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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 price cap framework /
Examen du cadre de plafonnement des prix
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 11, 2006 Le 11 octobre 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 price cap framework /
Examen du cadre de plafonnement des prix
BEFORE / DEVANT:
Richard French Chairperson / Président
Helen del Val Commissioner / Conseillère
Elizabeth Duncan Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Stuart Langford Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Marielle Giroux-Girard Secretary / Secrétaire
Bob Noakes Staff Team Leader /
Chef d'équipe du personnel
Stephen Millington Legal Counsel /
Rachelle Frenette Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 11, 2006 Le 11 octobre 2006
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PREVIOUSLY AFFIRMED: PAUL ROWE 304 / 2044
PREVIOUSLY AFFIRMED: SCOTT ANDREW COLLYER
PREVIOUSLY AFFIRMED: MIRKO BIBIC
PREVIOUSLY AFFIRMED: GEORGE HARITON
PREVIOUSLY AFFIRMED: PETER DILWORTH
PREVIOUSLY AFFIRMED: DAVID PETER KRAUSE
Cross-examination by The Consumer Groups (Cont.) 306 / 2059
Questions by the Commission 343 / 2276
AFFIRMED: RICK STEPHEN 377 / 2535
AFFIRMED: MIKE ANDERSON
AFFIRMED: BRYCE SCHURR
Questions by the Commission 378 / 2546
AFFIRMED: JANET YALE 424 / 2843
AFFIRMED: WILLIE GRIEVE
AFFIRMED: STEPHEN SCHMIDT
Examination-in-chief by Telus 424 / 2845
Cross-examination by the Competitors 426 / 2871
Cross-examination by BCOAPO 445 / 2994
AFFIRMED: PAUL HANSEN 453 / 3066
Cross-examination by BCOAPO (Cont.) 453 / 3068
Cross-examination by The Consumer Groups 497 / 3396
Questions by the Commission 546 / 3731
- v -
EXHIBITS / PIÈCES JUSTICATIVES
No. PAGE / PARA
TELUS-2 Énoncé préliminaire de Société 569 / 3869
TELUS Communications, daté le
10 octobre 2006.
CRTC-1 Response to Interrogatory 569 / 3870
Abridged, 2 pages.
CRTC-2 Response to Interrogatory 569 / 3871
(Conf.) Aliant(CRTC)26Jun01-1202 PC,
Supplemental, 3 pages.
CRTC-3 Response to Interrogatory 570 / 3872
(Conf.) SASKTEL(CRTC)26Jun01-1202 PCR,
CONFIDENTIAL, 2 pages.
- vi -
UNDERTAKINGS / ENGAGEMENTS
No. PAGE / PARA
Consumer The Companies to provide 316 / 2119
Groups‑1 Dr. Roycroft's analysis of
productivity associated with DSL
service re: estimated using Bell
CRTC‑1 Aliant & SaskTel to provide 363 / 2436
Clarification of the penetration
rates for Sasktel and Aliant's
Call Display feature, either as
part of a bundle or whether taken
on a service-by-service basis.
CRTC‑2 Aliant & SaskTel to provide 364 / 2436
Information regarding the
penetration rates for Sasktel
and Aliant's Answer feature,
either as part of a bundle or
whether taken on a
CRTC‑3 Bell Canada to provide Data 374 / 2516
regarding demand for the 7
discretionary services listed in
CRTC exhibit no. 1 for the period
1998 to 2002.
CRTC‑4 Aliant to provide Data regarding 379 / 2560
demand for the discretionary
services listed in CRTC
confidential exhibit no. 2 for the
period 1998 to 2002
CRTC‑5 SaskTel to provide Data regarding 380 / 2566
demand for the discretionary
services listed in CRTC
confidential exhibit no. 3 for the
period 2000 to 2002
BCOAPO‑1 Telus to provide the percentage of 491 / 3349
exchanges that would be uncapped
pursuant to Telus' proposed
competitive presence test for BC
and Alberta respectively.
- vii -
UNDERTAKINGS / ENGAGEMENTS
No. PAGE / PARA
CRTC-6 The Companies to provide 571 / 3879
Percentage of subscriber to the
companies' local primary exchange
service who subscribe to at least
one optional feature.
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Wednesday, October 11, 2006
at 0902 / L'audience reprend le mercredi
11 octobre 2006 à 0902
2041 THE CHAIRPERSON: Order, please. A l'ordre, s'il vous plaît.
2042 Madam la secrétaire...?
2043 LA SECRÉTAIRE: Bonjour, monsieur le Président. Bonjour tout le monde.
2044 We will now pursue with counsel Janigan on behalf of Consumer Groups to finish his cross‑examination.
PREVIOUSLY AFFIRMED: PAUL ROWE
PREVIOUSLY AFFIRMED: SCOTT ANDREW COLLYER
PREVIOUSLY AFFIRMED: MIRKO BIBIC
PREVIOUSLY AFFIRMED: GEORGE HARITON
PREVIOUSLY AFFIRMED: PETER DILWORTH
PREVIOUSLY AFFIRMED: DAVID PETER KRAUSE
2045 MR. BIBIC: Mr. Chairman, as Mr. Janigan gets set up there, before we start, if I may, I would request a few minutes to discuss an announcement that BCE and Bell Canada made this morning. We don't believe that it affects this hearing or our proposal, but as a courtesy to the Panel and the participants, if you would allow me five minutes to go through it, I think it would be helpful.
2046 THE CHAIRPERSON: Please do, Mr. Bibic.
2047 MR. BIBIC: Thank you.
2048 As many of you undoubtedly already know from the news reports this morning, Bell Canada and BCE made a couple of announcements.
2049 First, we announced that BCE will be wound down and they will no longer be a holding company operation.
2050 Second, we announced that Bell Canada would be converted into an income trust, called the Bell Canada Income Fund. Essentially, BCE, Bell Canada and various subsidiaries will be amalgamated.
2051 Bell Canada will continue to be the name, and BCE shares are to be exchanged on a one‑for‑one basis for trust units.
2052 We expect closing to take place in the first quarter of 2007.
2053 Third, Bell Aliant announced an intention to purchase all the units of Bell Nordique that it doesn't already own, and the hope of Bell Aliant would be to consolidate the Bell Aliant and the Bell Nordique operations and operate the two together as a single trust.
2054 Fourth, and very important, the fundamental business operations of Bell Canada and Bell Aliant will remain unchanged in all respects.
2055 Thank you, Mr. Chairman.
2056 THE CHAIRPERSON: Thank you, Mr. Bibic.
2057 There may well be questions but they are all out of scope.
‑‑‑ Laughter / Rires
2058 THE CHAIRPERSON: Mr. Janigan.
CROSS‑EXAMINATION / CONTRE‑INTERROGATOIRE (Cont.)
2059 MR. JANIGAN: I just have a few questions to finish off our cross.
2060 When we concluded yesterday we were discussing the potential structure of a price cap formula and what might be a component that may be plugged in for an X factor.
2061 First of all, to be fair, Bell hasn't proposed itself an X factor, only that prices in the capped services shouldn't rise.
2062 Is that correct?
2063 MR. HARITON: That is correct, Mr. Janigan.
2064 MR. JANIGAN: And we were discussing how we might assess such a future productivity number, particularly with reference to the analysis that was contained in CRTC Interrogatory 1102 to The Companies.
2065 MR. HARITON: That is correct.
2066 MR. JANIGAN: For the purpose of such an exercise, as I understand from the evidence and from your answers yesterday, The Companies oppose looking at additional productivity or revenue enhancement brought about by the use of the capped PES and generated in unregulated services.
2067 MR. HARITON: I think there was a little bit of possibly miscommunication at the end of the day yesterday, so let me try to clarify, if I can.
2068 I think, having looked at Dr. Raycroft's evidence, I picked the example of DSL and PES as perhaps an example of what you are getting at.
2069 Would I be correct in that?
2070 MR. JANIGAN: Yes, that would be right.
2071 MR. HARITON: Just as an example, of course.
2072 MR. JANIGAN: Yes.
2073 MR. HARITON: Let me trace that one through and perhaps that would help.
2074 Yes, indeed, the same access would be used for PES and DSL, in that DSL will ride on the same loop as has been provided for PES.
2075 That is the general situation. There will be a few cases where you might have some dry loops specifically for DSL. But the vast majority of cases are PES and then DSL riding on it.
2076 I think your position is that when a customer takes both PES and DSL, surely he should get a break on PES because, after all, you are using that underlying access for DSL, recognizing that both services will help to recover the cost of that access.
2077 That is true that when a customer does take DSL and PES on the same line there would be not cost allocation, because I don't believe in cost allocation, but there certainly would be a help in recovering costs.
2078 The flip side, of course, is that when a customer takes primary exchange service only ‑‑ I'm sorry I am talking in acronyms; PES means primary exchange service ‑‑ then that customer still gets an entire access but with no other service to help defray the cost of the access. So you still have to provide an inter access.
2079 So in a rational competitive world what will happen is that if a customer is taking both PES and DSL, there would be a discount on the price of PES. Indeed, this is what you see in bundles.
2080 So if a customer takes a bundle of PES and DSL, chances are there will be a discount.
2081 Certainly Bell offers discounts. I know that the cable companies explicitly offer discounts. If you take stand‑alone telephony from them ‑‑ which you can; they all offer it ‑‑ you will get one price. If you take that stand‑alone telephone combined with other services like, for example, high speed Internet, you will get a different price.
2082 So that is a discount, and the discount grows with the number of services you take because the cost is shared.
2083 That is true for bundles.
2084 However, all of that does not detract from the fact that for stand‑alone PES, the entire loop is still necessary and the customer who is taking only PES should, in my mind, still pay the entire cost of the loop in his PES price.
2085 I had interpreted my job here to work out an X factor for stand‑alone PES service; i.e., we are looking at the regulation and capping of PES service, with the caveat that The Companies' position is that there shouldn't be an X. But put that aside.
2086 In that case, for those customers there are no economies of scope from having DSL and PES on the same loop, simply because they are not taking both services. They are taking only one service. As a result, the X factor that applies to the stand‑alone should not make the adjustment that you are suggesting.
2087 If we were developing an X for bundles, bundles of DSL and PES, then indeed I would come up with a different X and the X would take that into account. Indeed, I would expect the entire revenues for the bundle to cover the entire cost of the bundle.
2088 Just a final note on that, Mr. Janigan, I think. I think we may be mislead by the fact that in the past and, indeed, even today we have a uniform pricing rule which in theory says PES is PES and will be priced the same for all customers within a band.
2089 In fact, PES is not PES everywhere the same. If PES is bundled together with DSL, it will have different cost characteristics, and you may well ‑‑ in fact you should, the competitive market says you should ‑‑ price it differently.
2090 So, that is an example of where the uniform pricing rule may be a barrier to doing the right thing. In fact, it is not because the Commission allows bundling, which effectively allows a different price.
2091 I hope that is helpful. I don't know if that answers your question.
2092 MR. JANIGAN: You have addressed the matter from the standpoint of the customer level.
2093 I was more looking at it from the standpoint of the macro level, that effectively the use of the PES exchange is generating additional revenue, additional opportunities for revenue for the company somewhere. Those revenues or opportunities are not captured in looking at what the productivity should be of the PES exchange ‑‑ or the productivity dividend of the PES exchange going forward.
2094 As I understand it, that is essentially the position, that those kinds of opportunities should not be considered when we craft an X factor for the PES, accepting the fact that you don't believe there should be an X factor.
2095 MR. HARITON: Just to agree with you, I think ‑‑ let me see if I do agree with you.
2096 MR. HARITON: If you are looking at customers who purchase bundles of services, the price for the bundles in a competitive market will pick up the wider benefits of having a bundle, which include possibly help in recovering common costs.
2097 If you are looking at a stand‑alone service, it is not clear that you want to start looking at productivity in other parts of the company to share in, and this goes back to a discussion yesterday on the proper incentives and motivation.
2098 But just to give you an example, if you were to say, for example, as was argued very strongly in the eighties and to some extent the nineties, hey, well, you know, that local loop is being used for local service and for long distance service at the same time, surely, surely, surely we should have some kind of cost allocation between the two, or if not a cost allocation, which is obviously wrong, some kind of sharing from the long distance to the local.
2099 You would say, well, fine, in times when long distance is growing quickly, that would help give you a lower price for local, but what about the times when long distance may be falling off, perhaps because of the spread of e‑mail which substitutes for fax, for whatever reason, and all of a sudden the volume of long distance and the productivity of long distance is dropping, would that justify an increase in the price of local service? The local service customer really has nothing to do with that drop, the person who is taking just local.
2100 In fact, in a competitive market, if you were to try to do that kind of thing, somebody would come along and say, I am going to be a local service provider only, I am not going to have to bring in the losses in long distance and have local help set them off. So, you couldn't recover those costs anyway.
2101 So, any sharing would be one way, and that doesn't sound quite right.
2102 I do want to add one more thing. I know I have been going on at length and I will try to keep this very short.
2103 Even if you add DSL to the PES service, it is not clear to me that you actually do improve the productivity all that much. We did take a look at Dr. Roycroft's study and the numbers he has. In fact, he calculated productivity without DSL and productivity with DSL for the entire companies, for a number of U.S. companies, subtracted the D2 and got the impact of DSL.
2104 The input values that he was suggesting in his studies seemed to me to be quite low. He was looking at numbers like around $218 worth of extra capital for DSL in 1999, going to something like $118 in 2003.
2105 I went out and got what numbers I could for Bell, converted them to U.S. dollars, and the numbers are running from $1300 in 1999, about $1100 in 2000, about $890 in 2001, $675 in 2002, and about $520 in 2003.
2106 The operating expenses are harder to get at historically because we have records of plant. We don't have as good records of operating expenses, unless Mr. Dilworth has something I don't know about.
2107 But Dr. Roycroft included $1.50 per month operating expenses in his study for DSL, which I calculate to be $18 a year. The numbers I have seen for ILECs tend to run anywhere between $200 and $300. So that even if you add $100 in for operating expenses, you will find that that is quite a lot more input than Dr. Roycroft has got.
2108 Productivity is really calculated as output divided by input, and if you substitute numbers for Canadian telcos in U.S. dollars into Dr. Roycroft's studies, keeping everything else constant, I think you find that the productivity impact of DSL just about goes away. But I am sure that Dr. Roycroft and one of our counsel will have a discussion later on, so I won't pursue that.
2109 MR. DILWORTH: I was just going to add to something that Mr. Hariton had said.
2110 The productivity opportunities that we have across the company are not all equal. We have a much greater opportunity to drive productivity in our growth businesses, where we are investing much more quickly in infrastructure, and therefore able to take advantage of the technological advancements from the new infrastructure.
2111 When we are growing, it is much easier to find labour productivity because you can even get that by just not hiring as fast or maybe not hiring at all. But when you are stagnant or you are shrinking, you know you then need to start taking people out of the business.
2112 So, when we do look at the cost reductions, for example, Mr. Janigan, that you and I looked at yesterday, we do see a lot of that opportunity is found in the growth engines. In fact, I can just confirm that the analysis we have done does capture the benefits of those cost reductions.
2113 MR. JANIGAN: You have taken me down a path I wasn't ready yet to go, but I just want to pursue that while we are on the topic.
2114 Mr. Hariton, you have indicated that you have done an analysis of the input values and come up with other numbers that suggest higher input values. As I understand it, there may be a table or evidence might be prepared for Dr. Roycroft to respond to?
2115 MR. HARITON: I could certainly prepare a table fairly quickly.
2116 MR. JANIGAN: That would be useful if that could be obtained and Dr. Roycroft might be able to address that in his testimony.
2117 MR. HARITON: Yes, I think that is fair. We will get a table to you as quickly as we can.
2118 MR. JANIGAN: Okay. Do you want an undertaking number on that?
2119 MR. MILLINGTON: Yes. We would want copies for everybody as well related to all the parties.
UNDERTAKING Consumer Groups‑1: The Companies to provide Dr. Roycroft's analysis of productivity associated with DSL service re: estimated using Bell cost data.
2120 MR. HARITON: Yes, I understand that. We will make as many as necessary.
2121 MR. JANIGAN: Let's leave aside the issue of what amount, if any, the DSL adds to the overall productivity estimate and go back to the principle itself.
2122 Back in the bad old days of rate of return regulation, as I understand when a regulated service generated a revenue that was outside of the service that it was delivering, that revenue was included in the revenue requirement of the regulated company. Am I correct?
2123 MR. HARITON: That is certainly true, Mr. Janigan.
2124 MR. JANIGAN: When we moved to price caps, the concern was first of all to break the link between prices and costs, and to give the regulated company the incentive to become more productive and more efficient, but also to find a way in which the ratepayers themselves could share in some fashion in the productivity or efficiency gains of the company during the period of the price gap. Would that be correct?
2125 MR. HARITON: The theory of the price cap framework was to set a productivity target for the regulated companies, and if the company was able to get a better productivity than that, it would keep it. If not, the shareholders would eat it.
2126 By implication, the amount of the productivity target would go to the consumers.
2127 MR. JANIGAN: Effectively, when the first price cap was set, what we attempted to do was to estimate in some fashion what kind of productivity or efficiency gains could be obtained by the company and, in so doing, set the price cap that contained an X factor that contemplated such productivity or efficiency gains?
2128 MR. HARITON: We did our best, all of us.
2129 MR. JANIGAN: The residential primary exchange service market, I would submit, is a key vehicle for delivering new services such as DSL, as well as providing effectively the driver through the customer relationship that enables you to deliver and market the new products and services that you have. Would you agree with that?
2130 MR. HARITON: Let me take that in two steps.
2131 The first one is I think you said the vehicle, the manner in which to deliver services. I think that in the future, and the not too distant future, we will be seeing service providers of all kinds step away from an integrated service top to bottom. What they will be doing, I believe, subject to check from my marketing friends, is they will be selling a platform, an access platform, which is just mere access, plus a bunch of applications which will be running on top of that platform, and different customers will be able to choose different packages of the access portion plus the application.
2132 So, if you want voice, you will get a voice application; if you want e‑mail, you get an e‑mail application; if you want something else, you will get that application, and presumably the number of applications you get and other factors will govern the price you pay.
2133 The access will be the vehicle, not the PES.
2134 MR. JANIGAN: But the PES and the customer relationships developed from PES basically have provided you the basis for effectively marketing and delivering services in the future?
2135 MR. HARITON: The PES itself, I think ‑‑ I might get shot for this ‑‑ is not a legacy service, but it's a service which perhaps is not a service of the future. What we are going to see increasingly is, as I say, a migration to this new way of structuring services, so that the way forward is going to be that you will buy or any customer ‑‑ I don't mean to single out you, Mr. Janigan ‑‑ we will be buying access as an access service, and we will be paying for access as that service, and PES will be nothing but an application riding on that service.
2136 I am sure there will still be special bundles of access and voice for those people who need it, who want it, but I don't think that is going to be the way it is going to be.
2137 On the other one, and you made an important point, on the relationship between the customer and the carrier, it is true that relationships are important. Relationships don't have to be through PES. Relationships can be through a number of other services that a customer is already taking. The obvious one is, for example, if they are taking cable service, there is a customer relationship there which can be used to market other stuff, but it doesn't have to be.
2138 I remember a few years ago my credit card company, I believe it was CIBC, used the fact that I had a credit card to market long distance services to me. They were willing to give me a special deal combined with the credit card and so on.
2139 So, any customer relationship in the jargon can be leveraged, can be used, to help sell other products to the customer. It doesn't have to be PES; it can be something else.
2140 MR. JANIGAN: But surely the customer relationship developed through the years of providing local service that the companies have had is a much more important component than your credit card marketing long distance services to you?
2141 MR. HARITON: If your suggestion is that I don't love my credit card company, you are probably right.
2142 MR. HARITON: But that said, I think that was probably true for many, many years. I think that the world is changing. There used to be a sense of loyalty to one supplier. You used to go to the neighbourhood grocery store and that's where you bought your groceries. People shop around a lot more now.
2143 I think that is true for most parts of consumer expenses. I suspect it is true for telecom. People shop around now. They don't just stick with the one.
2144 I am speaking of something which could be better addressed by my marketing friends, and I don't know if they have anything to add.
2145 MR. COLLYER: Actually, I think you are doing quite well, Mr. Hariton.
2146 MR. HARITON: Maybe they will give me a job, Mr. Chairman.
2147 MR. JANIGAN: I just have one small question on your adjustments once again. We were talking about it in interrogatory 1102.
2148 I notice that you have made an adjustment for anticipated line losses caused by reduction in use. I wonder how reasonable it is to make those kinds of line losses adjustments on the one hand, which are driven in part, I would assume, by the VOIP offerings of the company itself on DSL on the one hand, and then of course exclude potential revenues or productivity enhancements that are coming from the use of the primary exchange service on the other.
2149 MR. DILWORTH: The line losses that we will sustain over the next couple of years, the vast majority of those are coming from losses to cable companies. There is some substitution to other technologies, but not significant losses due to our own offerings.
2150 MR. JANIGAN: Voice over Internet, no? There is more voice over Internet offered on lines accessed from Bell or the companies; is that what you are saying?
2151 MR. DILWORTH: Pardon me?
2152 MR. JANIGAN: It is entirely cable?
2153 MR. DILWORTH: The vast majority of it will be cable.
2154 MR. JANIGAN: And not from losses to other offerings by the companies or by firms that are using the companies?
2155 MR. DILWORTH: The impact of the average working fill adjustment that we have made, what we have done is looked at the total lines that we are going to continue to have, including business and Centrex and other lines. So, it is a look at our total network, lines that we have included here, and we have captured the impact on our cost from the reduction in average working fill, and that impacts on our costs.
2156 MR. JANIGAN: Thank you. I want to ‑‑
2157 MR. HARITON: Just to clarify one little point, just to make sure, if a customer takes Bell Sympatico DSL and uses Vonage over it, that is not a line loss.
2158 MR. JANIGAN: I want to talk about overall design of the price cap and its effectiveness.
2159 We have had now experience with two price caps, and I guess an extension of the second price cap. I realize in this hearing that financial results or earnings are a sin that cannot be named, but it seems apparent that the companies have been able to meet their financing requirements and their legal requirements for service with reasonable ease under the entire course of the price cap. Am I correct on that?
2160 MR. BIBIC: I certainly wouldn't agree that we have been able to do it with relative ease, as you put it, Mr. Janigan. I think there is quite a business dilemma that the companies and all incumbents, I suspect, have to go through, where multiple platforms, legacy platforms have to be managed at very high costs in a time of significant line loss, as well as investing in new growth platform.
2161 That's certainly not an easy task to manage declining legacy platforms, investing growth platforms, all in an environment where competitors are coming in and taking a lot of share.
2162 MR. JANIGAN: Well, I didn't mean to discourage the abilities of the companies in that regard.
2163 Perhaps if we eliminate the clause with relative ease, you certainly met ‑‑ have been able to meet the financing requirements and the legal requirements for service that are imposed upon you by the various statutes.
2164 MR. BIBIC: As far as the legal requirements are concerned, we clearly have no choice but to meet what requirements are imposed on us and you have to manage as best you can.
2165 Certainly if you look at the financial performance and growth in some quarters, there may be a debate with you, but we do the best we can and in the growth businesses we are, you know, executing and on our strategy and getting there.
2166 MR. JANIGAN: There has been a reasonable amount of discussion on the evidence and to be fair not so much on the company's evidence, but primarily in Telus evidence of the perils of setting the bar too high and in a price cap arrangement.
2167 Can I ask you, how do we know if a price cap has been set too low or the bar has been set too low or too lenient towards the companies?
2168 What's the evidence that we should be looking to that would tell us that?
‑‑‑ Pause / Pause
2169 MR. HARITON: I don't think there is a magic answer, Mr. Janigan.
2170 What you have to do is you have to look at ‑‑ the best you can do is look at the productivity that is being achieved and when you examine your X, you can look at the historic record of what the productivity has been and then you extrapolate and hope that you get a proper forecast of what it's going to be.
2171 Now, over and above that, if you can foresee with some certainty that certain events are going to happen that are clearly going to affect productivity and that are clearly going to be material, then I think it's proper to put them in.
2172 But at the end of the day, the way to know whether the bar has been set too low or too high is to look at the productivity that has been achieved and that's the best base I can think of.
2173 MR. JANIGAN: The problem with that kind of analysis at this juncture, of course, is that the productivity is company‑wide whereas the regulated services are only a small portion of those.
2174 MR. HARITON: Well, we do have a unit cost trends for this specific ‑‑ for at least one specific service, and we believe it's representative pretty well of the services that are being considered for an X, so that by looking at the history of the unit costs for that service, I think you do get a pretty good idea of what a reasonable productivity target would have been over the past period.
2175 MR. JANIGAN: That captures primarily though inputs, does it not, and they won't capture all of the outputs that are associated with?
2176 MR. HARITON: It will capture the outputs of those services because they are unit costs, so that obviously, as the service grows, the unit costs come down.
2177 It also captures economies of scope, as we mentioned yesterday, where other services are growing and as a result of, facilities like trunks, like switches which are used by both can then be sized more efficiently and so on.
2178 MR. JANIGAN: Yes, to the extent ‑‑ sorry, I was just ‑‑
2179 MR. BIBIC: I was just going to say that unlike as well in terms of getting it right so to speak, unlike Price Caps 1 and Price Caps 2, we have the advantage today of having competition in significant portions of incumbent territories which will serve to make sure that firms become as productive as possible in order to meet the competition.
2180 MR. JANIGAN: I want to go back to Mr. Hariton's point, but I might as well pursue that while it's in my mind.
2181 What does that tell us about the design of the price cap in terms of whether or not it's too high or too low?
2182 MR. BIBIC: That tells us that we should let competition determine ‑‑ make firms competition for us in terms to be productive without having to put a mechanistic X on top of the regime in cases where there is competition.
2183 So, part of the worry that you're expressing, in my view, about making sure we get it right goes away when competition determines or forces firms to be productive. That was kind of the point that I was making.
2184 MR. JANIGAN: As an argument it gets regulation in general rather than the components of the price cap?
2185 MR. BIBIC: No, no. It's an argument with respect to the applicability or advisability of having an X in this environment rather than. I am not arguing for in this proceeding that there be no price caps generally.
2186 MR. JANIGAN: By the state of competition you can adjudicate ‑‑ what I'm looking for is a test that tells me, hey! this price cap has been set too lenient for the company. It should be set higher.
2187 The presence of competition one way or the other is not going to assist in that analysis.
2188 MR. BIBIC: I hear what you're saying and presuming that there should be an X and, therefore, how do we know we get it right, fair enough.
2189 MR. JANIGAN: Okay. Now back to Mr. Hariton, your point concerning the way in which economies of scope affect the analysis. That effect is confined to the reduction of costs associated with having a multiplicity of services using the cap service.
2190 MR. HARITON: That's correct, and that's certainly what economies of scope would lead to. They would lead to lower costs because you've got multiple services using serial trunks.
2191 MR. JANIGAN: Sorry. I just want to get to this question. But it wouldn't capture the revenues associated with those additional services or take into consideration the revenues because they are outside of the regular ‑‑
2192 MR. HARITON: That's correct and I think that that is appropriate because if you do start counting, say, your revenues for other services, you might have, I don't know, a price war in mobility. I know that's a purely hypothetical one, but ‑‑ you're not helping.
‑‑‑ Laughter / Rires
2193 You might have a price war in mobility and so, if you have a decrease in revenues for all those minutes that are using those trunks, inter‑office trunks, would you then say, okay, well then the price of local service has to go up to compensate?
2194 I mean, I think it leads you to these anomalies, not to say incongruous results.
2195 So that if you are going to regulate a set of services, you should really look at the performance of that set of services to the degree you can.
2196 Now, the performance of that set of services will definitely be impacted on what else is going on in your company and that's the kind of thing you should capture.
2197 But the other ‑‑ like revenues, are not really part of the calculation, I don't think because the revenues in the other parts of the company can be affected for all sorts of reasons.
2198 MR. JANIGAN: I want to turn to ‑‑ briefly to your Objective Section and in particular, one element of that Objective Section, which I am hopeful we may actually agree upon.
2199 On page 17 and if you have your finger there, would you also turn to page 48 as well, which is the elimination under the referral account, and I'm going to look at your comments with respect to the objective of balancing the interests of the three main stakeholders.
2200 I take it the companies would agree that the idea that you price services to incent entry is a bad idea ‑‑ the competitive entry?
2201 MR. BIBIC: Which particular objective are you referring to?
2202 MR. JANIGAN: Well, I think what I am referring to hear is your comments with respect to that the Objection B :
"The balancing interest of the three main stakeholders in telecommunications market appears to contemplate that the prices of the companies should be regulated in a manner which protects the interests of the competitors."
2203 Thereby, you set a higher price in order to enable competitors to enter the market and establish themselves.
2204 You don't think that's a good regulatory objective, right?
2205 MR. BIBIC: Well, there, certainly I agree with what we wrote in paragraph 50. There is more to paragraph 50 than simply that dimension, there's pricing for competitor services, unbundling of network elements, things like that.
2206 MR. JANIGAN: Yes.
2207 MR. BIBIC: If you include ‑‑ if you take in that broader context, yes.
2208 MR. JANIGAN: But, as a general principle, when a regulator goes to set rates, it shouldn't set rates on the ability of the competitors to get under those rates?
2209 MR. BIBIC: Certainly in terms of the entry we have today we certainly don't think that the entrants today, the cable companies, need any protection and, to the extent an entity needed the protection of a price umbrella, I would argue that perhaps they shouldn't be entering in the first place given their inefficiency.
2210 MR. JANIGAN: If I could ask, Mr. Hariton, what are the perils associated with setting a price for services which are based on the ability of competitors to meet or get under that price, from a regulatory or market sense?
2211 MR. HARITON: Well, as a general theoretical proposition, if you set prices which are equal to the competitors' costs or price ‑‑ the ability of competitors to price, what you will do is you will basically block the incumbent from giving as good a price as he or she could to the customers and you're basically depriving customers of some benefits.
2212 But let me just say that this is a consequence of putting in a regulation which perhaps should not be there.
2213 What you should do, obviously, is you should let market forces play out and if market forces ‑‑ there are market imperfections, you have to solve market imperfections ‑‑ but the preference is, obviously, to let market forces play.
2214 MR. JANIGAN: In other words, whether or not the competitors can meet a particular price shouldn't be a consideration when you set a regulated price. Would you agree with that?
2215 MR. HARITON: Well, I don't think you should set ‑‑ it is a consideration in that setting regulated prices is a tricky business and there's always a danger of setting them too high or too low or something, so that unless you absolutely have to set a regulated price, perhaps you shouldn't.
2216 MR. JANIGAN: Well, let's assume we are at that juncture when we have to set a regulated price. When you set that regulated price should you say, well, effectively the way we calculate the price that should be assessed here or should be charged here, it should be "x".
2217 MR. HARITON: Mm‑hmm.
2218 MR. JANIGAN: But if we charge "x" that will be too low to allow competitors to enter. Is that an appropriate consideration?
2219 MR. HARITON: It's a consideration that has been used in the past.
2220 MR. JANIGAN: In your view, in your personal view, do you think that is an appropriate consideration?
2221 MR. HARITON: My personal view is we should have markets that lead to efficiency and that means that we should allow market forces to set prices as much as we can.
2222 Now, you're saying, okay, take that away, Mr. Hariton, we think market forces can't do the job. If market forces can't do the job, then the regulator must step in.
2223 MR. JANIGAN: And in that circumstance when he steps in, the regulated price should be set on the basis ‑‑ should it be set on the basis of setting a price that the competitors ‑‑
2224 MR. HARITON: No, the competitors' ability to enter or not enter should not be a consideration at that point.
2225 MR. JANIGAN: Okay.
2226 MR. HARITON: Sorry, if that was your point.
2227 MR. JANIGAN: That is the point.
2228 MR. HARITON: I went on much too long. I apologize.
2229 MR. JANIGAN: Okay. On page 38 you have ‑‑ actually page 37, starts on page 37 and 38, it is kind of a ‑‑ I hate to characterize it as a strange little section, but it seems to be an anomalous section in your materials about services whose prices are below cost.
2230 And your proposal is, effectively, that where services are below cost that you be allowed to effectively not require the same regulation with respect to the price cap.
2231 Have I got that right, or can you summarize your proposal in this area?
2232 MR. BIBIC: We're essentially saying that if there's a service that's below cost that's in a capped basket, we should have the flexibility to increase that price if we were to choose to do so to a level that is compensatory without having price cap constraints act as a disincentive to doing so.
2233 So, let me explain. Obviously, we're running a business and it's not sound business practice to be offering services at non‑compensatory rates. So, it would be reasonable to assume that in given circumstances we might want to seek to increase those rates to compensatory levels.
2234 The problem is that today the ‑‑ well, the mechanistic price cap rules act as a significant disincentive to that because if we ‑‑ if that given service is in a capped basket and we were to seek to increase those rates to compensatory levels, it would, of course, force us to reduce prices elsewhere to remain within the overall basket constraints.
2235 That would be causing market distortions, in our view, for the other services which would be driven down not by, you know, sound business practice, competition, et cetera, but merely because we're trying to raise rates for a service that is below cost to a compensatory level.
2236 So, in a nutshell, that's the foundation of our proposal to get that flexibility.
2237 MR. JANIGAN: I guess if we are not going to go in and take a look at earnings and financial results in a general sense or the price cap, don't you find it a little odd that you want to dissect a little piece out of that and go in and rectify something that you feel is to the detriment of the company or ‑‑
2238 MR. BIBIC: Not at all, Mr. Janigan. I think what we're proposing in paragraph 123 is rather reasonable.
2239 We're not saying that we can do this at our own whim, we're saying if we identify a service that's below cost and there's a business imperative to increasing those services to compensatory levels, given that we would remain regulated, we will obviously approach the Commission, file a tariff, demonstrate that the rates are below cost and, upon the Commission being satisfied that that were the case, we would have the flexibility to do what needed to be done from a business perspective without the price cap constraints mechanistically stifling that.
2240 So, we would be demonstrating the cost.
2241 MR. JANIGAN: Well, what about a circumstance where the intervenors believe that a service is wildly over earning; should we be able to go in and ask that the books be opened and the price for the service be adjusted accordingly?
2242 MR. BIBIC: I would argue with you that that's out of scope. We're talking about pricing regulation and not earnings regulation.
2243 MR. JANIGAN: Well, it is out of scope when the number is going down ‑‑ or when the number is going up, but it is in scope when the number is going down.
2244 I mean, isn't that what you are saying?
2245 MR. BIBIC: Not at all. This is about pricing and pricing in relationship to costs which we would be establishing in accordance with well‑established phase 2 costing principles in any given circumstance.
2246 MR. JANIGAN: But haven't we established that already with the implementation of the price cap? Why do we go back and attempt to ‑‑ we have broken the link between prices and costs, why do we want to go back and re‑establish that; apart from the fact that it is, you know, financially helpful to the companies?
2247 MR. BIBIC: Well, I mean, it comes down to a quite simple proposition that we're running a business and it's not very wise to run a business offering services that are below cost, and that's really the reason for the request for flexibility. There's nothing more to it than that.
2248 MR. JANIGAN: Okay. My last point deals with your recommendation concerning the length of the price cap.
2249 And I am a little curious, given what you are requesting in this hearing and the fact that there is no financial or earnings true‑up that is associated with these price caps, that you would want as short a period as possible.
2250 It would seem to me that, given what you are requesting and given the nature of the review, that you might want as long a period as possible. Certainly that is the position of TELUS in this matter, or appears to be.
2251 MR. BIBIC: We believe ‑‑ you won't be surprised to hear me say this ‑‑ but we believe that, you know, the market has been in a state of flux for the last couple of years and will continue to be in that state for the next couple of years in terms of the vigorous entry, and in two years we might be in a better position, all of us in the industry, to determine what to say the competition is and whether or not we need pricing constraints like the ones we have today at all.
2252 Rather than impose regulatory rules in the form of traditional price caps that we are all accustomed to for a lengthy period of time, let's impose one for two years along the lines that we propose and see where we are with the state of competition in two years.
2253 That is the reasoning behind our proposal.
2254 MR. JANIGAN: Yes. Well, if your proposal is accepted, of course, if your uncapping proposal is accepted, all we are talking about virtually is the price cap applicable for about 15 percent of your customers.
2255 MR. BIBIC: You are going back to the revenue number. I'm not sure it is 15 percent of the customers. I don't know what the number is on a customer basis, but certainly it is revenues.
2256 And it is not the case for Bell Aliant and it is not surprising, as I mentioned yesterday, that we see those numbers.
2257 I'm not sure what you are asking. Are you suggesting or asking me if a longer period of time would be acceptable?
2258 MR. JANIGAN: I guess what I am looking at is, first of all, your proposal is that we only cap basically a small minority of customers.
2259 Second, with the forbearance decision in place, if in fact competition develops as you predict, you are going to be out of regulation anyway.
2260 So why do we have a two‑year price cap?
2261 MR. BIBIC: For those very same reasons.
2262 Given the competition is taking hold, has taken hold and competitors have indicated that it will take hold and they have no intention to go away, the issue is let's revisit this in two years and see if we need it at all.
2263 I'm still not clear whether or not you are suggesting it should be longer, or if you are asking our position on that.
2264 MR. JANIGAN: In most circumstances, for example, if you have everything that you wanted, we are talking about a review of a cap that is involving an incredibly small number of customers.
2265 Ordinarily in that circumstance you would want to put in place a regulatory régime that you wouldn't have to go back and continually revisit or revisit in a two‑year timeframe.
2266 MR. BIBIC: I guess we are having a debate over whether or not a longer period of time would be advisable.
2267 Is that it?
2268 MR. JANIGAN: That's correct.
2269 MR. BIBIC: If that's the question, I would say if our proposal were to be accepted, I think we could accept a longer period of time, like four years, provided, however, that the Commission would permit ILECs to engage in structural adjustments as they may be necessary.
2270 I can't predict what would be necessary, but as they may be necessary without letting the rigid price cap rules which would be imposed now impede the ability to modify the business and adjust with the times and with competitive forces.
2271 So if our proposal is accepted and we have the flexibility to come back to the Commission and say look, we would want to engage in some kind of structural reform on the product offering side, for example, and have a bit of flexibility, a longer period of time would be okay.
2272 MR. JANIGAN: Thank you, Mr. Chair.
2273 Thank you, panel. Those are all of my questions.
2274 THE CHAIRPERSON: Thank you, Mr. Janigan.
2275 Commissioner Langford.
2276 COMMISSIONER LANGFORD: Thank you, Mr. Chair.
2277 I'm sure we all have questions and we will have some time after different intervenors have come in. But just one point on paragraph 123 might be helpful to me anyway in preparing some questions for later.
2278 This is the notion that you were discussing with Mr. Janigan of services where the prices are below cost.
2279 I find it hard to grapple with that in the abstract. The concept that you shouldn't be the Robin Hood of telephone carriers is not difficult to grapple with, or perhaps the Mother Theresa. I'm not sure which would be a better analogy.
2280 Could you provide us with some examples, one or two or three; that at least we could look at it in a concrete way and if we have further questions we could prepare them in a little more pointed fashion.
2281 MR. ROWE: Commissioner Langford, I can do that.
2282 Many of these services that we believe are below cost are in fact very old data services which are used by business customers; example, analog local private lines, those types of things.
2283 Clearly because of the end of life of these services, in fact Bell is having a more difficult time to actually provide quality of service for these. The equipment itself is actually manufacturer discontinued. In some cases the customer premise equipment can't even be purchased on the grey market.
2284 So in fact we are having to ensure that when a terminal comes out of service that we in fact grab hold of it and put it in a sacred place so that we can continue to give service to the customers that remain.
2285 These services are really continuously more and more difficult to maintain and that's why the costs are going up.
2286 In fact, because the prices are where they are, if we were to show customers what the true cost and price for that service is, they themselves would be starting to think about moving to some of the new services where clearly all companies are investing in those services and putting their focus in terms of quality of service, et cetera.
2287 It is really a way to show customers how to evolve their services in conjunction with where technology is going and with where the overall focus of the market is.
2288 COMMISSIONER LANGFORD: But there is an application process now for withdrawing services like that or moving the prices up.
2289 Is it the effect on the overall basket situation that bothers you?
2290 MR. BIBIC: Certainly there is a process for withdrawing services. Some of these customers may not want to be withdrawn. But the issue is if you were to raise the price, as I mentioned earlier, because the Commission has approved it, you have to take corresponding decreases which may not be advisable from a business perspective or which distorts the market outcome for those other services.
2291 So it is yes to your question.
2292 COMMISSIONER LANGFORD: So if you are trying to induce people to switch ‑‑ essentially what this seems to be all about, if I understand Mr. Rowe ‑‑ to something more practical from your point of view, technologically practical, do you envisage still coming before us with a tariff application to raise those prices, just that it wouldn't impact on the overall basket?
2293 MR. BIBIC: That is absolutely correct.
2294 COMMISSIONER LANGFORD: Are there any residential prices on your list? I am thinking of something that a going‑in price was set two price cap proceedings ago but somehow time has passed it by.
2295 MR. ROWE: No, Commissioner, not to my understanding.
2296 COMMISSIONER LANGFORD: This is strictly a business proposition in all ways.
2297 MR. BIBIC: It is, yes.
2298 Paragraph 123 deals with business.
2299 COMMISSIONER LANGFORD: Strictly business.
2300 MR. BIBIC: You are starting to raise issues about contribution on the residential side, I suspect, which are more complex and complicated, and were not intended to be addressed by paragraph 123.
2301 COMMISSIONER LANGFORD: I wasn't even going to ask, but I'm always grateful for volunteered information.
2302 Thank you very much. That is my question, Mr. Chair.
2303 THE CHAIRPERSON: Madam Secretary.
2304 THE SECRETARY: Thank you, Mr. Chairman.
2305 I was notified by a few panels that they no longer intend to cross‑examine The Companies' witnesses. They are l'Union des consommateurs, BCOAPO et al and City of Calgary.
2306 So we will now proceed with Commission counsel Frenette.
2307 Thank you.
2308 MS FRENETTE: Thank you, Madam Secretary.
2309 Good morning, gentlemen.
2310 MR. BIBIC: Good morning.
2311 MS FRENETTE: My first question is fairly straightforward.
2312 You filed as part of your evidence a document entitled "Competitive Landscape". I think it is filed as Appendix 1 to your submission.
2313 Who authored that particular report?
2314 MR. BIBIC: It was authored by an individual in the Regulatory Affairs Department of Bell Canada, under my direction.
2315 MS FRENETTE: Could we perhaps get a specific name?
2316 MR. BIBIC: Well, there were a number of authors, but the principal author would be Mike MacInnis of Bell Canada.
2317 MS FRENETTE: Thank you.
2318 I would turn to your section regarding the uncapping test for connectivity services and in particular page 32 of that evidence.
2319 MR. BIBIC: Yes.
2320 MS FRENETTE: At page 32 you outline your proposed test for uncapping local PSTN services.
2321 Is that right?
2322 MR. BIBIC: Correct.
2323 MS FRENETTE: I would like to get some clarification on this particular proposal.
2324 Based on yesterday's testimony, and particularly that of you, Mr. Bibic, I must admit I'm a bit confused now as to exactly what you are proposing.
2325 If I look at paragraph 99 of your submission ‑‑ and I will just read that particular paragraph ‑‑ you state:
"As in the case for IXPL and local exchange private line services, the appropriate test to determine whether The Companies' residential and business local exchange services in any exchange should be uncapped were the capacity of another provider of those services to offer those services in that same exchange." (As read)
2326 You provided some clarification yesterday in your testimony as to what this capacity to provide these services means.
2327 If you have a copy of the transcript, I would like to point you to page 78 of the transcript.
2328 MR. BIBIC: I have it.
2329 MS FRENETTE: Line 577.
2330 MR. BIBIC: Yes.
2331 MS FRENETTE: If we could just go through this together, you say here ‑‑ and this is with reference to the uncapping test:
"MR. BIBIC: Let me go through the elements of the test. It's fairly important.
In your example, business primary exchange service of the incumbent would be uncapped in an exchange if the facilities‑based competitor were in that exchange offering service to customers in that exchange ‑‑ in your example, the customer is in a building ‑‑ and actually had at least one customer in the exchange."
2332 And then toward the bottom of the transcript, at line 581 ‑‑
2333 MR. BIBIC: Yes.
2334 MS FRENETTE: ‑‑ you say:
"That is the rationale behind our test and the three specific elements of the test: the presence of the facility, offering of service and the securing of at least one customer."
2335 So are we in agreement, then, that the proposed company's uncapping test is premised on three elements: the presence of a facility, the offering of the service and the securing of at least one customer?
2336 MR. BIBIC: I should go through this again. I didn't mean to cause confusion.
2337 As I said yesterday, it is fairly important.
2338 I would turn your attention to the previous page, page 77, starting at 571, where I say:
"For the purposes of the service in question. So if it were a business primary exchange service, yes."
2339 I was talking primarily about business primary exchange services.
2340 Then if I turn your attention to paragraph 574, Mr. Koch confirmed that he was talking about local exchange services for the purposes of these questions.
2341 I took him to mean primary exchange service, and then I gave the test.
2342 Let me go through the test for each service.
2343 If we are talking about residential primary exchange service or the business equivalent, business primary exchange service, then our test is as I have outlined in paragraph 79, which is if a facilities‑based competitor has entered an exchange is offering service to a customer in that exchange and has a customer in that exchange, then we would be uncapped.
2344 That is for PES, business and residential.
2345 The paragraph you pointed me to this morning, at paragraph 99, is a reference to private line services.
2346 For private line services, our test is slightly different. Let me take ‑‑
2347 MS FRENETTE: I'm trying to catch up here.
2348 MR. BIBIC: All right.
2349 MS FRENETTE: So in paragraph 99 you are talking about private line or are you talking about local PSTN?
2350 MR. BIBIC: No. Paragraph 99, as you can read, says:
"As in the case for IXPL and local exchange private line services..."
2351 So paragraph 99 deals with local or/and inter‑exchange private line services.
2352 THE CHAIRPERSON: Why wouldn't it say "as" then?
2353 MR. BIBIC: In paragraphs 98 and 99 we are really talking about the concept of using the exchange across the board.
2354 So for all services, we say that the proper geographic area is the exchange.
2355 If I went through the test for each of the services, I think it would help.
2356 Please allow me to go through services and then you can ask questions.
2357 MS FRENETTE: Sure, absolutely.
2358 MR. BIBIC: So for business and residential primary exchange service, the test is as I have explained yesterday in the transcript.
2359 MS FRENETTE: And for business and residential, the test is identical.
2360 MR. BIBIC: Correct.
2361 MS FRENETTE: Okay.
2362 MR. BIBIC: For private line services, there is local private line services and inter‑exchange private line services.
2363 Let me start with local private line services.
2364 Again the geographic area would be the exchange, just like for primary exchange services. What we are saying for local private line services is if there is one alternative provider of local private line services offering service at a particular bandwidth in an exchange, all ILEC bandwidth at equal or lesser bandwidths would be uncapped.
2365 For example, for local private line services if there is a competitor in an exchange offering DS3 or DS3 equivalent bandwidth within that exchange, then all private line services offered at DS3 or lower bandwidths within that exchange would be uncapped, both digital and analog.
2366 So for private line services, that would be the test.
2367 Chairman French, in terms of paragraph 99, where we say "as is the case for IXPL", the "as" refers to the fact that the alternative competitor would have capacity.
2368 In the case of primary exchange or business exchange services, we are saying that the competitor has a facility with the capacity to provide services to at least one customer and has that one customer.
2369 On the private line side, we are saying that the competitor has the capacity to offer equivalent bandwidth, and therefore all bandwidth of ours at that same capacity or lower should be uncapped.
2370 MS FRENETTE: To reiterate, then, the test as it applies to local PSTN services and business PSTN services, would it be solely based on capacity, or would it also be based on the offering of the service and securing at least one customer?
2371 MR. BIBIC: Correct. It is the fact that there is a network in place in that exchange, offering service at least one customer, correct, as stated yesterday.
2372 MS FRENETTE: Thank you.
2373 If I could then take you to Interrogatory Bell(CRTC) dated August 8th, 1203.
2374 I will give you some time to get to that particular interrogatory.
2375 MS FRENETTE: Are we there?
2376 MR. BIBIC: I have it.
2377 MS FRENETTE: In that particular interrogatory, you have identified for the Commission a series of exchanges that would pass your competitive presence test. Those exchanges are listed in Attachment 1 of that interrogatory.
2378 MR. BIBIC: Are you referring to the Bell Aliant version or the Bell Canada version?
2379 MS FRENETTE: The Bell Canada version.
2380 MR. BIBIC: You will have to give me a moment to catch up again.
2381 MS FRENETTE: Sure.
2382 MR. BIBIC: I'm not with you.
2383 MS FRENETTE: Great. Could I take you to page 5 of 17 of that attachment.
2384 MR. COLLYER: I think we have 5 of 7.
2385 Is it Sherbrooke at the top of the page?
2386 MS FRENETTE: Yes. I have 5 of 17. I hope we are on the same page.
2387 MR. BIBIC: Are you in Attachment 1 or Attachment 2?
2388 MS FRENETTE: Attachment 1.
2389 MR. BIBIC: Okay. So Sherbrooke is at the top of the page and Papineauville at the bottom?
2390 MS FRENETTE: That is right.
2391 MR. BIBIC: Okay.
2392 MS FRENETTE: If I could take you about 12 rows down, do you see Aylmer?
2393 It is just a local example I have chosen.
2394 MR. BIBIC: I do.
2395 MS FRENETTE: And then a couple of lines after that, there is Gatineau, the same region.
2396 MR. BIBIC: I do.
2397 MS FRENETTE: And you list as an alternate service provider Vidéotron.
2398 MR. BIBIC: Correct. We do.
2399 MS FRENETTE: Are you aware of whether Vidéotron is actually providing service in those two exchanges for local telephony?
2400 MR. BIBIC: Give me a moment to confer with my colleagues?
2401 MS FRENETTE: Sure.
2402 MR. BIBIC: We put this information together based on the best information we had available. Primarily what we did, for the purposes of constructing this table, was to examine competitor websites and registrations they filed with the Commission declaring themselves as CLECs in particular exchanges.
2403 So, it's on the basis of those two data points that we came up with this.
2404 So, this is based on the best information available to us from Videotron websites and their registrations with the CRTC.
2405 MS. FRENETTE : So, would you agree with me that if in actually Videotron isn't offering local telephony service at this time, that it wouldn't be an exchange that would satisfy your uncapping test?
2406 MR. BIBIC: I would absolutely agree with you and that's the reason we propose the mechanism that I discussed with Mr. Koch yesterday, which is the best way to get this information is to have the competitors themselves quarterly inform 213, indicating whether or not they're in an exchange, but I agree with you.
2407 MS. FRENETTE : Thank you.
‑‑‑ Pause / Pause
2408 MS. FRENETTE : I would now like to touch upon briefly this section of your submission entitled "Discretionary Services" and I believe it's found at page 40 of your evidence.
2409 MR. BIBIC: Yes.
2410 MS. FRENETTE : Here, if I understand your proposal correctly, you would be proposing to create a new basket consisting of discretionary services?
2411 MR. BIBIC: We would be proposing to uncap discretionary services.
2412 MS. FRENETTE : It would be part of a distinct basket though?
2413 MR. BIBIC: I mean, I don't think ‑‑ I think baskets are kind of irrelevant when you're uncapping them.
2414 MS. FRENETTE : Okay.
2415 MR. BIBIC: So, in essence, the reason I hesitate and I answered the first time the way I did is because if they're uncapped, there is no need, in our view, for a distinct basket for them.
2416 MS. FRENETTE : Fair enough. So, let me just rephrase my question then.
2417 You've provided the Commission with a list of discretionary services that would be uncapped?
2418 MR. BIBIC: Correct. We've provided a list of those we feel should be uncapped.
2419 MS. FRENETTE : Thank you. And again, at page 40 of your submission, I would like to go through with you paragraph 137 where you discussed the rationale for uncapping these particular services.
And I think it's useful perhaps just to go over it together. You state :
"Discretionary services are quite different from connectivity services though they are found useful by some customers to meet their communication needs. They are not fundamentally important in the way that connectivity services are.
One would expect that a service that is seen as economically or socially important to individuals would be purchased by the vast majority of potential customers. This has been the observation, for instance, in the case of basic pads for many decades.
The situation is quite different for discretionary services."
2420 And then you go on to discuss various penetration rates for various discretionary services.
So, if I am not characterizing your rationale correctly, please correct me.
2421 If I understand your position correctly then, it's that discretionary services are quite different from connectivity services. They are not fundamentally important services and this notion of "fundamentally important" is reflected in the penetration rates of these services.
2422 Is that correct?
2423 MR. BIBIC: Yes, by and large and I would just add that, in a way, if there is a view that there should be regulation of essential services, which I think we can ‑‑ most people would feel that connectivity services might be.
2424 If there is a view to regulate essential services for the reason that they are essential, we don't feel that it's the same situation for discretionary services in the sense that they are not of the same social and economic importance to justify the same type of regulation for the citizenry as a whole.
2425 MS. FRENETTE : Okay. If we could just perhaps then discuss the penetration rates that you've outlined in your submission, there is a few footnotes here at page 41 that I would like to get a little bit of clarification on.
2426 At footnote 88, you indicate ‑‑ and this is with respect to Bell Canada service only ‑‑ that the call display and call answer features are the most popular with penetration rates exceeding 40 per cent.
2427 And would I be correct in assuming that these penetration rates reflect the total take‑up of these services either as part of a bundle or on a stand‑alone basis?
2428 MR. COLLYER: Yes, that's correct.
2429 MS. FRENETTE : Thank you. And then, if we go back to the top of page 41, there is a sentence that references footnote 89. Here, you indicate that :
"The penetration rates for discretionary services amongst the customers of Sasktel and former Aliant are typically low as well."
2430 And you reference that statement with the footnote 89 where you indicate that call display is the exception, having a penetration rate of 60 per cent.
2431 And perhaps just to clarify on the record, is this 60 per cent penetration rate application to both Sasktel and Aliant?
2432 MR. BIBIC: Subject to check, I believe that it is for both.
2433 MS. FRENETTE : Thank you. And could I also perhaps get a sense of the penetration rate for the call‑answer feature for both Sasktel and Aliant, given that Bell Canada has provided the Commission with some information on the penetration rate for that particular feature?
2434 MR. BIBIC: I'll inquire to see if it's available and if it is, we will provide it.
2435 MS. FRENETTE : Thank you. And just so that we can perhaps firm this up in an undertaking, if the representative from Sasktel and Aliant could ensure that the information provided to the Commission also provides some clarification as to whether or not those penetration rates reflect both the bundling and the stand‑alone take up for these services.
2436 MR. BIBIC: We can certainly do that, yes.
UNDERTAKING CRTC‑1: Aliant & SaskTel to provide Clarification of the penetration rates for Sasktel and Aliant's Call Display feature, either as part of a bundle or whether taken on a service‑by‑service basis.
UNDERTAKING CRTC‑2: Aliant & SaskTel to provide Information regarding the penetration rates for Sasktel and Aliant's Answer feature, either as part of a bundle or whether taken on a service‑by‑service basis.
2437 MS. FRENETTE : Thank you. Let's take a look at the penetration rates then from another perspective.
2438 You've indicated that the penetration rates for discretionary services tend to show that these services aren't fundamentally important in the way that connectivity services are.
2439 Is that correct?
2440 MR. BIBIC: That's correct and that's ‑‑ I mean I think that's displayed in part as well by the chain rates that we see for these types of services, what penetration rate and chain rate.
2441 MS. FRENETTE : Okay. If I could then just refer you to Appendix 2 of your evidence where you list the services which you were proposed be uncapped because they're discretionary.
2442 MR. BIBIC: We have it.
2443 MS. FRENETTE : Okay. If we go over some of these services, for example, just ‑‑ we'll take Bell Canada because it's the first one on the page ‑‑ there is a series of services that are listed here and if I look down about seven lines down, there is tariff item 85, Operator Services. Do you see that?
2444 MR. COLLYER: Yes.
2445 MS. FRENETTE : This is a per‑use charge, isn't it?
2446 MR. COLLYER: Yes, it is.
2447 MS. FRENETTE : Okay. And then, a few more lines down, probably three quarters of the way down, there is a service called "Diagnostic Testing Charge". Do you see that?
2448 MR. COLLYER: Tariff 4215, yes.
2449 MS. FRENETTE : Yes. And this again is a per‑use charge?
2450 MR. COLLYER: That is correct, yes.
2451 MS. FRENETTE : Okay. When I look at the services that are listed by Bell Canada, I see that there is actually quite a number of services that are based on a per‑use charge and so I guess the difficulty that I'm having with the whole analysis based on penetration rates, is that these per‑use charges, it's very difficult to assess the importance of these services because you can't really examine them, based on penetration.
2452 So, is there any measure that the Commission could use to assess whether or not these types of services are, in fact, fundamentally important or are not fundamentally important?
2453 MR. BIBIC: There is a number of measures. Let's then go back to the ‑‑
2454 First, they are not essential connectivity services, which is the main point we were making, which leads to kind of public policy submission that they don't need to be regulated the same way. So, that's one.
2455 Two, it would be the revenue. Certainly I suspect that the revenues from ‑‑ that we generate from these services which could be examined through price cap filings would show the fact that they are not as fundamentally important as connectivity services.
2456 Customers wouldn't have to actually use them if they didn't feel that they derived a value from them, given the particular price at any point in time.
2457 So, then there is a penetration rate for some of these and a chain rate, so it's a combination of all those factors, but that the over‑arching rationale is that they are not connectivity services and hence, of such an essential nature as what we would typically perceive is connectivity to be.
2458 MS. FRENETTE : Just one moment.
2459 MR. COLLYER: Excuse me. Actually, just with respect to item No. 85, operator services, just in discussing here, actually we've been looking at this quite closely with respect to another project that we've got, and going back from 2003 through until this year we've seen actually a greater than 10 per cent decline on a year‑over‑year basis of the use of these services.
2460 I'm not sure if you're familiar with this tariff item that actually refers to directory assistance primarily.
2461 MS FRENETTE: Mm‑hmm.
2462 MR. COLLYER: And, as I'm sure you're aware, there are, you know, a multitude of substitutes with respect to directory assistance, whether it's, you know, other directories and alternate directory suppliers or, you know, most importantly on‑line services.
2463 So, it's in a very, very strong decline right now.
2464 MS FRENETTE: So, we could use, for example, usage as a measure of the importance of these services, I guess, based on a certain lapse of time?
2465 MR. COLLYER: We could. I think the Commission already has available to them through the price cap filings the revenues and I think you also know the price history on the services. So, it would be quite easy for you all to derive the usage.
2466 MR. BIBIC: Just to be clear, I mean, we don't propose a specific test to determine whether they're discretionary other than they're not essential and here's an illustrative list of things we feel are not essential.
2467 So, other than that, we actually hadn't proposed a bright‑line test based on penetration or churn or revenue or elasticity, for example, just to ‑‑ from our perspective.
2468 MS FRENETTE: Understood.
2469 MR. BIBIC: I understand the nature of the questions.
2470 MS FRENETTE: Okay. If we could then perhaps jump back to your main submission at page 43 and, again, this deals with discretionary services.
2471 And we deal here, I guess, with the discipline by market conditions that are at play for these particular services.
2472 And at paragraph 149 you say:
"That for discretionary services, the issue of customer choice is quite different than in the case of services like basic exchange service. For discretionary services, if the service is unsatisfactory, the customer can choose not to purchase it." (As read)
2473 Is that correct? You stand by that?
2474 MR. BIBIC: That is correct.
2475 MS FRENETTE: And I am assuming that a customer can be dissatisfied with a service by reason of the fact that the service is priced too high, for example?
2476 MR. BIBIC: That might be one of the reasons for their dissatisfaction, yes.
2477 MS FRENETTE: And even in non‑competitive markets, they could exercise that choice by simply not taking the service, if it is priced too high?
2478 MR. BIBIC: That is correct. And, of course, in areas where there are choices they can exercise the ultimate choice which is to walk over to the competitor, which would be another factor that I don't think should be ignored.
2479 As well, I mean, many cases, just from a marketing perspective, prices for individual stand‑alone discretionary services may increase but there is always bundles that are available that offer attractive pricing packages at any given point in time.
2480 And I also would add that the nature of and the very essence of treating discretionary services differently than basic services has been accepted in the cable environment where discretionary broadcasting services are always treated differently from a regulatory perspective in that environment.
2481 MS FRENETTE: Okay. And there was an interesting discussion that took place between yourself and Mr. Janigan yesterday and I'd like to perhaps point you to page 282 of the transcript.
2482 MR. BIBIC: I have it.
2483 MS FRENETTE: Line 1899.
2484 MR. BIBIC: Yes.
2485 MS FRENETTE: Mr. Janigan says:
"The overall take‑up of these services doesn't necessarily mean that they aren't important to people that take them up." (As read)
2486 Mr. Bibic, you respond:
"Those people who take them perceive a value at the particular price. If the price were lowered, perhaps more people would subscribe to them; if the prices were increased, few people would subscribe to them." (As read)
2487 And I'd like to perhaps examine that hypothesis with you.
2488 If I could get you to turn to an exhibit which I circulated to you yesterday afternoon, it is response to interrogatory Bell(CRTC)26Jun01‑1202, and this was a response provided by Bell in the context of the Commission's previous price cap proceeding back in 2001 and I believe that Madam Secretary has assigned it an exhibit, CRTC Exhibit No. 1.
2489 Do you have that document?
2490 MR. BIBIC: I do.
2491 MS FRENETTE: And at page 2 of that particular document you provided the Commission with seven individual optional services which generated the most revenues for the Company in the year 2000. Is that right?
2492 MR. BIBIC: That is correct.
2493 MS FRENETTE: And those rates in 2000 were compared to the rates that were in effect for these seven services in 1998?
2494 MR. BIBIC: That is correct.
2495 MS FRENETTE: And so if we look at the first service listed, which is Call Answer, the rate in 1998 was $5 and then in 2000 it was $7; right?
2496 MR. BIBIC: That's correct.
2497 MS FRENETTE: That is a 40 per cent increase in two years; is that right?
2498 MR. BIBIC: I believe that's right.
2499 MS FRENETTE: And then if we look at the last three services on the list, you have got Call Return, Call Forwarding, Call Screen, the rates for all of these three services in 1998 were $3; is that correct?
2500 MR. BIBIC: They were.
2501 MS FRENETTE: And then in 2001 they were $5; is that correct?
2502 MR. BIBIC: They were.
2503 MS FRENETTE: So, that seems to be a 66 per cent increase over three years; is that right?
2504 MR. BIBIC: Correct.
2505 MS FRENETTE: So, I guess what is missing from this picture though is the demand for these services in response to your price increases over the years 1998 to 2001.
2506 So, if it is possible, I'd like to get you to undertake to provide the Commission with data regarding the demand for these seven discretionary services for the period 1998 to 2002.
2507 Is that something that you could provide with the Commission?
2508 MR. BIBIC: Just to clarify, over which time period would you like the demand?
2509 MS FRENETTE: From 1998 to 2002. And the reason why I have asked for 2002 is that I am assuming that perhaps the sensitivity for the demand of these prices might have manifested itself a few months after the price increase.
2510 MR. COLLYER: Firstly, it might be a little bit difficult for us to actually get to that data. I mean, we'll certainly try but I think probably ‑‑ well, I guess a point of clarification with respect to your list here because what you're quoting here are the à la carte prices, the stand‑alone prices for the seven features, and certainly concurrent to the price changes that we made on these a la carte basis we also had bundled prices that were introduced in the market or already were in market.
2511 So, from I guess a demand perspective, are you looking specifically for the a la carte demand, or what I will refer to as the exploded demand, which is the demand as a la carte and also in a bundle?
2512 MS FRENETTE: Well, perhaps it would be interesting information to get information on both of those data points and then we could perhaps also get information on the pricing of the bundles and then we could make the appropriate links.
2513 MR. BIBIC: Subject to the information ‑‑ the demand information being available for ‑‑ going back to 1998 to 2002.
2514 MS FRENETTE: Absolutely.
2515 MR. BIBIC: Okay, yes.
2516 MS FRENETTE: Thank you.
UNDERTAKING CRTC‑3: Bell Canada to provide Data regarding demand for the 7 discretionary services listed in CRTC exhibit no. 1 for the period 1998 to 2002.
2517 MR. MILLINGTON: And, Mr. Chairman, I'll just clarify. I presume all of these undertakings, to the extent that any of them are confidential, will be provided to the Commission in confidence.
2518 THE CHAIRMAN: Yes. It is my expectation, Madam Counsellor, that we may have claims of confidentiality for this material and this doesn't create a problem; as I understand it?
2519 MS FRENETTE: I'd suspect that much of the information is confidential and we would view the documents and then assess whether or not they are confidential.
2520 But that would be ‑‑ I suspect that that would be the case.
2521 And my next series of questions are directed to representatives of Aliant and Sasktel. I don't know if there are particular people who could respond to those questions.
2522 MR. HENRY: There are.
2523 MR. STEPHEN: They are here.
2524 MS FRENETTE: So, I circulated earlier this morning a confidential exhibit, I think it is filed as CRTC Exhibit No. 2, and my question is directed to Aliant.
2525 MR. STEPHEN: Yes.
2526 MS FRENETTE: And do you agree that this particular ‑‑ and it is confidential, so I will be careful in the way I phrase my questions.
2527 Do you agree with me that this particular document provides information regarding the rates that were charged by Aliant for certain discretionary services during the period 1998 to 2001?
2528 MR. STEPHEN: That's what the interrogatory states. So, I would ‑‑ other than going back and verifying this data, I would accept it as is.
2529 THE CHAIRMAN: The speaker is Mr. Stephen of Bell Aliant.
2530 MR. STEPHEN: Sorry, I should have introduced myself.
2531 MR. HENRY: Would you prefer that they move to the front, or is this...
2532 MS FRENETTE: Actually, yes, and I would like it if they could actually be sworn in as well.
2533 MR. HENRY: Certainly. Do you want to put Mr. Stephen here or he can sit over here, whichever is necessary.
2534 THE CHAIRPERSON: We will put Mr. Stephen at the counsel table. He has always wanted to give it a shot.
2535 MR. HENRY: It doesn't have any symbolic significance whatsoever.
AFFIRMED: RICK STEPHEN
2536 THE CHAIRPERSON: We might as well do the SaskTel person at the same time.
2537 MR. HENRY: Would you introduce yourself, please, representative of SaskTel?
2538 MR. ANDERSON: Mike Anderson.
2539 MR. HENRY: You are going to be sworn as well. That is going the be fun.
2540 Your name, sir, please?
2541 MR. SCHURR: Bryce Schurr
2542 MR. HENRY: From?
2543 MR. SCHURR: SaskTel
2544 MR. HENRY: I think we are going to have to swear the two of you, if I understand correctly.
2545 THE SECRETARY: Yes, please, gentlemen. I will swear the two of you at the same time.
AFFIRMED: MIKE ANDERSON
AFFIRMED: BRYCE SCHURR
2546 MS FRENETTE: Let's start over again. There is a confidential exhibit that I circulated to Alliant this morning. It is labelled CRTC Exhibit 2. Do you agree with me that this provides information regarding the rates that were charged by Alliant for certain discretionary services between 1998 and 2001?
2547 MR. STEPHEN: That is what the exhibit shows, yes.
2548 MS FRENETTE: These rates outlined in that particular response are accurate?
2549 MR. STEPHEN: There would have been price changes before the end of the first price cap period that would not have been reflected in these. Some of these would have been ‑‑ the 1998 prices probably were right, but 2001 and 2002 there were price changes. I don't know that they are reflected here.
2550 MS FRENETTE: Perhaps you could clarify because, and this isn't confidential, you only list it as current and perhaps if we could get some specification as to the date in which the interrogatory was produced and the current reflects what year precisely?
2551 MR. STEPHEN: I am assuming that it would have been current as of the date of the interrogatory response, which would have been June 26, 2001.
2552 MS FRENETTE: So, June 26, 2001, those prices would have been reflective of the current pricing situation as of June 26, 2001?
2553 MR. STEPHEN: I would expect that to be the case.
2554 MS FRENETTE: Subject to check?
2555 MR. STEPHEN: Subject to check.
2556 MS FRENETTE: Could I also get you to provide the Commission with some data regarding the demand for these particular services, both on a stand‑alone basis and as part of a bundle for the period 1998 to 2002?
2557 MR. STEPHEN: I will undertake to see what we can calculate. I must caution, though, that going back prior to 2001 will be difficult in that these companies no longer exist, nor would their records exist.
2558 So, it really goes to whether or not there is still material around on demand.
2559 MS FRENETTE: Fair enough. To the extent that the information is available.
2560 MR. STEPHEN: I will do that.
UNDERTAKING CRTC‑4: Aliant to provide Data regarding demand for the discretionary services listed in CRTC confidential exhibit no. 2 for the period 1998 to 2002.
2561 MS FRENETTE: Thank you.
2562 The same question to the representative of SaskTel. I have distributed a confidential exhibit labelled CRTC Exhibit 3. Would you agree with me that this also provides information regarding the rates that were charged by SaskTel for certain discretionary services from 1998 to 2001?
2563 MR. SCHURR: The information provided there is for June 2000 and July 2000. SaskTel did not come under CRTC regulation prior to that so we had no reason to report the 1998.
2564 MS FRENETTE: Fair enough, you are right.
2565 Could I get you to provide the Commission with some data regarding the demand for these services for 2000 and 2001?
2566 MR. ANDERSON: We will certainly try.
UNDERTAKING CRTC‑5: SaskTel to provide Data regarding demand for the discretionary services listed in CRTC confidential exhibit no. 3 for the period 2000 to 2002.
2567 MS FRENETTE: Thank you.
2568 Those are my questions, Mr. Chairman. I believe that Mr. Millington also has a few questions.
2569 I am sorry, Mr. Chairman, I have been informed by Mr. Macri that there is one additional question they would like to pose.
2570 THE CHAIRPERSON: You have been informed by Mr. Millington that you want to pose another question?
2571 MS FRENETTE: By Mr. Macri that I want to pose another question.
2572 THE CHAIRPERSON: Now you know how it feels to be a Commissioner or member of the Commission.
2573 MS FRENETTE: This question is directed to Mr. Bibic. If I could turn you to the transcript at page 276.
2574 MR. BIBIC: Which page?
2575 MS FRENETTE: 276.
2576 MR. BIBIC: I am there.
2577 MS FRENETTE: Here in the transcript you said, and we are again dealing with discretionary services for Bell Canada.
"...in no case does any individual discretionary future approach 50 percent of our local exchange service base. In other words, less than 50 ‑‑ in all cases for Bell Canada, less than 50 percent of our local exchange service subscribers subscribe to one of these services and sometimes it is in the single digits."
2578 Here you discuss the penetration rates for individual discretionary services, but I would also be interested in finding out if the total base of subscribers to basic local exchange service ‑‑ of that total base of subscriber, what percentage takes the bare bones basic local exchange service versus the percentage of subscribers that takes at least one optional service?
2579 MR. BIBIC: Just so I understand the question, the number of residential local exchange service subscribers who take just local exchange service, is that it?
2580 MS FRENETTE: Yes, and reflected in terms of a percentage.
2581 MR. BIBIC: In fact we have it here, but it is confidential. So we will provide it to you confidentially.
2582 MS FRENETTE: I lied, I actually have one more question, and this one is directed to Mr. Collyer.
2583 If I could turn to your statement at page 275 of yesterday's transcript.
2584 MR. COLLYER: Yes, I am there.
2585 MS FRENETTE: This is a conversation that you had with Mr. Janigan at line 1852. Mr. Janigan says:
"Let me turn to your proposal to uncap rates for discretionary services, including local optional services.
First of all, are any discretionary services sold on a stand‑alone basis that you are aware of?"
2586 You respond:
"To rephrase your question, could you buy call display absent anything else?"
2587 Mr. Janigan says yes. Then you respond:
"No, you cannot."
2588 I believe that you only answered Mr. Janigan's question with respect to call display service. So, I would like to take you to your appendix 2, which lists again all of the discretionary services, and if I could get you to undertake of those discretionary services which ones are available on a stand‑alone basis or which ones are available from an alternate supplier on a stand‑alone basis?
2589 MR. COLLYER: I think there is maybe a misunderstanding either on my part on Mr. Janigan's question or in my reply.
2590 What I understood the question to be was could you take an optional service, absent having a line versus on a stand‑alone basis. So that is the context in which I answered the question.
2591 MS FRENETTE: I see. Would it be possible to get some information regarding the services that you can get absent having your line? For example, if you had a primary line with an alternate provider, which of these discretionary services could you take?
2592 MR. COLLYER: I think the answer is none.
2593 MS FRENETTE: None?
2594 MR. COLLYER: I mean, subject to check.
2595 MS FRENETTE: And those are my questions. Thank you.
2596 MR. MILLINGTON: Good morning, Mr. Bibic.
2597 MR. BIBIC: Good morning.
2598 MR. MILLINGTON: Could I direct you to page 22 of your evidence. I have a very short clarification question. It is halfway through paragraph 59. It continues on to page 22.
2599 MR. BIBIC: Yes, Mr. Millington.
2600 MR. MILLINGTON: The sentence that starts towards the end of the paragraph, and I will just read it:
"The companies recommend instead that the proposals outlined below be put in place for a two‑year period. At the end of this period, given the further changes, the industry will undoubtedly experience the continued relevance of the pricing rules imposed by the decision in this proceeding can be reevaluated." (As read)
2601 Then you carry on in the next paragraph:
"In the company's view, the pricing constraints in the company's proposal would be too inflexible in the price regulation period if the price regulation period were in excess of two years." (As read)
2602 Is it Bell's position that this current price cap regime should only last two years, and in which case, when would the proceeding take place for the further price cap period, if there were one? Is it two plus one, a reevaluation taken on in the third year, or are you suggesting here that we would have a further proceeding to deal with the end of this price cap period within two years?
2603 THE CHAIRPERSON: You must respond in the context of your latest part 7 on telecom fees.
2604 MR. BIBIC: I would like to give that some thought actually, if I could get back to you, because I see your point. I have to give that a bit more thought, otherwise we would be in a proceeding quite rapidly, as I think is your point.
2605 MR. MILLINGTON: Yes, that is the point. Thanks.
2606 MR. BIBIC: But I would, Mr. Millington, just go back to the question I answered ‑‑ a similar question was asked of me by Mr. Janigan in terms of could we live with a longer period of time, and I did suggest that we could if our proposal were accepted and there was flexibility, to approach the Commission for flexibility as required, if that ever occurred.
2607 MR. MILLINGTON: But assuming that you don't get everything you ask for.
2608 MR. BIBIC: Fair enough. Then I will get back to you on your specific question.
2609 MR. MILLINGTON: You have the transcript from yesterday?
2610 MR. BIBIC: I do.
2611 MR. MILLINGTON: Could you turn to page 116, please?
2612 MR. BIBIC: I am there.
2613 MR. MILLINGTON: At line 10, paragraph 816, you start a discussion with Commissioner Langford with respect to the regulatory environment in the U.K., and you specifically refer to Ofcom. You say that Ofcom has been successful at balancing significant market power on the one hand with concerns about overbearing regulation on the other hand, their words.
2614 Would you agree, then, that the regulatory regime in Canada is very different from the regulatory regime in the U.K.?
2615 MR. BIBIC: That is a very general question. I think there are differences in the regulatory regimes.
2616 The point I was making was about the way the analytical framework used to address similar issues to the issues we have here in Canada and are dealing with here in this proceeding, and I mean the concepts that they were looking at and addressing over there this year in fact were not dissimilar to the ones we are addressing here.
2617 For example, in the context of retail price controls, which essentially means price caps, what should the pricing constraints be on an incumbent with, in this case, one in the U.K., which the regulator found had significant market power, and balancing market forces versus regulation in that context. I mean, that is the same kind of inquiry we have to undertake here.
2618 The philosophy there was let's balance that SMP with a realization that regulation does have distortionary effects and does have impact on the marketplace. It is in that context that I made this reference to Ofcom.
2619 MR. MILLINGTON: But in working through that process, Ofcom has come up with a different solution, a different regulatory landscape than what currently exists in Canada?
2620 MR. BIBIC: In what context do you mean that? What specifically are you referring to?
2621 MR. MILLINGTON: I think you have said that they aren't exactly the same and you are advocating that we should take some notice of what they have done over there in terms of how we should approach the regulatory issues before us here. I think that was essentially the point that I ‑‑ I don't mean to drive down into a lot of specifics here, just generally speaking, that the way they have sorted the problems out would be a good thing for us to look at in terms of how we deal with some of the issues here.
2622 MR. BIBIC: Right, and let's look at, for example, the market structure. You have an incumbent with significant market power. There is competition in the U.K.; nevertheless, it is not the kind of competition that I would view as robust as the competition we face here. Most of the competition they have in the U.K. is from wholesale line rentals, which is essentially a wholesale PES service, if you will, and local unbundled loops and carrier pre‑selection. They don't have the benefit of the full facilities‑based cable co‑entry that we do.
2623 Nevertheless, on the retail side, they came up with a regime that has no retail price cap. In the July I think it is 19th, 2006 Ofcom decision, they clearly indicated that their decisions on the retail side had absolutely nothing to do and were made completely independent from the wholesale regime that they had put in place or were putting in place with respect to telecom services, given their market structure.
2624 So I take from that that, as you said, there are some principles and philosophies there that I think are applicable here and we could refer to in deciding what the most appropriate price cap regime would be for us here in Canada.
2625 MR. MILLINGTON: Let's turn to your comments about the provision of wholesale and retail services in BT. Would you also agree that the BT structure with respect to the provision of wholesale services and the provision of retail service is different from Bell Canada's structure with respect to the provision of wholesale and retail services?
2626 MR. BIBIC: It may be, Mr. Millington, but again I would point you to that decision where Ofcom stated that the objectives of price controls in the retail markets are distinct from BT wholesale obligations and wholesale obligations are to be monitored and controlled separately.
2627 The rationale that Ofcom gave for that in a March consultation document, if you turn to page 24 at paragraph 4.20 ‑‑
2628 MR. MILLINGTON: Which document are you referring to?
2629 MR. BIBIC: I am referring to ‑‑ give me a moment.
2630 MR. BIBIC: There are two documents I am principally relying on. One is the Ofcom consultation dated March 21st, 2006, where they put out for comment the issue of what the retail price controls should be. That culminated in a decision dated July 19th, 2006, again from Ofcom.
2631 If you look at the March 21st consultation document at page 24, if you look at page 24, paragraph 4.20 ‑‑
2632 THE CHAIRPERSON: Just for your information, Mr. Bibic, he has only the July 19th document. He doesn't have the consultation document.
2633 MR. BIBIC: Thank you, Mr. Chairman.
2634 So I will quote from paragraph 4.20 of the March consultation. In response to the issue of whether or not retail price controls should be tied to the wholesale situation, Ofcom states:
"Ofcom believes that there is some merit in this argument. However, there is also the danger that deregulation becomes perpetually delayed because there is always a new operational concern at the wholesale level. Ofcom's preference is therefore to deal with the residual concerns regarding the performance of wholesale line rental via the commitments which BT has already made and, if necessary, by issuing directions rather than rolling over the price control." (As read)
2635 That ultimately led to the July 19th decision, where Ofcom stated, as I mentioned earlier, that wholesale obligations are to be monitored and controlled separately and the objective of price controls in the retail markets are distinct from BT's wholesale obligations.
2636 MR. MILLINGTON: So my points are relatively simple in the sense that the landscape is different in the U.K., the structure of BT's wholesale and retail provisioning, the way they run the business is different, and to the extent that yesterday you were talking about the BT model as a transitory step in your discussions with Commissioner Langford, would it be Bell Canada's position that they would accept the restructuring of Bell Canada with respect to the provision of wholesale and retail services to mirror the structure in BT for the provision of wholesale and retail services.
2637 MR. BIBIC: No, we would not, Mr. Millington. Again, the whole point is in the U.K., they've had to develop a wholesale line rental service for ‑‑ they've chosen to develop a wholesale line rental service to foster competition.
2638 They do not have the benefit of the market structure we have here in Canada, which is ubiquitous cable platform offering telephony as well as the unbundle loop providers that we've already had as well as the Voice over IP service providers we have.
2639 Now, they have that, the voice over IP in the U.K. as well, but they don't have the benefit of widespread cableco entry. So, the answer to your question is "no".
2640 And again, as I point out, the decision on retail price controls didn't have to do with wholesale obligations imposed on BT. That was quite clear in the July 19 2006 decision.
2641 So, I would say that the link that you're drawing is irrelevant in the U.K. and we wouldn't accept the condition that you've expressed in the question for reasons of the very different market structures.
2642 But then again, the regulatory philosophy was one of balancing significant market power on the one hand with the impacts of regulation on the retail side, and coming to a determination which I think could be quite instructive in Canada.
2643 MR. MILLINGTON: Thank you very much. Those are my questions.
2644 THE CHAIRMAN: Commissioner del Val.
2645 COMMISSIONER del VAL: Hi! Mr. Bibic.
2646 MR. BIBIC: Good morning.
2647 COMMISSIONER del VAL: I just need to ‑‑ I know you've gone through this a few times, but I just want to clarify that I understand correctly the distinction between the uncapping criteria for the residential PES and the local private line.
2648 So I think that I understand your uncapping test for residential and business PES of the three elements, which is one alternative provider; second element is an actual offering and the third is an actual customer?
2649 MR. BIBIC: That is correct.
2650 COMMISSIONER del VAL: Okay, right. So then, for local private line I go to paragraph 99 of your evidence, which is one alternative provider having capacity to offer. Paragraph 99.
2651 MR. BIBIC: And the section on local private line actually starts at paragraph 94.
2652 COMMISSIONER del VAL: Yes. But can I boil it down to the uncapping test for the local private line? Is it at least one alternate provider having capacity to offer? Is that correct?
‑‑‑ Pause/ Pause
2653 MR. BIBIC: So the issue with private line or the test for private line rather, is the presence of a provider offering private line services in an exchange. So, that's the test.
2654 COMMISSIONER del VAL: Okay.
2655 MR. BIBIC: If they have a customer, then ‑‑ then the services offered at that bandwidth or lesser bandwidth, digital or analog, would be uncapped.
2656 COMMISSIONER del VAL: Okay. So the test for residential PES and local private line are the same?
2657 MR. BIBIC: Except that there is one distinction, which is that for local exchange services whether they be residential or business, what you are uncapping is really the prices for that service itself, whereas on a private line side which you're uncapping the services being offered by that ‑‑ well, being offered by the competitor ‑‑ which are uncapping, if a competitor is in the exchange, which are uncapping for the high like or all private line services being offered at that bandwidth or any lower bandwidth.
2658 So, there is ‑‑ that's one, that's the major distinction.
2659 COMMISSIONER del VAL: Okay. But in either case, there has to be an actual offering and an actual customer, at least one actual customer?
‑‑‑ Pause / Pause
2660 MR. BIBIC: Yes, they would need a customer.
2661 MS. FRENETTE : Okay. So, actual presence, which is the one alternate provider; second element, actual offering; third element, one actual customer?
2662 MR. BIBIC: Correct.
2663 MS. FRENETTE : For both of those?
2664 MR. BIBIC: Correct.
2665 MS. FRENETTE : Right. Thank you.
2666 THE CHAIRMAN: I would like to thank the panel very much for your patience and ‑‑ I'm sorry, excuse me, Commissioner Langford. I thought you were encouraging me to have a break, Mr. Langford, but that's not the case. Please ask your questions.
2667 COMMISSIONER LANGFORD: If you want a break, I'm willing to wait, I am very patient.
2668 Just a couple of clean‑up questions and I appreciate that it has been a long day and a half for you, so I'll just try to stick with some facts and then perhaps a little speculation on Mr. Collyer's part before we finish.
2669 The facts would deal, Mr. Collyer, with the questions put to you yesterday regarding pay phones and the response that you gave.
2670 MR. BIBIC: That would be Mr. Rowe, Commissioner Langford.
2671 COMMISSIONER LANGFORD: You are right and I am wrong and that's a first.
‑‑‑ Laughter / Rires
2672 COMMISSIONER LANGFORD: Okay. Coming back down to earth now, yes, Mr. Rowe's response which was on page 289, pages 289‑290 of yesterday's transcript. I don't think you need to go to it, but you can if you would like and I'll wait for you.
2673 Essentially, Mr. Rowe, you broke down, if I may use the jargon, the "losers" in the pay phone world and the "winners" and you've said that ‑‑ at line 21 on page 289 :
"All these factors together really put us in the position where roughly 40 per cent of our pay phones are not generating enough revenue to actually fund their own replacement cost."
2674 And then, you were asked by Mr. Janigan: what about the other 60 per cent, and you replied at the top of page 290:
"Clearly, they are above that level."
2675 I was wondering whether there is any relationship between the pay phones that are doing well ‑‑ if I can put it that way, the 60 per cent ‑‑ and those that aren't, the 40 per cent, is there any relationship in the way they are configured? And I am thinking of whether they take cash, cash or cards or just cards alone?
2676 MR. ROWE: At this point, I don't have that information available. Right now, we haven't done analysis to that level.
2677 COMMISSIONER LANGFORD: Have you got a breakdown now of how many phones you have out there, how many pay phones altold and how many could fall into those three categories?
2678 MR. ROWE: Subject to check, I believe that would be available.
2679 COMMISSIONER LANGFORD: Could you get that for us? I think that would be helpful.
2680 MR. ROWE: Yes, we'll do that.
2681 COMMISSIONER LANGFORD: And if you do have any information, I don't want the sherpas back at headquarters to lose another night sleep on this, but if you have information readily available on my first question, I would be grateful for that, but I don't want you to go to a lot of trouble for it.
2682 If you do have easily available breakdowns as to which types of phones fall under which category, that might be helpful as well.
2683 MR. ROWE: We will do that as well.
2684 COMMISSIONER LANGFORD: Thank you very much.
2685 I want to move now to that question of ‑‑ very quickly to the question of uncapped services and de‑average services and I want to start with the uncapped.
2686 And I've reached the conclusion, and you can correct me, Mr. Bibic, if I'm wrong, but having listened to your answers yesterday to various questioners, I've reached the conclusion that your position on why you want services to be uncapped seems almost to be philosophical?
2687 And you speak about how in the different places how you expect prices will go down and that there will be no need to have the freedom to raise them and yet, uncapping really all that provides you with is the ability to raise prices.
2688 Would I be right in saying that you're looking at it in ‑‑ I think you referred to the Telus transitional type of attitude, that really this is a philosophical argument that you are making, that in fact you are asking for a tool that you don't contemplate using?
2689 MR. BIBIC: There is an element to that as well, yes.
2690 However, I mean, it could be that services become re‑defined, more value is provided with respect to a service which may result in a different pricing structure for which we'd want to take advantage of the flexibility while continuing to offer, for example, stand‑alone Primary Exchange Service.
2691 There may be, on the business side for example ‑‑ and Mr. Rowe may want to talk to this ‑‑ customer migration strategies with respect to legacy services that people aren't using. So, there's that element as well.
2692 COMMISSIONER LANGFORD: But that is covered by the prices falling below cost discussion that we had a little earlier; isn't it, that particular example?
2693 MR. BIBIC: Well, there are some services ‑‑ there are some ‑‑ in large part, yes.
2694 Give me one moment, please.
2695 MR. ROWE: It's not entirely covered. There are services which clearly are above cost and, in fact, fall into the same end‑of‑life category. Some of the ISTN‑based data services have a direct substitute in the Internet or the IP private line space and those will evolve the same way.
2696 And, so, that's where flexibility is useful as we help customers make decisions about the value proposition of those various services.
2697 COMMISSIONER LANGFORD: So, if I could sum up where I think we are so far, there is a philosophical element to this, time to unleash the market forces and pull back on regulatory oversight, there is a need perhaps in business, even where prices are above cost, to start to have a transition there to newer technological methods of delivering services.
2698 What about on the residential side? You spoke yesterday, Mr. Bibic, on a number of occasions about prices trending downward.
2699 Is there any need to have this uncapping right, this uncapped feature that you are asking for on the residential side?
2700 MR. BIBIC: I could give you an example without going to any particular service.
2701 For example, if a service on the residential side, a new service were to be developed in an environment where clearly there would be no incumbency advantage in the sense that we developed the service ‑‑ anybody could have developed the service in this day and age ‑‑ we may want to offer that service initially at an introductory price to stimulate demand, to stimulate penetration.
2702 Then under today's current rules the service would be captured by the basket of constraints which would limit our ability over time as we've gone through the limited introductory period to raise the price to a more appropriate market level.
2703 Under today's regime there's now a disincentive to doing that because that price increase after the limited introductory price offer would have to be balanced with corresponding decreases elsewhere in an environment where market forces could determine ‑‑ or ought to be determining what the pricing level should be for those other services. Today's rigid system acts as a disincentive to those kinds of offers.
2704 Another example is, Mr. Hariton was speculating about, you know, the development of things like an access service without necessarily taking away what we commonly view today as stand‑alone Primary Exchange Service.
2705 You know, how you accommodate those types of, you know, innovative service or pricing structures in the context of today's constraints is not at all clear to me. Actually, I suggest that it's difficult to do so.
2706 COMMISSIONER LANGFORD: On your first example we do have promotion ‑‑ the ability to offer promotions now. We do have the ability now, unless Staff corrects me, but I believe we do have the ability to have introductory prices on new services to test the market on them before a final tariff is set.
2707 So, you know, I am not suggesting it wouldn't make life a little easier in certain very specific perhaps unforeseen circumstances, but I just wonder whether perhaps it isn't too big a tool, too large a tool for the actual needs.
2708 And maybe the best way would be to go to Mr. Collyer and say ‑‑ and to ask you, Mr. Collyer, in the residential marketing world, how do you foresee using this power?
2709 If we were to accept your proposal ‑‑ and we will leave the averaging aside for a moment ‑‑ how would you use, in marketing services, in selling services the fact that now they were uncapped on the residential side?
2710 MR. BIBIC: Mr. Commissioner Langford, I'll turn it over to Mr. Collyer in just one second. I just want to clarify an issue.
2711 I gave you a response about the new service and you came back with, well, you have promotional flexibility.
2712 That's not entirely the point. The point is we may come in, as I did mention, you know, a lower ‑‑ a relatively lower introductory offer to stimulate demand, but the point as well with a new service is that we just don't know what the market dynamics for that service will be, what the customer reaction to that service will be.
2713 So, it may not be a question of just a promotion, it may be a question of coming in with a price point and realizing it's the wrong price point and it could be a different price. And in the case that the different price is ‑‑ or the market takes us to a higher price for that new service, then there would be, you know, the corresponding requirement to take a decrease.
2714 So, it's not just about promotions, although I did answer in the context solely of promotions.
2715 COMMISSIONER LANGFORD: But you can also come in with an introductory price for a new service and then adjust it later.
2716 MR. BIBIC: You can, and there are certain limitations to that about win‑back, six‑month‑on‑and‑off, those kind of restrictions.
2717 The point is, you know, in any other industry when a new service comes on the marketplace, you experiment, you experiment with the service attributes, you experiment with the pricing, operators have flexibility. And I'm talking about new services now.
2718 COMMISSIONER LANGFORD: Hmm.
2719 MR. BIBIC: Anybody can develop them. Today it's clear that the regulatory rules do impose constraints which, in some respects, and I would suggest many in respects, impede the ability to engage in that type of experimentation.
2720 So, this is just an example in response to your question.
2721 COMMISSIONER LANGFORD: Well, also ‑‑ Mr. Collyer, if you could be patient and try to remember my question, which I don't think was that complicated ‑‑ but what if then we modified your proposal along the lines of what you are now referring to, to capture; in other words, instead of saying everything, all existing services will be uncapped; what if we said, well, we take your point that the downward trend is the way of the future, competitive market forces will push things down not up, but we are sensitive to your needs to operate in a competitive market and we would then give you what you are asking for here, what Mr. Hariton ‑‑ enough to capture Mr. Hariton's notion of new accessing and enough to capture your idea of new services but no more?
2722 MR. BIBIC: You are the decision‑makers and it's up to you to decide. If you believe that there's virtue in regulation for the sake of regulation, despite the presence of market forces, it's open to you to do things like that.
2723 I now come back to my regulatory philosophy ‑‑
2724 COMMISSIONER LANGFORD: Yes.
2725 MR. BIBIC: ‑‑ component of my answer. I happen to believe that where there is competition, competition will dictate where prices will go.
2726 That's how the markets work for a whole bunch of services that consumers buy every day and view, I would submit to you, as just as essential as telephony services.
2727 So, I mean, it's certainly open to you to do that.
2728 COMMISSIONER LANGFORD: Well, you see, to me it is not a matter of sort of Aristotle versus Plato here, it is not conflicting philosophies I am dealing with here.
2729 I am looking for a response to your actual needs and I am looking, in a way, to meet the requirement of balancing everyone's needs.
2730 So, we want to give you as much flexibility as you require. We also want to protect vulnerable consumers out there, if they require protection.
2731 So, it is not really a regulatory philosophy in the sense that I'm doctrinaire free market or I'm doctrinaire regulatory, it is a regulatory philosophy which is trying to embrace one of the underpinnings of this whole procedure, and I ask you why we would go farther than we need to go when we might ‑‑ to give you a tool you may not need, and it doesn't sound like you will need, when we may leave some consumers more vulnerable than we need do.
2732 Why would we do it? It is not a question of a regulatory desire to hang on for ever, it is a question to try and do both of our jobs as mandated, to give you the freedom you need, but only what you need and not to give you more freedom so that there may be a risk out there that some vulnerable consumer will suffer.
2733 MR. BIBIC: I apologize for going around in circles with you, Commissioner Langford, but, respectfully, what I am hearing in your statement is I think we should hang on to regulation just in case.
2734 You mention vulnerable consumers. In my view, that vulnerability may be manifested in areas where there aren't competitive market forces, and we feel that we have addressed that in our proposal. We are imposing caps with respect to those consumers.
2735 So on that issue, I think we don't have much difference between us.
2736 As far as the other areas, if you are concerned about vulnerability, that is what competition will take care of, as it does when you go buy milk at the grocery store. Milk at the grocery store is not priced the same way in every single grocery store in every single province in every single city, although there is always a danger with analogies. I realize that.
2737 COMMISSIONER LANGFORD: I know. There are food banks out there as well.
2738 MR. BIBIC: Well, I don't think there is regulation of milk.
2739 COMMISSIONER LANGFORD: Not at the retail level perhaps but certainly at the wholesale level.
2740 Anyway, we did wheat yesterday. Let's not do milk today.
2741 We are accused of wanting to regulate too much, and that will certainly put that accusation over the top.
2742 Let me go to you, Mr. Collyer, if I may.
2743 You have heard some conflicting philosophies here, perhaps. How are you going to use this on the residential side if we grant the full freedom of an uncapped environment that your proposal is making?
2744 MR. COLLYER: I think, from a consumer perspective anyway, primarily we would be looking at this in the eyes of new product introduction. I think you might recall a service that we launched some years ago called Simply One, which was a marriage of a wireline service, call forwarding, voicemail and a wireless service.
2745 It was a hard‑wired offer that actually is a tariff filing and still exists today.
2746 I would say, in particular with the flexibility and different service packages that we have seen on the wireless side that is unregulated, not having that flexibility on the wireline side certainly hampers us in providing prices that are sensitive to market.
2747 Looking ahead, I think we can see a world where things like voicemail, voicemail‑to‑email, some of the voice‑over IP functionality that we are currently seeing today is coming into play where we may want to actually drive adoption to those services with an introductory price and then look at pricing sensitive to how customers actually value these products.
2748 COMMISSIONER LANGFORD: So you come in at price A and, if it seems popular, push the envelope a little. Push it up a little to see if people will stick with it.
2749 Is that basically what you are saying?
2750 MR. COLLYER: Not exactly.
2751 I think what we have to be mindful of is the fact that in particular with convergent products, new product introduction, we aren't always going to get it right.
2752 COMMISSIONER LANGFORD: We aren't always going to get it what? Sorry.
2753 MR. COLLYER: We aren't always going to get it right in terms of matching price and customer value with product.
2754 In my ten‑year history with Bell, we have launched a fair number of lead balloons. We have launched some great services as well. Each of them, when we brought them to launch, obviously we had the intention that this was going to be the greatest thing, and sometimes that didn't quite work out.
2755 Really what we are looking for is the flexibility; not to say that we would exercise it, but the flexibility to adjust prices to how customers value the product.
2756 COMMISSIONER LANGFORD: Can I ask you then the same question that I put to Mr. Bibic.
2757 I will take the point that you are not necessarily answering here on behalf of your entire panel and your entire enterprise ‑‑ I am not quite sure what it is at this point ‑‑ but you are answering only as a marketing person. You are giving me some marketing advice here, a marketing position.
2758 I want you to feel free to answer this in an informational way.
2759 Are you saying then that really you only need this for new products; that if we were to limit it in some way, philosophical positions aside, that you could live with that?
2760 You don't need it for existing products because you see a downward trend there as well?
2761 MR. COLLYER: I think from the existing products' perspective, we are obviously asking for the same flexibility, the only reason being that I think competition will actually take us to a place where customers may actually value the products and services that they have quite differently tomorrow than what they do today.
2762 COMMISSIONER LANGFORD: So you might want to twig a few existing prices up while offering a new price at a lower price in some ‑‑
2763 MR. COLLYER: Exactly. I think some of the stuff that we have done with respect to the introduction of the "Flexibility 4" bundle this year, which was approved, points to that, where obviously we are marketers in the interest of getting the consumer to buy product and if we can provide bulk product pricing at an attractive price, obviously it is in our interest to move the consumer up the value chain and help provide them with the features and attributes and benefits that actually match their needs.
2764 COMMISSIONER LANGFORD: So the notion of a downward trend is overall; that there may be blips and certain products. Albeit the trend overall is downward, certain products, even existing products, might go up in price if they were uncapped.
2765 MR. COLLYER: I think there are individual product life cycles. If we are talking about residential primary exchange service, I think we can all admit that it is on the decline. But within that there are sub‑sets of PES, in particular, optional features and services that are growing.
2766 Certainly we will continue to innovate and invest in PES to provide new service offerings.
2767 MR. ROWE: Commissioner Langford, could I just comment for business. I won't go through the same new product story and we talked about the end of life story.
2768 I think the other element in the business market is that having customers commit to contracted terms is quite a common approach to use that allows customers to lower prices.
2769 We do believe in the business market that prices are going down, but it is surprising the number of business customers who in fact do not take contracted terms.
2770 One of the elements that we use in our marketing plans, because the longer term benefit to the company is to have customers on contracted plans where they can lower their price, is to use pricing on individual non‑contracted elements to show customers that lower prices are available in other ways and we in fact market that way.
2771 So that is an example of how the uncapped pricing flexibility in fact gives us a tool to use to show customers the way to lower prices.
2772 COMMISSIONER LANGFORD: I'm sorry, I don't get it. I thought uncapping, the only thing it allowed you to do was raise prices.
2773 MR. ROWE: What we would do is a price increase in a particular area would signal customers that they need to start looking at alternative ways to lower their costs. They phone into our call centre and that is an opportunity for us to be able to market the alternative strategy to them.
2774 In fact, we find that to be an effective way of improving the overall portfolio.
2775 COMMISSIONER LANGFORD: I guess if you raise the price of milk, people start drinking orange juice. There's no doubt about it.
2776 Okay, that's clear.
2777 Mr. Collyer, it is key to me to understand this. Could we look at de‑averaging.
2778 If prices were de‑averaged today, what would you do with that tool in your marketing toolbox?
2779 MR. COLLYER: I think what we would start to do ‑‑ I mean, the marketing trend is to get to one‑to‑one marketing. Obviously with the customer base that we have at Bell Canada, we won't achieve that.
2780 Certainly what we would look at doing is look at specific segments or groupings of customers and provide customized programs to them.
2781 I think I mentioned yesterday examples with respect to students, families with kids, families with teenagers, bundled offerings, that sort of thing, where we would actually look at providing pricing arrangements to various groups of consumers.
2782 I think a very interesting one that we are seeing quite a lot of activity in ‑‑ and again, I mentioned it yesterday with Mr. Engelhart ‑‑ is greenfield and new home construction where we have quite a significant amount of competition.
2783 I got an offer presented to me yesterday, which was two months free of voice video and Internet, which was left as a leave‑behind flyer when a customer took possession of their home.
2784 Obviously we would like to have the ability to compete on that level as well.
2785 MR. BIBIC: There was an article in yesterday's Globe and Mail, page B4, which is titled "Rogers Cranks Up Phone Push". For example, it talks about Rogers reaching out to operators of large apartment buildings in Toronto to include the phone service in the rent or to offer tenants a special phone package.
2786 So that is an example of geographic rate de‑averaging that Rogers engages in. It is not something that we could do.
2787 Another example is Rogers' plans to start letting its landline phone customers call other Rogers' landline or wireless users across the country for free.
2788 These chaps are innovating. Despite in some respects Mr. Hariton was suggesting they could innovate more, they are innovating. And that is the result of the competitive process.
2789 So those are examples.
2790 COMMISSIONER LANGFORD: From your experience, Mr. Collyer ‑‑ let me back up for a minute.
2791 I think the public is probably comfortable with the notions of students getting a special rate on the bus, seniors getting a special rate at the movie theatre. There seem to be kind of special rates that have existed for time out of mind for certain categories.
2792 But you did say that the goal is to go to one‑on‑one type of marketing.
2793 Don't you think there would be a pushback?
2794 If Mr. Jones at No. 1 Greeenfield Crescent finds out that Mr. Smith at No. 3 Greenfield Crescent is getting a better price than him, won't he push back? Won't he demand the same price?
2795 Can you really do one‑off marketing like that without getting a considerable pushback from the public?
2796 MR. COLLYER: I think in our unregulated businesses, that occurs today already with respect to various acquisition offers that we may have, various contracted offers that we may have.
2797 Mr. Rowe gives an example of the difference of someone who is buying Centrex service on a month‑to‑month basis or a minimum commitment period of a month versus a one, three or five‑year contract.
2798 I think certainly in a telecommunications space, the customer mindset is already there. In some elements of our business we ourselves are already there.
2799 COMMISSIONER LANGFORD: But you are making a comparison between Mr. Rowe's world, which is the business world. And everyone expects, I think, that the Royal Bank will get a better price than Joe's Pizzeria per line.
2800 What about residences? Are you suggesting that people will be at ease with that kind of an environment where Mr. Jones gets a price, Mrs. Smith gets another price, and so on down the line?
2801 MR. COLLYER: I think I said yesterday after lunch, in response to Mr. Engelhart, that this is already occurring in our video wireless and Internet businesses.
2802 So I think by natural extension, customers are ready to accept it in the voice space. And to be quite honest, our competitors are showing the customers the way already, because they themselves are doing this on a day‑to‑day basis.
2803 COMMISSIONER LANGFORD: Well, you have read ads and you have given me examples of stories talking about general trends. I get the impression from these ‑‑ although I am no expert on the marketing of cable companies, I get the impression that these offers are made to the public at large, not to individuals.
2804 MR. BIBIC: Mr. Langford, I guess we can ask the cable companies when it is their turn. But judging from this article, the cable companies in their infinite wisdom have judged that the public will not rise up against the fact that Mr. Apartment Dweller may pay a different rate than Mr. Home Owner.
2805 So these aren't general examples. This seems to be quite a specific offer.
2806 COMMISSIONER LANGFORD: Well, we will get a chance to ask them.
2807 You have answered my questions and I am very grateful. Thank you, gentlemen.
2808 MR. SCHURR: Mr. Chairman, not to delay your desire for a break, but I have a question for Ms Frenette, if I may.
2809 THE CHAIRPERSON: Why not. It will be very refreshing.
‑‑‑ Laughter / Rires
2810 MR. SCHURR: As I understood the undertaking that you gave Bell Canada, you were looking for demand on a stand‑alone basis and on a bundled basis?
2811 MS FRENETTE: That is correct.
2812 MR. SCHURR: Are you seeking the same from SaskTel?
2813 MS FRENETTE: That is correct.
2814 MR. SCHURR: I also prevaricated. I have one more question.
2815 I believe you asked for rates as well as demand?
2816 MS FRENETTE: The rates as they are reflected in a bundle, because I believe we already have the rates on a stand‑alone basis.
2817 MR. SCHURR: I meant historic rates.
2818 MS FRENETTE: Yes, that is correct, for the identical years.
2819 So, for example, in SaskTel's situation it would be for the years 2000 to 2002, those historical rates.
2820 MR. SCHURR: Excuse me.
2821 MR. SCHURR: If we can locate the demand back to 1988, we will provide you the rates.
2822 MS FRENETTE: That will be very helpful; thank you.
2823 THE CHAIRPERSON: I would like to thank the panel for their patience and their very much appreciated efforts to make the issues clear and their points of view clear.
2824 It has been a useful day and a half, and we thank you.
2825 MR. BIBIC: Thank you.
2826 THE CHAIRPERSON: I think we will rise to ‑‑ I know my colleagues are going to say we owe ourselves 15 minutes plus an hour and a half. So let's say at 1:15 we could see each other again.
2827 My colleagues want to know if during that period they can eat lunch, and I've told them they can.
2828 COMMISSIONER LANGFORD: We discipline ourselves, as well as the industry.
‑‑‑ Upon recessing at 1126 / Suspension à 1126
‑‑‑ Upon resuming at 1313 / Reprise à 1313
2829 THE CHAIRMAN: Order, please. À l'ordre, s'il vous plaît.
2830 Madame la secrétaire, est‑ce que vous faites une annonce ou est‑ce qu'on procède? On procède?
2831 LA SECRÉTAIRE: Oui. On va procéder avec counsel Janigan, sorry, Michael Ryan who is supposed to introduce the panel for Telus Policy. Thank you very much.
2832 THE CHAIRMAN: Mr. Ryan.
2833 MR. RYAN: Thank you, Mr. Chairman.
2834 Mr. Chairman, first of all, I would remind the panel that Telus filed an Opening Statement at the beginning of the proceeding and that Opening Statement has been marked as Telus Exhibit No. 1.
2835 In our letter of the 5th of October to the Commission, we indicated that we proposed to present three panels for cross‑examination during this phase of the proceeding and you have the first of those three panels already before you now.
2836 That panel we've referred to as the Policy Panel and it will be available to answer questions in relation to Telus' evidence as filed on the 10th of July and Interrogatory Responses as they relate to policy matters and the full details of the proposed arrangement are set out in the letter of October 5 that I've just referred to.
2837 Sitting on the panel closest to the Commission is Janet Yale who is the Executive Vice President Corporate Affairs of the company. On her right is Willie Grieve who is the Vice President Telecom Policy and Regulatory Affairs, and on his right is Stephen Schmidt who is Director Regulatory Policy and Senior Regulatory Legal Counsel.
2838 The C.Vs. of each of these people were filed along with our letter of October 5.
2839 They will be assisted in the backup position by Hal Reirson and by Pat Labadia(ph) who are both Senior Regulatory Advisers at Telus.
2840 The panel is ready to be sworn, Mr. Chairman.
2841 LE PRÉSIDENT: Madame la secrétaire.
2842 THE SECRETARY: Thank you very much. I will ask the witnesses to stand up, please. I will do an affirmation by group.
2843 For the records, please introduce yourself, state your name.
AFFIRMED: JANET YALE
AFFIRMED: WILLIE GRIEVE
AFFIRMED: STEPHEN SCHMIDT
2844 THE SECRETARY: Thank you very much.
EXAMINATION‑IN‑CHIEF / INTERROGATOIRE‑EN‑CHEF
2845 MR. RYAN: Ms Yale, do you have in front of you copy of the comments of Telus filed in this proceeding dated 10th July?
2846 MS. YALE: Yes.
2847 MR. RYAN: And of the company's Interrogatory Responses?
2848 MS. YALE: Yes, I do.
2849 MR. RYAN: And your C.V.?
2850 MS. YALE: Yes, I do.
2851 MR. RYAN: And I would ask you, Ms. Yale, with the exception of Appendix A to the comments which indicates on its face it was prepared by doctor Wiseman, were those comments prepared by you or under your direction?
2852 MS. YALE: Yes, they were.
2853 MR. RYAN: And with respect to the Interrogatory Responses, and excluding those that indicate on their face that they were answered either by doctor Wiseman or doctor Bernstein, were those Interrogatory Responses prepared by you or under your direction?
2854 MS. YALE: Yes, they were.
2855 MR. RYAN: And are the statements of fact contained in those documents that I've just referred to true, to the best of your knowledge?
2856 MS. YALE: Yes.
2857 MR. RYAN: And do they accurately present the views of the company?
2858 MS. YALE: Yes, they do.
2859 MR. RYAN: And your C.V., is that accurate?
2860 MS. YALE: Yes.
2861 MR. RYAN: Mr. Grieve, did you participate in the preparation of the portions of the comments and the Interrogatory Responses that I've just referred to?
2862 MR. GRIEVE: Yes, I did.
2863 MR. RYAN: And is your C.V. as filed with the Commission on October 5 accurate?
2864 MR. GRIEVE: Yes, it is.
2865 MR. RYAN: And Mr. Schmidt, did you participate in the preparation of the same portions of the comments in the Interrogatory Responses?
2866 MR. SCHMIDT: Yes, I did.
2867 MR. RYAN: And is your C.V. accurate?
2868 MR. SCHMIDT: Yes.
2869 MR. RYAN: Mr. Chairman, the panel is ready for cross‑examination.
2870 THE CHAIRMAN: Mr. Engelhart, would you just introduce yourself and your panel again?
CROSS‑EXAMINATION / CONTRE‑INTERROGATOIRE
2871 MR. ENGELHART: Thank you, Mr. Chair.
2872 Kent Engelhart, on behalf of the Competitors, and to my left is David McEwen and to my right I'm also assisted by David Watt.
2873 Good afternoon, panel. I have a few questions about Section 4.2.3 of your evidence entitled "The prohibition on rate de‑averaging incurred as an economic entry and prevents ILEC cost recovery."
2874 Just by way of background to my first question, would you agree with me that you have a number of rate bands in your operating territory, primarily bands A, B, C and D. That A is the dense metropolitan areas such as downtown Vancouver; B is a most large urban areas; C is smaller cities and D is most of the rest?
2875 Would you agree with that?
2876 MR. GRIEVE: Yes, with one caveat and that is that in bands B, C and D, certainly in Alberta and most of British Columbia, I would not say that those are urban areas entirely 10 to 15 per cent of the loops are very very long loops way out on the Prairies for example and, therefore, there are considerable high costs in those particular exchanges that form part of that band.
2877 MR. ENGELHART: I have heard you say that before, Mr. Grieve, and don't worry I am going to come to exactly that.
2878 So, if you're someone anticipating my next question, would you agree with me that those bands were formulated, approved by the Commission, but formulated by Telus to be largely cost homogeneous?
2879 MR. GRIEVE: They were formulated by the Commission and Telus for the purposes of being largely homogeneous on average by exchange, but they were not broken down lower than the exchange level and TELUS' proposal was different.
2880 MR. ENGELHART: Further to your comments a moment ago about the higher cost portions, in paragraph 99 you say:
"Competitors will target those areas of the cost band or exchange where margins are high."
2881 Can you explain, as I think you started to a moment ago, where those cost bands or exchanges are high?
2882 MR. GRIEVE: We know that to the extent that there are margins they are higher in lower cost portions of exchanges, which is generally built‑up areas, formerly called base rate areas, and that is generally where the cable companies enter because that is generally where they serve.
2883 MR. ENGELHART: I guess Shaw is the larger cable company in your operating territory?
2884 MR. GRIEVE: That's correct.
2885 MR. ENGELHART: So when Shaw enters or starts providing telephony, are you saying that they exclude a portion of their cable system and don't provide telephony service throughout an entire cable system?
2886 MR. GRIEVE: They do indeed provide telephone service throughout the entire cable system, but the entire cable system doesn't always include many of the rural areas of which I spoke.
2887 MR. ENGELHART: So when you say:
"Competitors will target those areas of the cost band or exchange where margins are high."
2888 You were referring to Shaw when you said that, or companies like Shaw?
2889 MR. GRIEVE: That's right, companies with their own facilities.
2890 MR. ENGELHART: You go on to say in the second sentence in paragraph 99:
"Once entrants have revealed the cost disparities within a rate band or exchange by their entry decisions, incumbents should be permitted to respond accordingly by reducing their prices in these lower cost areas."
2891 I just want to spend a moment unpacking that sentence.
2892 So you say:
"Once entrants have revealed the cost disparities within a rate band or exchange ..."
2893 Does that mean you didn't know the cost disparities before they entered?
2894 MR. GRIEVE: We know that three are cost disparities between the built‑up areas and the rural areas with the long loops. There may be other cost disparities within those built‑up areas that would be revealed by entrants if they chose to de‑average in those areas, or if they chose to only enter in certain areas or if they chose only to build facilities in certain areas.
by their entry decisions, incumbents should be permitted to respond accordingly by reducing their prices in these lower cost areas."
2895 MR. ENGELHART: But doesn't cable serve about 95 percent of the homes in Canada? If that is true, don't they serve about 95 percent of the homes in Alberta and B.C.?
2896 MR. GRIEVE: The Canada number I have heard before. Alberta and B.C. I don't actually have.
2897 Can I just check here?
2898 MR. ENGELHART: I don't either, Mr. Grieve, but if we assume for a moment that Alberta and B.C. are typical of Canada, if cable companies serve 95 percent and if Shaw is rolling out their cable service in all of their cable systems, can you really say that they are targeting those areas of the cost band or exchange where margins are high?
2899 I mean, they are targeting 95 percent of the population. That is not really targeting, is it?
2900 MR. GRIEVE: Well, they are going where they have their networks and their networks are generally in built‑up areas. They don't serve these large rural areas that we serve.
2901 So to the extent that they are there, that is what they are targeting.
2902 MR. ENGELHART: But there surely aren't too many of these large rural areas in Band B. I'm not saying there is none, but aren't most of these large rural areas going to be in bands D, E, F or whatever? Isn't most of Band B going to be fairly built up?
2903 MR. GRIEVE: Urban. Urban.
2904 MR. ENGELHART: Yes.
2905 MR. GRIEVE: There are parts of Band B ‑‑ and I said before that I think the percentage is between 10 and 15 percent in Bands B, C and D ‑‑ of the loops that we would consider to be outside of built‑up areas ‑‑ on second thought, I think it is more like between 8 and 15 ‑‑ but those loops are, in many cases, extremely long when you consider, you know, a rancher or something like that outside of Calgary.
2906 MR. ENGELHART: The numbers just aren't sort of adding up.
2907 If 10 percent of the people in the ‑‑ well, I guess the reason the numbers ‑‑
2908 MR. GRIEVE: It would be zero percent in downtown Calgary, Edmonton and Vancouver.
2909 MR. ENGELHART: But some of these long loops that you are worried about that are sort of deep suburbs of Calgary that have great big one acre lots, those places would have cable, wouldn't they?
2910 MR. GRIEVE: Those aren't the kinds of long loops I'm talking about, Mr. Engelhart, because long loops going into more populated areas, even the one acre houses, those particular kinds of areas don't exhibit the same kinds of cost differences that you would have for a farmer or a rancher, say, 4 kilometres outside of a town like Red Deer.
2911 MR. ENGELHART: So 10 percent of the loops for Calgary and Edmonton are like ‑‑
2912 MR. GRIEVE: No.
2913 MR. ENGELHART: No?
2914 MR. GRIEVE: I said not Band A.
2915 MR. ENGELHART: But I think only downtown Calgary is Band A.
2916 MR. GRIEVE: Yes, right.
2917 MR. ENGELHART: I think most of Calgary is Band B.
2918 MR. GRIEVE: Okay.
2919 MR. ENGELHART: So 10 percent of the loops in Calgary and Edmonton are farms?
2920 MR. GRIEVE: I think that one in Band B is closer to 8 percent on average across B.C. and Alberta, which would be outside of the Band B areas, and there are some like Kelowna as well that would be Band B. If you total up all those areas and look at them, I think it's around 8 percent.
2921 I will check that for you, if you would like.
2922 MR. ENGELHART: So you say:
"Once entrants have revealed the cost disparities within a rate band or exchange by their entry decisions, incumbents should be permitted to respond accordingly by reducing their prices in these lower cost areas."
2923 So what you want to do is lower the prices where Shaw has cable systems and raise the prices in these farm areas that are still part of Band B.
2924 Is that what you are saying?
2925 MR. GRIEVE: What we have asked for is the ability to de‑average and increase rates by up to 5 percent a year. If that is required or even possible to do, because we do have other circumstances as well to consider, but if that is possible to do these would be the kinds of areas likely that that would occur, especially after cable entry.
2926 MR. ENGELHART: What about Vancouver, are there farms that are part of Band B in Vancouver?
2927 MR. GRIEVE: It doesn't have the same kind of situations that around Calgary and Edmonton would, and Red Deer or something like that.
2928 If you have been to these towns, and I'm sure you have, you get to the end of town and you can see forever.
2929 MR. ENGELHART: You couldn't have just put those farms in Band C or D?
2930 MR. GRIEVE: No, we weren't allowed to. We actually proposed in 1996 to put all the base rate areas, the built‑up areas into Bands A, B, C and D and then have a Band E that took care of all of these loops.
2931 MR. ENGELHART: What about your high‑speed internet service. Does it serve these farms?
2932 MR. GRIEVE: I think you would have to ask the marketing panel, but my understanding is it does not.
2933 MR. ENGELHART: These farms, the ones around Calgary, are they actually part of Calgary or are they in some different place?
2934 MR. GRIEVE: You mean the Calgary city limits? Calgary is a huge area. After a whole bunch of amalgamations some of them are probably still in the Calgary city limits and some of them are probably outside.
2935 MR. ENGELHART: So what percentage of your Alberta operating territory doesn't get high‑speed internet?
2936 MR. GRIEVE: I'm told it's confidential. We will check that and perhaps you could ask the marketing panel that question.
2937 MR. GRIEVE: I am told it is confidential.
2938 MR. ENGELHART: Do you charge higher rates for high‑speed internet customers that have these long loops?
2939 MR. GRIEVE: You know, that is not something I can answer because these are marketing kinds of questions.
2940 MR. ENGELHART: If it turns out that you don't charge higher rates for these high‑speed customers that have longer loops, wouldn't it suggest that you are probably not going to charge higher rates to the same customers for their long telephone line loops?
2941 MR. GRIEVE: I would say it is a different issue, Mr. Engelhart, as you know. Mr. Hariton mentioned it yesterday, that the ‑‑ first of all, I doubt that we provide ‑‑ to these long loops that we provide high‑speed internet because that would require DSL, but you can ask the marketing panel that.
2942 But of course the loop, the physical loop is paid for in the Res PES rate. The ADSL service is built on top of that and has costs over and above that, much as your telephony service is built on the cable system which is already being paid for out of your cable rates.
2943 MR. ENGELHART: Yes. It struck me as news when Mr. Hariton said it yesterday and it seemed to me he was saying something different to Mr. Janigan today. As Mr. Hariton said, the fact that you do supply naked DSL loops would seem to suggest that it is not all based on the PES service.
2944 You can buy standalone DSL.
2945 MR. GRIEVE: Where it is offered, yes. It's not something that we offered voluntarily shall I say.
2946 MR. ENGELHART: So I guess your position is that none of these low margin areas that you are talking about have high‑speed internet service.
2947 Is that right?
2948 MR. GRIEVE: They wouldn't from TELUS, but it's hard ‑‑ what we are talking about is long loops here and sometimes you have small urban areas out there that not even a cable company serves, because there are some very small urban areas that are served by cable companies, some that aren't ‑‑ even Shaw even today out in those areas.
2949 But I am talking about the long loops that go out to individual farmers that are four or five kilometres apart out on the prairies or farmers or ranchers. Those are the kinds of long loops that we have been trying to identify and separate out from these calculations for a long time.
2950 MR. ENGELHART: So the concern that you are evidencing in this section of you evidence is, you want to charge higher rates to these folks who have the long loops and lower rates to everyone else.
2951 Is that right?
2952 MR. GRIEVE: We want the flexibility to do that, but we wouldn't necessarily do it because there are a number of other things that we have to take into consideration.
2953 Even where the cable companies don't serve there is still the possibility of the former CallNet's of the world using unbundled local loops and getting these long loops at an average price so they would have the same price for a loop that was two blocks long as they would for a loop that is four kilometres long and goes out to a rural area.
2954 So we would have to be careful in situations where you had a CallNet or a Primus that apparently leases loops for someone that is in the residential business.
2955 We also have to worry about the kind of cap that wireless service puts on these rates.
2956 Those are general considerations and I invite you to ask the marketing panel these questions, because I know that often in these proceedings we end up with lots of questions about marketing so this time we decided to bring a whole bunch of them for you to ask questions of, Mr. Engelhart.
2957 MR. ENGELHART: In paragraph 100 you say, in the first sentence:
"The Commission should not require incumbents to adjust rates uniformly throughout the band or exchange even where entry has not occurred because this would send the wrong market signals to entrants."
2958 So is it companies like Shaw that have the wrong market signal because you are charging the same throughout Calgary and Edmonton and Red Deer as you are in these farms?
2959 MR. GRIEVE: Well, as you may or may not know, our rates for unbundled local loops are averaged across all those areas.
2960 But yes, we are talking about competitors who have their own facilities or are building their own facilities competing against prices that are designed to provide, in the urban areas of these exchanges and bands, a subsidy to the rural parts of these exchanges, sort of an internal subsidy that as we lose lines not only do we lose the revenues from those lines, we also lose that portion of the subsidy that has been built into the rates by the Commission.
2961 MR. ENGELHART: You say in paragraph 98:
"Paradoxically, when incumbents are not permitted to recover their cost it is the entrant and consumers who suffer the most."
2962 That troubles us entrants.
2963 How is that we suffer the most?
2964 MR. GRIEVE: I think that the entrants and consumers suffer. Consumers suffer because the entrants aren't forced to make their best offer because of the price floor being set at a level that requires us to make a subsidy payment to the rural areas of these exchanges.
2965 The entrants suffer because they get the wrong price signals. They don't know what our best offer could be because we are not allowed to do that. So all of the benefits of innovation and trying to be more productive yourself are lost.
2966 MR. ENGELHART: So if you were allowed to do this de‑averaging, you would charge a little bit more to these farmers and that would allow you to charge significantly less in Calgary and Edmonton and Red Deer?
2967 It would seem that there are so many more lines. The 90 percent versus the 10 percent, or 8 percent of these farms in Band B. It just seems like you wouldn't be able to lower your prices that much in Band B, would you?
2968 MR. GRIEVE: Well, I'm not sure exactly what the question is, but the last part of your question was "you wouldn't be able to lower the prices that much in Band B".
2969 That would depend on where the imputation test level is, but I would agree generally that lowering the prices doesn't necessarily mean that we could actually raise the prices elsewhere in an exchange or a band in order to make that up. There are lots of other things that would constrain us, as I said before.
2970 MR. ENGELHART: I'm just really asking you here about the rule against de‑averaging, not about the other rules.
2971 Explain to me again, I apologize, how it is that it is the entrant who suffers the most?
2972 MR. GRIEVE: Well, I think it says entrants and consumers, and I think that the entrants suffer and consumers likewise because they are not seeing what the best possible offers are by their competitor.
2973 MR. ENGELHART: So if you didn't have to charge the same price for these farm lines as you did for all the lines in Calgary and Edmonton, you could charge a lower price for the Calgary and Edmonton?
2974 MR. GRIEVE: Well, what we are asking for is the flexibility to have the ability to lower the prices in Calgary and in Edmonton and in the urban areas where the cable companies have entered, and we are asking for flexibility with a 5 percent limit per year in other places where we might need to better reflect the costs in the rates if competition in those areas from things like wireless and perhaps high‑speed from other kinds of initiatives, government initiatives like SuperNet, wireless high‑speed service providers and things like that allowed us to do that.
2975 MR. ENGELHART: No, but this is all about cost. This says you can't recover your cost.
2976 MR. GRIEVE: Well, what we ask for always is a reasonable opportunity to be able to recover our costs and if we are forbidden from doing these things, forbidden by regulation, then we don't have any opportunity. Whether we have an opportunity depends so much on market forces and things like the brand reputation incenting entry, those kinds of things that the Commission has recognized before.
2977 MR. ENGELHART: But the costs that you can't recover are those costs for those farm lines.
2978 Is that right? In paragraph 98, those are the costs you are talking about?
2979 MR. GRIEVE: For the most part, yes.
2980 MR. ENGELHART: And because you can't recover the costs of those farm lines, the entrant, on a par with the consumers suffers even more than you do.
2981 Is that what you are saying?
2982 MR. GRIEVE Well, entrants can't enter out there with their own networks when the prices are set artificially low in those kinds of areas, and consumers don't get the benefit of the innovation that competition brings.
2983 MR. ENGELHART: But the entrant with their own facility as shown, I think you said they are entering everywhere they have a cable system.
2984 MR. GRIEVE But they are not going to roll out into areas like that if the prices are kept at levels that don't reflect the costs, unless of course there is an economic boom and subdivisions explode into those areas ‑‑ a hypothetical, I might add.
2985 MR. ENGELHART: What about the entrants like Vonage and Primus and those sorts of people? They just mail you a modem in the mail and then you plug it into your high speed line.
2986 Are they also targeting the high margin areas?
2987 MR. GRIEVE No. Well, they are targeting the areas obviously where people have ‑‑ they don't even target them. They just offer the service to anyone who has high speed Internet access. So where there is no high speed, obviously they are not offering service.
2988 MR. ENGELHART: Those are our questions. Thank you very much.
2989 MR. GRIEVE Thank you, Mr. Engelhart.
2990 THE SECRETARY: Thank you, gentlemen.
2991 It is my understanding that there was mutual agreement between two parties to trade places, and that BCOAPO et al will move forward.
2992 Am I correct? Yes.
2993 So please come to the witness table, Mrs. MacDonald.
CROSS‑EXAMINATION / CONTRE‑INTERROGATOIRE
2994 MS MacDONALD: My name is Patricia MacDonald, M‑a‑c‑D‑o‑n‑a‑l‑d.
2995 I am counsel for the following groups: The B.C. Old Age Pensioners Organization, Council of Senior Citizens Organization, Federated Anti‑Poverty Groups of B.C., End Legislated Poverty, B.C. Coalition of People with Disabilities, Active Support Against Poverty and the Tenants Rights Action Coalition.
2996 Mr Grieve, in the last price cap hearing you were asked if you consider a phone an essential service and you replied that you did.
2997 MR. GRIEVE Yes.
2998 MS MacDONALD: Would you agree that it is still an essential service?
2999 MR. GRIEVE Yes, I would agree that telecommunications service is an essential service.
3000 MS MacDONALD: Would you agree with me that that statement holds true for the most vulnerable members of our society? And by that, I mean people that are the elderly, people that are disabled and other people that are on fixed incomes.
3001 MR. GRIEVE Absolutely.
3002 MS MacDONALD: The affordability of PES ‑‑ I have learned a new term. I was calling it P‑E‑S.
3003 The affordability of Res PES will likely continue to be very important for them.
3004 MR. GRIEVE Yes, it is.
3005 MS MacDONALD: You don't need to turn to your comments unless you would like to, but I am referring to your comments where TELUS says that where competitors are present or where consumers have a choice between three service providers ‑‑ and they identified the three service providers as ILECs, a wireless provider and a cable VoIP.
3006 MR. GRIEVE Right.
3007 MS MacDONALD: In order for a person to have wireless as one of their choices, they obviously have to have a cell phone. That would be correct, wouldn't it?
3008 MR. GRIEVE That is correct.
3009 MS MacDONALD: In order to have a cell phone, you either have to purchase a cell phone or you have to purchase a type of plan which, for example, might be a three‑year plan at a certain amount of money per month for a certain amount of minutes.
3010 That is correct, isn't it?
3011 MR. GRIEVE That's right.
3012 MS MacDONALD: Do you have any idea of the range of the cost of a cellular phone?
3013 MR. GRIEVE Prepaid phones are a lot less. You could get better information from the Marketing Panel. I know it seems to be inconvenient to have the Marketing Panel here, but you could get better information from Mr. Hansen on that.
3014 But there are prepaid phones that are quite inexpensive, prepaid plans that are quite inexpensive.
3015 MS MacDONALD: Any questions that I have that should be punted to the Marketing Panel, please feel free to do so.
3016 MR. GRIEVE I love to punt to the Marketing Panel.
3017 MS MacDONALD: Unless they are ones that you are going to agree with me.
3018 MR. GRIEVE Okay. Even if they are marketing questions and I agree, I'll just agree.
3019 MS MacDONALD: Would I also refer to the Marketing Panel what would be your cheapest monthly plan under your cellular phone service?
3020 MR. GRIEVE Yes.
3021 MS MacDONALD: Cellular phones have an access fee of approximately $7.00 per month?
3022 MS YALE: That's correct but that doesn't apply if you use the prepaid options that Mr. Grieve was referring to.
3023 I don't know if you are familiar with the difference between prepaid and postpaid.
3024 MS MacDONALD: I think I am familiar, but it might be helpful if you describe it.
3025 MS YALE: One kind of wireless plan is where it is a monthly rate and there is an access fee that applies on top of the monthly rate.
3026 The other is you just buy a card that has a certain number of minutes and generally speaking for those cards the minimum you would have to spend is $10 a month and that is an all‑in fee.
3027 So if you are cost conscious, your minimum rate is ten bucks a month.
3028 MS MacDONALD: Do you remember what percentage of TELUS cellular customers would be on prepaid as opposed to the monthly plans?
3029 MS YALE: Well, I'm not sure how much of that information we disclose publicly, but you can feel free to ask the Marketing Panel for details on that.
3030 Certainly it is an option that is used by a reasonable percentage of our subscriber base.
3031 MS MacDONALD: Are you able to describe for me a prepaid plan that a cost conscious consumer would have for $10 a month?
3032 Could you describe what that would actually give them in terms of minutes, in terms of ‑‑
3033 MS YALE: You would have to ask the Marketing Panel exactly. It is a certain number of day‑time minutes and a different number of ‑‑ because different minutes are priced at different rates, depending on whether they are day‑time or weekends.
3034 Basically you get a card and when it's used up, you get another card.
3035 THE CHAIRPERSON: Ms MacDonald, could I just interrupt for a second.
3036 Ms Yale, do you think it would be useful for you to bring your marketing colleagues up here? To be honest with you, there have been almost no questions which have been purely policy questions and quite rightly you have been referring to the Marketing Panel regularly.
3037 I raise it with you. We could take five minutes and you could re‑organize yourselves and get your marketing colleagues up here, if you think it is a good idea. I absolutely don't want to compromise TELUS' freedom to organize its witnesses the way it wishes.
3038 But I suggest to you that we are going to have to go through these questions the way we are operating at the moment.
3039 MS YALE: We can certainly do that. I thought this was just sort of a lead‑up to a policy question.
3040 But if it is helpful for you to have the full range of the pricing options at your disposal before you ask your policy questions, we can certainly accommodate that.
3041 MS MacDONALD: I do find that my questions, as I am reviewing them in my head, move back and forth between the two panels.
3042 THE CHAIRPERSON: What I would like to suggest, Ms Yale, is we will give you ten minutes, until 2 o'clock. You decide what you want to do but please ensure, given the experience we have here, that we will not have to repeat the same material twice.
3043 Is that reasonable?
3044 MS YALE: Yes.
3045 THE CHAIRPERSON: So we will take a break until 2 o'clock, Commissioner Langford.
3046 COMMISSIONER LANGFORD: I feel a "Timmy moment" coming on.
‑‑‑ Upon recessing at 1350 / Suspension à 1350
‑‑‑ Upon resuming at 1400 / Reprise à 1400
3047 THE CHAIRPERSON: So first I am going to ask our colleagues, Telus, to explain the arrangements they have made and introduce the new people. Then we will proceed with swearing; then we will proceed with questions.
3048 It is also the case that if the competitors in the person of Mr. Engelhart and his colleagues wished to come back and question the new panel at this juncture or conserve their marketing questions for a revisit with the full marketing panel, that also would be possible.
3049 Let's just start by introducing our newcomers, if we may. Mr. Ryan.
3050 MR. RYAN: Yes, Mr. Chairman. You have now before you, in addition to the witnesses I have already introduced, Mr. Paul Hansen.
3051 Mr. Hansen, if I can catch up with events here, his CV is also attached to the letter of October 5 that has been filed with the Commission. Mr. Hansen is Vice‑President of Pricing and Forecasting, Consumer Solutions.
3052 Our proposal to the Commission, in light of the questions you have raised, Mr. Chairman, is that Mr. Hansen will join this panel for the duration of this panel. He will also sit, as originally planned, with his marketing colleagues in case there is a cross‑over with that panel. We will see how all of that evolves and we will make whatever changes seem to be appropriate, if additional changes are appropriate.
3053 Mr. Hansen, attached to the letter of October 5 that I have referred you to are certain interrogatory responses that have been directed to the marketing panel. Are you familiar with the responses that the company has made to those interrogatories?
3054 MR. HANSEN: Yes, I am.
3055 MR. RYAN: Are the contents of those responses true to the best of your knowledge and belief?