology and innovation. I participated recently in a broadband conference which was by Aliant Services Canada and it was very interesting to hear who was providing what services in the North. It actually lead to them rewriting their report, because there is some very advanced services available here, more so than on reserve communities in the southern part of Canada.
87 Northwestel has traditionally been slow to react and, even then, only arrived after the market has been proven. Where the smaller service providers rely on an interface with a company, they are very often stymied by a bureaucracy that is either uninterested or incapable of responding in a timely manner. A good example of this is the Primary Rate Interface Service that has been readily available in the south for the past five years. Despite repeated customer requests and numerous promises, this service remains an illusion for those business customers who might wish to access the service.
88 This is but one example of an unsatisfied market. Even where the company has established services, internet, cell phones, etc., they continue to lag the southern market in terms of related service offerings that could and should be contributing to growing their revenue. If the company refuses to respond to the market demands and opportunities and they continue to drag their feet in growing revenues, then their revenue upside must be curtailed. Risk and reward is a principle that we do believe in.
89 Northern customers are confused on a regular basis by some of the interactions between Northwestel and Bell. Perhaps the Commission understands the interaction that lead to the sale and transfer of assets between Northwestel Mobility and Bell Mobility. One would have thought this was a financially lucrative district for Northwestel, especially given the scarcity of competition in that district.
90 One has to wonder if revenue management or manipulations may have been behind the corporate restructuring. The same holds true for the business relationship between Northwestel and Northwestel Cable in Yellowknife, in particular internet services and the migration of customers between these. In both cases cell phones and internet service enhancements with one company are not necessarily matched by the other and so the operational transparency and maximization of revenue streams for the telephone company are compromised.
91 One of our concerns and probably the major one related to the increase requested is that we are very concerned about the potential of Raychuck with our Northern telecommunication consumer. The City of Yellowknife is very actively pursuing the introduction of 9‑1‑1 services in an expedited yet responsible manner. This is a major undertaking that will help both operational and financial implications for Northwestel, Yellowknife, the Government of the Northwest Territories and the City. At the end of the process the northern consumer will be expected to contribute their fair share to this ongoing operation. Traditionally, this fee has been paid as a surcharge of the phone bill.
92 Our concern is that a rate increase such as the ones proposed by Northwestel, when combined with the introduction of a 9‑1‑1 service fee, will have a serious negative effect, especially with respect to our business customers. We note the Commission has deemed 9‑1‑1 service to be part of the standard basic service package. Given this determination, we again feel very strongly that a portion of the SIP funding be allocated specifically for the provision of 9‑1‑1 services, not only for Yellowknife but also the entire Northwest Territories.
93 We recognize that CRTC 2006‑1 may not be the most appropriate forum to discuss 9‑1‑1 services and SIP funding, however we feel it important that the Commission be aware of our concerns, taking them into consideration when looking at the proposed rate increases. We also hope that in your final deliberations and in your ultimate decision you will establish a mechanism to address 9‑1‑1 services and the related question of dedicated SIP funding.
94 The Commission has always protected the best interests of the northerner telecommunication consumer and we believe you can take credit and satisfaction in knowing that you have helped ensure that we enjoy the benefits of the communication age.
95 I would like to thank you and Northwestel for indulging me and comments from my community. I firmly believe that while there may be differences of opinion, we are all on the same page when it comes to collectively recognizing the important role that telecommunication services play in our daily lives and just how important it is to build bridges to the future.
96 Thank you very much.
97 THE CHAIRPERSON: Madam Secretary, are we going to questions now or are we going to proceed to Mr. Carter?
98 THE SECRETARY: It's up to you. You can go with the questions.
99 THE CHAIRPERSON: I think we will go directly to Mr. Carter and then we will pose questions to the 2, our 2 colleagues in Yellowknife.
100 Madam Secretary.
101 THE SECRETARY: Okay. The next participant is Mr. John Carter, representing Northwestel Territories Chamber of Commerce, Community Chambers of Commerce of Yellowknife, Inuvik, Norman Wells, Fort Smith, Fort Simpson, and Hay River.
102 Mr. Carter, please.
103 MR. CARTER: Good morning ladies and gentlemen. My name is John Carter. I am the Executive Director of the Northwest Territories Chamber of Commerce. I have with me, this morning, Mr. Gord Stewart. Mr. Stewart is the representative from our Chamber to the Canadian Chamber of Commerce. And he will be making a presentation this morning.
104 MR. STEWART: Thank you very much, Mr. Carter and good morning ladies and gentlemen in Whitehorse. My name is Gordon Stewart. I'm a businessman in Yellowknife, President of Bradenbury Expediting, a logistics provider in this area.
105 I would like to thank the CRTC for the opportunity to speak to the proposed changes to the Northwestel's rate structure. I would have liked to be talking to you in person, but as you chose not to visit the Northwest Territories to hold in‑person community hearings, I hope that in talking to a TV, you nonetheless will receive the passion that the NWT Chamber of Commerce has on these important issues facing the Commission.
106 The Northwest Territories and the city of Yellowknife in particular, is a very significant operation on revenue centre for Northwestel and as such we feel that the CRTC should have considered scheduling the NWT for public consultation.
107 The Northwest Territories Chamber of Commerce, with well over 100 direct members, is also the Pan‑territorial voice of over 700 NWT businesses that are represented by 6 local Chambers of Commerce.
108 The businesses that we represent are diverse, ranging from major international corporations doing business in the Northwest Territories, to smaller home‑grown businesses. The Chamber takes public positions on many topical issues, ranging from government policy to taxation issues, economic development proposals and as in this case, a proposed rate increase by regulated monopoly. In all our public positions, the Chamber applies a simple litmus test. Would this proposal, policy or idea be considered acceptable by our membership and confer, on balance, a net benefit to the majority of the NWT businesses that we represent? We have, and will continue to strongly support those proposals, policies and ideas that meet this test and to vigorously oppose those that do not.
109 This brings me to today's subject of discussion and the rate changes proposed by Northwestel.
110 Before I do that, I wish to acknowledge that Northwestel is a very good corporate citizen and Northwestel management have long been supporters of the Chambers of Commerce in the NWT where employees have previously held the positions of President of the Yellowknife and NWT Chambers. As well, Northwestel provides donations and services and facilities without hesitation when communication project support is required.
111 It has been very difficult for this Chamber to get into much detail with regard to this rate application and regulatory readjustment. We feel that Northwestel has done a very bad job of communicating with their business customers regarding the impact of this proposal.
112 It is recognized that there exists high financial costs and significant challenges in providing quality telephone service to all residents of the NWT, however the application lacks clarity for the non‑telecommunications‑educated person, which is the majority of our membership.
113 Based on the information provided, I would like to touch on the immediate impact on businesses in the North as it relates to our understanding of the application submitted by Northwestel.
114 It appears that the northern business community will incur significant increase to their fixed basic rates. Without an understanding of corresponding significant reductions in long distance rates, or even if the new rate structure will result in direct access to competitive alternatives.
115 Northwestel stated this proposal was good for business. While we may like to agree, we have not been provided the detail requested that would allow our board members to understand the impacts of this proposal on an average business owner in the Northwest Territories.
116 Until we can fully understand and see the requested information, we must strongly suggest to the Commission that we are not in support of any increase to our monthly line charges.
117 To propose $5.00 a month increase is unacceptable without being assured that a corresponding reduction in long distance rates will occur.
118 In the last rate hearing decision of 2001 we were led to believe that the framework was put in place for competition in the long distance market and that in time the North would have true competition. While long distance rates were reduced to the business community, competition did not appear. This was due to the high CAT rate established by the Commission.
119 It is our understanding that the companies are requesting that this CAT rate be reduced from $0.07 cents to 0.825 of a cent.
120 We fully support this reduction and suggest a further planned reduction towards the elimination of this CAT. In this way, then choice and competition with regards to the telecommunications services will truly come to the Northwest Territories and be able to operate on a level playing field.
121 We have competition in banking, airlines, satellite, cable TV, insurance, internet, heating and fuel companies in the North. I guess what we would like to know is why we couldn't have local and long distance competition. It seems that the other services that I just mentioned all have been able to find their way in the North and their rates are somewhat competitive, very competitive with the southern companies. We would like the same opportunity in the telecommunications world.
122 Members of the Northwest Territories Chamber strongly suggest to the Commission they have a responsibility to ensure that Northwestel, as the dominant and in some cases monopoly telephone communication service provider, deliver at a reasonable cost the same or similar services as the rest of Canada. In this regard, our Members have been asking for the following services from Northwestel and/or Northwest Mobility.
123 I heard somebody in Whitehorse mention that it would be very good manners if everybody would turn off their Blackberry and their text messaging devices. We turned ours off, in my case three weeks ago when I left Edmonton for the last time. Unfortunately, the service isn't available here.
124 But we would like to see e‑mail, Blackberry‑type, cell phones. Access to emergency services 9‑1‑1 still has not been provided to the Northwest Territories. Use of other calling cards that they advertise price without the Northwestel service charge. Services that enhance local competition of unregulated services such as voice mail and other enhanced services like PRI.
125 Members would also like some clarification of Northwestel's services. Who provides cell service in the North? Is it Northwestel Mobility? Is it Northwest Bell Mobility? Is it Bell Mobility?
126 Who provides high speed internet service? Northwest Cable? Northwestel? Articom? There seems to be a lack of clarity on where these services are being provided.
127 We are in support of the proposed SIP "service improvement program" and their address of $40 million. These funds are directed to providing the services outlined above to our businesses.
128 Surely the Commission can direct Northwestel to provide clearly identified amount of funds for this subsidization to provide 9‑1‑1 services to the citizens of the Northwest Territories.
129 In the new regulatory framework, Northwestel is guaranteed a rate of return between 10 and 11 percent. In today's business environment where banks are paying a quarter of a percent on saving account balances, this allowable rate of return seems very high and the envy of all businesses operating in the North.
130 It is our feeling that this rate of return is too high and should be reduced as Northwestel operates in an almost risk‑free monopoly situation.
131 We do not have sufficient information to comment on how the Northwestel proposed price cap regulation will change the situation. Northwestel has only indicated that it is a good idea, but this has not been demonstrated, nor has there been a public information process to prove this to the residential and business community.
132 Should Northwestel be given the advantages of a competitive environment when in fact they operate in a fully regulated environment?
133 We are concerned when Northwestel states that one reason for this change is to give the company the reasonable opportunity to earn a fair return. We strongly suggest that 10 to 11 percent is more than fair in today's economic environment.
134 In conclusion, we do not support any rate increase in the business monthly line charge. We do not support the high rate of return guaranteed to Northwestel.
135 We would suggest to the Commission that you direct Northwestel to use the SIP monies to bring access to emergency services, 9‑1‑1 service, to the North and provide those services normally provided to citizens of southern Canada, as outlined earlier.
136 We request that you direct Northwestel to do a better job of communicating the rate applications and regulatory changes to the various interest groups in their service area.
137 We would suggest for the next CRTC hearings that you consider travelling to the NWT and let the NWT public have face‑to‑face interaction with their public telecommunications regulator.
138 I would like to thank you for the opportunity to bring the views of the business community of the NWT to you. I hope that you take these comments as constructive suggestions toward improving the health of NWT business.
139 Thank you very much.
140 THE CHAIRPERSON: Thank you, Mr. Stewart. Thank you, Mr. Carter.
141 Commissioner Williams.
142 COMMISSIONER WILLIAMS: Good morning, Mayor Van Tighem and Mr. Stewart. Believe me, I wish we were in Yellowknife as well.
143 I have a couple of questions for each of you and you can either both answer or one answer, depending on how you feel about the questions.
144 For example, how best should the CRTC balance the desire for competition in the larger centres like Yellowknife with the obligation Northwestel has to serve all of the smaller, more remote communities?
145 MR. VAN TIGHEM: A good question. And yes, there's not a ripple to be seen on the lake this morning.
146 I think I made a comment in the presentation that if certain areas are a specific ROE allowing them to be internally subsidized and the other one allowed to become more open, that might answer the question.
147 However, again we go back to the challenge of we are such a small market overall, including our huge cities of 20,000 people, which in most provinces wouldn't even be a town. It is a bigger challenge.
148 COMMISSIONER WILLIAMS: Should the CRTC entertain two or multi‑tier type pricing rates for Northwestel's operating territory based upon the size of the market in each of the communities?
149 MR. VAN TIGHEM: I think I made a recommendation to that extent without any detail. So I would say yes and turn this to Mr. Stewart to see if he has comments.
150 MR. STEWART: From a business perspective, what we would like to see is, No. 1, competition. Now, how we set those rates ‑‑ I realize that there would be a balancing act.
151 More to the point is the lack of basic services that everybody in southern Canada takes for granted. I hear Call Display mentioned quite often. I hear 9‑1‑1. I hear that the Mobility services are ‑‑ I think, in Mr. Van Tighem's presentation, he mentioned that we don't see any of those services until they have been well tested and proven profitable before they come to the North.
152 We don't enjoy those services in the Northwest Territories, and with the amount of commerce that is going on between our area of Canada and the rest of the world, we see a lot of Canadian, American, foreign travellers who come through here all the time who have no concept of why they can't use their cell phones when they get to certain locations, and why they can't get text messaging.
153 Those are the types of services that we seem to be missing in Norman Wells. We seem to be missing them in Inuvik.
154 With the rate structure that is in place, it certainly dissuades competition. So, in some way, if we could level the playing field ‑‑ maybe if Northwestel weren't interested in providing the services, then competition might be if the rate structure was a level playing field.
155 COMMISSIONER WILLIAMS: I have heard many of your good ideas for normalizing the services in the Northwestel area with what other Canadians take for granted and currently enjoy.
156 What would be the ideal telecom marketplace, say, in Yellowknife ‑‑ and you are very familiar with Yellowknife, Mr. Mayor ‑‑ and, then, in some of the other smaller communities. Mr. Stewart, I am aware that you have businesses in both large and small centres.
157 Tell us what would be an ideal situation in terms of services provided, pricing levels, levels of competition, types of competitors, and in which areas. Help us paint a picture of what the ideal situation would be.
158 MR. VAN TIGHEM: That is a good challenge.
159 First of all, with the RCMP, as an example, monitoring all of their calls from the smaller communities out of a service centre in Yellowknife, I don't see the challenge, or how huge the challenge would be to have the same type of function for 9‑1‑1 across the whole territory.
160 In a perfect world, we would have a 9‑1‑1 service.
161 In most of the small communities they can watch the same TV that any of us do, and everybody is phoning 9‑1‑1, and I know that a lot of them even try it in emergencies. So that is one of the pushes.
162 The other thing is, we keep talking about Mobility and Cellular. I know that the community of Fort Liard, which has about 580 people, has cell access. This was pressed on them by the oil and gas industry when the pipeline construction was going on there.
163 Norman Wells, which has been an oil and gas centre, and will be growing over the next little while, does not, and I am not sure about Inuvik.
164 Cell access seems to be something that can be put in. If broadband can be in every community in the Northwest Territories, it would be interesting if cell were something similar.
165 As far as pricing, it is always challenging in a regulated market to look at pricing when the marketplace always drifts towards the lowest cost. I say that because a large number of my friends and associates here have Rogers and Telus cell phones which they use when they are travelling.
166 There seems to be a gap in what is available here and how it works somewhere else.
167 If I go to meetings in the States, I find frequently that I need to use my credit card in the phone because the Northwestel calling card won't be accepted, and that applies in the Telus region of Alberta and British Columbia.
168 And I did speak to an executive of Telus and said, why won't you accept our calling card numbers with your customers, we are using your system? And he said, well, they are Bell cards, so we don't take them, they are our competitors.
169 So, fairly universality of acceptance, better focus on technology across the piece.
170 I mean, Ron will probably remember that when we opened the bank branch in Fort Smith we did it with an ABM machine.
171 The previous banking supplier had said it wasn't possible and we worked with Northwestel, put a slight delay in the modem and immediately it happened and it improved the retail economy of the community by 25 per cent just with somebody thinking a bit.
172 So we are trying to promote them to increase the technology availability and, you know, start thinking ‑‑ rather than the old clichéd excuses of, we are in the North, it costs a lot to do it ‑‑ take on some of the things that SSI Micro has introduced internationally in Africa for various aid organizations and that where they are almost providing free access and still making a good return on it.
173 I don't know if Gord's got any ideas.
174 MR. STEWART: Well, I guess what I would ‑‑ if I could just add to that, Mr. Mayor.
175 My colleagues that travel from the south, everybody gets used to the service package that they have in their local area and, unfortunately, most of the myth that services ‑‑ the services of their blackberry, their cell phone, and I just can't believe it's doing commerce in this part of the world any good to be trying to operate a telephone system or a mobility system that's not compatible with southern Canada.
176 And I just can't believe that rates are ‑‑ have to be the complete dominant force there.
177 You know, banks operate in the North, they operate on the same service charges they do in the south.
178 Fuel companies, yes, you pay a little higher transportation cost, but...
179 UNIDENTIFIED SPEAKER: Canada Post.
180 MR. STEWART: You know, Canada Post operates up here. Everybody seems to operate without ‑‑ and found a way to make it work, but the services that are provided are the same in the North as they are in the south. And I guess that's what, from a business perspective, we would like to see.
181 And I guess if Northwestel ‑‑ you know, and I go back to the ‑‑ I have been here since the CN/CP days, so I have seen things unfold quite slowly, but I guess if it's that difficult maybe what we should do is introduce competition and see if it can be ‑‑ you know, maybe it's not possible, but I don't believe that's the case.
182 MR. CARTER: I would like to pass out a comment on that tiered rate structure for the Yellowknife versus the communities.
183 One of the realities of the Northwest Territories is we have 42,000 people spread out over one‑sixth of Canada's land mass in over 30 townships, hamlets and communities.
184 The reality is, for example, for power generation in the North, other than Yellowknife, Hay River and Fort Smith that are on hydro from Snare Lake, the rest of our communities have to be powered by diesel generation, which is extremely expensive.
185 Consequently, in order for people to live in these smaller communities, the Government of Northwest Territories has been forced to subsidize the kilowatt rate down to Yellowknife rates.
186 This can mean in a small community like John Reed River, for example, the actual cost of power generation is about $3.50 a kilowatt hour which the government is then forced to sell ‑‑ to subsidize down to 17‑cents so it's affordable and people can still live there.
187 The same should apply to phone rates. The reality is phone service must be affordable in the smaller communities, otherwise these people are completely disenfranchised.
188 So, that is one of the issues one has to consider when you are talking about a tiered rate structure for the Northwest Territories.
189 THE CHAIRPERSON: Mr. Carter, are you suggesting that the Government of the Northwest Territories, Territorial Government should subsidize phone rates in small communities?
190 MR. CARTER: Not if I want to continue to live in the Northwest Territories.
‑‑‑ Laughter / Rires
191 MR. CARTER: But I'm just using that as an example of, you know, the realities of business in the North, the realities of living in the North. We have these hamlets, townships and communities and they are very, very high cost locales to live in.
192 The reality is that people need basic phone service in these communities, it could quite often be a matter of life and death.
193 So the reality is ‑‑ in a theoretical model one could look at pricing and say well, you know, Yellowknife can pay X, but communities would pay X plus more. But the reality is that the communities are not as rich as Yellowknife. So I am not suggesting anything other than the fact that there is requirement for subsidization.
194 THE CHAIRPERSON: Well, of course the subsidization exists doesn't it, I mean there is nearly $10 million in subsidy coming in from southern Canada every year under your telephone system.
195 UNIDENTIFIED SPEAKER: That is correct but, as Mr. Stewart mentioned, we would be looking more along a SIP of about $40 million now.
196 THE CHAIRPERSON: Yes, we have to discuss what SIP means, but that is another story. There is a substantial subsidy and we are discussing what the size of the continuing subsidy will be for sure.
197 Just before I pass the question onto Commissioner Cram, could I just clarify with you one thing? The Commission does not regulate mobile telephone services so, you know, while you may have very legitimate concerns about the corporate identity of the supplier, about the homogeneity of the service package, about the completeness or otherwise of the offerings, all of those things are a function of the operations of the market and they are not regulated by the CRTC or by anybody else, except those general business regulations that apply to people who use public frequencies and who offer credit, contract debt and so forth in the same way that your businesses do.
198 So I don't want to seem insensitive or unresponsive to your concerns about mobile services, but perhaps not the best use of your and our time to discuss them in too much detail at this point, because they are not regulated by the CRTC.
199 Commissioner Cram.
200 COMMISSIONER CRAM: Thank you gentlemen, Mr. Mayor, Mr. Carter and Mr. Stewart.
201 I wanted to go further into your request or your assertion that the SIP should pay for 9‑1‑1. And as you know, I am assuming, the national contribution scheme is what funds the SIPs, the Service Improvement Plans, and in the south the contribution scheme does not pay for 9‑1‑1. And although you say you want the same service as in southern Canada, I can tell you in Saskatchewan that there are plenty of communities of 20,000 and under that do not have 9‑1‑1, as in Manitoba, and are not getting funding to get 9‑1‑1 because that is not what the national fund is being used for.
202 So given that background, that not everywhere in the south has 9‑1‑1 and it is not being subsidized by the contribution scheme, why would you say the national contribution scheme should pay for 9‑1‑1 in the North?
203 MR. STEWART: It is Gord Steward. I wasn't aware that SIP was not paying for that service and I don't believe that anybody in Yellowknife is actually suggesting that we use the SIP to pay for 9‑1‑1. What we are directing ‑‑ what we would like the Commission to do is ensure that 9‑1‑1 is available and I believe that the citizens of Yellowknife, I understand from most places in Canada and correct me if I am wrong, there is a line charge of a certain fee that is applied to 9‑1‑1. Is that correct?
204 COMMISSIONER CRAM: Yes, that is right. Both the platform and the infrastructure. There are two different charges.
205 MR. STUART: And I guess what I am saying is I have heard that ‑‑ and I guess another question, has the CRTC made any recommendations to Northwestel in the past regarding 9‑1‑1 service?
206 COMMISSIONER CRAM: Can't tell you that. Don't know.
207 MR. STUART: Does anybody on the panel know?
208 THE CHAIRPERSON: We will have an opportunity to discuss those issues. Northwestel will come back and make some comments, Mr. Stewart, and no doubt we will wish to address that question.
209 But let us recognize that, in principle, the CRTC is supportive of all citizens of Canada having 9‑1‑1. But it turns out that there are both, as my colleague has pointed out, infrastructure and platform. What she means is there are both changes that have to occur on the network and there are also operational changes in emergency response provisions.
210 Someone has to answer the phone and to answer it intelligently and usefully under severe time pressure.
211 Those things cost money and mostly that money is found, my colleague will correct me if I'm wrong, most of that money comes from telephone companies and municipalities and provinces. But in no case does a Service Improvement Program, a SIP pay for those services.
212 UNIDENTIFIED SPEAKER: I don't think that we specifically made that comment in either of their presentations.
213 THE CHAIRPERSON: I would like to correct you, you said it in so many words.
214 UNIDENTIFIED SPEAKER: Okay. However, it is understood, we have spent several years working on 9‑1‑1 in various approaches.
215 It is understood that the telephone infrastructure is paid for on an assessment as part of the telephone bill which led to my comment related to rate shock and avoiding that type of thing and secondly the platform which, in the case of Whitehorse and possibly in Yellowknife, is provided by the RCMP.
216 There would be a per capita assessment which could be part of a telephone bill, if it was allowed, or it would be part of a simple assessment as far as the GMWT larger, that is something still to be determined.
217 With regard to all of these identified things, we have already established that funding is available for it within this jurisdiction. So it's not a specific ask that it be added to there.
218 Just to go back for a second, to the comment with regards to mobility, recognizing that it's not part of the discussion that we are involved in, could we then consider it as merely an example of the innovations that are available and not being introduced and possibly part of the underlying concerns that we are conveying today.
219 THE CHAIRPERSON: Yes, absolutely, and we just want to be clear.
220 I mean, if you wish to use your time and our time to discuss mobile, that's fine and we have heard your message. And Mr. Flaherty, who is well‑connected with the owners of at least one of the 3 mobile companies, has heard your message. So, you know, that is absolutely legit and if you want to continue, that is also legitimate.
221 However, I just wanted to make clear to you that we don't feel terribly empowered to respond in any very constructive way with respect to that particular aspect.
222 Commissioner Cram.
223 COMMISSIONER CRAM: Mr. Mayor, you did talk about rate shock. And you talked about it in combination with the business increase and the cost of 9‑1‑1. Given that I think the business rate increase is $5.00 and yet it is deductible, so I would say 50 percent of that is a real cost to the business, and given that the residential increase is $2.00, why would we worry more about business rate shock than residential rate shock?
224 MR. VAN TIGHEM: That is the manner in which the presentation was offered. If you are adding a $5.00‑per‑month charge and then you come back and add a dollar or $2.00 for 9‑1‑1, you are now adding a $6.00 or $7.00 a month charge, which reduced by 50 percent is still $3.00, which is above the $2.00 per consumer. That is the quick response, I guess.
225 COMMISSIONER CRAM: But wouldn't the consumer have the additional $2.00 of, $1.00 or $2.00, the same $1.00 or $2.00 9‑1‑1 charge?
226 MR. VAN TIGHEM: Yes.
227 COMMISSIONER CRAM: So, it would end up being the same net effect, wouldn't it?
228 MR. VAN TIGHEM: Correct. I guess the only thing that I would say to that, is that that is fine if a business has one line.
229 Unfortunately in my case, I have somewhat close to 50 and it seems to be quite a ‑‑ it seems a bit of a hit. What do I expect to enjoy in terms of a return on that $5.00 per line, or $200 a month?
230 COMMISSIONER CRAM: Okay.
231 Thank you.
232 MR. VAN TIGHEM: I guess, if I could just go back one more question on the SIP fund and the 9‑1‑1. I think what we were intending on that, is that if those funds were directed to Northwestel, that some of those funds make the necessary changes in the telephone exchange, so that we certainly appreciate that somebody has to answer the phone, answer it intelligently and answer it efficiently.
233 That can be done and it's not, we would suggest, probably most efficiently done by Northwestel, but we can't get onto that track until we have the necessary changes made in a telephone system. And that is what we were suggesting, that some of that money might be able to be directed towards.
234 COMMISSIONER CRAM: But again, then, my question comes back to why in the North should the SIP pay for it when it is those same changes when in the South it is not being paid for by the national contribution scheme?
235 I'm asking the same principal question: Give us a reason for doing it?
236 MR. CARTER: I guess I would answer that with a question: What is the SIP fund being used for then? You know, I guess what I understand that to be is a fund that is given to this telephone company to ensure that they have a capital program that is meeting their needs and unfortunately in most of the communities we don't see the need.
237 To me, 9‑1‑1 seems to be one of those needs and I guess that's where we are coming from.
238 COMMISSIONER CRAM: The SIP is used to finance improvements for up to what is called the basic service objective, which does not include 9‑1‑1 nor broadband in the south.
239 MR. CARTER: Okay.
240 COMMISSIONER CRAM: My question then comes down to again: Is there a principle why we should change our rules for the South in the North?
241 MR. CARTER: And my answer from the business community is: Absolutely not. If you are not getting that service ‑‑ if that service is not being provided in Southern Canada, then we certainly aren't asking for it up here. We will find a way to talk with the telephone company and get a service that is provided and somehow is funded to that telephone company without any SIP funding. We certainly are not asking for anything that is not being provided anywhere else.
242 COMMISSIONER CRAM: Thank you, Mr. Carter.
243 My one last question is: I understood that Inukshuk ‑‑ and I'm not going to go much into Mobility, but that Inukshuk, which is wireless and includes data ‑‑ was going to be available ubiquitously across Canada.
244 Is it not available in the North?
245 UNIDENTIFIED SPEAKER: We are not familiar with that name.
246 COMMISSIONER CRAM: Okay. Thank you.
247 THE CHAIRPERSON: Mr. Williams...?
248 UNIDENTIFIED SPEAKER: I would like to hear about it though.
249 THE CHAIRPERSON: We will send the message back to ‑‑ Mr. Fleury is well connected with Inukshuk too, so we will ask him to be the messenger.
250 Mr. Williams...?
251 COMMISSIONER WILLIAMS: Mr. Stewart, you are very familiar with several of the large international mining concerns that have allowed Canada to become a world leading diamond producer. What type of communication networks are these large international concerns using at their remote mine sites?
252 MR. STEWART: I believe, Ron, just from my experience, one of them are using Northwestel services. They have quite an advanced system that has been put at one of the projects.
253 There is another one that is using a firm out of Vancouver and they have all of their communications done out of Vancouver.
254 The third mine is on another system as well. So I guess it's kind of split between three companies, Northwestel getting a third of the business.
255 COMMISSIONER WILLIAMS: Let's use the Vancouver example, that mine would then have a Vancouver dial tone?
256 MR. STEWART: That's correct.
257 COMMISSIONER WILLIAMS: Okay. Thank you. That's helpful.
258 Mr. Stewart, the staff is probably going to be unhappy with this question because there will something procedurally wrong with it, but I really need to ask you the question anyway.
259 Northwestel has made quite a strong claim to us that the resource development, as it is going now and as it could go in the future, with dramatically ‑‑ or relatively dramatic large increases in investment and upward pressure on labour and materials and logistics factor costs could create a situation in which the Commission would have to come back at Northwestel's request and say, "Okay, we understand that, you know, labour rates have gone up by 75 percent in a year and a half or there are a whole range of scarce materials that are being absorbed by ‑‑ and resources that are being absorbed by this resource development project, or these three resource development projects, and therefore we need to look again at Northwestel's finances.
260 As a businessman, I am asking you: Does that sound to you like a plausible and possible phenomenon, that the impact of these major investments could be so serious as to, as it were, throw Northwestel's financial planning out of whack?
261 I think I am being fair to their arguments here, and I am just interested in your response to it.
262 MR. VAN TIGHEM: I guess from our view, we see some unprecedented growth happening in the next couple of years with the Mackenzie Valley pipeline, with impending Mackenzie Valley pipeline oil and gas development. There are some other mines that will be coming onstream.
263 And yes, the resources that are required to develop all these projects, whether they be human or physical resources, are going to come in short supply and consequently I would expect the rates are going to go up. So it is certainly plausible.
264 I know that with some of our clients, we are going to have to sit down and do the same thing on the rates with them. So I have no reason to believe that Northwestel won't have to do some type of a revision to their business plan as well.
265 THE CHAIRPERSON: Thank you very much.
266 I think those are all of the questions.
267 Could I just take the occasion to thank you very much for your time and to tell you that it is extremely important to have the kind of feedback and the kinds of opinions and views that you provided to us.
268 We know that telecom regulation is not everybody's cup of tea. If I may say so, you have stumbled over a particularly unattractive and complex and difficult to understand set of issues.
269 I don't think you should in any way feel that what you have said to us is compromised by that, because there are some fundamental underlying objectives and some experience that we lack that have governed and informed your input to us. We appreciate it and we thank you very much for the time that you have taken.
270 MR. VAN TIGHEM: We appreciate the opportunity. I know Mr. Stewart has stumbled over this before because he is the former chair of a regulated utility and I am a retired banker.
271 We wish you every good fortune as you move forward with the consultation.
272 THE CHAIRPERSON: Thank you very much. Much appreciated.
273 Madame la Secrétaire.
274 THE SECRETARY: Mr. Chair, we have no one in Fort Nelson. So there are no more participants.
275 THE CHAIRPERSON: No one in Fort Nelson.
276 This is the popular part. Wait until you see the unpopular part.
277 The popular part of our proceeding is done.
278 THE SECRETARY: Yes.
279 THE CHAIRPERSON: We will take a 15‑minute break. Actually, it will be a 12‑minute break. we would like to be back by 10:20, please.
280 Thank you very much.
‑‑‑ Upon recessing at 1008 / Suspension à 1008
‑‑‑ Upon resuming at 1025 / Reprise à 1025
281 THE CHAIRPERSON: Ladies and gentlemen, I think the first order of business on reconvening is to ask our colleagues at Northwestel whether they wish to make any comments of an informal nature in response to what they have just heard from Yellowknife.
282 Mr. Flaherty.
REPLY / RÉPLIQUE
283 MR. FLAHERTY: Thank you, Mr. Chairman. I would like to spend a couple of minutes responding to those comments.
284 I really appreciate the positive recognition of both speakers of Northwestel and its employees and the contribution that we make to the North. We spend a lot of time and effort in ensuring that we are good corporate citizens, so I am pleased to hear that they recognize that.
285 I am also pleased to hear that they support the need for reducing the CAT to encourage competition. As you would know, that is a very important part of the proposal we are making, and I think, again, you can see the alignment you are hearing there.
286 Another important piece that I hear alignment is all parties appear to be in support of our service improvement plan as well, and I think that's important.
287 THE CHAIRPERSON: They don't all understand the service improvement plan quite the same way.
288 MR. FLAHERTY: No, that's correct.
289 They are sensitive ‑‑ we are sensitive to the need to balance costs paid by northerners. As both gentlemen indicated, you know, we have to be cautious in terms of rates.
290 There was a question Commissioner Williams made with respect to tiered rates, and I think the speakers did talk about that and the concerns they may have, particularly in the small communities where there's less money available to consumers.
291 We don't align with the view that current LD competition is an illusion. If you look at all the long‑distance minutes in northern Canada today, 32 per cent are offered by competitors, so I don't think that's an illusion in any way, shape or form.
292 With regard to prepaid cards, there was an implication that Northwestel somehow has surcharges on those cards. First, I would like to correct that. Not all prepaid cards have surcharges in the North. Clearly the one, the Bell example, did have a surcharge.
293 But also, to be clear, any surcharges that are on these cards are assessed by southern providers, not by Northwestel.
294 I know in as well some of the LD rate plans that Telus has, they apply a surcharge, but that's a decision that Bell or Telus make, it has nothing to do with Northwestel.
295 With respect to 9‑1‑1, a very interesting challenge. We have had a lot of discussion about 9‑1‑1 over the years and, to be perfectly honest, we are just a tad frustrated in this subject.
296 In terms of Yellowknife proper, we have almost no work to do in terms of making our network available for 9‑1‑1 services. The Mayor has a steering committee made up of the emergency services. One of our executive actually sit on that steering committee.
297 Northwestel brought a consultant from southern Canada actually to help the city determine how best to approach 9‑1‑1.
298 We are ready to support this implementation and have been for quite some time. I think the primary job that needs to occur right now is the community, or the steering committee I mentioned, needs to develop a plan, a plan that will determine who will actually support the call centre that we have been speaking of, who will staff it, who will pay for the costs of it and things of that nature.
299 And that's similar to anything else that's been done anywhere else in Canada, as Commissioner Cram talked about as well.
300 So we are willing and able in Yellowknife.
301 In terms of the broader Northwest Territories it's a bit more challenging. If we are going to need dedicated trunks to every community, the cost of those trunks, given current tariffs, are high, but that doesn't mean the technology is not there to support them, it is.
302 The last thing I would just comment on very briefly is, Mr. Stewart talked about communications relative to our plans, and that's difficult. And the reason it's difficult is he's obviously heard about the local service increases, has less detail on long‑distance services, and part of the reason for that is we are in a competitive environment and we can't obviously rush out and share with our competitors all of our proposed pricing plans.
303 So, that makes our effort a little bit more challenging in that regard.
304 Those would be my comments, Mr. Chairman.
305 THE CHAIRPERSON: Thank you very much, Mr. Flaherty.
306 Before we begin the cross‑examination phase, I need to say a few words about the administration of this phase of the proceeding.
307 Avant de commencer les contre‑interrogatoires, j'aimerais dire quelques mots quant au déroulement de l'audience.
308 Appearing parties will have the opportunity to make oral opening statements not exceeding 10 minutes.
309 I am told that there is an opening statement that we have on our hands here which may take more than 10 minutes, and I am perfectly prepared to tolerate a certain, you know, minor dérogation, but in principle, the opening statements should not exceed 10 minutes.
310 Parties should proceed in the order set out in the organization and conduct letter.
311 Before proceeding they should file as an exhibit a written copy of their opening statements with the hearing secretary and serve a written copy on all appearing parties at the hearing.
312 Following oral opening statements we will proceed to cross‑examination. Parties' witnesses will appear in the order set out in the organization and conduct letter.
313 Consistent with our usual practice, traditional examination‑in‑chief by any party will not be permitted, rather a party calling a witness will generally be entitled only to examine its witness briefly regarding the preparation of the evidence, any errors or any routine updates to the evidence and the witness' qualifications.
314 The order for cross‑examination is also stated in the organization and conduct letter.
315 Generally, Commission counsel questions and those of the Commissioners will come after the parties have completed their cross‑examination of a particular representative or panel of representatives.
316 As set out in the organization and conduct letter, parties should provide the hearing Secretary with their best estimates of the time they require for cross‑examination of each witness or panel of witnesses and also advise her as soon as possible of any changes to those estimates. Parties should also inform the hearing Secretary as soon as possible if they do not intend or no longer intend to cross‑examine a witness or panel. We are relying on everyone's collaboration to ensure that the hearing is held in an orderly fashion.
317 The order in which parties conduct their cross‑examination may be changed by agreement between the parties with advance notice to the party being examined and to the hearing Secretary. Our experience in past proceedings is that there is usually no need to engage in redirect examination, although we recognize there may be situations, exceptional situations, where redirect is necessary and appropriate.
318 After cross‑examination of all witnesses being completed, we will move onto the final argument, once again as noted in the organization and conduct letter, the Commission intends to have oral final argument at the hearing. The parties are reminded that if they plan to make oral argument but are not presenting witnesses or participating in cross‑examination they should advise the hearing Secretary accordingly.
319 Parties will be permitted to supplement their oral argument with written submissions filed and served on all parties by July 24, 2006 or the end of the oral hearing, whichever is later. Written reply argument may be filed by Northwestel by August 4, 2006.
320 It may not be the intention of all parties to be in attendance throughout the hearing. In this regard I wish to stress that all parties are responsible for monitoring the progress and content of the hearing and for attending and having their witnesses available at the correct time. I note that the hearing is being webcast on the Commission website.
321 Some of you have asked, because of other responsibilities that you might have, what time lunch is liable to occur and I shall try to keep lunch, in principle, beginning sometime between 12:00 and 12:30 and the Commission beginning again for the afternoon around 2:00. I can't swear to the fact that that will be absolutely the procedure followed but, in principle, for those of you who have other duties or other things you want to do, I would like to think that that hour and a half period will be available to you.
322 The parties should also be aware of the progress and content of cross‑examination which proceeds their own in order to be ready with their cross‑examination at the appropriate time and to ensure that there is no unnecessary duplication of matters previously dealt with by other parties.
323 This concludes the initial comments that I wish to make at this time. I now call on Commission counsel to address some additional procedural matters.
324 MR. McCALLUM: Thank you, Mr. Chairman.
325 As noted earlier today, the public examination room is in Conference Room A next door in the hotel.
326 I would note that soon after exhibits are filed and made part of the record they will be made available on the tables at the back of the room for you to pick‑up. Our hearing Secretary, Madam Bisson, has the forms which, when completed, will provide a written record of appearance. If you have not already done so, please ask her for one and fill it out. The information in the form will allow us to contact you, if necessary.
327 I also remind parties that with respect to all documents filed at the public hearing 20 copies must be provided to the hearing Secretary. In addition, a copy must be served on all other parties present in the room at the time of the filing. Anyone wishing to purchase a copy of the transcript may speak with the court reporter who is sitting at the table at the left of the hearing Secretary. Copies of the transcript will also be available on the Commission's website.
328 The Commission's briefing book is available in the public examination room. It has been slightly abridged in order to remove confidential information.
329 Le cahier d'information du conseil se trouve dans la salle d'examen publique. Il est légèrement abrégé afin d'enlever certains renseignements confidentiels.
330 On the subject of costs, if there are any interveners who intend to apply for an award of costs, I would suggest that they alert one of the Commission counsel, myself or Ms Bennett, and Northwestel to that fact so that parties are not surprised. In accordance with telecom public notice CRTC 2002‑5 entitled New Procedure for Telecom costs awards dated 7 November 2002. Parties are encouraged to identify the specific amount of costs for which they wish to apply and to file with the Commission all information necessary for the Commission to fix the costs. Applicants and potential respondents should be prepared to address these applications orally at the hearing.
331 I remind everyone, please, to turn off cell phones, pagers, Blackberries and other text‑messaging devices and leave them off while the hearing is on.
332 Je vous rappelle de bien vouloir désactiver votre téléphone cellulaire, votre téléavertisseur, votre dispositif Blackberry ou tout autre appareil de messagerie texte pendant la durée de l'audience.
333 Finally, Mr. Chairman, the Hearing Secretary, Miss Bisson, the staff team leader, Christine Bailey and Commission Counsel, Miss Bennett and myself, will be available throughout the hearing, to assist any parties who have questions regarding practices or procedures that we follow.
334 It is often possible for Commission Counsel and Counsel for the parties, to resolve procedural matters off‑line, and this may save hearing time.
335 On the other hand, if parties wish to make representations formally on the record, it would be best to alert the Commission Counsel or the Hearing Secretary of that possibility.
336 Thank you. I hope that assists.
337 Thank you, Mr. Chair.
338 THE CHAIRPERSON: Are there some preliminary matters which may, which one may wish to raise?
339 Please feel free, counsel for Northwestel.
340 MR. ROGERS: Thank you, Mr. Chairman, Phil Rogers, for Northwestel.
341 A preliminary matter with regard to scheduling and witnesses, since we are not entering the cross‑examination phase of the proceeding, we had originally scheduled and it shows up in the proceeding order of appearance, a witness on rate of return, an external witness, Cathy McShane.
342 In consultation with all the parties, including Commission Counsel, it appears that there are no questions, no party intends to put questions to Ms. McShane.
343 Since she was intending to leave New York city today, and it's obviously a long way to go, if there were no questions, it appears there was no need for her to attend.
344 And so it would appear at this point, that there is a consensus that there is no need to Cathy to appear as a witness. And so that would remove one of the Northwestel witness panels and we would be left with our 3 panels, Marketing, Policy and Finance.
345 THE CHAIRPERSON: Mr. Greave, speak now or forever hold your peace.
346 Sorry. Are you designating someone who is going to speak for you?
347 Counsellor, we have come an equally long distance, let it be said.
348 MR. RYAN: Thank you, Mr. Chairman.
349 My name is Michael Ryan, and I'm appearing in this proceeding on behalf of Telus Communications Company.
350 We will be presenting a panel to speak to the evidence that we filed in June of this year and the witness will be presenting, as signalled to the Commission before, is Willy Greave.
351 THE CHAIRPERSON: You will not be desirous of cross‑examining the Northwestel's rate of return.
352 MR. RYAN: Oh, no, that is quite right, Mr. Chairman. If that is the question, yes.
353 THE CHAIRPERSON: Thank you very much.
354 Let's just be clear that if during the process, in the absence of a sufficient supply of microphones, if someone has an issue to raise, please just stand up and we will invite you to come forward. All right?
355 MR. ROGERS: And I should just add, Mr. Chairman, that there is already the usual practice underway, of close cooperation among all parties to deal with the issues of scheduling, of timing of witnesses, of non‑appearance of witnesses, should that occur.
356 So I think that that aspect of the proceeding is off to a good start. And we, of course, intend that that would continue.
357 THE CHAIRPERSON: Yes, you have very wisely chosen to foreclose the possibility that the Commission, the panel Chairman, might have to make a ruling of any significance.
‑‑‑ Laughter / Rires
358 THE CHAIRPERSON: It's very wise on your part.
359 Okay. And any other preliminary matters?
360 Thank you.
361 Madam Secretary.
362 THE SECRETARY: We will now ask Northwestel's Marketing Panel to come forth ‑‑
363 THE CHAIRPERSON: Oh, a preliminary statement, Madam Secretary.
364 THE SECRETARY: Oh, I'm sorry. Is there any preliminary statement?
365 THE CHAIRPERSON: Mr. Flaherty.
OPENING STATEMENT / REMARQUES D'OUVERTURE
366 MR. FLAHERTY: Thank you, Mr. Chairman.
367 Mr. Chairman, members and staff of the Commission, my name is Paul Flaherty. I am President and CEO of Northwestel.
368 It is my pleasure to welcome you and all other participants to the North. It has been 6 years since the Commission last held a major telecommunications hearing in the North.
369 As you know and as will become more evident through this proceeding, much has changed since year 2000.
370 For example, very significant progress has been achieved under the framework created by the Commission in Decision 2746.
371 Under that framework the North now has long distance competition with choice of service provider and substantially lower long distance rates. Nearly one‑third of all long distance traffic is provided by service providers other than Northwestel.
372 Furthermore, as directed by the Commission, Northwestel undertook and completed a major service improvement plan under which some $85 million of uneconomic capital expenditures were made over the last five years. The plan approved by the Commission included major upgrades to our long, thin route toll connect facilities.
373 The extent of the SIP investments required were, relatively speaking, extremely large. These SIP investments required by the Commission amounted to one‑third of the company's total net assets. To put this figure in perspective, if the same relative size of SIP had been required of Telus, the capital required to be invested by Telus would have been about $3 billion.
374 We will be discussing the continuing impact of those investments on Northwestel's costs during this hearing.
375 By any measure the Commission's unique framework for Northwestel devised in 2000 has been very successful. It has achieved virtually everything the Commission had hoped it would achieve. The Commission can take credit for having found the right balance.
376 Nevertheless, while the current framework has been a success, we are here this week to reassess the framework and to adapt to today's reality. As we are all aware, the telecommunications world is anything but static. New players and new technologies, especially those that are internet‑based, are challenging our traditional concepts of what telecommunications services are, how they are provided and how they are priced.
377 These changes are inexorably rolling through telecommunications markets worldwide. For example, in the year 2000 we did not foresee that a large well‑financed service provider would decide to offer free long distance voice services throughout Canada and the United States, but that is in fact what Skype and its parent eBay are now doing.
378 Trying to compete against a free service is a real challenge for all service providers, whether you are an incumbent or a new entrant.
379 The Commission is well aware of these important developments and is currently considering them in other proceedings.
380 In light of these changes since 2000, it is time that we collectively reassessed the regulatory framework for Canada's North. Once again, in the face of great uncertainty, the Commission is called upon to strike the right balance among competing objectives. In striking that balance we all have to recognize not only the realities of major changes in the telecom industry throughout Canada, but also certain realities that haven't changed.
381 To be specific, when we leave this hall today we will see the City of Whitehorse, a wonderful city which I'm proud to call home, but we should not succumb to the all too common view that Whitehorse is typical of Northern communities. In fact, while it is a relatively high‑cost area, it is not at all representative of most of the North.
382 Unlike Whitehorse, many of the 96 communities we serve have no year‑round road access and no daily air service. The vast majority have fewer than 500 lines compared with 18,000 lines in Whitehorse. In small communities there is little or no business community in the sense understood in Southern Canada. The few non‑residential lines found in these remote villages would typically serve the local nursing station, the Band office or the youth centre.
383 To illustrate the type of community that is typical of the area we serve, I would like to draw your attention to the photo of the community of Arctic Bay on the cover of the written text we distributed. As you can see in this photo, this is a picture of Arctic Bay. It shows the community around the Arctic Ocean. That is the ocean that is frozen there in front of the buildings. You can see our satellite dish that is shown there.
384 There is a total population of 646 people in Arctic Bay and a total of 262 access lines. Interestingly enough, we have invested over $9,000 per access line in this community.
385 There is one constant among most of the 96 communities which we cannot lose sight of. The small communities are, from a pure economic point of view, not economic to serve. Telecom services provided to these communities and the networks built to provide them are not economically sustainable on their own. They cannot exist without some form of external subsidy to maintain them.
386 But this is not really surprising. For most northern infrastructure services the question has always been not whether to subsidize the infrastructure, but how to do so and to what extent.
387 Government policy has been to ensure that northern Canadians have access to reasonably comparable services at reasonable prices. In the case of telecommunications, however, the pace of technology changes, challenging the sustainability of current services and investments by companies like Northwestel.
388 IP‑based technologies now allow users the option to consolidate and migrate their significant volumes of traffic onto a new private IP networks, bypassing legacy services entirely. This is a rapidly evolving reality which carriers everywhere must quickly adapt to.
389 In Northwestel's case there are very few customers with significant telecommunications traffic. Among the major users on whose revenues we are so dependent are the interconnected southern carriers who pay settlement revenues for termination or origination of their toll traffic in the North.
390 In light of the clear risks of losing significant amounts of such traffic and revenue, Northwestel has proposed to move its rates, especially for interconnecting carriers, closer to the rates in the South. Our rates will still be much higher, but we propose to take steps now in order to narrow the gap, thereby reducing the risk of losing altogether substantial amounts of revenue needed to sustain the remote network.
391 Our concerns about loss of significant portions of current revenue streams are exacerbated by recent investments by government in parallel IP‑based networks in most of the remote northern communities.
392 It is ironic and unfortunate that the public funding of a duplicative parallel IP network in already uneconomic regions is primarily sponsored, not of course by the CRTC but by other federal agencies and departments. Thus the dilemma of setting appropriate going‑in rates is particularly difficult in the case of Northwestel. We are proceeding from a system in which there is currently an explicit subsidy from the national fund, but there is also a much larger subsidy derived from implicit cross‑subsidies obtained from other rates for Northwestel services.
393 We are proposing to make those subsidies explicit and visible.
394 For example, the current CAT rate for termination of toll traffic is 60 times higher than any rate for toll connection service in the South. Relative rate differences of that magnitude are simply not sustainable in light of low‑cost IP‑based alternatives now available, particularly those alternatives subsidized by the federal government.
395 There will certainly be some debate in these hearings about whether users of the northern network should contribute more than they do now. This is a legitimate question. We have a number of detailed proposals in this regard which we believe strike an appropriate balance.
396 However, to put the current contribution by northern users in context, I would point out that the average revenue per line in the North is already one and a half times that of the lines in the South.
397 In closing, Mr. Chairman and Members of the Commission, we welcome this opportunity to review with you the challenges of developing a new framework for the North. We believe we share with other parties a common objective: to strike a balance that achieves Canada's policy of providing all Canadians, including Northerners, with quality services at reasonably comparable rates.
398 We look forward to fully participating in this hearing.
399 Thank you, Mr. Chairman.
400 THE CHAIRPERSON: Thank you very much, Mr. Flaherty.
401 THE SECRETARY: Mr. Chairman, the next participant should be PIAC but they indicated that they would not be making an opening statement. Unless they wish to do so now, we will proceed with UCG.
402 THE CHAIRPERSON: UCG, please come forward, sir.
403 We have no document, Madam Secretary? No.
OPENING STATEMENT / REMARQUES D'OUVERTURE
404 MR. RONDEAU: Good morning, Mr. Chair, ladies and gentlemen of the Panel, staff: As the UCG President, I would like to welcome all of you folks to Whitehorse.
405 THE CHAIRPERSON: And your name is, sir?
406 MR. RONDEAU: Sorry. My name is Roger Rondeau. I am the President of the group.
407 THE CHAIRPERSON: Mr. Rondeau.
408 MR. RONDEAU: Yes.
409 THE CHAIRPERSON: A pleasure.
410 MR. RONDEAU: Correct. A pleasure here too.
411 The Utilities Consumers Group is a non‑profit organization which we formed in 1993 to help residential and small‑business consumers fight against unnecessary rate hikes in telecommunications, electricity, city utilities, and any other type of utility.
412 The first thing I would like to mention, Mr. Chair, is the timing of this hearing. I notice that there were very few comments made by the people here in Yukon. That puts a lot more stress on our backs.
413 We were happy to see the Northwest Territories mayor and various other organizations make presentations.
414 At the last hearing that was held here, some six years ago, there were line‑ups in the halls, ladies and gentlemen, from the public itself, off the street, to make comments to the Commission.
415 I would strongly suggest that the next time you come to visit us ‑‑ and we do appreciate you coming to hear us firsthand ‑‑ that this be done in the fall or in early spring. We have many seasonal employment people here, who work long hours. They make hay while the sun shines, so to speak.
416 Those who are on holidays are out fishing and hunting right now ‑‑ or fishing and camping, I should say ‑‑ enjoying our summer break.
417 The second thing I would like to mention is the special stewardship that we hold you to to the ratepayers of the North. We appreciate very, very much what the Commission has already done for northerners with the implementation of the High Cost Serving Area Support Plan. This has helped the North significantly.
418 You are the envoys and the messengers to the powers that be down South to convey what we have to say, so that what is placed in the Telecommunications Act is actually enshrined.
419 We do not agree with any type of different rates for different parts of the communities, as was suggested. We think that would be a step backwards. We have gotten away from that. I don't think that any ratepayer, group or small community should be disenfranchised or have higher costs than other communities in the North.
420 We will be making argument and cross‑examining the various Northwestel panels. We have several very serious issues that we want to bring forward, especially the recommendation or the proposal to raise residential rates, as well as rates for small businesses in Yukon.
421 We will be arguing that there is an affordability issue for some 45 percent of the people in the Yukon territory.
422 We also have problems with Northwestel going directly into price regulation, although we understand that this should be better for the consumer.
423 The North is a special area, and when you have subsidies already in place, and when you have the unlikelihood that we will ever have competition in the local market, it is hard to perceive that price regulation will work here.
424 We anticipate that this process will persuade the Commission to uphold the provisions established in section 7 of the Telecommunications Act: that you will direct a fair balance between ratepayer and shareholder interest; that you will remain committed to subsidizing the unique circumstances of the North through the national program that you have implemented; you protect those low‑income vulnerable citizens of the northern society by not imposing higher local rates ‑‑ the residential specifically ‑‑ either that or you provide some type of life‑line service for these people; ensure that northerners have access to the evolving information highway; and, finally, ensure that Canadian society benefits as a whole from this information highway through better education, health ‑‑ which is even more prominent in the northern areas in the small communities in the Yukon; new and enhanced databases which are easily accessible to everyone for job searching, job training, telecommunicating and home‑based businesses.
425 Videoconferencing, as we seen this morning, is very important for the North. This can be used for health, education and even programs ‑‑ or even more important programs for our disabled people.
426 Again, I would like to welcome you and thank you very much for the opportunity to speak.
427 THE CHAIRPERSON: Thank you very much, Mr. Rondeau.
428 THE SECRETARY: Mr. Chair, the next participant will be the Government of the Northwest Territories.
429 Mr. Mike Aumond will represent the Government.
OPENING STATEMENT / REMARQUES D'OUVERTURE
430 MR. AUMOND: Good morning, Commissioners, my name is Mike Aumond, I'm the Deputy Minister of the Department of Public Works & Services with the Government of the Northwest Territories.
431 I would first like to thank you for the opportunity to make this opening statement on behalf of the Government of the Northwest Territories and for the opportunity to participate in this very important proceeding that, among other things, will result in determining just how Northwestel is to be regulated starting in 2007.
432 I would also like to thank the Commission for conducting this public hearing in one of Canada's northern territories. I will add that I hope you consider visiting the territory that I represent, the Northwest Territories, the next time you decide to deal with northern matters on site.
433 That said, for those of you who may not have had an opportunity to visit the North before, I hope that the experience of this trip adds some dimension to your outlook regarding the vastness and uniqueness of Northwestel's operating area and the challenges the company faces in providing their suite of telecommunications services to their customer base.
434 Proceeding CRTC 2006‑01 has been initiated in order to consider moving Northwestel's regulatory regime more in line with those in place in the provinces.
435 The Government of the Northwest Territories supports a move of this nature with one caveat, that the Commission continues to recognize that there is no such thing as a one‑size‑fits‑all regulatory regime.
436 After you have the opportunity to digest all the evidence, statements and arguments compiled during the course of this proceeding, we urge you to construct and implement a built‑in‑the‑North system, a regulation that will help one‑third of Canada's land mass move towards the 21st century with a system of telecommunications facilities and services that gives our northern residents a fair and equitable arrangement similar to that enjoyed by those in the south.
437 One of the realities of northern Canada is that its size, climate and sparse population will not attract much in the form of telecommunications competition, particularly in the areas of facilities and infrastructure.
438 Price cap regulation and competition feed and drive each other. Price cap regulation with only very limited competition could adversely impact those of us that live in the North unless appropriate and firmly exercised adjunct regulations are set in place.
439 Some external force needs to be substituted for competition in this regulatory environment. Too much is at stake. The availability of a full suite of telecommunications services is taken for granted in the south and the majority of Canadians in the provinces necessarily give it a second thought.
440 This is most definitely not the case in the North. Whereas the provinces have lattice works of fibre optic cables interconnecting communities, half the communities in the three territories rely exclusively on expensive satellite transport with all the limitation that entails.
441 Whereas the vast majority of Canadians simply make a call to their choice of service providers to obtain high speed internet services to the residents, those living in most of the small NWT communities must compete for a limited number of dial modems that are available to them for toll‑free internet access. Other potential offerings such as cellular systems, 9‑1‑1 emergency services or voice messaging and call display are simply not available in most communities.
442 Section 7 of the Telecommunications Act, the Canadian Telecommunications Policy, makes it very clear that northern Canada is not to be excluded from opportunities and services made available by this vibrant and growing industry. Many of the major decisions by the Commission in the past 10 years have recognized the need to develop a unique regulatory approach to northern telecommunications in order to satisfy the requirements of the Act. Your decisions have provided the three territories a customized regulatory environment with unique elements such as community‑level quality of service reporting, a modified form of term regulation and, most importantly, a unique set of explicit and implicit subsidies funded on a national basis. For this, we are very appreciative.
443 So how will a brand new northern telecommunications regulatory framework work? How do we ensure that the groundwork already put in place by the Commission continues to grow and bear positive results? How do we ensure that investments made today by Northwestel and significant contributions made by residents of southern Canada in a form of subsidies do not get wasted?
444 The massive service improvement plan completed in 2005 by Northwestel brought northern communications infrastructure to a certain point in the technology lifecycle. Now what is going to compel Northwestel to reinvest in equipment and to invest in new emerging technologies? Unfortunately, it probably will not be competition that acts as the driver.
445 I worry about how soon it will be before obsolescence sets in and territorial residents once again are left with a level of service far below that which is taken for granted by residents in the south.
446 I would like to give you some examples of how we in the Northwest Territories have put telecommunications technologies to work on behalf of our residents. We make extensive use of videoconferencing application, especially to provide telehealth services. This allows a specialist from either Yellowknife or a larger Canadian city to perform real‑time diagnosis of patients in small remote NWT communities. On some occasions telemedicine can assist patients who are brought to the local nursing station with a major injury.
447 None of our remote nursing stations has doctors present and the quick availability of a southern specialist can be lifesaving. In other cases, a diagnosis from a specialist can make it unnecessary to medevac a patient to a larger centre, allowing us to avoid very high travel costs that can result.
448 Another application being implemented in the Northwest Territories relates to the provision of classroom and teaching services for students in isolated communities limiting the need to uproot a student to a larger community in order to complete high school. We also use networking technologies to provide library services in community and adult learning centres in several remote communities.
449 We would like to do more but find that the absence of competition in the North creates an atmosphere where the service provider is not always motivated to understand the needs of their customers and develop the market, and market innovated and useful advance solutions to keep abreast of our evolving program requirements.
450 To give you an example of the challenges we face, two years ago we issued a request for proposals for the provision of wide‑area network services. The resulting contract would be for a minimum of five years and worth millions of dollars. In an attempt to ensure we received a breadth of innovative solutions and to improve the level of competition we contacted several firms from the south to provide them with information and encourage them to submit proposals. We were dismayed to find that everyone of the southern firms decided that the incumbent had such an advantage because of their existing facilities that not one of them submitted a proposal. This is one reason for our belief that getting competitive entry in the area of facilities and infrastructure will be difficult to accomplish regardless of which specific regulatory regime may be implemented.
451 The solution designed by the Commission as a result of this proceeding, again, will be very complex. But we are confident that the result will be fair and equitable with a built‑for‑North regulatory regime that can include mechanisms that act as a substitute for the relatively non‑existent competitive environment while satisfying national legislative requirements and policy objectives. The Government of the Northwest Territories, as well as many other of the parties participating in this proceeding, will be offering comments and suggestions towards the final solution.
452 We realize that much of the discussion in this extensive proceeding will be of a technical nature with topics including such diverse subject matter as rate of return, going‑in revenue requirements, depreciation, local exchange rates, cost base subsidies and Phase 2 costs, all debated using a vernacular of the telecommunications regulation field of expertise.
453 But we urge the Commission not to overlook what matters most to our residents. Your final decision is going to have major social and economic impacts, hopefully extremely positive on all residents of the 3 territories.
454 Again, we appreciate that you came North to conduct this public hearing and appreciate this opportunity for the Government of The Northwest Territories to express its views.
455 We unfortunately do not have the resources to participate actively in all aspects of the hearing, beginning today.
456 We will be monitoring the hearing from Yellowknife and will be back before you to present our oral final argument.
457 We will also submit a detailed final written argument containing our specific and detailed recommendations on the key issues now before you.
458 Thank you.
459 THE CHAIRPERSON: Thank you, Mr. Aumond.
460 THE SECRETARY: The next participant, the Government of Yukon, Mr. Terry Hayden. Oh, sorry, Miss Terry Hayden.
461 THE CHAIRPERSON: Sorry, your name was?
462 MS BUCKLEY: Hi.
463 THE CHAIRPERSON: Hi.
464 MS BUCKLEY: My name is Andrea Buckley. I am the Director of Policy, Planning and Research for the Department of Economic Development in the Yukon Government.
465 We would have liked to have our Deputy Minister here. Unfortunately he can't be with us today, so I would like to deliver our opening comments on his behalf.
466 So, on behalf of the Yukon Government, I am certainly pleased to welcome the Commissioners and staff to Whitehorse for this important public hearing to consider Northwestel's regulatory framework.
467 I am likewise pleased to be able to introduce you to the issues the Yukon Government believes are important for you to consider in your deliberations.
468 As I am sure the Commissioners are aware, the Yukon Government has been an active participant in telecom policy proceedings affecting the North over the last 2 decades.
469 In our view, the government is in a particularly important position of representing the interests of consumers, businesses and the economy and society of Yukon as a whole.
470 In addition, the Yukon Government is a major customer of Northwestel.
471 Telecommunications has been identified as an important policy priority for Yukon for several reasons.
472 Firstly, the factors of distance, sparse population and an often harsh environment combine to make telecommunications service essential for Yukoners. Vital may not be too strong a term.
473 Secondly, telecommunications is an important enabler of business, as well as an important contributor to social well‑being in the territory through providing communications access for health, education and commerce.
474 Thirdly, the telecommunications and information technology sector offers opportunity for growth and development of our economy. In addition to the traditional importance of the resource sector, the Yukon economy is increasingly reliant on the creativity of small businesses using telecommunication and technology to compete in a global marketplace.
475 Finally, the Yukon government is itself a significant user of telecommunications and one of the Northwestel's major customers.
476 We value our relationship with Northwestel and we have a good track record of cooperation.
477 At the same time, however, because of the changing needs for services in the territory, and the opportunities presented through technology advances, the Yukon Government is keenly interested in obtaining the best value for its telecom expenditures.
478 The purpose of this proceeding is to review Northwestel's regulatory framework. And while it is not my role today to address the government's detailed position on the issue before the Commission, I would like to describe the 5 statements of principle that we believe should be taken into account in reaching your decision.
479 The regulatory framework for Northwestel should provide the means for growth in telecommunications facilities and services that will result in net benefits for Yukon.
480 The regulatory framework should enable the continuation of Northwestel as a viable northern‑based telecommunications provider.
481 The telecommunication services available in Yukon should offer sufficient flexibility in availability, innovation and pricing for Yukoners to have comparable opportunities to other Canadians.
482 Telecommunications users in Yukon, should have sufficient protection for the prices, value and quality of the telecommunications services they require.
483 The regulatory framework must enable the investment and growth necessary to ensure that Yukoners continue to have access to advanced telecommunications services.
484 I understand that the point has been made in previous telecommunications regulatory cases that the North is unique. But it is of such critical importance to Yukon, that it bears repeating here.
485 The Commission has previously recognized that the solutions developed for the changing telecom environment elsewhere in Canada must be adapted for the particular circumstances of northern economies and societies.
486 It is our view that the multiplicity of change in telecommunications and information technology accentuates the need for unique solutions in the approach to regulation of Northwestel. The submissions before you emphasize the importance of understanding the particular circumstances of the North in revising the regulatory framework.
487 One issue that is and will certainly remain critical to the growth and development of telecommunications in the North is the subsidy that was initiated by the CRTC in the high‑cost serving area decision. The Commission should be commended for recognizing the need and acting to institute a solution hat is measured and effective for the purpose.
488 Northwestel's service improvement plans have resulted in positive benefits for Yukon residents and businesses in the improved access to quality telecommunications services.
489 The Yukon government believes it is important to underline that the physical and economic realities of the North will continue to require subsidy support if Yukoners are to achieve the same benefits from our national telecommunications policies as are available to Canadians in southern communities.
490 Certainly the subsidy program must be measured and well‑managed, but the real benefits of providing Northerners with affordable access to quality telecommunications services far outstrips the cost of the subsidy.
491 In our submission, the Yukon government suggests that the Commission look closely at the question of how the northern telecommunications infrastructure should be developed and supported. The technology and market trends indicate an evolution towards an industry model where infrastructures are platforms on which competition in applications and services can be realized.
492 Where costs are lower and investment opportunities richer, there may also be competition at the infrastructure layer, but this is certainly not the case in the North. Duplicate investment in infrastructure in northern communities is neither feasible nor desirable, particularly in the case of public investment.
493 It is for this reason that the Yukon government believes that the optimal regulatory framework for Northwestel should incorporate sound measures that will facilitate and in fact encourage investment in advances infrastructure as a common foundation for the development of telecommunications and information technology at the service and application layers.
494 The submission of the Yukon government also offers an additional proposal that is intended to provide the Commission with an alternate approach to the development of telecommunications policy solutions that are most effective in meeting the particular needs of northern Canadians. We have suggested that the development of a common telecommunications infrastructure is more efficiently and effectively accomplished through a cooperative approach that is coordinated on a regional base.
495 The national telecommunications policy principles provide the framework, while the needs, solution design and implementation of specific projects incorporate regional priorities and realities. There will be opportunities to explore this idea further in the coming days, but I would urge the Commission to give consideration to including a mechanism such as this in the regulatory framework to enable the particular circumstances of regional interest to be balanced with the scope of national policy goals.
496 Thank you for your consideration of the Yukon government's views in this proceeding. We appreciate the opportunity to address you here in Whitehorse and I very much hope that Members of the Commission and your staff will be able to enjoy the beauty of our scenery and the warmth of our people during your visit to the Yukon.
497 Thank you.
498 THE CHAIRPERSON: Thank you very much, Ms Buckley.
499 THE SECRETARY: Mr. Chairman, the last participant to provide an oral opening statement is Telus.
500 THE CHAIRPERSON: Mr. Ryan...?
OPENING STATEMENT / REMARQUES D'OUVERTURE
501 MR. RYAN: Thank you, Mr. Chairman.
502 We thank you for this opportunity to appear before the Commission and to contribute to the discussion of issues that have important implications for users of telecommunications services in Northern British Columbia, Yukon, the Northwest Territories and Nunavut, and indeed, because of the proposals Northwestel has made for use of funds from the National Contribution Fund, telecommunications users across the country.
503 Let me begin, please, by explaining our interest in this proceeding.
504 Northwestel is asking the Commission to authorize new payments of over $30 million per annum from the National Contribution Fund as part of the proposal before you.
505 We fully support the Canadian telecommunications policy objective of providing affordable telecommunications services to all Canadians, and we believe funds should be made available from the National Contribution Fund, where appropriate, to support access to basic telecommunications services for the people served by Northwestel. But we do have concerns about the uses to which Northwestel proposes to put the funds that it is requesting.
506 We are not satisfied that all of the intended uses qualify for support from the National Contribution Fund or are consistent with the Commission's policies for use of those funds.
507 For example, should the prices of business services such as private line services be subsidized, as Northwestel has in effect proposed, by the National Contribution Fund?
508 We are concerned that the real purpose of these proposed subsidies is to insulate Northwestel from losses it may suffer as a result of competition ‑‑ competition which, as the Mayor of Yellowknife told you this morning, may be largely illusory.
509 Some of the uses to which Northwestel intends to put subsidy funds are legitimate, such as the support of local residential services. But we have questions in some of these cases too about the way in which Northwestel has calculated its subsidy requirement.
510 Mr. Chairman, Telus wireline and wireless customers across the country paid over $63 million into the National Contribution Fund last year. That is about 25 percent of the total. We therefore have a direct interest in any plans that affect the funding requirement or how those funds are spent.
511 We therefore intend to explore issues related to Northwestel's subsidy proposals in the course of this proceeding.
512 We will also explore issues related to Northwestel's price cap proposal. We believe, Mr. Chairman, that price caps are, when properly implemented, a superior method for regulating a carrier's rates than rate base rate of return regulation, for reasons we have presented to the Commission on many prior occasions.
513 In principle, therefore, we support Northwestel's transition to price cap regulation.
514 To carry out that transition successfully, however, three steps are required.
515 The Commission must first determine Northwestel's going‑in revenue requirement. The Commission must then decide how to structure Northwestel's rates and subsidies to generate this revenue requirement.
516 Finally, the Commission must determine how the rates for Northwestel's regulated services will be allowed to change over time.
517 Frankly, Mr. Chairman, we have difficulties with the way in which Northwestel has approached each of these three steps. We do not think that Northwestel has put forward the evidence necessary to demonstrate that its proposed going‑in revenue requirement is reasonable.
518 Northwestel's revenue requirement has not been examined in the context of a full revenue requirement proceeding for over six years. We think the Commission should demand that Northwestel demonstrate the reasonableness of the proposed going‑in revenue requirement in the conventional way: by demonstrating the reasonableness of its expenses.
519 For example, Northwestel's operating expenses amounted to $76 million in 2005. Is that reasonable?
520 Based on the present record, the Commission simply has no way of knowing.
521 Once the going‑in revenue requirement has been identified, rates and subsidies need to be set that will generate the required revenues. It is there that the subsidy issue looms large.
522 Northwestel proposes that fully 25 percent of its proposed revenue requirement should take the form of drawdowns from the National Contribution Fund. That amounts to an increase of over 300 percent.
523 We believe that Northwestel is not making sufficient effort to maximize revenues from its own operations before seeking support from the Fund.
524 The third step that must be undertaken is a determination of how rates should be allowed to change over time. Put another way, what constraints should be placed on the ability of Northwestel to change its prices.
525 We have concerns about the way in which Northwestel has calculated the proposed productivity offset, and we also believe that there are mistakes in the way in which Northwestel proposes to apply the productivity offset to contribution.
526 Let me reiterate, Mr. Chairman, that Telus believes that funds should be made available from the National Contribution Fund to support access to basic telecommunications services by residents of the North, and we are willing to do our part. The Commission should require that Northwestel also does its part.
527 We look forward to assisting the Commission in addressing the important issues that arise in this proceeding.
528 Thank you very much, Mr. Chairman.
529 THE CHAIRPERSON: Thank you, Mr. Ryan.
530 THE SECRETARY: Mr. Chairman, that is it for the opening statements.
531 Would you like to go forward with the cross‑examination?
532 THE CHAIRPERSON: I would, indeed.
533 THE SECRETARY: The first panel to appear for cross‑examination will be the Northwestel Marketing Panel.
534 Please come forward.
535 THE CHAIRPERSON: Mr. Rogers, do you have a preliminary comment or a statement to read?
536 MR. ROGERS: Mr. Chairman, I was going to introduce the names of the witnesses before they were sworn.
537 This is the Marketing Panel of Northwestel. It is chaired by Mr. Mark Walker, VP Customer Solutions. With him on the panel, in the front row, is Muriel Chalifoux, AVP Carrier and Regulatory; Mr. Scott Roberts, Director of Regulatory Framework; and Rhonda Krauss, Manager of Marketing and Development.
538 They are the witnesses in the front row. They are assisted by several people, who I will identify, in the back row. They will not likely be speaking, but they support the witnesses.
539 They are: Mr. Mark Wyzlewski, Manager of Consumer Services; Mr. Mark Needham, Manager of Market Analysis; Terry Ingalls, Manager of Settlements; and Dallas Yeulett, Manager of Regulatory Affairs.
540 With that, Mr. Chairman, the panel is ready to be affirmed.
541 THE CHAIRPERSON: Madam Secretary.
542 THE SECRETARY: Yes, Mr. Chairman.
543 I would ask you to stand for the affirmation, please.
AFFIRMED: SCOTT ROBERTS
AFFIRMED: MARK WALKER
AFFIRMED: MURIEL CHALIFOUX
AFFIRMED: RHONDA KRAUSS
544 THE CHAIRPERSON: Mr. Rogers?
545 MR. ROGERS: Mr. Chairman, we have a very brief direct portion before proceeding to cross‑examination.
EXAMINATION / INTERROGATOIRE
546 MR. ROGERS: Mr. Walker, I will ask you. Was the marketing evidence, and associated interrogatories, prepared by you or under your direction?
547 MR. WALKER: It was.
548 MR. ROGERS: Do you have any corrections or additions to that evidence at this time?
549 MR. WALKER: We have none.
550 MR. ROGERS: To your information and belief, is that evidence accurate and true?
551 MR. WALKER: Yes.
552 MR. ROGERS: Thank you, Mr. Chairman. The panel is ready for cross‑examination.
553 THE SECRETARY: The first party to cross‑examine the Marketing Panel will be the Consumer Group.
554 THE CHAIRPERSON: Please introduce yourself.
555 MS LOTT: Yes, I will, please.
556 My name is Sue Lott. I'm here on behalf of Consumers Groups which represent the Consumers Association of Canada and the National Anti‑Poverty Organization.
557 And my colleague who is just distributing one of our exhibits is Andrew Briggs who's going to help me through this.
558 THE CHAIRPERSON: And, Sue, it's Sue Lott, L‑o‑t‑t?
559 MS LOTT: Yes. I prefer Sue and it's L‑o‑t‑t is the last name.
560 THE CHAIRPERSON: Thank you very much. And it's Andrew Briggs?
561 MS LOTT: Andrew Briggs.
562 THE CHAIRPERSON: Well, you can wait until Mr. Briggs is available if you want, or you can go ahead.
563 MS LOTT: I will wait until Mr. Briggs is available.
564 THE CHAIRPERSON: Fine.
565 MS LOTT: I just want to say good morning to the Commissioners and the Staff and to the Panel.
566 Okay, I think I'm ready to go, thank you.
567 I wanted to start here with a table that we have drawn up that gives Northwestel's historical and forecast operating revenue results by service for the period from 2002‑2007.
568 So, I don't know if you would like to identify that with an exhibit number.
569 It's called Table 1: Northwestel Actual/Forecast Operating Revenues from 2002‑2007. If you could pull out that exhibit, and I assume that there will be an exhibit number assigned to that.
570 MS BOUND: I believe the Secretary has decided Exhibit No. 1.
571 MS LOTT: No. 1.
572 THE SECRETARY: Yes, it is.
EXHIBIT NO. 1: Table 1: Northwestel Actual/Forecast Operating Revenues from 2002‑2007 provided by the Consumers Group
573 MS LOTT: Okay. So, if you could ‑‑ the Panel has that as well, okay. If you could pull that out.
EXAMINATION / INTERROGATOIRE
574 MS LOTT: I'm going to be focusing I think here ‑‑ we'll just go over it ‑‑ on column No. K which shows the change from ‑‑ forecast change from 2006 to 2007, and you can see there that some of the services are listed to the far left by the numbers primary exchange, No. 1, and then line 4, for example, shows the total primary exchange.
575 So, if we go over that from 2002 over to the 2006/2007, which is the column K, you can see here some of the illustrations of Northwestel's proposed rate actions for example, line No. 4, the total primary exchange shows the impact of proposed residential and business local rate increases on operating revenues.
576 Would you agree with me that that's what that line suggests?
577 MR. WALKER: Yes, it's a combination of the rate changes which we are proposing, and I believe also there is some demand changes too that we are expecting, for example, a decline in the number of Residential NAS.
578 MS LOTT: Okay. Line 10, for example, shows ‑‑ if we take that down, it says toll.
579 Am I correct that that shows long‑distance price changes?
580 MR. WALKER: That's correct.
581 MS LOTT: And we see there that there would be a relatively modest decrease in toll rates proposed for residential customers?
582 These are mostly targeted at business; am I correct?
583 MR. WALKER: Yes.
584 MS LOTT: Okay. And line 11, settlement, if we could look at that. If we go over there to ‑‑ all the way over to column K, we can see there that there is settlements decreasing due to proposed reduction in the carrier access tariff.
585 Am I correct about that?
586 MR. WALKER: Yes, that's correct.
587 MS LOTT: I wonder if I could ask, who pays the settlement revenues to Northwestel?
588 MR. WALKER: Settlement revenues are paid by primarily two interconnecting companies, but any party that wants to interconnect their facilities with Northwestel's and transport traffic to the North.
589 MS LOTT: Okay. And I will just look at, again just for everyone's education, line 14 shows other network services. What would that refer to?
590 MS CHALIFOUX: That line refers to primarily data network services, digital, private line and frame relay and VPN network revenues.
591 MS LOTT: Okay. So overall, if we look at line 15, which shows total network revenues, if we go all the way over, see the comparison year by year over to column K, what we see there is toll network revenues operating revenues decreasing, am I correct about that, over the 2006 to 2007 period?
592 MR. WALKER: So you are looking at line 15, total network?
593 MS LOTT: That is right, yes.
594 MR. WALKER: Yes.
595 MS LOTT: And if we look at the total for the primary exchange, which is line 4, am I correct in reading that as showing an increase at column K ‑‑
596 MR. WALKER: That is correct.
597 MS LOTT: ‑‑ over 2006‑2007? And then with the net impact on operating revenues, and I am here looking at the total operating revenues in line 19, I see there if we go all the way over to column K it looks like a decrease of $27 million or 19 per cent in comparison to 2006, am I correct in reading that?
598 MR. WALKER: Yes.
599 MS LOTT: Okay. And the only other thing I wanted to ask you about there was the options and features on line 8, the total options and features. Again, if we go over and look at the percentage change year by year we see that after growing an average of 8 per cent per year from 2002 to 2006 you forecast no growth for 2007. My question to you is isn't this overly pessimistic? Don't you believe that you can sell any more local optional services?
600 MS KRAUSS: Our assumption is that demand or growth is relatively flat, as you have mentioned, for 2007. And that in fact we have, to a large extent, maximized the revenues for optional features and services over the course of the last many years with aggressive marketing campaigns, aggressive promotions and activities to increase penetration for these services.
601 Furthermore, some of the growth in previous years certainly was drive by expansion of these services to additional communities and certainly we don't anticipate any additional expansion of optional features to additional communities in 2007.
602 MR. WALKER: Ms Lott, if I could just maybe bring some perspective to this. For example, you did raise the ‑‑ line 11, settlement, for example and you mentioned that revenue there is showing a decrease of about $16.8 million. I think it is important for everybody to understand that what we are talking about here is a reduction in the charges that our carriers or our competitors will be paying, which will provide potentially more benefit to our consumers.
603 So this should ‑‑ we heard some of the opening comments by folks from the GNWT and Yukon Government that they are looking for other forms and more forms of competition while by bringing down this rate it should enable more choice for our consumers.
604 MR. ROBERTS: I would suggest this is also reflective of the fact that we are moving from an implicit subsidy to a largely explicit subsidy and it would be carriers that are primarily carrying the settlement revenue in this line and it would be carriers that are primarily paying to the national contribution fund.
605 MS LOTT: Thank you for that. If I could just follow‑up on the response about the options and features and the issue of selling more local optional services.
606 Does this mean that Northwestel is not going to propose to raise prices for optional local calling services in 2007?
607 MS KRAUSE: We have not proposed any rate increases for the 2007 for the going‑in rates.
608 MS LOTT: Or beyond that?
609 MS KRAUSS: We have not proposed any for the going‑in, period.
610 MS LOTT: Okay, one other thing on the table. I wanted to ask you about line 18, which represents the total other. Can you tell me what that is made up of?
611 MS CHALIFOUX: That category is made up of a few things, Centrex services, internet services and directory.
612 MS LOTT: Okay. Why is the line showing a year over year decrease in 2007?
613 Again, if we look at column L there of over 2 percent, when if we look at historically it has been growing at an average rate of about 12 percent per year. So what is impacting those revenues?
614 MS CHALIFOUX: Well, largely there what we have seen in the historical period, particularly in the broadband market, is we have seen significant growth as Northwestel has entered new communities.
615 But what you are seeing occurring now, is there is no further opportunity, no further economic activity for Northwestel to enter into any further communities.
616 So, really the market has reached maturity and there has been, there is, sufficient competition in this area as well.
617 So you are seeing a lot more pressure, downwards pressure on price and you are seeing a lot of customers migrating from one tier of service to lower tiers of service. So that is the impact that you are seeing in 2007.
618 MS LOTT: Okay. Thank you.
619 Wanted to move on to another area here. This is the rates proposal, your proposed increase in residential rates by $2.00 per month.
620 Again, I have another exhibit that we are putting forward and this is an exhibit where we have taken your residential access rate comparison from your evidence and just put it in a table format.
621 So I have given that as well to the Commission. That is a graph that says, has the title, Residential Access Rate Comparison.
622 MS CHALIFOUX: Yes.
623 MS LOTT: So, I hope you have that in front of you and the Commission does as well.
624 MS CHALIFOUX: It has been registered as Exhibit Number 2.
625 MS LOTT: Okay. And the attachment behind that is just the actual figures that were taken from your evidence that had been ‑‑ that we have transposed.
626 So, I will start here by stating that you have stated in your own evidence that you are reminded that you have regulatory objectives that have to be consistent with Section 7B of the Telecommunications Act which is to render reliable and affordable telecommunications services of a high quality, accessible to Canadians in both urban and rural areas.
627 And your own proposed objectives in your evidence, paragraph 72, Northwestel indicates that, and I quote:
"...the residents of the North should pay reasonable comparable prices to those elsewhere in Canada" (As read)
628 So as part of your proposal to increase residential rates by $2.00 per month, you are proposing to reduce residential long distance rates.
629 Is that correct?
630 MR. WALKER: Well, we have a couple of new long distance plans that we are proposing, which will provide our customers with more choice. We are also proposing that more types of calls be included in those plans, as well as, for example, calling card calls.
631 The actual impact, revenue, or customer impact won't be significant in terms of reduction to their bill.
632 MS LOTT: What would be the magnitude of savings per month per subscriber?
633 MR. WALKER: It's roughly 40 cents, on average.
634 MS LOTT: Okay, so ‑‑
635 MR. ROBERTS: If I could just clarify for a moment, again the principle that we stated in our evidence was comparable rates for comparable services.
636 I would note and perhaps some others would like to elaborate on this, that our residential toll rates are very much in line with those in southern Canada.
637 MS LOTT: Okay. So, under your proposed rate change, the residential customers will see an increase of $1.60 per month, on average. Is that correct, taking into account the 40 cent reduction?
638 MR. WALKER: That is correct, on average.
639 MS LOTT: Okay. I'm wondering if you could tell me what the median savings per residential customer will be.
640 We are aware that you provided the mean or the average, but there could be a difference. You are looking at the median, if the savings were to be skewed towards particular groups of residential customers that might have greater usage.
641 MR. WALKER: I don't believe that we have calculated the median.
642 MS LOTT: Okay. I'm wondering if you could make that an undertaking to provide that information.
643 So that would be, the question would be, what is the median savings per residential subscriber for long distance.
644 MR. WALKER: Yes, we can do that.
645 MS LOTT: Is there an undertaking number ascribed to that?
646 THE CHAIRPERSON: Peter...?
647 MR. McCALLUM: It's duly noted for the transcript. It's the first one
648 MS LOTT: Okay. Thanks.
649 I'm wondering what percentage of Northwestel residential long distance customers are on one of its toll savings plans versus its basic toll services?
650 MS KRAUSS: Subject to check, it's in excess of 90 percent of our residential customers are currently on a toll plan.
651 MS LOTT: Okay.
652 I wanted to talk a little bit more about the issue of proposed rates being reasonably comparable as you have indicated in your proposed objectives, so I'm going now to turn to the graphical representation that we have done from your own evidence where we have done a resident access rate comparison.
653 So if we look at that table, the average rate of the lowest rates for the ILECs, excluding Northwestel, if we go all the way over to the second last set of black and white lines, the average rate for the lowest would be $22.90 per month, and this compares with Northwestel's proposed lowest rate of $31.33 per month.
654 Am I correct about that?
655 MR. WALKER: That's correct.
656 MS LOTT: Just to finish the comparison here, the average rate of the highest rates for the ILECs, which exclude Northwestel, is $26.98, again in this second last series of black and white columns, when compared to Northwestel's proposed highest rate which would be $37.83 per month.
657 Is that correct?
658 MR. WALKER: That's correct.
659 I should just maybe make a note that the $37.83 is the rate that we charge for a very, very small group of customers and it includes EAS. So it is a group of customers just outside of Whitehorse. Other than that, all customers in the North would be paying the $31.33.
660 MS KRAUSS: Just to elaborate on Mr. Walker's point, the EAS charge that he is speaking of applies to less than one half of 1 percent of our customer base.
661 MS LOTT: Right.
662 MS KRAUSS: Approximately 300 customers.
663 THE CHAIRPERSON: I would just be clear in my own mind that then the 99.5 percent of your customers would be at $31.33?
664 MS KRAUSS: That's correct.
665 THE CHAIRPERSON: Thank you.
666 MS LOTT: If I could just confirm also from this table that the highest rates for all the other ILECs, do those also include the EAS charges?
667 MS KRAUSS: Yes, I believe they do.
668 MS LOTT: Okay. I guess the point I would just like to raise with you, though, is that given the magnitude of the differences between your proposed rates and the rates that have been approved for the other ILECs, wouldn't a conclusion be that Northwestel's rates are not reasonably comparable, specifically if we note that even without the proposed $2.00 rate increase Northwestel rates are higher when compared to the other ILECs?
669 MR. WALKER: They are in fact among the higher of the rates for residential customers. And it is a matter of balance. I'm sure we are going to be hearing ‑‑ well, we already heard from others that maybe our rate should be even higher.
670 So it is a balance. The expense of providing this type of service in the North is quite costly, so we are trying to position our rate reasonably comparable to rates in southern Canada.
671 MR. ROBERTS: Again I would note that there hasn't been a rate increase since the year 2000 and that we are again trying to balance between a number of stakeholders, including those who pay into the National Contribution Fund. The rates do remain far below cost.
672 MS LOTT: Would you agree with me that local phone service is an essential service?
673 MR. ROBERTS: Yes.
674 MS LOTT: I am wondering what studies Northwestel has undertaken to assess the impact of its proposed rate increases on the issue of affordability.
675 MR. WALKER: Maybe Ms Krauss can elaborate on this, but we haven't done an extensive affordability study. We have, however, examined all of the people that voluntarily disconnected from service last year. Only 20 customers expressed affordability as a concern at that point.
676 MS LOTT: Wouldn't you agree with me, though, that that is a somewhat misleading response in a sense, given that local phone service is an essential service, as you have agreed with me; that ratepayers are going to reduce their discretionary spending first on other things before they are going to disconnect phone service, which we would see now as a basic?
677 MR. WALKER: I am not sure that I would necessarily say that it is misleading.
678 A couple of points. I think that is one data point that we certainly did use to assess the reasonableness.
679 The other point also is the proximity of our rates to those of other companies in southern Canada. They have had rates that have been approved potentially with similar or affordability studies. So these proposed rates are in line with those principles anyway.
680 MR. ROBERTS: Again I would reiterate the need to balance between many different interests here. Certainly we would like to see everybody with access to a phone, but at the same time we have to try to strike a difficult balance between a number of competing interests.
681 I would note that we have tried to take all these into account in coming up with a balanced proposal instead of focusing just on one in isolation.
682 MS LOTT: Would you agree with me that increases in local phone service rates would impact particularly greatly on ratepayers in the lowest income brackets and those that are on fixed incomes?
683 Would you agree with that?
684 MR. WALKER: Yes, generally. I think you have to consider also not only the single income but potentially the household income.
685 For example, there could be a household where you have two incomes. So it is not necessarily only the lowest income.
686 MS LOTT: I want to turn to the issue of toll forbearance.
687 You have requested that the Commission forbear from regulating the rates of its toll services, and you have proposed that the same protections that the Commission imposed on the other ILECs when it forbore should be applied to itself as well.
688 I would like to ask you: What percentage of the network access service, the local lines, are being served by equal access capable switches?
689 MR. ROBERTS: Today it is approximately 50 percent.
690 MS LOTT: What percentage of the NAS are served by the equal access capable switches?
691 Did you say that was 50 percent?
692 MR. ROBERTS: Yes, that is 50 percent approximately.
693 MS LOTT: Okay.
694 MS LOTT: What percentage of the residential local lines are served by the equal access capable switches?
695 MR. ROBERTS: Subject to check, I would suggest it is also in the neighbourhood of 50 percent.
696 MS LOTT: All right.
697 My understanding of the toll forbearance decision for the major ILECs, that one of the preconditions that the CRTC established for the Quebec telephone and Télébec in that decision was that a minimum of 75 percent of NAS in their serving territories are served by equal access capable switches.
698 My question would be: Given that the Commission has traditionally considered equal ease of that one‑plus dialling as essential in a competitive environment, why should the Commission accept Northwestel's forbearance request when you have indicated that half of its network access services are not capable of reaching a competitor through the one‑plus dialling?
699 MR. ROBERTS: As the Commission has consistently recognized in the past, the toll competition in the North has evolved in a unique manner but a manner that is nonetheless at a similar rate than that in southern Canada.
700 The dominant form of toll competition in the North is, in fact, not equal access. A small portion of our overall competitive market is with regard to equal access.
701 The dominant means by which toll competition is extended to communities in the North is through pre‑paid cards, and I would suggest that these cards are available ubiquitously throughout the North.
702 MR. WALKER: To add to that, as Mr. Flaherty pointed out earlier, that accounts for 32 percent of the long distance traffic in the North, which is using another type of ‑‑ or another provider, if you will.
703 There are also cellular service providers that are offering long distance free anywhere in Canada.
704 In addition to that, there are also new emerging technologies which are providing, as Mr. Flaherty pointed out, long distance service free ‑‑ Skype, for example ‑‑ and we know that there is growing traffic on our network of this type of toll competition.
705 MR. ROBERTS: In addition, I would note that by the end of the year we anticipate that approximately 77 percent of our network access lines will have access to cellular service.
706 MS LOTT: If you are granted toll forbearance, are you planning to implement a system access fee or a network charge, as the other ILECs have?
707 I understand, for example, that Bell charges a network charge of $4.50 per month.
708 Would you be planning to do something similar in terms of a network access fee?
709 MR. WALKER: I understand that we haven't proposed one.
710 MS LOTT: Thank you for that.
711 There is one last area that I want to ask about, which is the issue of basket constraint being proposed for business services.
712 My understanding is that Northwestel has not proposed to apply this "I minus X" constraint to business services. Am I correct about that?
713 MR. WALKER: You are correct in that we have proposed to apply an inflation‑only constraint on the business access services, as opposed to other services that we would offer to business.
714 MS LOTT: We asked a question around this, and you gave an interrogatory response to our question, and that interrogatory response is Northwestel ‑‑
715 I don't know how you describe these in Commission hearings, but it was to PIAC and it was dated the 10th of April‑02, if you wanted to pull that up. That was your interrogatory response of May 1st to a question from the Public Interest Advocacy Centre.
716 MR. ROBERTS: We have the material, but we would ask you to give us a second to review it.
717 MS LOTT: Do you have that in front of you now?
718 MR. ROBERTS: We do.
719 MS LOTT: My understanding of that proposal would be that it would allow Northwestel to raise business rates by the level of inflation without a productivity offset, and my understanding would be that that would increase your profitability.
720 Is that correct? Is that how that would work?
721 MR. ROBERTS: With the caveat that market forces and pressures would have to be taken into consideration when doing any rate increase. Constraint is only one element that is considered by a company.
722 MR. WALKER: If I could use the words "increase our profitability", which may not be the case. We may need to increase rates because the rates of providing service have increased. Therefore, profit doesn't necessarily have to go up.
723 As a matter of fact, there is probably significant pressure for our rates to go down, not necessarily go up.
724 MS LOTT: To take you back to your response to our question as to why you didn't think you should be subject to this "I minus X" constraint, you referenced Telecom Decisions 2002‑34 and 2002‑43, where the CRTC did not apply a productivity offset to the ILECs.
725 My understanding is that that was because of the presence of market forces.
726 Would you agree with that?
727 MR. ROBERTS: Yes, I would agree with that.
728 MS LOTT: Would you agree with me that currently there is no local competition in the Northwestel territory?
729 MR. WALKER: I would agree that there's no local competition under Telecom Decision 97‑08, however, there are a number of forms of alternative service, including cellular service which is, as you may be aware, being reconsidered as a form of direct local competition.
730 In addition I would suggest that there's an evolving market that is occurring, including the potential for adoption of I guess, like, bypass technologies, internet technologies and these technologies and their application can be anticipated to be aggressively adopted in areas where there's a government‑funded network, such as in 31 of 33 communities in the Northwest Territories and 25 of 26 communities in the Northwest ‑‑ sorry, in Nunavut.
731 MR. WALKER: If I could just elaborate a little bit on the availability of the cellular network.
732 There are currently five cellular service providers in the North currently covering approximately 66 per cent of our access lines.
733 By the end of next year, 77 per cent of our customers will have access to cellular service providers and we know, as Mr. Roberts alluded to, that there is currently a public notice about the impact that cellular service or wireless providers is having on the total market of access.
734 As a matter of fact, I have seen numbers as high as 10 per cent ‑‑ between five and 10 per cent of households now use simply wireless service.
735 MR. ROBERTS: It's also relevant to note that business access is just one of the services that business customers take from Northwestel and we have to consider the broader picture.
736 Again, I would reiterate from Mr. Flaherty's opening statement the statistic that our current revenue per line is approximately 1.5 times higher than that in southern Canada. So, again, we have been calling upon our business customers to maintain quite a burden.
737 MS LOTT: Well, if I could just bring you to your response to our interrogatory there, you identified some other alternatives and you have mentioned the local access through subscription to VoIP services, the voice‑over‑internet‑protocol.
738 Isn't it realistic to say that that's really not a local service substitute since the voice‑over‑internet‑protocol provider can't provide a local number, Northwestel number to its customers.
739 So, that's really not ‑‑ wouldn't you agree that's really not a realistic alternative for a business access market?
740 MR. ROBERTS: In fact I would suggest that that's not a fair statement. A number of northern businesses focus on southern markets, so having a local number may not be I guess specific to their needs.
741 In addition, there's a large number of branch plant operations up here, branch offices and their accompanying headquarters and while there may be a need for a local number, most of the traffic can be diverted to an IP‑VPN type solution between the branch office in the North and the headquarters in the south.
742 And, again, I would reiterate that we have a situation where we have a small number of large customers, including these branch offices, and we are very dependent on them for our revenues.
743 MS LOTT: Given the ‑‑ again, back to your response to our interrogatory, you made a list of alternatives available in the business access services, you have already talked about cellular, we have talked a little bit now about VoIP, wireless, interconnect solutions.
744 Can you tell me what market share Northwestel has lost to these competitive alternatives?
745 MR. WALKER: I can't state specifically, but we can say, for example, I talked about cellular service and I have seen industry information that indicates, you know, as much as five to 10 per cent of households now use wireless and wireless only.
746 MS KRAUSS: I would just like to add that in addition we have actually seen a decrease in our wireline NAS rates in communities that have cellular access and we haven't seen the extent of that same decrease in communities that do not have wireless or cellular service, so certainly we believe there is a strong relationship there.
747 MR. ROBERTS: And once again, I reiterate this notion of that is just one service in the services that business takes from us and we have to look at the overall impact of these rate changes and the value proposition we are creating for others to offer some or all of the other services.
748 MS. LOTT: I just wanted to remind you ‑‑ in one of your responses to me I think you mentioned household take‑up of wireless services ‑‑ I just want to remind you my question was referring to business take‑up, competitive on the business side.
749 Those are my questions. Thank you very much. Onto you, the market panel.
750 THE CHAIRPERSON: Thank you, Ms Lott and Mr. Wylie. Madame le sécrétaire.
751 THE SECRETARY: The next party to cross‑interrog the marketing panel is UCG. Mr. Rondeau, could you please come forward?
752 THE CHAIRPERSON: Sorry, Mr. Briggs, I used the wrong last name and I apologize.
753 MR. BRIGGS: (Off microphone) That is fine. I knew who you were referring to.
754 THE CHAIRPERSON: Mr. Rondeau.
755 MR. RONDEAU: Good day, panel.
756 First thing before, I should have brought it in the preliminary issues I guess. I am a bit confused at which panel I should be asking some of my questions to. Seeing what PIAC has done, I have things in the regulatory regime, cost of service, affordability in policy rather than in the marketing area and ‑‑
757 THE CHAIRPERSON: Well, Mr. Rondeau, why don't we proceed and if we collectively consider that another panel would be more appropriate to respond we will let you know. But you really mustn't feel intimidated by that. Just go ahead.
758 MR. RONDEAU: I just don't want to miss out in the area ‑‑
759 THE CHAIRPERSON: You won't miss out. You start at the beginning here, you are going to be here for the rest of the day and you won't miss out.
760 MR. RONDEAU: Thank you very much. Panel, I have very few questions in the marketing area, but I think nonetheless they are important.
761 My first question is what type of plans can a residential customer look forward to with your proposal?
762 MR. WALKER: Maybe to rephrase that how will residential customers benefit from what we are proposing? I think there are a number of ways. First of all, our residential customers in the North have grown to expect a very high quality of service. I think we spoke earlier about a relatively unique method of reporting. We report our quality of service on a community basis and we provide some of the highest level of quality in the country and we would continue to do so. So that is one.
763 Secondly, and maybe most importantly, we think the residential customers are going to benefit from choice. We have heard other parties speak earlier about the need for more choice. What we are proposing are rates which competitors will be able to access which will potentially provide the North with more choice for service.
764 MR. RONDEAU: That is precisely what I wanted to get at. What will be the choices for consumers?
765 MR. WALKER: So, for example, we are proposing a switch connect rate of less than one penny. That switch connect rate is a rate which our competitors would have access to and they would basically include in their cost. So we had 32 per cent market share with a CAT rate of 0.07 cents. I suspect with a rate of one penny we can expect more long distance competition providing choice.
766 MS KRAUSS: To add to Mr. Walker's point, certainly in addition to, you know, the increase in choice in competition that we expect in general, specifically Northwestel is also proposing as we have talked about, to introduce two new residential calling plans, that is addition to the two that we already offer to the consumer market, After Hours and Freedom World plans, which have a significantly high take‑up rate.
767 And the new plans are certainly going to be structured similarly to those that are now offered in the south, very comparable rates and structure, they are going to feature more flexibility for customers to use a plan that is better tailored to their specific calling needs. We will offer rates that are more anytime‑anywhere‑type flat rates and certainly extend plan benefits to calling cards.
768 So, certainly even on that front, in addition to more competitive choice, in terms of our own service offerings, there will be significant benefit for consumers.
769 MS CHALIFOUX: I think too, it's important to recall the toll plans that Northwestel has today.
770 Ms Krauss mentioned Freedom After Hours, Freedom World. Freedom After Hours already offers our residential customers throughout the North, access to 10 cents a minute for evening and weekend calling. And again, when you look at toll plans in the south, that 10 cent per minute is very comparable.
771 So, with these new plans, I think by offering, you know, the flavour of anytime‑anywhere calling, it is going to be very attractive to a certain segment, but again, there is likely to be a large group of consumers who are very happy with the plan they have today.
772 MR. RONDEAU: Thank you. We believe more choice is very important to the consumer.
773 From what I have gathered, your proposal, and from the PIAC questions in front of me, your proposal is that there is a $2.00 increase in residential and a $5.00 increase in businesses.
774 And from the interrogatories and the panel discussion prior, you stated that there will be somewhere an increase of $1.60 to the average consumer. Is that correct?
775 MR. WALKER: That is correct. If you take the $2.00 rate increase and the change that they will experience on average in long distance it amounts to about $1.60 increase.
776 MR. RONDEAU: Do you believe that using averages is the way to look at this or is there a better a means?
777 MR. WALKER: We think it's a relatively good means.
778 We have to have some method of kind of assessing the impact overall. And we figure we have done this is in the past. We figure it fairly reflects the impact to northerners generally.
779 MR. RONDEAU: I would like to give you a little bit of comparison, what I think averages do.
780 You have a person that is laying on the floor in his house in his living room at plus 18 degrees. He's there at room temperature, approximately. And he has 45 percent of his body lying outside the door in the winter and it's minus 18.
781 Now, do you consider on the average that this guy is comfortable?
782 MR. WALKER: Hopefully the part that is outdoors is well‑dressed.
783 MR. RONDEAU: In other words, you don't believe that averages always work.
784 MR. WALKER: As I mentioned, I think it's one way to try and assess the impact on our client base. And we have to do it, you know, some way, and this is the way that we have chosen to try and assess that.
785 MR. RONDEAU: Okay.
786 MR. ROBERTS: I would add that at an extreme under our proposal, a rate customer that ‑‑ or sorry, residential customer, that did not take advantage of toll services at all, would incur an increase of $2.00. So that would be the extreme outlier.
787 MS KRAUSS: Just to also point out that that $2.00 increase on the average bill would represent less that 3 percent of the total bill for a customer experiencing, say, the average of $1.60, that's again, less than 3 percent of an increase on the total bill, approximately 2.6 percent of an increase.
788 So, you know, in relative terms to the total bill, certainly on a percentage basis, it is small.
789 MR. RONDEAU: And approximately what percentage of your customer base ‑‑ residential, I'm looking at ‑‑ uses toll? In other words, not just having local rates or local phone in their homes.
790 MS KRAUSS: I'm not sure exactly. Rhonda might have a more accurate number.
791 But I think one indication is the number of customers that have access to our toll plans is a good indication that many of our customers are indeed long distance users.
792 MR. RONDEAU: Can we have some type of way of getting this information?
793 THE CHAIRPERSON: Will you make an undertaking?
794 MR. RONDEAU: Through an undertaking. Thank you.
795 MR. WALKER: Maybe we just need to understand more clearly what it is you are looking for, Mr. Rondeau.
796 MR. RONDEAU: First of all, what I'm looking for is what percentage of your customer base, your residential customer base uses just local rates and what percentage uses the toll, and what percentage of your Yukon residents do not have access to telephones?
797 I'm sure you must have these statistics.
798 THE CHAIRPERSON: Mr. Rondeau, the last question, we can deal with that fairly simply.
799 You want to know what percentage of households in the Yukon do not have telephone services from Northwestel because Northwestel can't undertake to guarantee they don't have some other form of communication services?
800 MR. RONDEAU: Thank you, Mr. Chair.
801 THE CHAIRPERSON: Is that correct?
802 MR. RONDEAU: Yes. That's correct. Yes, it is.
803 THE CHAIRPERSON: All right.
804 One: What percentage of households does Northwestel not serve?
805 Is it confined to the Yukon, your question, or is it the whole operating territory?
806 MR. RONDEAU: Well, the whole operating territory may be easier for them to do.
807 THE CHAIRPERSON: All right.
808 Now, as far as toll is concerned, Mr. Rondeau, they are going to want to know: Do you mean within a six‑month period, within a one‑year period? Because a customer who has the right to use toll can use toll tomorrow even if he hasn't for the last year. So they will need to know what kind of a time period during which you will want to know what percentage of their customers have not used toll.
809 MR. RONDEAU: I guess I would suggest what's happening right now.
810 THE CHAIRPERSON: No, but would they be the last month, the last three months, the last six months, the last year?
811 MR. RONDEAU: I think the last six months would be relevant.
812 THE CHAIRPERSON: All right.
813 So the last six months what percentage of NWtel customers have not used toll?
814 MS KRAUSS: Could I just ask for a clarification?
815 Is that customers who are capable of using toll or who are not capable of using toll and that they have, say, toll denial on their line? Or do you actually want to know those who have in fact ‑‑ you know, they may be able to use toll but in fact have not made any long distance calls.
816 Those are two different numbers.
817 MR. RONDEAU: Well, what I'm getting at is separating these so that we can have a better foothold on these averages that year. So while about ‑‑
818 THE CHAIRPERSON: Mr. Rondeau, some customers, for various reasons including their own choice, have a program called "toll denial" where they technically cannot get onto the toll telephone system. Presumably there may be another group of customers who can use toll but don't in fact do so.
819 Which is the one that interests you?
820 MR. RONDEAU: Both together.
821 THE CHAIRPERSON: That's what I ‑‑ together, all right.
822 So you could give us a toll denial number, a non‑use of toll for six months. By the way, if there is a better period than six months that is more convenient where you already have the data, that would be acceptable. Just specify the time period.
823 Then the balance of the percentage will be the number of customers who in fact used toll within the last six months.
824 MS CHALIFOUX: I would just like to point out, however, there will be one challenge, if not impossible, and that would be to determine the customers who choose to use the form of prepaid calling cards. They access those cards through a 1‑800 number.
825 THE CHAIRPERSON: And you wouldn't be able to have data on those?
826 MS CHALIFOUX: We have total volumes, but of course we don't know what customer would originate that call.
827 THE CHAIRPERSON: It's going to be very hard to get meaningful data, Mr. Rondeau, for the reason you have just heard.
828 MR. RONDEAU: I understand this, yes.
829 MR. WALKER: May I just go back to the ‑‑
830 THE CHAIRPERSON: I'm sorry, sir.
831 MR. WALKER: Sorry.
832 MR. RONDEAU: Do you have a solution to this particular undertaking, because if you do that's great, but if you don't I want to make sure we get this undertaking clear.
833 Mr. Rondeau, because of what you have just heard, that is to say the preponderance of prepaid in Northwestel toll competitive environment, the numbers that you may get may be misleading because large numbers of people will not have used NWtel toll, but will nevertheless be regular toll users through prepaid cards, if I understand what we have just been told.
834 Do you still want the company to go to the trouble of developing the information you are seeking?
835 MR. RONDEAU: I think we can skip this logic.
836 What I will say on this is, this is precisely why I do not believe in averages, because there are so many other issues that can be taken into effect.
837 MR. WALKER: Mr. Chair, may I just go back to, I think it was the last of the undertakings, which was access lines, the number of our customers that have access to local service.
838 Just so that I understand that undertaking, or potential undertaking, all of the communities in the Yukon have access to service and we just went through a SIP program where we tried to identify customers in kind of remote parts of our operating territory and we have provided access service to them.
839 So there may be some customers that we don't know about that we don't know about. So I am not sure what more I can provide on that one.
840 THE CHAIRPERSON: I think Mr. Rondeau was looking for customers who have chosen not to use your services. There is a households number for your territory and there is a residential NAS number for your territory, and he is looking for the difference between the two.
841 MS KRAUSS: We actually are able to provide the residential NAS penetration rates.
842 THE CHAIRPERSON: I think that is all he is asking for, to the best of my knowledge.
843 MS KRAUSS: So the total across all of our operating area is approximately 91 percent. That is residential penetration of local access services, 91 percent.
844 MR. RONDEAU: Thank you.
845 We are getting to where I am going to.
846 I guess my next question is: Do you believe penetration rates are an accurate device to measure affordability?
847 MS KRAUSS: I think certainly penetration is perhaps one indicator, but affordability is obviously a very complex issue. The many, many factors affect affordability, income and economic factors that don't necessarily have to do with the rates of goods and services.
848 Ultimately affordability is a matter of judgment, and what we have proposed we believe is a reasonable rate increase that we believe is affordable. Others may suggest otherwise, but I don't think we can assess the complex nature of affordability here now.
849 MR. RONDEAU: Have you done a demographic study on affordability in your operating territory for this hearing?
850 MS KRAUSS: No, we have not. Northwestel does not maintain affordability statistics.
851 MR. RONDEAU: Can I ask why not?
852 MS KRAUSS: Again, our proposal is really concerned with, and as Mr. Walker pointed out, we believe it is a balanced approach, a balanced proposal; that a $2.00 rate increase is in fact reasonable and that it will not lead to affordability problems.
853 We certainly are attempting to balance again the desire to bring rates closer to cost and of course keeping in mind concerns about rate shock for customers.
854 Ultimately, at the end of the day we have seen that the total average bill impact for the average customer is approximately $1.60, again less than 3 percent of the total bill.
855 So on the whole, we believe what we have proposed is a reasonable proposal for a local rate increase that attempts to balance all of these competing interests that we are faced with.
856 MR. WALKER: Maybe I could just add that the last increase was in 2001. If you take that $2.00 increase that we are proposing and kind of take it over the years between 2001 and 2007, it amounts to about a 1 percent, give or take, increase per year, which is relatively small and less than inflation, I would think.
857 MR. RONDEAU: Have you considered all the increases that took place before this, the rebalancing act?
858 Why don't you take them all into consideration? It is more important to look back at those huge increases, not just what you are considering a small increase now.
859 MR. WALKER: Mr. Rondeau, you use the word "rebalance" and that's exactly it. Through the late 1990s and into the year 2000 we did increase our local rates. But we also reduced our long distance rates.
860 I can remember the time when our long distance rates were as much as $1.05 or $1.10 per minute to call southern Canada, and now that's 10 cents per minute, or less.
861 MR. RONDEAU: Yes, I realize that.
862 I will have more questions on affordability. As I stated, I have that slated for the policy department.
863 I have only one more question to ask the panel on this, the marketing panel.
864 THE CHAIRPERSON: Mr. Rondeau, you will ask that question. Then we will take a break for lunch. During that time you will sort through your other questions and accumulate all the questions you have for this panel. You will come back after lunch and ask them of this panel.
865 Can you do that?
866 MR. RONDEAU: What I am asking for is some kind of direction.
867 Do you consider affordability and costs, the increase ‑‑ is this the correct panel to ask these questions?
868 THE CHAIRPERSON: Yes, I believe it is. Unless the panel feels otherwise, I think it is, yes.
869 MR. RONDEAU: Okay. Then I will come back with those after lunch.
870 THE CHAIRPERSON: Please ask the remaining question, and then we will break and we will see you after lunch.
871 Is that reasonable?
872 MR. RONDEAU: That is very reasonable. Thank you.
873 This is not really a question, it is more of a commitment, or some type of commitment from Northwestel, right in front of your regulator, right now, that you will not change any tariffs or costs associated with your company affiliates, like the internet, cable, the cost of instalment fees or deposits, inside wiring costs, 9‑1‑1 service, or local calling areas, as examples, without customers' input and consent.
874 MR. WALKER: There is a very large range of services. For example, internet services are very, very competitive. I think it would be difficult to consult with our customers without alerting our competitors to what we might be doing. I would find it difficult to have conversations with customers on services like those.
875 There are some services which you referred to that I think are in the one basket that we have structured that is frozen.
876 For the period of the price caps that we are talking about, those services would be, in fact, frozen. For example, I believe that 9‑1‑1 is one of them.
877 MR. RONDEAU: That is very good to know.
878 The reason I am asking this question, Mr. Chair, is that, within the last year, we had problems with Northwestel on changing their internet policy or marketing in midstream.
879 I realize that this panel doesn't regulate the internet, but we want these types of problems not to occur again. We believe that consumers should be properly notified and have input into changes of this sort.
880 THE CHAIRPERSON: Mr. Rondeau, we see that you have your heart in the right place, but, as you rightly point out, the Commission doesn't regulate those rates. Indeed, it is the Commission's basic hypothesis that if Northwestel acts in ways which alienate and annoy its customers, those customers will go to other suppliers. That is the basic premise.
881 So while we certainly don't object to you raising the issue here, it is not one we are going to discuss.
882 MR. RONDEAU: Very good. Thank you. That is all for now.
883 THE CHAIRPERSON: Thank you very much, Mr. Rondeau. You will be back and ready after lunch.
884 We will rise for lunch, and we will see you all at two o'clock.
‑‑‑ Upon recessing at 1225 / Suspension à 1225
‑‑‑ Upon resuming at 1400 / Reprise à 1400
885 THE CHAIRPERSON: Ladies and gentlemen, let me apologize for calling you to order in the absence of my conscience and confessor to my right who was here a moment ago and has now disappeared, so I apologize.
886 When she arrives, we will start. Here she is.
887 Mr. Rondeau, are you ready to continue, please?
888 Thank you.
889 Mr. Rogers.
890 MR. ROGERS: Mr. Chairman, just as a preliminary point as we're getting going here, you had raised a question with one of the panellists prior to lunch and there was a statement that we would like to correct to make sure that the answer is truly correct in response to your question, and it relates to Res rates and when EAS charges apply.
891 And, so, Ms Krauss will correct the record.
892 THE CHAIRPERSON: Yes. Right, Ms Krauss. It wasn't my question, but it was a Panel question, yes.
893 MS KRAUSS: We had stated that ‑‑ or you had asked the question whether 99.5 per cent essentially of customers will pay 31.33. Owing to the fact, of course, that a very small portion of customers in Marsh Lake pay a $6.50 EAS charge, of course their rates would be $37 and some.
894 In fact, at the time where EAS was launched for local calling between Marsh Lake and Whitehorse, Whitehorse residents were also levied a 48‑cent EAS charge. So, in fact, Whitehorse residents with the rate increases will be paying 31.81 not 31.33.
895 THE CHAIRPERSON: All right. So, 99.5 per cent of residential customers will be paying less than $32?
896 MS KRAUSS: Correct.
897 THE CHAIRPERSON: Thank you. That was my question, yes. Thank you.
898 Mr. Rondeau, how are things?
899 MR. RONDEAU: A little better, thank you.
900 THE CHAIRPERSON: Good. So, please proceed, unless we can do something for you before that.
901 MR. RONDEAU: I would like to apologize again for some of the misunderstanding.
902 Although I have been doing this for a number of years, it has been quite a while since we've had one of these hearings and I do have other issues of earning an income for my family besides this job.
903 THE CHAIRPERSON: Well, Mr. Rondeau, I don't think that anyone in the room is in any way inconvenienced, so please go ahead and don't worry about that.
904 MR. RONDEAU: Thank you.
905 Before I move on to some new questions, I'd like to go back to the issue of penetration rates that you brought up as your measure of affordability.
906 I have no argument that the affluent percentage of our society would not have a problem with a $2.00 increase, what I'm looking at, when you use penetration rates, I would find that there's a certain number of set income people in the Yukon Territory that budget "x" number of dollars for a telephone, usually local in their household as their life line basically.
907 Would you argue that an increase in this cost would have to be taken from somewhere else in these set income earners' budget?
908 MR. WALKER: Relatively difficult for me to answer. I don't know how individual consumers would deal with a $2.00 per month change, as a matter of fact, $1.60 per month change.
909 I guess if it's a fixed income, they have a fixed amount and that's all they have then, you know, they're going to have to come up with that $1.60 from somewhere, yes.
910 MR. RONDEAU: And where would you suggest that it come from if you're one of these type of low‑income earners, or a single mother or a single parent; from the food budget, from the ‑‑ where does it come from?
911 MR. WALKER: Again, I can't answer specifically, but I'm sure that there probably is some discretionary spending of some form, so I would suspect that that's where I would ‑‑ if I was one of those individuals, that's where I would take it from.
912 MR. RONDEAU: I'd like you to look at UCG 1‑7, please, from the interrogatories.
913 MR. RONDEAU: ..You will need both pages, 1 and 2.
914 MR. WALKER: Sorry, we will be right with you.
915 MR. RONDEAU: That's fine. In other words, the question page as well as the response. Now in this interrogatory UCG is asking about the rate increase and you have in front of you a ballpark figure. This is taken from Whitehorse on costs. Would you agree that these numbers are correct?
916 MR. WALKER: Yes.
917 MR. RONDEAU: So what is actually happening, what I want the Commission to know, is that the costs are more than $32. They are above $32 and then the GST is added on top of this, so it makes it very difficult for low‑income earners to have any type of increase.
918 MR. WALKER: Just so that I am on the same page, $32 ‑‑ I mean, the only difference that I see is 0.13 cents. Am I missing something? So $32.13 would be the correct number?
919 MR. RONDEAU: With the increase, yes.
920 MR. WALKER: Including 9‑1‑1?
921 MR. RONDEAU: Yes, including 9‑1‑1 and the extended local service calling area. That is fine.
922 Let us go to page 2 where it shows you an increase in local rates from 1992. Now, for the sake of interest I have used the Whitehorse area again as the number and that time in 1992 consumers were paying $7.63 to have a telephone in their homes, is that correct?
923 MR. WALKER: Okay, sure.
924 MR. RONDEAU: Yes. Okay, if you go down the line there is various increases, most of them concerning rate rebalancing as we talked about earlier, and we come to the new rates of $31.33 plus the extra frills, if you want to call them that, I don't believe they are but.. Could you give me an estimate of approximately how much of an increase that is in the last 15 years?
925 MR. WALKER: Allow me to start, the increase over the last six years as I mentioned earlier would be roughly 1 per cent a year. We haven't had a rate increase since the year 2001, so $2.00 over those number of years is roughly 1 per cent a year. And I think it is very important that we don't mix up rate rebalancing with an increase to our rates which we are proposing now. Because most of the rate increase, if not all of the rate increase in those previous years, as you correctly pointed out, Mr. Rondeau, was offset by long distance rate reductions. And I use the example of $1.05 per minute for long distance calls back in the earlier 1990s, in mid‑1990s, so we brought those rates down to what they are currently, which is 0.10 cents and less for residential customers.
926 MS KRAUSS: I would also add ‑‑
927 MR. RONDEAU: Sorry. I understand the methodology and that. What I am trying to show is that a basic household who cannot necessarily afford increases has received many increases in the last number of years just to have a telephone in their house. I would suggest that many of these low‑income earners do not have the finance capability to use the toll or long distance.
928 I will move on. I have done some figures. I find that it is approximately a four‑fold increase in these number of years, from $7.63 to $33.00, or $31.33.
929 That is approximately a four‑fold increase. Would you agree with that?
930 MR. WALKER: Just four times, roughly, $8.00, yes, would be roughly a four‑fold increase.
931 But I, you know, I just think you really have to consider what took place during those intervening years. I don't think you can exclude the rate increases in those early years from the long distance rate reductions.
932 The whole purpose of the rate changes during that time was one of rebalancing.
933 MR. RONDEAU: Understandable
934 MS CHALIFOUX: But also, maybe just add to that, Mr. Rondeau, I mean Northwestel and all telecommunication companies in Canada, found themselves at a point in time where local residential services were significantly subsidized and that is still the case today.
935 And again, Northwestel and with the Commission, you know, we are trying to find that right balance. You know, how much should residential local rates be subsidized?
936 And it is our position that, you know, we realize our rates are already quite high and that is an acknowledgement that our cost structure is also quite high.
937 But I would point out that our rates today and our proposed rates are still well below the cost to provide residential access services. And that there is a subsidy to ensure that the rates are at least kept at a relatively affordable level which the Commission and others in Canada, you know, that is where the comparable rates today are coming from.
938 MR. RONDEAU: I understand that as well. Thank you.
939 But what I am trying to get at is that people on a lower income have also received this four‑fold increase.
940 Would you not believe that they have paid their dues? When you are asking for yet another increase, do you think that the consumer has not paid their dues already?
941 MR. WALKER: I think it goes back to, you know, just general price increases over time. And I think we are being relatively fair.
942 You know, price of inflation, the inflation rate is going up, probably on average by 12 to 22 percent a year.
943 I think our proposal is one which, if you take a look at those years, we are trying to put forward a reasonable rate and do whatever we can in terms of efficiencies so that we don't have to try and increase more than that.
944 MR. RONDEAU: And can I ask what the company has put in place to ensure that people on low incomes and set incomes have the access to telephone in their houses?
945 MR. WALKER: Just a couple of thoughts that I have there. One is that we do have a very high penetration of public pay telephones in the North which people can use.
946 But, you know, maybe the broader issue that you raise is, you know, one of social concern. And maybe there is a need for government to take a bit of a role here if we think that, through social programs, if we think that we are proposing for rates is going to push, you know, push the basket too high.
947 MR. RONDEAU: Okay.
948 At the same time, since 1992, Northwestel's net income or profits for their investors have doubled.
949 Would you say that your proposals are fair and equitable? You want to raise your customer's rates four‑fold, but you want to increase your profits two‑fold.
950 MS CHALIFOUX: Well, perhaps the finance panel can get into that in greater detail, Mr. Rondeau, but safe to say our profits have not doubled.
951 We are rate‑of‑return regulated and we have been and including that period back to 1992. And in fact, I don't know the exact numbers, but our rate of return range used to be higher than it is today.
952 So we are capped at, we cannot exceed, a rate of return of 11 percent today.
953 MR. RONDEAU: Understandable. But I am not talking about a rate of return. I am talking about the bottom line, what you guys put in your pockets at the end of the day has more than doubled, your profits.
954 MS CHALIFOUX: Well, you have to take all numbers obviously into a relative sense and that is what the rate of return is, your percent return. Because if you go back to 1992 our revenues have doubled, our expenses have doubled, our investment base has increased significantly over that period as well. So the relative metric here is rate of return, not the absolute.
955 MR. RONDEAU: All right. We will get into rate of return later on in the next panel.
956 Rather than having to look at this particular IR I will just give you a rationalization here and I will let you answer my question unless you need to look at it.
957 In UCG 1‑20 Northwestel company rationalizes that:
"Because CPI has increased 8 percent in the last five years ..."
958 And you mentioned that as well just before:
"... then an increase to consumers is reasonable." (As read)
959 Again, although I asked you this before, have you taken affordability into your analysis?
960 MR. WALKER: I think we have. As Ms Chalifoux pointed out, we are trying to balance the residential local rates. I think the fact that we haven't increased those rates at all in the last six years and that we are putting forward a rate that is $2.00 higher, combined with a small decrease in our long distance service ‑‑ so $1.60 increase ‑‑ if you take a look at that over the period I don't think ‑‑ at least it's our view that that's not excessive.
961 And it is a balance with respect to the total cost of providing service. So as Ms Chalifoux pointed out, our cost of providing residential service is significantly higher than that and we are going to be asking for a subsidy to cover that additional cost.
962 So we have tried to put forward a balance, a balanced rate that we think consumers in the North can pay.
963 MR. RONDEAU: Okay, thank you.
964 I would ask you if you did an analysis on what happened to rates in other jurisdiction in this last timeframe, in the past five years in other words? In other words, have there been increases in other jurisdictions in telephone rates, local rates?
965 MS CHALIFOUX: I believe there have been rate changes, including increases, in other jurisdictions, yes.
966 MR. RONDEAU: Perhaps we can get an undertaking to show these areas?
967 THE CHAIRPERSON: Mr. Rondeau, Northwestel can take undertakings to provide information about their own operations. I don't think that you can expect them to provide a report on the performance or the price performance of other telephone companies across the country. That's not a reasonable request to make.
968 MR. RONDEAU: Fine. Maybe I can find that on the internet myself tonight and come back to it.
969 THE CHAIRPERSON: I mean, the CRTC provides an annual report on the state of competition and pricing in the country and you can certainly find that data. And you are free to talk to the staff and see how you can get that information, otherwise I just don't think it's appropriate that Northwestel be asked to provide it.
970 MR. RONDEAU: Thank you, Mr. Chair.
971 Anyway, you do agree that there has been some increases in other jurisdictions ‑‑ or you state that there has been.
972 MS CHALIFOUX: Subject to check, I believe there likely have been.
973 MR. RONDEAU: In YJ‑23 you rationalize the same thing, CPI being your reason why you feel that a rate of 7 percent is ‑‑ an increase of 7 percent is not extreme.
974 You also rationalize that your affordability process is done through disconnections. Would you state that disconnections is your definition of affordability?
975 MS CHALIFOUX: I think, Mr. Rondeau, as I pointed out before, affordability is a very complex construct I guess. I'm not sure. And we haven't stated that we believe that disconnects alone or any one measure necessarily is an indicator of affordability. Certainly we have some information at our disposal about the number of voluntary disconnects, which has been very low, approximately 20 in all of 2005, for reasons of affordability.
976 But certainly, as I have said, we haven't undertaken any detailed affordability analysis. What we have proposed is essentially what we believe to be a balanced proposal based on a number of competing objectives, one being bringing rates closer to cost and the other being of course concern about rate shock for consumers.
977 MR. RONDEAU: Thank you.
978 I did not have time to find the area that I was looking in, but in my research I come through somewhere in the process, somewhere in the IRs, that you speak that the company be given the opportunity to raise rates by $1.00 per year through the regime process that you are requesting.
979 Is this your plan?
980 MR. WALKER: We have no plans of increasing ‑‑ besides the $2.00 increase for local rates that is on the table now, I was just conferring and there is no plan to increase local rates by a dollar a year.
981 It would have to be assessed each year, and residential local rates is in a basket where it can only go up by the amount of inflation.
982 So it would have to be assessed at the time. But there are no concrete plans.
983 MR. RONDEAU: Thank you.
984 Now I would like you to look at the evidence that UCG presented in their submission. There were several exhibits that we sent along with our submission.
985 MR. WALKER: I have that.
986 MR. RONDEAU: The first exhibit, just to give you an idea why I was giving you this, was to show the amounts of increases since 1992 in a different perspective, along with increases that were implemented in other jurisdictions as well.
987 MR. RONDEAU: The first page shows that residential consumers in the North were among the low end of different jurisdictions.
988 Is that correct?
989 MR. WALKER: Generally speaking, I would say. Maybe BC Tel and Newfoundland Tel and Bell may be in similar ranges.
990 MR. RONDEAU: Nonetheless, lower end.
991 As the years passed to 1995, Northwestel customers become the high end, very quickly become the high end.
992 Is that your perception?
993 MR. WALKER: If you look at the local rates alone, yes. But we also had the highest long distance rates to bring down to.
994 So I'm back to that rebalancing. And we made significant changes to our long distance rates at the time.
995 Back then, if I remember correctly, these were revenue‑neutral changes. So what we increased in our local rates, we reduced in our long distance rates. So there was no net to Northwestel. It was really neutral and really neutral to our customers.
996 MR. RONDEAU: Yes, I believe that was the rationale for what took place.
997 What I am trying to get at is right now we are the highest in the land for local access rates, in some cases much more extreme than other jurisdictions.
998 Is that your perception of what has taken place, as well?
999 MR. WALKER: I would say that the rates that we have proposed are amongst the highest in Canada for residential local service. I think that they are not necessarily the highest, but they are amongst the highest.
1000 Again, it goes back to a very difficult balancing act about what northerners should contribute to the total cost of providing service versus what we should expect to get from the National Contribution Fund.