ARCHIVÉ -  Transcription

 

 

 

 

 

 

 

              TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

 

 

 

 

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

 

 

                      SUBJECT / SUJET:

 

 

 

Review of regulatory framework for wholesale

services and definition of essential service /

Examen du cadre de réglementation concernant les services

de gros et la définition de service essentiel

 

 

 

 

 

 

 

 

 

 

 

 

 

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 10, 2007                      Le 10 octobre 2007

 

 

 

 

 

Transcripts

 

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

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

and staff attending the public hearings, and the Table of

Contents.

 

However, the aforementioned publication is the recorded

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

either of the official languages, depending on the language

spoken by the participant at the public hearing.

 

 

 

 

Transcription

 

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

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

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

 

Toutefois, la publication susmentionnée est un compte rendu

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

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

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

 

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

 

 

                 Transcript / Transcription

 

 

 

Review of regulatory framework for wholesale

services and definition of essential service /

Examen du cadre de réglementation concernant les services

de gros et la définition de service essentiel

 

 

 

 

BEFORE / DEVANT:

 

Konrad von Finckenstein           Chairperson / Président

Barbara Cram                      Commissioner / Conseillère

Andrée Noël                       Commissioner / Conseillère

Elizabeth Duncan                  Commissioner / Conseillère

Helen del Val                     Commissioner / Conseillère

 

 

 

 

ALSO PRESENT / AUSSI PRÉSENTS:

 

Marielle Giroux-Girard            Secretary / Secrétaire

Robert Martin                     Staff Team Leader /

Chef d'équipe du personnel

Peter McCallum                    Legal Counsel /

Amy Hanley                        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 10, 2007                  Le 10 octobre 2007

 

- iv -

 

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

RESUMED:  GEORGE HARITON                          321 / 2189

RESUMED:  PATRICK HUGHES

RESUMED:  JEFFREY CHURCH

 

Cross-examination by PIAC                         330 / 2263

Cross-examination by Cybersurf                    387 / 2587

Cross-examination by Xittel                       437 / 2878

 

 

AFFIRMED:  SALVATORE IACONO                       447 / 2957

AFFIRMED:  WILLIAM TAYLOR

AFFIRMED:  PAUL ANDERSON

AFFIRMED:  DENIS HENRY

AFFIRMED:  MIRKO BIBIC

AFFIRMED:  SERGE BABIN

AFFIRMED:  MARGARET SANDERSON

AFFIRMED:  PETER WATERS

 

Examination-in-chief by The Companies             448 / 2960

Cross-examination by Rogers                       452 / 3002

Cross-examination by MTS Allstream                604 / 3908

 

 

 

- v -

 

              EXHIBITS / PIÈCES JUSTIFICATIVES

 

 

No.                                              PAGE / PARA

 

CYBERSURF-1   Competition Bureau's report        398 / 2644

              entitled Merger Enforcement

              Guidelines September 2004

 

MTS-3         Information Bulletin of Merger     410 / 2728

              Remedies in Canada Competition
Bureau September 22, 2006

 

CRTC-1        U.S. ILEC data aggregate source    411 / 2739

              FCC ARMIS database report 43-02

 

CRTC-2        Document entitled "The             412 / 2740

              Communications Market, 2007",

              with excerpt from Section 4,

              "Telecommunication"

 

CRTC-3        Information bulletin of Mergers,   412 / 2742

              Remedies in Canada Competition

              Bureau, September 22, 2006

 

BUREAU-1      Document from LECG Entitled:       444 / 2926

              Access Regulation and

              Infrastructure Investment in the

              Telecommunications Sector:  An

              Empirical Investigation

 

ROGERS-2      Bell Canada's second round         479 / 3162

              submission to the

              Telecommunications Policy Review

              Panel - Regulatory Policy -

              September 15, 2005

                 Gatineau, Quebec / Gatineau (Québec)PRIVATE

‑‑‑ Upon resuming on Wednesday, October 10, 2007

    at 0830 / L'audience reprend le mercredi

    10 octobre 2007 à 0830

RESUMED:  PATRICK HUGHES

RESUMED:  JEFFREY R. CHURCH

RESUMED:  GEORGE HARITON

listnum "WP List 3" \l 12189             THE CHAIRPERSON:  Good morning.

listnum "WP List 3" \l 12190             Before we resume, may I remind the parties that we would appreciate everybody, to the extent that questions have already been asked by your colleagues, to take them out of your cross‑examination since we are under considerable time pressure and we want to make sure we can finish on time.

listnum "WP List 3" \l 12191             Secondly, Dr. Church, I wonder whether you could help me.  It struck me last night upon going home that the test that you have set out and that we discussed all day yesterday is really prospective, it is whether to designate somebody or to mandate some service or not.

listnum "WP List 3" \l 12192             Our exercise here is retrospective.  We are reviewing things and really what it is all about is are there some services that should be unmandated which are presently mandated.

listnum "WP List 3" \l 12193             So do me a favour and take your test and write it retrospectively because I tried it last night and I get ‑‑ you remember you and I had an exchange on downstream markets.

listnum "WP List 3" \l 12194             So when we start off, you say you have to have a market where there is dominance in the upstream market.  You have a downstream market that is also dominant.  However, that market has already been mandated, access has been mandated.

listnum "WP List 3" \l 12195             So therefore, the question is now should that mandating remain, should it be phased out or should it stay there forever, and in order to do that, you do what?  How do you rewrite point number 3 of your test when you apply it retrospectively?

listnum "WP List 3" \l 12196             MR. CHURCH:  Good morning, Mr. Commissioner.

listnum "WP List 3" \l 12197             I guess there are two aspects.  I mean you are right, the way we wrote the test was as if you were starting in a situation where there was no mandated access and then you would consider whether mandating access would be a good thing or a bad thing.

listnum "WP List 3" \l 12198             THE CHAIRPERSON:  Mm‑hmm.

listnum "WP List 3" \l 12199             MR. CHURCH:  Then to try and ‑‑ because we thought that starting with a principled approach was the right thing to do.

listnum "WP List 3" \l 12200             THE CHAIRPERSON:  Yes.

listnum "WP List 3" \l 12201             MR. CHURCH:  Then we recognized that, in fact, we are in an environment where there has been mandated access.

listnum "WP List 3" \l 12202             So I think that the way to go about that ‑‑ there are two things that you have to be very careful of when you look at our test.  The first is the dominance downstream, as you point out.

listnum "WP List 3" \l 12203             THE CHAIRPERSON:  Mm‑hmm.

listnum "WP List 3" \l 12204             MR. CHURCH:  It may not look like you have dominance downstream because you may have competition from service providers who are using unbundled loops.

listnum "WP List 3" \l 12205             We talked about this in our evidence when we say what you have to do is a but‑for analysis.  You have to say:  Would the firm be dominant downstream but for the access?  So if there was no access, would the firm be dominant downstream?  Would the incumbent be dominant downstream?

listnum "WP List 3" \l 12206             THE CHAIRPERSON:  Right.

listnum "WP List 3" \l 12207             MR. CHURCH:  So that is one way to do it.

listnum "WP List 3" \l 12208             THE CHAIRPERSON:  So far I am with you.

listnum "WP List 3" \l 12209             MR. CHURCH:  Okay.

listnum "WP List 3" \l 12210             THE CHAIRPERSON:  Now, come to point 3.

listnum "WP List 3" \l 12211             MR. CHURCH:  Now, point 3 is a substantial increase in competition.

listnum "WP List 3" \l 12212             If we went back to principled approach, what you would be doing is you would be saying, all right, no one else has access to the unbundled loops, so then it would be a pure prospective analysis ‑‑

listnum "WP List 3" \l 12213             THE CHAIRPERSON:  Right.

listnum "WP List 3" \l 12214             MR. CHURCH:  ‑‑ that you would be looking forward to.

listnum "WP List 3" \l 12215             In some sense, it is easier now because you have some idea about what the impact is on competition because you have mandated access, so you can go look and see what the impact on the market has been by the presence of those competitors.  So it is less of a prospective approach and you can inform what the reality has been under the current regime.

listnum "WP List 3" \l 12216             So I think you are right, is that our principles are on the prospective approach to kind of adjust it to the reality that we have had mandated access.

listnum "WP List 3" \l 12217             THE CHAIRPERSON:  Okay, revert number 3 to me retrospectively.

listnum "WP List 3" \l 12218             MR. CHURCH:  I guess what I am saying is I would want to know the way ‑‑ given that I have mandated access, do I think the presence of those competitors has resulted in a substantial increase in competition?  So that is a judgment about how effective that they have been.

listnum "WP List 3" \l 12219             THE CHAIRPERSON:  Okay.  Assume the answer is yes, but surely then the second question is:  Is that mandated access still necessary or not?

listnum "WP List 3" \l 12220             It has resulted, to use your words, in a substantial increase in competition ‑‑

listnum "WP List 3" \l 12221             MR. CHURCH:  Mm‑hmm.

listnum "WP List 3" \l 12222             THE CHAIRPERSON:  ‑‑ five years ago when we mandated it.

listnum "WP List 3" \l 12223             MR. CHURCH:  Yes.

listnum "WP List 3" \l 12224             THE CHAIRPERSON:  Do we still require it today or not or can we now turn it off because of advances in technology and other entrants or whatever?  I don't know.  So what test do I apply at that point?  Just as simple as I put it now:  Will it continue on this basis if we turn the mandating off?  Is that what we are supposed to apply?

listnum "WP List 3" \l 12225             MR. CHURCH:  No.  I think that is a very good point.

listnum "WP List 3" \l 12226             We didn't say that you could just look at what had happened.  You kind of have to have a combination because you have to ask yourself, if we turn it off, what will happen, and that is going to be informed in part by what has happened.

listnum "WP List 3" \l 12227             I don't think that there is a silver bullet that you can get out of not doing the prospective analysis because you point out, you know, if you turn it off, you are going to have to ask what is the nature of competition now, what could happen, how could the market evolve without this mandated access.

listnum "WP List 3" \l 12228             And so you are going to have to do a little bit of this analysis and a little bit of that analysis to come to an appropriate judgment on what the effect would be.

listnum "WP List 3" \l 12229             THE CHAIRPERSON:  You are giving me what is really an analytical framework but on this point now when you apply the test retrospectively, everything so far was very clear with known concepts but now you say you have to look at all sorts of factors, et cetera.

listnum "WP List 3" \l 12230             Anyway, I thank you for your answer.  I just wonder whether you and your colleagues could do us a favour and actually rewrite your analytical framework that you suggest in a retrospective way because that is going to be the principal application that we are going to have.

listnum "WP List 3" \l 12231             Obviously, we want to use it prospectively too but the first task right now is to review the existing mandated services, and so therefore, it would be very helpful if, rather than just this informal exchange, you had some time to reflect exactly what one should look at and how one should go about it.

listnum "WP List 3" \l 12232             MR. HUGHES:  We would be happy to do that, Mr. Chairman.

listnum "WP List 3" \l 12233             THE CHAIRPERSON:  Thank you.

listnum "WP List 3" \l 12234             Then, Madame Giroux‑Girard, let us turn to our first business.

listnum "WP List 3" \l 12235             I am sorry, Helen, did you have a question?

listnum "WP List 3" \l 12236             THE SECRETARY:  Thank you, Mr. Chairman.  Good morning, everybody.

listnum "WP List 3" \l 12237             THE CHAIRPERSON:  Just a second, Commissioner del Val has a question.

listnum "WP List 3" \l 12238             COMMISSIONER del VAL:  Just to follow up.  Then is the third point of the test really in the negative, that by denying, it would substantially decrease?

listnum "WP List 3" \l 12239             MR. CHURCH:  I mean the answer is in some sense yes, right, is that they are ‑‑ you can look at this either as:  If you have access and we deny it, would there be a substantial lessening of competition?  Alternatively, if we have never mandated access and we grant it, will there be a substantial increase in competition?

listnum "WP List 3" \l 12240             As I tried to explain yesterday, in the Bureau's estimation, that substantial increase in competition and the substantial lessening in competition are the same thing, it is just a question of direction, where you started from.

listnum "WP List 3" \l 12241             MR. HUGHES:  If I may add, it is not as much in the negative.  As Mr. Chairman said, it is retrospective, and Mr. Chairman can, I am sure, remember that our abuse guidelines are very much retrospective as well.  So in some ways this fits better into our traditional abuse provisions and our traditional substantial lessening of competition than the prospective test.

listnum "WP List 3" \l 12242             THE CHAIRPERSON:  Okay.  Then, Madame Giroux‑Girard ‑‑ sorry.

listnum "WP List 3" \l 12243             COMMISSIONER CRAM:  So just to put reality to this, and it is that same interrogatory too from Primus to yourselves, you say that the non‑ILEC, non‑cable service providers have not captured a significant share.

listnum "WP List 3" \l 12244             And so if I follow your analysis through, then we would not at the residential level order mandated local unbundling?  Have I got it right?

listnum "WP List 3" \l 12245             MR. CHURCH:  I don't think that is quite right in the sense that Primus too, it talks about non‑cable and non‑ILEC.

listnum "WP List 3" \l 12246             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 12247             MR. CHURCH:  So that means it does not include MTS and does not include Rogers outside.  We have included them.  MTS Allstream is included in ILECs.

listnum "WP List 3" \l 12248             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 12249             MR. CHURCH:  Rogers non‑cable telephony customers are still included with the cable guys.  So it is referring to truly independent people like Primus ‑‑

listnum "WP List 3" \l 12250             COMMISSIONER CRAM:  Mm‑hmm.

listnum "WP List 3" \l 12251             MR. CHURCH:  ‑‑ and saying that they are a very small thing.

listnum "WP List 3" \l 12252             I might add that, unfortunately, 38, which is the paragraph that is referred to in that interrogatory, is from the Sone Report, which, of course, we have withdrawn, but I think we all understand what the facts are even without that.

listnum "WP List 3" \l 12253             COMMISSIONER CRAM:  Okay.  So we would have to put into the analysis the fact that there is also Rogers and MTS ‑‑

listnum "WP List 3" \l 12254             MR. CHURCH:  Yes.

listnum "WP List 3" \l 12255             COMMISSIONER CRAM:  ‑‑ leasing local loops in residential?

listnum "WP List 3" \l 12256             MR. CHURCH:  That is right.

listnum "WP List 3" \l 12257             COMMISSIONER CRAM:  Okay.

listnum "WP List 3" \l 12258             MR. CHURCH:  And business for MTS.

listnum "WP List 3" \l 12259             COMMISSIONER CRAM:  Yes, of course.  Yes.  Thank you.

listnum "WP List 3" \l 12260             THE CHAIRPERSON:  Maybe third time lucky, Madame Girard‑Giroux.

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 12261             THE SECRETARY:  We will pick up where we left last night.  So the Bureau of Competition will be cross‑examined by counsel Michael Janigan from the PIAC Advisory Committee, known as PIAC.

listnum "WP List 3" \l 12262             Please proceed, Mr. Janigan, with your cross‑examination.

EXAMINATION / INTERROGATOIRE

listnum "WP List 3" \l 12263             MR. JANIGAN:  Thank you, Madam Secretary.

listnum "WP List 3" \l 12264             Good morning, Mr. Chair and commissioners.  Good morning, panel.

listnum "WP List 3" \l 12265             We seek in this proceeding to represent the interests of residential consumers and in particular low‑volume residential consumers of telecommunication services, and in that light I am going to be putting you some questions to try to establish what the costs and benefits or the bottom line will be for those residential consumers.

listnum "WP List 3" \l 12266             First, I would like to briefly retrace the steps that were taken to get to this point in time through the various proceedings of the CRTC.

listnum "WP List 3" \l 12267             I would first of all like to start with Telecom Decision 94‑19.  That came about as a result of Public Notice 92‑78, which was started by the Commission to review the regulatory framework for telecom.

listnum "WP List 3" \l 12268             Is that correct?

listnum "WP List 3" \l 12269             MR. HARITON:  That's correct.

listnum "WP List 3" \l 12270             MR. JANIGAN:  All right.

listnum "WP List 3" \l 12271             And it started out with a number of objectives from the Public Notice and then the Telecommunications Act was passed and effectively those objectives formed the basis on which the regulatory framework was reviewed?

listnum "WP List 3" \l 12272             MR. HARITON:  That's my understanding.

listnum "WP List 3" \l 12273             MR. JANIGAN:  All right.

listnum "WP List 3" \l 12274             CRTC Decision 94‑19 concluded that the objectives set out in the Telecom Act were best achieved by reliance on market forces.

listnum "WP List 3" \l 12275             Isn't that correct?

listnum "WP List 3" \l 12276             MR. HARITON:  I don't have the ‑‑ I should get a copy of the decision.

listnum "WP List 3" \l 12277             I take your word for it.  That sounds right.

listnum "WP List 3" \l 12278             MR. JANIGAN:  All right.

listnum "WP List 3" \l 12279             In that proceeding they indicated that to do so would require unbundling.

listnum "WP List 3" \l 12280             MR. HARITON:  Yes.  Well, they reviewed which facilities should be essential and which facilities should not be essential.

listnum "WP List 3" \l 12281             MR. JANIGAN:  I'm sorry?

listnum "WP List 3" \l 12282             MR. HARITON:  Sorry, wrong decision.

listnum "WP List 3" \l 12283             MR. JANIGAN:  Yes.  I'm getting there.  I'm getting there.

listnum "WP List 3" \l 12284             MR. HARITON:  Decision 94‑19.  Sorry, wrong decision.  I was referring to 97‑8 of course.

listnum "WP List 3" \l 12285             MR. JANIGAN:  Yes.

listnum "WP List 3" \l 12286             MR. HARITON:  Yes.

listnum "WP List 3" \l 12287             MR. JANIGAN:  But in this case they said that effectively they would require unbundling, and while there was general support for the concept of unbundling there were differences about how it would be implemented and therefore another proceeding would be necessary to sort out those differences.

listnum "WP List 3" \l 12288             MR. HARITON:  That's correct.

listnum "WP List 3" \l 12289             MR. JANIGAN:  In Decision 97‑8 the Commission sorted out these differences with respect to implementation and came up with a criteria for essential facilities?

listnum "WP List 3" \l 12290             MR. HARITON:  That's correct.

listnum "WP List 3" \l 12291             Do I need to turn to the specific criteria?

listnum "WP List 3" \l 12292             MR. JANIGAN:  No, we don't.

listnum "WP List 3" \l 12293             Once again the decision was designed to carry out and to create the conditions where market forces would protect consumers in the delivery of services and to deliver on the objectives of the Telecom Act?

listnum "WP List 3" \l 12294             MR. HARITON:  That was my understanding, yes.

listnum "WP List 3" \l 12295             MR. JANIGAN:  All right.

listnum "WP List 3" \l 12296             Now, let's push ahead some years to the policy, what is called the policy direction, which is the Order in Council, the order issuing the direction to the CRTC implementing the Canadian Telecommunications policy objectives of December 14, 2006, and which I will refer to as "the policy direction".

listnum "WP List 3" \l 12297             MR. HARITON:  Yes, I am aware of it.

listnum "WP List 3" \l 12298             MR. JANIGAN:  Now, you would agree that the policy direction was not intended to take precedence over the objectives that are set out in the Act?

listnum "WP List 3" \l 12299             MR. HARITON:  My understanding is the Act can only be amended by Parliament.

listnum "WP List 3" \l 12300             MR. JANIGAN:  All right.  And if the objectives of the Act are frustrated or impeded by this direction in any fashion, then the direction effectively is ineffective?

listnum "WP List 3" \l 12301             MR. HARITON:  I'm being careful here.  I'm not here to speak as a lawyer or to give you legal opinion.

listnum "WP List 3" \l 12302             As a commonsense principle I think what you are saying makes sense.

listnum "WP List 3" \l 12303             MR. JANIGAN:  All right.

listnum "WP List 3" \l 12304             Now, as I understand it, the TPR Report recommended amending the objective section of the Telecommunications Act to establish more clear lines of responsibility in hierarchy of decision‑making.

listnum "WP List 3" \l 12305             MR. HARITON:  It did another thing.  What it did, it tried to sort out what were true objectives and what were instruments to reach those objectives.

listnum "WP List 3" \l 12306             MR. JANIGAN:  All right.

listnum "WP List 3" \l 12307             MR. HARITON:  Which was something that was not done in the '93 Act.

listnum "WP List 3" \l 12308             MR. JANIGAN:  Yes.  There have been no amendments to the Telecommunications Act along the lines of the recommendations in the TPR Report?

listnum "WP List 3" \l 12309             MR. HARITON:  No, there haven't been.

listnum "WP List 3" \l 12310             MR. JANIGAN:  All right.  So the full list of non‑prioritized objectives in section 7 remain?

listnum "WP List 3" \l 12311             MR. HARITON:  Yes.

listnum "WP List 3" \l 12312             MR. JANIGAN:  All right.

listnum "WP List 3" \l 12313             Now, the policy direction contemplates the current examination of whether mandated access to wholesale services should be phased out for services not considered to be essential.

listnum "WP List 3" \l 12314             Is that correct?

listnum "WP List 3" \l 12315             MR. HARITON:  That's correct.

listnum "WP List 3" \l 12316             MR. JANIGAN:  All right.  A note in the evidence, the supplementary evidence of the Bureau, on page 14 and paragraph 37, it notes that:

                      "In the Bureau's view the ultimate objective of end‑to‑end facilities‑based competition is implicit in the Order in Council."  (As read)

listnum "WP List 3" \l 12317             MR. HARITON:  I see that.

listnum "WP List 3" \l 12318             THE CHAIRPERSON:  What paragraph was that?

listnum "WP List 3" \l 12319             MR. JANIGAN:  I'm sorry.  It's page 14 of the supplementary evidence, which is the July evidence, and paragraph 37, at the end of that paragraph.

listnum "WP List 3" \l 12320             THE CHAIRPERSON:  All right.  Thank you.

listnum "WP List 3" \l 12321             MR. JANIGAN:  Clearly, if more competition providing, say, accessible and affordable service can be obtained by mandating the sharing of essential services, effectively because such course of action would be in furtherance of the objectives in the Telecom Act, that would likely trump the provisions of the policy direction and their implicit instruction?

listnum "WP List 3" \l 12322             MR. HARITON:  Again, and not giving you legal opinion of any kind, I think that what we would have to see is the policy direction as being an interpretation or a more precise set of instructions on how to interpret the Telecommunications Act.

listnum "WP List 3" \l 12323             MR. JANIGAN:  But if the objectives, if for example the Commission found that the objectives of providing more competition, which would provide more affordable service to Canadians, would be best pursued by mandating access, clearly pursuit of that objective would trump whatever implicit direction that the Competition Bureau sees in the policy direction?

listnum "WP List 3" \l 12324             MR. HARITON:  Yes.  My difficulty is, I don't see the policy direction so much as a list of objectives but as a list of instruments, the distinction I made a few minutes ago.

listnum "WP List 3" \l 12325             MR. JANIGAN:  Yes.

listnum "WP List 3" \l 12326             MR. HARITON:  So it's not really ‑‑ it's really going to how do you do things rather than what things you have to do.

listnum "WP List 3" \l 12327             So again, the legalities of how you sort that out I'm not here to comment on.

listnum "WP List 3" \l 12328             MR. CHURCH:  Excuse me, Counsel, if I might?

listnum "WP List 3" \l 12329             What the Bureau has proposed here with our "essential facilities" definition recognizes that there may be instances where there is a substantial increase in competition from mandated access and in those circumstances access should be mandated.

listnum "WP List 3" \l 12330             On the other hand, the Bureau's definition also respects and appreciates the fact that the best kind of competition that can happen for consumers of all income levels is that there is competition between networks.

listnum "WP List 3" \l 12331             So it's trying to determine what the balance should be between these two types of competition.  It's not saying that the mandated access type of competition should never be engaged in.  That's not what the Bureau's test says.

listnum "WP List 3" \l 12332             It says, in the third bullet, if there is a substantial increase in competition, then mandated access, given the other two bullets are also met, is the preferred direction.

listnum "WP List 3" \l 12333             MR. JANIGAN:  Dr. Church, what I was seeking to do was to try to qualify the comment with respect to the ultimate objective ‑‑

listnum "WP List 3" \l 12334             MR. CHURCH:  Right.

listnum "WP List 3" \l 12335             MR. JANIGAN:  ‑‑ as found by the Bureau in the policy direction and to make the point, of course, that the Telecom Act objectives reign supreme with respect to the pursuit of that objective.

listnum "WP List 3" \l 12336             MR. HARITON:  Obviously the legislation is what the telecommunications industry is governed under.

listnum "WP List 3" \l 12337             That said, I think there is enough room within the objectives in section 7 of the Telecommunications Act to adopt a variety of approaches.  The policy direction is merely saying we should focus on a certain approach rather than other approaches.

listnum "WP List 3" \l 12338             Now, that said, I think once again when you are looking at instruments of how you actually achieve objectives, you have to look at which ones are going to give you the best outcome, as Mr. Church has said and, again, if you can get competition in both the facilities and the services, i.e., the network and the services riding on the network, that will bring you appreciably closer, it seems to me, to whatever objective you have than if you are going to have a competition in just one layer, i.e., the service layer.

listnum "WP List 3" \l 12339             THE CHAIRPERSON:  Mr. Janigan, can you tell me where you are going with this, because this really more in the nature of submissions rather than cross‑examination.  These are not legal experts as to whether the objectives are supreme to the order or not.

listnum "WP List 3" \l 12340             I have no problem hearing from you in great length on submission, but even if you get a concession out of these witnesses it is not going to be of any use because they are not legal experts in any way.

listnum "WP List 3" \l 12341             MR. JANIGAN:  I recognize.  The point I'm attempting to make is that, effectively, the analytical framework that has been used with respect to their evidence, effectively, is qualified or is modified, of course, by any particular finding that the Commission may make with respect to the objectives of the Telecommunications Act.

listnum "WP List 3" \l 12342             THE CHAIRPERSON:  Okay, I think you have established that point.

listnum "WP List 3" \l 12343             MR. JANIGAN:  Okay.

listnum "WP List 3" \l 12344             Moving forward to the essential conclusions of the Bureau, the Bureau believes that effective competition at a retail level is most likely to come from facilities‑based providers, which would provide greater incentives for investment, innovation and cost efficiency?

listnum "WP List 3" \l 12345             MR. HARITON:  That's correct.

listnum "WP List 3" \l 12346             MR. JANIGAN:  Okay.  Now, in doing your retrospective analysis, and in terms of your assessment of the competition that's come as a result of the stepping‑stone approach, is it your belief that approach ‑‑ or let me put this in general.

listnum "WP List 3" \l 12347             Why is it that you believe that wireline competitors to the incumbent telephone companies, the ones that required mandated essential facilities, did not succeed?

listnum "WP List 3" \l 12348             MR. HARITON:  You are asking for an analysis of what happened in the industry.  I think there were a number of factors of why they did not succeed.

listnum "WP List 3" \l 12349             Partly, it may be that the market wasn't ready for them, I don't know.  Partly it was that shortly after '96, when the new entrants came in, there was something of a bubble in the telecommunications sector and it may be that there was over‑investment.

listnum "WP List 3" \l 12350             I know that certain equipment manufacturers financed equipment for new entrants on very easy terms and, as a result, some carriers may have set up that shouldn't have.

listnum "WP List 3" \l 12351             I think in some cases it may have been business plans that were not properly thought out.  And the other point, I guess, is that it may be that the technology wasn't quite ready.

listnum "WP List 3" \l 12352             So through that list, it's not clear which would get priority.

listnum "WP List 3" \l 12353             MR. JANIGAN:  Okay.

listnum "WP List 3" \l 12354             MR. CHURCH:  Yes, if I just might add that the Bureau's evidence of March 15th, at paragraph 46, we have a discussion about rationales for why this particular entry model may not have worked, and there are additional sites, I think, later on in our evidence, as well, regarding why the hybrid model may not have been as successful as first appreciated ‑‑ as was planned for.

listnum "WP List 3" \l 12355             MR. JANIGAN:  That is on page 18.  You have the lack of regulatory incentives for entrants to move from unbundled facilities to their own.  So that, in itself, would have been a reason why they would fail?

listnum "WP List 3" \l 12356             MR. CHURCH:  I think that the answer, you know, Hausman and Sidack, the people who have carried out this analysis, say, that it's a combination of those three things and they don't try and distinguish, as I recall, and I may be subject to check here.  They have those three hypotheses which they claim are reasons for why this model may not have worked very well.

listnum "WP List 3" \l 12357             In addition, in the Bureau's evidence, if you go back to an earlier paragraph, there's some paragraph we talk about all the things that had to be in place for this to work and that, you know, in retrospect, maybe is going to be a very difficult thing to have happen, because it was basically based on regulatory arbitrage.

listnum "WP List 3" \l 12358             MR. JANIGAN:  How is it they eventually get squeezed in this analysis that you have on page 18?  What happens that suddenly makes their costs increase or their revenues go down because they haven't got their own facilities?

listnum "WP List 3" \l 12359             MR. CHURCH:  You know, I don't think that's exactly what it says in that paragraph.  I think it says that there are three reasons where there may be difficulties.  You know, and the stepping stone didn't happen, because the way the incentives were set up the prices for the wholesale access were very low, as both this article makes reference to, and also the Crandall and Waverman article that's referred to earlier ‑‑ or sorry, later in the piece, which came out in, sorry, 2006, called "The Failure of Competitive Entry into Fixed‑Line Telecommunication:  Who is at Fault?".

listnum "WP List 3" \l 12360             There's a discussion in there about how this was an arbitrage play between low wholesale rates and retail rates, without recognizing that, if you had increased competition at retail, that those rates were going to fall.  So it's not a very good entry plan to be based on arbitrage between retail and wholesale rates when competition's going to affect the retail rates.

listnum "WP List 3" \l 12361             And, you know, it just may have been that the entrants' costs were too high, that there were other impediments to competition.  That would be the third bullet.

listnum "WP List 3" \l 12362             MR. JANIGAN:  Well, I'm confused.  Presumably, these entrants would have adopted a route of obtaining their facilities from the incumbent because of cost considerations.

listnum "WP List 3" \l 12363             MR. CHURCH:  Yes, but the costs that we are talking about there are also implied in why we have the third bullet, which is looking for a substantial increase in competition, is that, besides access to the essential facility, there may be other barriers to entry: they may have been inefficient, there might be other reasons which suggest that they are not going to be very effective competitors, which means that their viability is going to be an issue.

listnum "WP List 3" \l 12364             The Crandall and Waverman study that I just referred to, "The Failure of Competitive Entry into Fixed‑Line Telecommunications:  Who's at Fault?", you know, their conclusion is that, under this model, plain old telephone service is not going to be very viable, that the entrants require in this new world, have to have a wide variety of services and just providing narrow broadband ‑‑ or narrow services is not going to be ‑‑ it's not a viable business plan, in the sense that it doesn't provide enough value to consumers to allow you to compete and survive.  That's their conclusion.

listnum "WP List 3" \l 12365             So, you know, there are a variety of things that seem to have gone wrong with this model.  You know, I think that you should look at the marketshares and the competitive effect of the non‑cable, non‑ILEC companies who adopted this model.  I think it tells you something about their competitive significance.

listnum "WP List 3" \l 12366             MR. JANIGAN:  But if it was a rough go for companies that chose the low‑cost route, mainly getting facilities from the incumbent, how would it have been better for a company that actually had invested in its facilities, presumably the higher cost route, in light of increased competition?

listnum "WP List 3" \l 12367             MR. HARITON:  I would point out, Mr. Janigan, that the one entrant who seems to have done very well, who went in in the nineties, was EastLink, and they didn't go in with unbundled facilities, they went in with their own facilities.  So it may be that using your own facilities gives you a certain advantage.

listnum "WP List 3" \l 12368             The other one who lasted a long time, who also went in in the nineties, was Futureway, north of Toronto, who started by building their own facilities.  I don't know their history intimately, but I believe at some point afterwards they started using other people's facilities and they are no longer an independent company.

listnum "WP List 3" \l 12369             So, you know, it is interesting that the ones who survive, who tend to do well, are the ones who use their own facilities.

listnum "WP List 3" \l 12370             And just in passing, I noticed that we are talking about wireline, the same thing is true is wireless.  We have had some very successful entrants using their own facilities, and so there may be a lesson there for us.

listnum "WP List 3" \l 12371             MR. JANIGAN:  Okay.  And I note, Dr. Hariton, that your example with respect to the EastLink involves a cable company which, presumably, had a network in place prior to establishing its telephony service.

listnum "WP List 3" \l 12372             MR. HARITON:  It had a network in place, but it certainly had to modify it to be able to offer telephony.

listnum "WP List 3" \l 12373             MR. JANIGAN:  Okay.  And is it the belief of the Bureau that winnowing down occasions of access to incumbent service will encourage the establishment of end‑to‑end facilities?

listnum "WP List 3" \l 12374             MR. CHURCH:  I think that what the Bureau's perspective is, in terms of its "essential facilities" definition, is to, you know ‑‑ and we went through some of this yesterday ‑‑ say that there are costs of mandating access to facilities which are not essential.  Those costs show up in terms of incentives for investment and the potential for competition between networks.

listnum "WP List 3" \l 12375             There are also costs associated with not mandating access to facilities which are essential.  Those costs are the reduction in potential competition that you might have had downstream if you had mandated access to those facilities.

listnum "WP List 3" \l 12376             And then if you look at those relative costs and benefits, then you come to the conclusion that ‑‑ and this isn't the only conclusion that the Bureau comes to on those bases ‑‑ is that, you know, the costs of mandating access to things which are not essential appears to be much greater than the costs of not mandating access.

listnum "WP List 3" \l 12377             So therefore, you should have a bias towards ‑‑ in a statistical sense or a decision‑making sense, your tests should be slanted towards increasing facilities‑based competition.  But that doesn't mean that the Bureau's test won't find an essential facility in stances where an essential facility results in a substantial increase in competition.

listnum "WP List 3" \l 12378             MR. JANIGAN:  Okay.  Well, let us take a look at that evidence concerning the costs. I believe in paragraph 9 of your supplementary evidence you cite the costs and risks associated with the overly broad wholesale access regime is a substantial consideration in your view that the current conditions for mandating access should be circumscribed.  Is that correct?

listnum "WP List 3" \l 12379             DR. CHURCH:  Yes.

listnum "WP List 3" \l 12380             MR. JANIGAN:  And if we look on page 5 of your supplementary evidence, in paragraph 14, you indicate that the costs of mandating access to facilities that are non‑essential arise if mandated access undermines the incentives of the competitors to enter with their own facilities and/or incentives of the ILECs to upgrade and maintain their networks.  And that is part and parcel of that analysis?

listnum "WP List 3" \l 12381             DR. CHURCH:  Yes.

listnum "WP List 3" \l 12382             MR. JANIGAN:  Okay.  Now, in terms of the listing of the individual components, which make up your weighing of whether it is better to mandate access or to refrain from doing so, that is contained I believe in your evidence on page 6, on the top of page 6?

listnum "WP List 3" \l 12383             DR. CHURCH:  Yes.

listnum "WP List 3" \l 12384             MR. JANIGAN:  And in paragraphs 14 and 15.  And you set out four reasons here why you believe that not mandating access is a preferable course of action or presents a preferable policy bias.

listnum "WP List 3" \l 12385             DR. CHURCH:  I think what we do in that paragraph was four things; identify the nature of the costs that if you inadvertently didn't end up with competition between two networks, if you offered other things, these would be the kinds of things that you would be foregoing, so it identifies the nature of those costs.  And then what we have to do later on is think about what the magnitude of those costs might be.  There is nothing here that says anything about magnitude.

listnum "WP List 3" \l 12386             MR. JANIGAN:  Okay.  And so, for example, your first consideration; the Commission will have to continue to regulate the price in terms of access to the facility.  There is no, obviously, any quantification of what that is going to cost over time for the industry or if it is going to be passed on.

listnum "WP List 3" \l 12387             DR. CHURCH:  Yes, I mean, it will be passed on, industry doesn't pay these costs, consumers pay the costs of regulation.  But the point that is being made here is that if we had competition between two competing networks and that competition is effective, then you have competition at both retail and wholesale and therefore you could forego regulation at both retail and at wholesale.

listnum "WP List 3" \l 12388             Whereas, if you continue to have mandated access, rely on that for your competition, you might be able to deregulate at retail, but you would still have to regulate at the wholesale level.

listnum "WP List 3" \l 12389             MR. JANIGAN:  Of course, those regulatory costs would have to be set off against any advantages that may come about as a result of competition arising from mandated access?

listnum "WP List 3" \l 12390             DR. CHURCH:  Right, and that would be what we discuss in paragraph 15.

listnum "WP List 3" \l 12391             MR. JANIGAN:  Okay.  The second point, the benefits of competition are restricted to the downstream markets for which the essential facility is an input and the nature of the competition is restricted since the firms in that market share a common input in costs.  Now, is this essentially another elaboration of your point that effectively the innovations and efficiencies will come only from the incumbent?

listnum "WP List 3" \l 12392             DR. CHURCH:  No, it doesn't say it would come only from the incumbent.  We have not said that at all.  It says that if you have competition that is only downstream, which is on the same network, then some of that competition is going to be restricted in the sense that all of the firms downstream are going to have a similar cost structure to the extent they are all using the same network and paying the same costs.

listnum "WP List 3" \l 12393             And the scope for product differentiation is going to be limited and the scope to independently innovate is going to be limited, because you are all running on the same network.  And so it is just saying, if you had competition between two networks, as Mr. Hariton has pointed out earlier this morning, then you could have competition on both a network level and at the applications level.

listnum "WP List 3" \l 12394             If you have competition between, and we would expect that, both the entrant and the ILEC competing with their own networks would have incentives to innovate and invest.  And in fact, you know, that is what competition is about.  They are going to respond to each other and you are going to have, you know, races to increase capacity and provide interesting applications for the benefit of consumers.

listnum "WP List 3" \l 12395             MR. JANIGAN:  You are not suggesting that in that circumstance that the ILEC would stop innovating or stop bringing efficiencies to the network it is providing those facilities to competitors in the case of mandated access?

listnum "WP List 3" \l 12396             DR. CHURCH:  There is, with mandated access, where you have a shared access to the network, then the incentives for the incumbent to innovate and upgrade and invest in its network to the extent that those investments and those innovations end up being shared with its competitors, there certainly is a reduction in its incentives to engage in innovation and investment.

listnum "WP List 3" \l 12397             MR. JANIGAN:  The incumbent, presumably in your analysis, would also have to be aware of the risk of market entry from a facilities‑based competitor, so it would continue to try to innovate and bring efficiencies into its network, would it not?

listnum "WP List 3" \l 12398             DR. CHURCH:  Well, in some sense that depends on what the price of access is and what the terms of access are.  If you are giving access to this network to facilities which are non‑essential, then presumably the entrants are using those facilities because that is a cheaper option for them than to build their own facilities.

listnum "WP List 3" \l 12399             We had a discussion yesterday about the implications of mandated access to DNA and what it did to various firms' incentives to build their own facilities in business markets as an example of that.

listnum "WP List 3" \l 12400             MR. JANIGAN:  But these competitors that require access, these are presumably less able competitors in your analysis and the incumbent would always be aware of the threat of competitive entry from a facilities‑based competitor, would it not?

listnum "WP List 3" \l 12401             DR. CHURCH:  All right, I think that you have to understand the nature of my earlier statement.  It is a statement about incentives at the margin.  So if you hold everything else constant, whether there be a threat of competitors or not a threat of competitors, and you say to the incumbent that we are going to make you share some of your investment or some of your innovation, his incentives will go down.

listnum "WP List 3" \l 12402             MR. JANIGAN:  Now, in part 3 of your disadvantages of mandated access you indicate that the Commission has to be concerned about the potential for vertically integrated owners of essential facilities to engage in anti‑competitive practices.  Presumably, this is another restatement of your first point with respect to regulation?

listnum "WP List 3" \l 12403             DR. CHURCH:  Actually, in some sense it is just pointing out that it is not only a problem that you have to regulate the price of the wholesale facilities, but you create a system under which you are controlling if there is market power at the wholesale level.

listnum "WP List 3" \l 12404             In those situations where there is market power at the wholesale level and you are regulating and you are controlling the margin, so it is effective regulation, then we know that there are incentives for the incumbent to engage in, in particular the relevant one would be anti‑competitive what we call tying or discrimination, to favour its own operations downstream and to disadvantage its competitors.

listnum "WP List 3" \l 12405             And that is, you know, presumably why we have quality of service standards and a bunch of other things that the Commission has put into place in the existing regime to try and control that behaviour, but it is difficult to control without some sort of deterrence mechanism.

listnum "WP List 3" \l 12406             MR. JANIGAN:  So more work for the Competition Bureau, that is what you are saying?

listnum "WP List 3" \l 12407             DR. CHURCH:  Well, I am not an expert on regulated conduct, so I will turn that over to Mr. Hughes.

listnum "WP List 3" \l 12408             MR. HUGHES:  Ordinarily, that would be the mandate of the CRTC and not the Bureau.

listnum "WP List 3" \l 12409             MR. JANIGAN:  And I think we have covered item 4 about the incentives for investment and innovation.

listnum "WP List 3" \l 12410             Now, I turn to the cost of non‑mandating access.  And you indicate that it is the limitation or elimination of competition in the downstream market.  Presumably, that means potentially higher prices for consumers in the downstream market?

listnum "WP List 3" \l 12411             DR. CHURCH:  It potentially means that.

listnum "WP List 3" \l 12412             MR. JANIGAN:  Thus choice?

listnum "WP List 3" \l 12413             DR. CHURCH:  Yes, it does.

listnum "WP List 3" \l 12414             MR. JANIGAN:  And, as well, you indicated that regulation of retail rates would have to continue to protect consumers in the downstream market from the exercise of market power.  Now, what about the circumstance where consumers are in a forborne market, would that still be the case?

listnum "WP List 3" \l 12415             DR. CHURCH:  Well in fact, I mean, the timeline is such that when this was originally written, we did not know exactly what was going to happen in terms of the forbearance decisions, so that is one of the reasons why we have changed our third bullet, is that the costs of not mandating access in some sense have gone up, prospective costs have gone up because, in fact, the lost benefits from competition are no longer constrained or limited by the backstop of retail regulation in many markets.

listnum "WP List 3" \l 12416             So, that is one of the reasons why the bureau has adjusted its third bullet instead of being the increase in competition has to be sufficient to remove economic regulation, now it is the mandating access has to lead to a significant increase in competition.

listnum "WP List 3" \l 12417             MR. JANIGAN:  Effectively, if the regime is so circumscribed that it mandates the construction of facilities, but may or may not have been necessary to bring those services and options to consumers, won't consumers be paying an additional price for the construction of facilities that may not have needed to be duplicated?  That is another risk there, is it not, Dr. Church?

listnum "WP List 3" \l 12418             MR. CHURCH:  No, and actually I want to clarify something.  When I talked about a third bullet in my preceding remarks, I want to say the third bullet says a substantial increase in competition, not a significant increase in competition, and I apologize for that.  We had a discussion about that yesterday.

listnum "WP List 3" \l 12419             Coming back to this, I think that the way that the bureau's approach works is different than the way that you are interpreting it in the sense that the bureau's approach looks first to see if the incentives are there for duplication of the facilities and what the effect of those duplication of those facilities would be on competition.

listnum "WP List 3" \l 12420             So, it doesn't mandate anything in advance.  Instead, it looks and says what is the potential for competition between facilities‑based competitors.  If there is dominance downstream, dominance upstream and not much chance for competition between facilities‑based competitors, then it looks and asks if we mandated access, would we have an increase in competition that would be good for consumers.

listnum "WP List 3" \l 12421             It doesn't mandate construction of facilities.  It goes and looks and sees if there are incentives and if competition between facilities‑based networks is going to be possible because competition involves firms duplicating facilities and competing against each other, and we think that in that process, in most markets, you end up with consumers benefitting from investment and duplication of facilities because it brings about competition.  So the benefits of production get passed on to consumers in terms of lower prices.

listnum "WP List 3" \l 12422             MR. JANIGAN:  Or a competitor who has had to build needlessly duplicable facilities may in fact have to pass those costs on to consumers?

listnum "WP List 3" \l 12423             MR. CHURCH:  In fact, in competitive markets, which is what we are talking about here, firms don't pass costs on to consumers in the way that you are thinking about it.

listnum "WP List 3" \l 12424             In fact, what happens is the firms are forced to compete for business and if everyone's costs are higher, then it might be the case that prices would go up in a market, but it's really a function of demand and supply determine prices in these markets.  So you have both demand considerations and cost considerations that determine prices.

listnum "WP List 3" \l 12425             It is not like a regulated industry, if my costs go up, then automatically prices downstream go up because the regulator passes them on in a regulated price.  That is not what is going on here at all.

listnum "WP List 3" \l 12426             MR. JANIGAN:  Presumably, though, the investors in any new entrant competitor are looking to recover their costs of any facilities they build to compete?

listnum "WP List 3" \l 12427             MR. CHURCH:  They look to recover those costs and the way they recover those costs is by giving consumers a better deal than what they are getting from other people because they have to induce consumers to buy from them, which means they have to offer prices and qualities and services which would allow them to recover their costs.

listnum "WP List 3" \l 12428             Consumers are only going to take that deal from them if it is a better deal than they can get from other suppliers.  So, there's gains from trade here.  That is why the firms incur the costs, because they think they have a better deal for consumers.  If consumers can get a better deal, they will take that deal.

listnum "WP List 3" \l 12429             If you bet wrong on that, which is one of the problems that we talked about earlier with the unbundled local loop experience, as is explained in the Crandall and Waverman article, in the United States the damage was $60 billion was invested by public companies in this adventure, and at the end of it, that $60 billion was down to $5 billion.  That was investors who lost that money, not consumers.

listnum "WP List 3" \l 12430             MR. JANIGAN:  So, you don't believe there is any risk that consumers may be paying higher prices as a result of a strategy which winnows down with opportunities for competitive entry by way of mandated access?

listnum "WP List 3" \l 12431             MR. CHURCH:  As I explained earlier, the way our test works is that we go through the analysis to see at both the dominant step and the duplicability step, and then the third bullet is asking what is happening to consumers.

listnum "WP List 3" \l 12432             Our whole test is driven by the implications of mandating access or not mandating access on the welfare of consumers.

listnum "WP List 3" \l 12433             MR. JANIGAN:  So, using your analysis, your position would be, no, there is no risk associated with that?

listnum "WP List 3" \l 12434             MR. CHURCH:  As we talked about yesterday, the Commission is in a situation where they are making a decision under conditions of uncertainty and asymmetric information.  They have to look at the probabilities of these errors and the costs of these errors and, on the basis of that, recognize that there are good things that can happen and bad things that can happen and they should try and maximize the potential for the good things and minimize the potential for the bad things.  But it doesn't mean that bad things won't happen for sure.

listnum "WP List 3" \l 12435             MR. JANIGAN:  Obviously in circumstances where, for example, new entrant competitors are blocked from entry because they have to have facilities or they don't enter, the costs of that particular exercise may be borne by consumers in the short term, at least, in terms of the higher competitive prices and additional costs, I would assume?

listnum "WP List 3" \l 12436             MR. CHURCH:  I'm sorry, I lost you.  Would you please repeat that question?

listnum "WP List 3" \l 12437             MR. JANIGAN:  Yes.  In circumstances where you have the policy developed, as has in fact circumscribed access to or blocked access by a competitor that wishes to use access to mandated facilities for his entry, presumably the benefits that would have been brought to consumers by that exercise would not be able to be realized by the consumers, and they may end up paying a price which may be not competitive for at least a short period of time?

listnum "WP List 3" \l 12438             MR. CHURCH:  To respond to that, our third bullet says, if you're thinking about denial of access and they already have access to the facilities, then we are in a substantial lessening of competition situation, so we would ask would the termination of access to those facilities result in a substantial lessening of competition, and that substantial lessening of competition is based on an assessment of what happens to the welfare of consumers.

listnum "WP List 3" \l 12439             I think that the other part of what you are asking me is to say if there are non‑essential facilities and we no longer mandate access to them, then what happens.

listnum "WP List 3" \l 12440             I think the answer to that is that if there are non‑essential facilities which we terminate access to, that there is a transition period that occurs and we would expect that if they are non‑essential and the definition has been applied, that means that competitors have the incentives and the ability to duplicate them and the effectiveness of that duplication on the market has been established.

listnum "WP List 3" \l 12441             MR. HARITON:  If I may just add, Mr. Janigan, yes, there is some duplication when you build a second network, but, again, as Dr. Church has said, this is something that investors tend to cover up front.  This is why they have to raise so much money up front to be able to get into the market.

listnum "WP List 3" \l 12442             In fact, they have to be able to give prices that are as good or better or quality that is higher or better than the incumbent if they expect to be successful in the market.

listnum "WP List 3" \l 12443             Over the long term, the incumbent and the new entrant will each try to win customers by giving better service and lower prices by getting the cost down.  So that in that sense, the investor hopes to get his money back down the road.  A lot of these things are what in the jargon we call a button hook, i.e. a very significant negative cash flow for a number of years, and only turning up towards the end.

listnum "WP List 3" \l 12444             So, in that kind of situation, a lot of the risk is being borne by the investors, as we have seen, rather than by the consumer.  The consumer actually wins from this kind of thing because if things go well, he or she are going to get better prices and better quality.  If things go badly, by and large it is the investor that takes the loss.

listnum "WP List 3" \l 12445             So, in that sense, while there is always a risk of everything in this life, in this situation the chances are very strong that consumers will likely be better off.

listnum "WP List 3" \l 12446             THE CHAIRPERSON:  Just to make sure I understand your answer, Mr. Hariton, you are really talking about type 1 and type 2 errors?

listnum "WP List 3" \l 12447             MR. HARITON:  Yes, that is right.

listnum "WP List 3" \l 12448             THE CHAIRPERSON:  And you are biased as to what is type 1 errors because they are cost free for the consumer, while type 2 errors will cost the consumer in the long run?

listnum "WP List 3" \l 12449             MR. HARITON:  Not entirely cost free, but largely.  It is not black and white.

listnum "WP List 3" \l 12450             THE CHAIRPERSON:  Thanks.

listnum "WP List 3" \l 12451             MR. JANIGAN:  Thank you.

listnum "WP List 3" \l 12452             I want to return to the position of the bureau, particularly in light of the change resulting from orders for forbearance that have recently issued.  I just want to make sure that I am clear on the bureau's position.

listnum "WP List 3" \l 12453             Is the bureau's position that there still can be mandated access to essential facilities in a forborne market if it will effect a substantial increase in competition?

listnum "WP List 3" \l 12454             MR. HUGHES:  Yes.

listnum "WP List 3" \l 12455             MR. JANIGAN:  Is it the view of the bureau that a substantial increase in competition can come about by other than facilities‑based competition?

listnum "WP List 3" \l 12456             MR. CHURCH:  Yes, that is our third bullet.

listnum "WP List 3" \l 12457             MR. JANIGAN:  I just wanted to make sure that wasn't a catch 22 there.

listnum "WP List 3" \l 12458             In terms of consumers who may desire or may be willing to take up a new entrant's service that is provided but mandated access, presumably for those consumers that would take it up, the competition itself is substantial for them?

listnum "WP List 3" \l 12459             MR. CHURCH:  I think you have to be careful here.  When they make their decisions and they are comparing their decisions across all the possible alternatives that are available to them, and so it is competition in the market which determines the choices that are available to them, they have decided that that is the best choice for them in the market, but that doesn't mean that if you were to eliminate that choice they would be made worse off, because if there is competition in the market, there is likely to be lots of other alternatives.  That is what a substantial, in this case, decrease in competition or substantial lessening in competition would mean, would be to say that consumers are harmed by removing that competitive alternative because there is not sufficient competition in the market to protect them.

listnum "WP List 3" \l 12460             MR. JANIGAN:  I thought your test for substantial was based on ability to enforce a price increase, was price‑related, is it not?

listnum "WP List 3" \l 12461             MR. CHURCH:  Substantial lessening of competition would mean that as a result of some conduct or some behaviour there would be an increase in market power, and if costs remain the same, then an increase in market power, given the same cost, would result in an increase in prices.

listnum "WP List 3" \l 12462             MR. JANIGAN:  So, a flip around on that one, I guess, is that in order to be substantial, you have to, to some extent, decrease the market power of the incumbent?

listnum "WP List 3" \l 12463             MR. CHURCH:  That is right.  By mandating access to the facility, you reduce the market power of the incumbent.  Given the costs stay the same, reduction in the market power means that prices in the market should fall.

listnum "WP List 3" \l 12464             MR. JANIGAN:  What about competitive offerings that are not so sizeable as to effect the market power of the incumbent but may still be desirable?

listnum "WP List 3" \l 12465             MR. CHURCH:  In the whole context of these things there may be these things that at the margin are desirable, but there are costs and benefits to any decision.  There is always the chance of various types of errors.  So, before we decide to intervene in things, we want to make sure that the effect of our intervention is something that is substantial.

listnum "WP List 3" \l 12466             MR. JANIGAN:  Let me give you an example.  Let's say a municipality in a forborne region decides that the big players have been gouging their residents and failing to provide good service, and they may also have some social objectives that they are meeting under the Telecom Act, 7(h) in providing the service.  But to do so, they need access to some component facilities to compete.  What happens then?  Will they still get the opportunity to come into the market even if they are not going to be affecting the market power of the incumbents?

listnum "WP List 3" \l 12467             MR. CHURCH:  The answer to that is if you go through the bullets, the three bullets of the bureau's test and you find that mandating access to that municipality or whoever does not result in a substantial increase in competition, then the answer would be no, mandated access is not appropriate under the bureau's test.

listnum "WP List 3" \l 12468             MR. JANIGAN:  What about if, for example, that entry was in furtherance of some other objectives under the Telecom Act, namely, meeting the economic or social requirements of Canadians, would it still fall?

listnum "WP List 3" \l 12469             MR. HUGHES:  Can we take a moment, please?

‑‑‑ Pause

listnum "WP List 3" \l 12470             MR. HARITON:  Mr. Janigan, again it goes back to objectives versus instruments.  If you have certain social instruments, I believe that the suggestion is that you should achieve them in the most competitively neutral ‑‑ well, in the best manner you can and rely on competition to the degree you can.

listnum "WP List 3" \l 12471             But there are other techniques.  One of the objectives that the system, the Canadian system has is affordable service in high cost serving areas.  There, what we have is we have a high cost serving area fund which will subsidize both entrants and incumbents to the degree that they serve customers up there.  That is competitively neutral, technologically neutral, and, more importantly, it is sufficient.

listnum "WP List 3" \l 12472             Another way of doing it is to try to distort the entire price system for local, which is what used to be done back in the seventies and eighties and early nineties, and that was a relatively inefficient way.

listnum "WP List 3" \l 12473             So, I think that there are many ways of reaching the objectives.  It is a question of trying to figure out which one is going to be least distorting of the market forces.

listnum "WP List 3" \l 12474             MR. JANIGAN:  Dr. Hariton, I was looking beyond the affordability question to other sorts of objectives that, for example, a municipality may wish to reach by way of their construction or of the assemblage of their network of mandated access.

listnum "WP List 3" \l 12475             MR. HARITON:  Did you want to give me an example?

listnum "WP List 3" \l 12476             MR. JANIGAN:  For example, it may be that they want to provide better security.

listnum "WP List 3" \l 12477             MR. HARITON:  Yes, so they will build their own network.  Is that the suggestion?

listnum "WP List 3" \l 12478             MR. JANIGAN:  Well, let's say that it is not a doable project unless they require access, unless they obtain access.

listnum "WP List 3" \l 12479             MR. CHURCH:  I think, Mr. Counsel, the kinds of things that you are talking about here, I mean, you are talking about another level of government deciding that they have some sort of policy objective that they want to meet.

listnum "WP List 3" \l 12480             I guess what we are saying here is that our test is designed for competitors, is for private firms who want to enter.

listnum "WP List 3" \l 12481             This discussion about the other objectives is interesting, but I think it is not really what our test is about and it is kind of about, you know, some other kind of rationales for why things should be mandated.  If the Commission, the CRTC, decides that those objectives are for some other level of government to achieve some sort of social objectives that you have in mind, I think that that is not something that the bureau's evidence is about at all.

listnum "WP List 3" \l 12482             It is about entry by competing firms, and when does mandating access make sense in terms of enabling competition and making the right choice between competition between networks versus mandated access.  If there are other social objectives for certain very unique and particular suppliers who ask for mandated access, like a municipality, like another level of government, I think that is another kind of discussion.  It is interesting, but it is not something that the bureau's test is really about.

listnum "WP List 3" \l 12483             MR. JANIGAN:  It is something, of course, that the CRTC has to take into consideration under its telecom objectives though.

listnum "WP List 3" \l 12484             MR. CHURCH:  That is up to the Commission to decide.

listnum "WP List 3" \l 12485             MR. HARITON:  If I may, Mr. Janigan, the Commission circulated a possible framework just before the hearing where they categorized ‑‑ they had an attachment to a letter of October 3 and here they categorized possible mandated access.

listnum "WP List 3" \l 12486             The fifth category was public good, which would include functionalities that would not meet the criteria of the Commission's definition of essential facility but there would be general agreement that the functionalities should continue to be made available to competitors via mandatory unbundling for reasons of public benefit such as access to 9‑1‑1 call routing services.

listnum "WP List 3" \l 12487             In our comments on that we said yes, that that was certainly acceptable.

listnum "WP List 3" \l 12488             MR. JANIGAN:  And presumably that may fall within the example that I have taken?

listnum "WP List 3" \l 12489             MR. HARITON:  I think that is ‑‑ as I understand it now, that would be it.

listnum "WP List 3" \l 12490             MR. JANIGAN:  Ex ante or ex post?

listnum "WP List 3" \l 12491             MR. HARITON:  That is a good question.

listnum "WP List 3" \l 12492             I think that a lot of these things have already been established.  I can well see that a municipality might come in front or propose to the Commission a certain treatment which would reach some kind of ‑‑ or attempt to reach some kind of municipal objective and that would be open.

listnum "WP List 3" \l 12493             But I mean a lot of these things such as, for example, not breaking the pavement more than once every five years and therefore having to coordinate the build of facilities, which is something that happens north of Toronto now, would be something that would be ordered and it would be in place.

listnum "WP List 3" \l 12494             MR. CHURCH:  And of course, if I might add, if we are talking about a municipality doing something that has social objectives, it might be very much the case that the ILEC is quite willing to provide access to their facilities.

listnum "WP List 3" \l 12495             MR. HUGHES:  Just to clarify, let me note that we are coming here from a competition policy perspective and I don't think we have a position on whether those public goods should be mandated ex post or ex ante.  We really haven't considered that issue.  That is really not part of our area.

listnum "WP List 3" \l 12496             MR. JANIGAN:  Okay.  And it may well be that the public goods within the meaning of that section may not be exhaustive of all the objectives contained in the Telecom Act.  You would agree with that, Dr. Hariton?

listnum "WP List 3" \l 12497             MR. HARITON:  I believe the category is open.

listnum "WP List 3" \l 12498             MR. JANIGAN:  I just have some questions in terms of understanding some of the Bureau evidence.

listnum "WP List 3" \l 12499             On the Supplementary Evidence at page 21, paragraph 53, it is noted here:

                      "The record of competition shows that while entry by the cable companies is likely sufficient to control the market power of ILECs with respect to residential customers..." (As read)

listnum "WP List 3" \l 12500             What is the evidence that is in support of that statement that in fact the cable company entry is sufficient to control the market power?

listnum "WP List 3" \l 12501             MR. CHURCH:  I think we have an interrogatory response, Bell No. 9, and you will find the evidence is listed there.

listnum "WP List 3" \l 12502             MR. JANIGAN:  Okay.

listnum "WP List 3" \l 12503             Move on to paragraph 28, pages 10 and 11, and you have the sentence:

                      "If there is competition from the cable companies for retail telephone that is effective, then the elasticity of derived demand will be large and the input supplier of copper loops will not have significant market power.  If the analysis begins and ends by looking only at substitution alternatives of firms that demand access to the purportedly essential facility, this avenue of substitution will be missed."

(As read)

listnum "WP List 3" \l 12504             I am afraid I don't understand those sentences.  Could you dumb it down for me?

listnum "WP List 3" \l 12505             MR. CHURCH:  Yes.  So if you are asking if an owner of a facility, your telecom facility, has market power, there are two sources of substitution that can discipline its attempt to exercise market power.

listnum "WP List 3" \l 12506             So when it goes to exercise market power, that means it is raising its price above competitive levels.

listnum "WP List 3" \l 12507             What stops any firm from raising the price above competitive levels is that its consumers say or its customers say:  Sorry, I am not going to pay that higher price, I am going to go buy from some competitor, I am going to find some substitution, some substitution possibility, some sort of substitute.

listnum "WP List 3" \l 12508             So if you are looking for the market power potential for a facility upstream, there are two sources of substitution that can discipline the owner of that facility's attempt to exercise market power.

listnum "WP List 3" \l 12509             Upstream substitution occurs when suppliers in downstream markets are willing and able to easily substitute other inputs.  So I have got the upstream firm here and I have got a bunch of firms downstream that buy from him.  So when he goes to raise his price, these firms at the retail level can substitute other suppliers of the upstream input.  That is what we call upstream substitution.

listnum "WP List 3" \l 12510             Downstream substitution occurs if consumers in retail markets can easily substitute to alternative telecommunications service providers who do not use that input.  So when a downstream substitution is sufficient, then any exercise of market power upstream based on limited substitution upstream will have very limited, if any, effects on customers downstream.

listnum "WP List 3" \l 12511             So it is essentially saying ‑‑ the upstream substitution, everyone understands.  They say if there are other substitutes available upstream, then when one supplier upstream tries to raise their price, all of the firms who use that as an input will substitute to some other supplier.

listnum "WP List 3" \l 12512             But that is not the only source of substitution and potential discipline for market power on an upstream input supplier.  Perhaps the most significant one is the extent of competition in the downstream market.

listnum "WP List 3" \l 12513             So if the copper loop supplier goes to raise the price of copper loops, then the firms that use that copper loop as an input, their costs go up.  They try and pass those costs on to consumers in the downstream market.

listnum "WP List 3" \l 12514             If those downstream markets have alternatives where they can go and get their local telephony service from the cable company which doesn't use the copper loops, they can substitute that way.

listnum "WP List 3" \l 12515             Then that initial increase in market power by the copper loop supplier is going to be circumvented by the fact that he loses all of his customers downstream.  He loses all of his customers downstream because when they have higher costs and try and pass it on, they lose their customers to a competing supplier, in this case the cable company.

listnum "WP List 3" \l 12516             So that is what that paragraph is about, is saying that there are two sources of substitution and you have to consider both of them when you are looking at the market power of an upstream input supplier and that is why we have a requirement for dominance downstream.

listnum "WP List 3" \l 12517             MR. JANIGAN:  Thank you very much.

listnum "WP List 3" \l 12518             Finally, I wonder if you could, Dr. Church, touch upon the notion of joint dominance that was set out in the case of ‑‑ the Bank of Montreal case involving a consent order of the Competition Tribunal.

listnum "WP List 3" \l 12519             I think it was an essential facilities case where an electronic ‑‑ where the Interac network had to revise its governance structure and the Bureau dealt with the issue of ‑‑ or the agreement dealt with the issue of joint dominance.

listnum "WP List 3" \l 12520             I was wondering if you could comment upon the concept from that case in terms of its relevance in a market where there are two providers, cable and an ILEC.

listnum "WP List 3" \l 12521             MR. HUGHES:  Could you perhaps be a little more specific?  I understand you are addressing Interac and you are addressing the issue of joint dominance.

listnum "WP List 3" \l 12522             MR. JANIGAN:  Well, I am curious whether or not the concept of joint dominance as expressed in that decision has any relevance for us today in looking at the position of cable and ILECs in a market.

listnum "WP List 3" \l 12523             MR. HUGHES:  Thanks.  I think that is a little easier.

listnum "WP List 3" \l 12524             MR. CHURCH:  Under the Competition Act, it is possible for joint dominance, which means that the firms are coordinating their activities and it is a coordinated exercise of market power, so it is a joint control of the market.

listnum "WP List 3" \l 12525             When we talked about yesterday the unilateral versus the coordinated exercise of market power, this would be a coordinated exercise of market power.

listnum "WP List 3" \l 12526             One of the things I think you have to recognize in the Interac case ‑‑ and there are other witnesses who are going to be available to you over the course of this proceeding who are experts in the Interac case and have written extensively about the Interac case, which would be a better source to ask the relationship between joint dominance and the specifics of the Interac case than me.  But in that case you had a joint venture, a very simple level.  Interac involved the joint venture, as far as I know.

listnum "WP List 3" \l 12527             In this industry we are not talking about a joint venture where there are contractual restrictions between cable companies and incumbent local telephone carriers.  So that would be one of the ways that I would distinguish between the Interac case and what is going on here.

listnum "WP List 3" \l 12528             THE CHAIRPERSON:  Let's stay away from the Interac case.  You are not a legal expert and you are being asked a very specific question, where they kind of joint dominance between an ILEC and a cable company.  That's really what the question is.

listnum "WP List 3" \l 12529             MR. CHURCH:  That question, I think what you are really asking is what is the potential for coordinating effects.  What is the potential for them ‑‑ not with any contractual instrument or anything else ‑‑ to engage in what we would call tacit collusion or to be able to ‑‑ that is a nasty word to use the "collusion" word, but say that they can coordinate by observing how their rivals respond to what they do.  Are they able to move closer to a monopoly pricing level than when they compete against each other?

listnum "WP List 3" \l 12530             So again, if we go back to Bell Interrog No. 9 we list five characteristics in this industry and on the basis of those characteristics, along with some additional features, the Bureau would argue it makes it very unlikely that forbearance, when we have just the two competitors ‑‑ and we have forborne so we are not regulating, otherwise this discussion doesn't make any sense, but we are assuming that we have forborne what can happen ‑‑ will there be a coordinated effect?

listnum "WP List 3" \l 12531             So to understand the potential for coordinated effect, the two firms have to reach an agreement.  So they have to decide what ‑‑ they have coordinate.  That means that they have to agree to what it is that they are trying to do.

listnum "WP List 3" \l 12532             And they can't do it explicitly because they will run into problems with section 45 under the Competition Act, that is illegal, criminally illegal, and so they have to do this in a way which, you know, it's a wink‑wink, nudge‑nudge kind of thing where they communicate through their prices and it may be very difficult for them to reach a consensus on what that coordinated outcome can be.  If they can't reach a consensus on what the coordinated outcome can be, they are not going to be able to coordinate.

listnum "WP List 3" \l 12533             There are a number of reasons that the Bureau has pointed out in the local forbearance proceeding, and I think Bell in its evidence of CRA lists a bunch or reasons as well based on what the Bureau's analysis was in local forbearance which indicates why this kind of coordination would be difficult.

listnum "WP List 3" \l 12534             So I give you those references on the record and I will summarize them here.

listnum "WP List 3" \l 12535             The first this is, the cable companies and the new entrants have much smaller market shares than the incumbents and, consequently, they are not interested in cooperating, they are interested in acquiring market share and growing the customer base.

listnum "WP List 3" \l 12536             The cable companies use a very different technology and have different costs.  The cable companies have different bundles than the ILECs do.  So all of those things are going to make reaching an agreement complicated.

listnum "WP List 3" \l 12537             In addition, this is an industry where we have technological change and we have innovation occurring.  There are new products and new services being introduced.  Product innovation and reductions in costs result in market disruptions since the innovating firm is trying to make significant gains at the expense of its rival.  Those kinds of things make it very difficult to coordinate and have a nice, cosy duopoly.

listnum "WP List 3" \l 12538             Second, the focus of competition between the cable company and the ILEC will not just be one the price of local exchange services.  Right?  The world we are evolving to is that the cable company and the ILEC are going to be competing to provide broadband access.  If I get access to a particular location, then I get to provide all the services that go down the broadband pipe, right, digital telephony, television services and other kinds of things.

listnum "WP List 3" \l 12539             So you are going to have intense competition to be the provider of the pipe into a particular business or residential locations.  Again, that is going to make ‑‑

listnum "WP List 3" \l 12540             And competition to do that is going to be on many dimensions, service, reliability, quality, applications and price.  All of that is going to set up a situation where it is going to be very difficult to have coordination.

listnum "WP List 3" \l 12541             Third, I think that this is true that the cable companies and the ILECs have historically been rivals in the public policy arena.  They are not natural allies.  They don't belong to the same trade associations and the same lobby groups, so the industry structure is not naturally conducive to cooperative outcomes.

listnum "WP List 3" \l 12542             Fourth, and I think this is important, the ability to coordinate depends on is it truly a duopoly or in fact do we have other sources of competition which can disrupt that in any kind of coordinated outcome among the two?

listnum "WP List 3" \l 12543             Clearly the access independent VoIP suppliers are out there on the broadband pipes ‑‑ they could easily disrupt this ‑‑ and we have wireless as other options.

listnum "WP List 3" \l 12544             So if you put all those things together, I don't think that the concern of the Bureau is going to be about a coordinated outcome.

listnum "WP List 3" \l 12545             In fact, going back to a paper that was introduced yesterday, "Is Two Enough?" paper, if you read that paper carefully at the end of it they say that the potential for coordination is a very low risk with the two competitors in the Netherlands.

listnum "WP List 3" \l 12546             THE CHAIRPERSON:  Could I summarize it by saying theoretically possible, but highly unlikely?

listnum "WP List 3" \l 12547             MR. CHURCH:  Very highly unlikely.

listnum "WP List 3" \l 12548             MR. JANIGAN:  Is it the Bureau's belief that there has been intense price competition between cable and ILECs with respect to the delivery of broadband services to date?

listnum "WP List 3" \l 12549             MR. CHURCH:  I'm not sure that we would necessarily have a view in terms of the way that you have stated that question.

listnum "WP List 3" \l 12550             I guess our view would be to say, as in the Osborne Report, that he points to competition between the broadband as being in a situation where it looks like the duopoly outcome is acceptable compared to alternatives.

listnum "WP List 3" \l 12551             MR. JANIGAN:  The state of price competition between the two suppliers is satisfactory from the Bureau's standpoint?

listnum "WP List 3" \l 12552             MR. HUGHES:  Ordinarily we are not in the business of assessing the price competitiveness of a market unless we have a particular issue before us.  So we don't have any particular view and we don't have particular evidence, except for what we have for this proceeding.

listnum "WP List 3" \l 12553             MR. JANIGAN:  Thank you, Mr. Chair.  Those are all the questions from my panel.

listnum "WP List 3" \l 12554             I may add that it is not my intention to sit through all of this hearing when I don't have an occasion to cross‑examine.  I mean no disrespect to the panel or the witnesses.  I find that I can effectively monitor the other through the streaming broadcast or through the transcripts and will try to be available in a timely fashion when it is my turn to cross‑examine.

listnum "WP List 3" \l 12555             So I ask the Chair's indulgence for my absence.

listnum "WP List 3" \l 12556             THE CHAIRPERSON:  All right.  Thank you.

listnum "WP List 3" \l 12557             Madam Giroux‑Girard, who is next?

listnum "WP List 3" \l 12558             COMMISSIONER CRAM:  I have a question.

listnum "WP List 3" \l 12559             THE CHAIRPERSON:  Oh, did you have a question for Mr. Janigan?

listnum "WP List 3" \l 12560             COMMISSIONER CRAM:  No, no.

listnum "WP List 3" \l 12561             THE CHAIRPERSON:  We don't need Mr. Janigan for that?

listnum "WP List 3" \l 12562             COMMISSIONER CRAM:  Oh, no.  No.

listnum "WP List 3" \l 12563             THE CHAIRPERSON:  Go ahead.  If you want to follow up on something that came up during the cross‑examination, by all means, do.

listnum "WP List 3" \l 12564             COMMISSIONER CRAM:  Back to joint dominance.

listnum "WP List 3" \l 12565             What we have seen here, what's happened, at least my view of what has happened in terms of the cable entrants, is that there is competition for ‑‑ aside from Vidéotron, there is competition only for the high‑end customer and sort of the cherry‑picking.

listnum "WP List 3" \l 12566             I think Shaw was charging $60 when they first went into Alberta, somewhat less in Manitoba.  So it's not really ‑‑ it's only competition for the higher level.

listnum "WP List 3" \l 12567             Can we ever expect that ‑‑ and they are doing very well.  So if they are doing very well, can you ever expect that they would get to the point where there would be competition for local service alone or anything like that?

listnum "WP List 3" \l 12568             MR. CHURCH:  I think this is a very interesting question.  It is really a question about the cable company's entry strategy and you would expect that they would go after customers where they could make the most money first.

listnum "WP List 3" \l 12569             But the economics are right, I mean their costs are very low.  They have all the sunk costs in the network, they have the sunk costs in the ability to upgrade the network to provide broadband, they have the sunk costs in the ability to provide the telephony, the actual costs associated with actually hooking up a particular location to simple POTS is, given that the location is already wired for the cable company, is actually fairly small.  It's the truck roll out and the modem, but ‑‑

listnum "WP List 3" \l 12570             COMMISSIONER CRAM:  Actually, they didn't even come to my home.

listnum "WP List 3" \l 12571             MR. CHURCH:  Yes.  You have broadband, I take it.

listnum "WP List 3" \l 12572             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 12573             MR. CHURCH:  Yes.  So then they can just unplug you.  The existing modem has a bunch of places that you can plug things into.  Right?

listnum "WP List 3" \l 12574             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 12575             MR. CHURCH:  So as long as the revenues that they expect to get from people who just want POTS is above the cost of providing them, we would expect that would eventually happen.

listnum "WP List 3" \l 12576             One of the things ‑‑ I'm not quite sure about this and so maybe I shouldn't comment, but I think that Shaw actually has an option to just get local service without long distance bundled into it.

listnum "WP List 3" \l 12577             COMMISSIONER CRAM:  We can find out.

listnum "WP List 3" \l 12578             MR. CHURCH:  You can find that out.

listnum "WP List 3" \l 12579             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 12580             MR. CHURCH:  Certainly one of the phones in my house has that option and it's only $25.

listnum "WP List 3" \l 12581             COMMISSIONER CRAM:  All right.  Thank you.

listnum "WP List 3" \l 12582             THE CHAIRPERSON:  All right.  Madam Giroux‑Girard...?

listnum "WP List 3" \l 12583             THE SECRETARY:  Thank you, Mr. Chairman.

listnum "WP List 3" \l 12584             I will now ask counsel Tacit to proceed on behalf of Cybersurf.

listnum "WP List 3" \l 12585             Thank you.

listnum "WP List 3" \l 12586             MR. TACIT:  Thank you.

EXAMINATION / INTERROGATOIRE

listnum "WP List 3" \l 12587             MR. TACIT:  Mr. Chairman, Commissioners, panel members, my name is Chris Tacit.  I represent Cybersurf Corporation in this proceeding.

listnum "WP List 3" \l 12588             Seated beside me is Mr. Marcel Mercia, Chief Operations Officer of the company.

listnum "WP List 3" \l 12589             In your evidence the Bureau indicated that the competitive significance of mandated access to unbundled loops may not be that significant and perhaps even minimal.  Is that right?

listnum "WP List 3" \l 12590             MR. HUGHES:  Could you point us somewhere, please?

listnum "WP List 3" \l 12591             MR. TACIT:  Yes, paragraph 40 of your main evidence, the last sentence of the paragraph.

listnum "WP List 3" \l 12592             MR. CHURCH:  Paragraph 40 has been withdrawn because it was based on the Sone Report.

listnum "WP List 3" \l 12593             MR. TACIT:  Well, fair enough, but would you still agree with that conclusion, whether it's based on the Sone Report or anything else on the record?

listnum "WP List 3" \l 12594             MR. CHURCH:  I think the general nature of our evidence is, in fact, that we think the competitive significance of the non‑ILEC/non‑cable company people who use unbundled loops has been small.

listnum "WP List 3" \l 12595             MR. TACIT:  Okay.  Could it have been the case that part of the reason for that reduced significance is that prices for the loops were, in fact, too high, therefore blunting the use of those resources as an input?  Is it possible?

listnum "WP List 3" \l 12596             MR. CHURCH:  It's possible.  In theory, it's possible.

listnum "WP List 3" \l 12597             You know, the Bureau has pointed out earlier in its evidence that there are five requirements, as I recall, to make sure that this model works effectively.  One of them is getting the price of these things correct.  Another point in the Bureau's evidence is that is it really, really difficult to get the price correct.

listnum "WP List 3" \l 12598             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12599             Can you turn to paragraph 45 of your first‑round evidence, please?  Page 17, I believe.

listnum "WP List 3" \l 12600             In there, the Bureau states:

                      "Apart from the entry of the cable companies, the competitive landscape has changed in two other important ways that have implications for the competitive significance of competitors that make extensive use of ILEC network facilities to provide service.  The first is the development of broadband services in competition between cable and telecom networks to provide broadband access; the second is the increase in the availability and importance of bundling of voice telecommunication services, including local and long distance service, broadband and video services.  Under these circumstances, the competitive significance of entrants that provide only narrow‑band local service using unbundled ILEC network elements is unclear."  (As read)

Is that still the Bureau's evidence?

listnum "WP List 3" \l 12601             MR. CHURCH:  Yes.

listnum "WP List 3" \l 12602             MR. TACIT:  Now, does the Bureau agree that facilities‑based broadband platforms of the ILECs and cable companies are now the predominant means by which bundles of retail, voice, Internet and video services can be delivered to consumers?

listnum "WP List 3" \l 12603             MR. HARITON:  Yes.

listnum "WP List 3" \l 12604             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12605             I want to now just briefly deal...well, perhaps not so briefly, but deal a little bit more with this notion of joint conduct and coordination, and I want to do it from a couple of different perspectives than have been discussed so far.

listnum "WP List 3" \l 12606             First of all, my understanding is that a group of firms in an industry can profitably coordinate their behaviour if they are capable of accommodating the reactions to the conduct of the other.  Is that correct?

listnum "WP List 3" \l 12607             MR. CHURCH:  So, in theory, right, we know that if they competed against each other, even in an oligopoly situation, if they just engaged in unilateral exercise of market power, so they make their best choice for them, given their anticipation of how their rivals are going to choose things, that will not lead to monopoly pricing and monopoly profits.

listnum "WP List 3" \l 12608             If, instead, they try to coordinate their thing so that they all agree that we have to move to these prices and it's only profitable for one of them to move to that higher price, if they all move to that higher price that's a coordinated exercise in market power.  That's possible.  As we have discussed earlier today, there are a great deal of difficulties involved in doing that.

listnum "WP List 3" \l 12609             MR. TACIT:  Okay, but I will get into that, so I would appreciate it if you would just give me the answers to the specific questions I'm asking.  I will give you ample opportunity to discuss the issue with me.

listnum "WP List 3" \l 12610             Can you also agree with me that this kind of coordination can be either explicit or implied?

listnum "WP List 3" \l 12611             MR. CHURCH:  Sorry, did you say implicit and implied?

listnum "WP List 3" \l 12612             MR. TACIT:  No, explicit or implied?

listnum "WP List 3" \l 12613             MR. CHURCH:  Explicit or tacit is the term I would usually ‑‑

listnum "WP List 3" \l 12614             MR. TACIT:  Yes, I was trying to avoid that word.

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 12615             MR. TACIT:  Now, can you also agree that it can involve price levels, allocation of customers or territories or any other dimension of competition?

listnum "WP List 3" \l 12616             MR. CHURCH:  Can.

listnum "WP List 3" \l 12617             MR. TACIT:  Okay.

listnum "WP List 3" \l 12618             Can you please refer to Cybersurf/TELUS‑2, page 1 of 2?

listnum "WP List 3" \l 12619             MR. HUGHES:  That will take a moment.  Do you have a copy?

listnum "WP List 3" \l 12620             MR. TACIT:  We did provide copies.

listnum "WP List 3" \l 12621             THE CHAIRPERSON:  The Secretary will hand them on, just hang on a second.

listnum "WP List 3" \l 12622             MR. TACIT:  Yes.

listnum "WP List 3" \l 12623             It's the set of documents that has the circled numbers at the bottom of the right page.

listnum "WP List 3" \l 12624             Sorry, do you have that now?

listnum "WP List 3" \l 12625             MR. CHURCH:  Yes, we do, but we haven't read it.

listnum "WP List 3" \l 12626             MR. TACIT:  Okay.  You will see in that first page there was an excerpt published from an article that appeared in network letter, Decima Reports.  In here the editor states:

                      "There's something wrong with the supposedly high competitive Internet services business when one of the country's largest Internet providers can raise prices with little or no competitive pressures from its rivals.  Nonetheless, Rogers Communications plans to hike its Internet service prices.  The move was announced by VP of Finance, John Gossling, at the Bear Sterns & Co. 19th Annual Media Conference in Florida this week."  (As read)

listnum "WP List 3" \l 12627             Then towards the bottom of the next paragraph, it says:

                      "Bell will refrain from reacting because the new motto of BCE is profitable growth, a strategy championed by George Cope."  (As read)

listnum "WP List 3" \l 12628             And then at the top of the next page, there's the additional quote:

                      "The Internet service sector isn't the only market experiencing this kind of level playing field.  The mobile wireless industry is criticized for its lack of competitiveness."  (As read)

listnum "WP List 3" \l 12629             Now, what I would like to ask you is: if indeed it's true that Rogers can raise its price for Internet services in that fashion without fear of discipline from its largest competitor, Bell, does that not suggest the possibility of coordinated effects?

listnum "WP List 3" \l 12630             MR. CHURCH:  Well, you know, this is not actually a very fulsome or complete competition analysis here, right?  You often find that when prices go up there are many reasons why prices might go up, right?  It's not just because they are coordinating.  There might be a cost shock or a common cost shock or whatever.

listnum "WP List 3" \l 12631             In competitive markets, the prices of the firms are the same and move together.  In oligopolistic markets the prices of the firms are the same and move together.  So just because the prices move together and are similar doesn't tell you anything about whether they are ‑‑ the reason for that price change and the reason they move together is coordinated conduct or common cost shocks and other common conditions that you would find in a competitive industry.

listnum "WP List 3" \l 12632             That's why the nature of the analysis that's done is very different.  It's to go through the kinds of things we talked about earlier, in terms of you identify the nature of the industry, you look at the characteristics of that industry.

listnum "WP List 3" \l 12633             You look at what you know, in terms of what makes it easy to coordinate, what makes it hard to coordinate, what makes deviations easily observable so they can be punished, what makes things hard to understand when the firms haven't played along and coordinated.  You look at what makes it easy for harsh punishments versus weak punishments.

listnum "WP List 3" \l 12634             So you are looking for what are the factors that make it easier to reach an agreement, an implicit agreement, if you want to call it that, and what are the factors which make it easy to detect ‑‑ detect, punish and ‑‑ detect, punish and the profitability of deviation.

listnum "WP List 3" \l 12635             So you are looking ‑‑ stronger, swifter and more certain is George Stigler's motto for the oligopolistics ‑‑ oligopolists.  What makes punishment stronger, what makes it swifter, what makes it more certain that you will be punished, because those are the ‑‑ the stronger, swifter and more certain the punishment, the more likely it is that you are able to sustain some sort of cooperative outcome.

listnum "WP List 3" \l 12636             So you look for what are the factors that make it easy to reach an agreement, what are the factors that make it possible to enforce an agreement, and you do it in terms of industry characteristics and nature of that industry.  Because that kind of evidence is determinative, in terms of whether it's likely or not that a change in the price that is common and across firms is in fact due to coordinated behaviour and not due to some common cost shock.

listnum "WP List 3" \l 12637             So we have this basic observation problem that in all industries the prices are going to move together.  It doesn't tell you anything about whether they are moving together because it is coordinated conduct.

listnum "WP List 3" \l 12638             MR. TACIT:  I think my question was a lot simpler than that.  I think all it was, does it suggest the possibility of coordinated effects?  In other words, if you were faced with that would you want to look into it further and see if there is a possibility of coordinated effect, if that is happening in the industry?

listnum "WP List 3" \l 12639             MR. HUGHES:  We would need to know a lot more before we would be able to analyze this.  This is out of context.  We would be looking for all, on a factual basis and having information on a this complaint, the basic information behind it and ultimately to be assessing from the Competition Bureau's point of view the very factors that Dr. Church alluded to.

listnum "WP List 3" \l 12640             Because we do have to assess, again a very real issue, whether these commonality of prices or these observed price effects are merely the product of a competitive industry, of competitive markets, rather than something coordinated effects.  We agreed very early on that as a matter of theory it is always possible that there could be coordination.  And if that is where you are trying to go, we agree with that.  But this information itself adds nothing one way or the other to that comment.

listnum "WP List 3" \l 12641             MR. TACIT: Okay, well let us look at what Rogers itself had said about the matter.  There is a document that I have provided called "Consequences of Uncompetitiveness," it is a three‑paragraph article.  Could I please have that circulated?

listnum "WP List 3" \l 12642             THE SECRETARY:  Are you filing this as an exhibit, Mr. Tacit?

listnum "WP List 3" \l 12643             MR. TACIT:  I will be.

listnum "WP List 3" \l 12644             THE SECRETARY:  Okay, that will be Exhibit No. 1 for Cybersurf.

                      EXHIBIT CYBERSURF‑1:  Competition Bureau's report entitled Merger Enforcement Guidelines September 2004

listnum "WP List 3" \l 12645             MR. ABUGOV:  Mr. Chairman, excuse me for one moment.

listnum "WP List 3" \l 12646             This document was handed to us this morning just before the hearing started.  Our witnesses haven't seen it yet, it is not on the record.  The Commission's organization and conduct letter required that documents other than interrogatory responses, and this document is not an interrogatory response, should be provided to the Commission and to the parties in advance.  I think the intent of that clearly was that parties would have a chance to review it before the cross‑examination began and not during it.  And I think the Commission also wanted to expedite process here as well.

listnum "WP List 3" \l 12647             Now, this is a short document, so we are not going to object to it going on the record.  But our witnesses haven't seen it yet and they are going to need sometime to review this document, albeit a short one.  Thank you.

listnum "WP List 3" \l 12648             THE CHAIRPERSON:  What do you have to say to that?

listnum "WP List 3" \l 12649             MR. TACIT:  Well, Mr. Chairman, the cross‑examination process is dynamic and I have clearly modified my questioning so as not to duplicate what others have done, but to pick‑up on certain topics.  I completed my preparation at midnight last night and this morning when Mr. Abugov and I came to the room was my first opportunity to provide him this document and one other similar short one, which I may use.

listnum "WP List 3" \l 12650             I don't think there is much to these documents if the witnesses need a couple of minutes to look them over.  The other one can be passed out at the same time.  I have no objection to that, I don't have a problem with that.

listnum "WP List 3" \l 12651             THE CHAIRPERSON:  I do have an objection to it.  I mean, you have known the Bureau's position now for sometime and it is their expert witness.  We are not talking about effects changing rapidly, we are asking them to apply their expertise and share it with us and give us an intellectual framework.

listnum "WP List 3" \l 12652             This whole process only works if everybody plays by the rules.  I don't see why you should be allowed an exception here because it happens to be a short document.  But I mean, otherwise all sorts of new documents come and there has to be an end point.  So I am afraid you are going to have to ask them on documents that you have already notified, not some that you are just introducing now.

listnum "WP List 3" \l 12653             MR. TACIT:  Thank you, Mr. Chairman.

listnum "WP List 3" \l 12654             There was a reference in Cybersurf‑CRTC‑601.  Do you have that?

listnum "WP List 3" \l 12655             MR. HUGHES:  I don't.  Unless, is it in this stapled ‑‑

listnum "WP List 3" \l 12656             MR. TACIT:  There was a package of responses, CRTC ‑‑

listnum "WP List 3" \l 12657             MR. HUGHES:  Is it the second one stapled?

listnum "WP List 3" \l 12658             MR. TACIT:  Oh yes, sorry, it is in that package, it is page 8, the little circle at the bottom.

listnum "WP List 3" \l 12659             MR. HUGHES:  Page 8?

listnum "WP List 3" \l 12660             MR. TACIT:  Yes, of that package.

listnum "WP List 3" \l 12661             MR. HUGHES:  Page 8 doesn't have a title on it.  Are you talking about page 6?

listnum "WP List 3" \l 12662             MR. TACIT:  In the package, the one with the circled numbers at the bottom right‑hand corner.

listnum "WP List 3" \l 12663             MR. HUGHES:  Yes, I see that.

listnum "WP List 3" \l 12664             MR. TACIT:  Page 8, little circle ‑‑

listnum "WP List 3" \l 12665             MR. HUGHES:  Yes.

listnum "WP List 3" \l 12666             MR. TACIT:  ‑‑ is page 3 of 3 of Cybersurf‑CRTC‑601.

listnum "WP List 3" \l 12667             MR. HUGHES:  Yes, we have got that, thank you.

listnum "WP List 3" \l 12668             MR. TACIT:  In the middle of that there is an excerpt from the TPRP Report which concluded that the smaller number of mobile providers in Canada and the fact that all three are also owned by large telecom service providers that provide wireline services may mean that there is less competition in the Canadian market than in the U.S. market, which consequently has resulted in higher prices, less innovation, lower uptake and lower rates of usage.

listnum "WP List 3" \l 12669             Do you have any knowledge of whether this is in fact the case?  Do you agree with this, disagree with it, one way or the other?

listnum "WP List 3" \l 12670             MR. HUGHES:  I'll take a moment please.

listnum "WP List 3" \l 12671             MR. HARITON:  I wasn't involved in that part of the TPRP, Mr. Tacit, and I do remember there were discussions about that while that report was being written.  I wasn't part of them, but I do know that there is a fairly strong debate in Canada right now as to the competitiveness of wireless with some people saying it is and some people saying it isn't.  I haven't studied the subject recently.

listnum "WP List 3" \l 12672             MR. TACIT:  If in fact this were to turn out to be ‑‑ I am sorry.

listnum "WP List 3" \l 12673             DR. CHURCH:  If I might add something.  I mean, there is two issues here that you have to be careful about.  One, is that in these industries there are very large fixed costs that are sunk upfront and so, therefore, you have to be careful about how you define market power and what the meaning of that market power is.

listnum "WP List 3" \l 12674             If you are talking about a difference between price and short‑run marginal cost, well then it is going to be the case that they all have to be exercising market power or they will all be bankrupt.  And so therefore, you have to move to a broader view of what you mean by costs in terms of looking at long‑run average costs and the firms have to be able to raise prices above the long‑run average costs.

listnum "WP List 3" \l 12675             Because these markets are characterized by these large economies of scale you have to be very careful when you make comparisons between Canada and the United States because the American market is much larger and so, therefore, they are going to have larger economies of scale.  Therefore, you might expect that just on the basis of that from a theoretical perspective that their prices should be lower.

listnum "WP List 3" \l 12676             I would also point out that, and I can't find it right now, but I think there is a paragraph about this point in the Osborne Report where he cites some evidence which is contrary to what the TPRP says here.  So, you know, I guess the question is is someone out there doing the full analysis of what competitive conditions are in the wireless markets or not?  This isn't really the forum in which to do that.

listnum "WP List 3" \l 12677             THE CHAIRPERSON:  May I remind you, we are not talking about wireless.

listnum "WP List 3" \l 12678             MR. TACIT:  I understand.

listnum "WP List 3" \l 12679             THE CHAIRPERSON:  I understand you want to have general views of principle and you have got them, but let us move back to where we are, which is wireline.

listnum "WP List 3" \l 12680             MR. TACIT:  Yes.  So you would agree that in most geographic markets in Canada there are two fixed lines facilities‑based carriers providing local exchange, internet and so on.  We have already established that, correct?

listnum "WP List 3" \l 12681             MR. HUGHES:  In many markets and in residential primarily.

listnum "WP List 3" \l 12682             MR. TACIT:  Yes.  So I would like to now look at that interrogatory that was referred to before, The Bureau Companies No. 9. I think you have referred to it a number of times already.

listnum "WP List 3" \l 12683             DR. CHURCH:  Yes, we have it.

listnum "WP List 3" \l 12684             MR. TACIT:  Okay.  Now, I am looking at what is called page 4 of 5 at the top of that document which is, I guess, the second page of the actual response.

listnum "WP List 3" \l 12685             MR. CHURCH:  Yes.

listnum "WP List 3" \l 12686             MR. TACIT:  There the Bureau says:

                      "The residential exchange service offered by the cable companies is in the same product market as the local exchange service offered by the ILEC."  (As read)

listnum "WP List 3" \l 12687             I gather you still agree with that?

listnum "WP List 3" \l 12688             MR. CHURCH:  I think actually if you read this response carefully, we said that under the local forbearance proceedings we said if these five things were true, then that was likely to be a situation where you could justify forbearance.

listnum "WP List 3" \l 12689             We put some tests in in terms of our local forbearance, some factual evidence that we would like to see.  In the paragraph at the bottom it suggests what the evidence looks like it has been.  I mean, the local forbearance discussion was in 2005.  We have now had two years to see what has gone on.  So then there is some discussion there about one of the things that the Bureau focused on in terms of making sure we were in the same product market was looking at small churn rate for digital telephony.  That seems to have been the case, that it is very suggestive that they are in the same product market.

listnum "WP List 3" \l 12690             MR. TACIT:  Would you agree with me that the high speed services of ILECs and cable companies are also in the same product market?

listnum "WP List 3" \l 12691             MR. CHURCH:  I think as an initial proposition that sounds correct, but not necessarily.  We would like to make sure that we had done the analysis to make sure they are in the same product market.

listnum "WP List 3" \l 12692             But prima facie, going in it would be our hypothesis, I suspect, that they are in the same market, but we have to do the analysis.

listnum "WP List 3" \l 12693             MR. TACIT:  Fair enough.

listnum "WP List 3" \l 12694             I suspect that your answer would be, in the case of geographic markets, that the local exchange services and internet services are provided in the same markets.  Is that correct?

listnum "WP List 3" \l 12695             MR. HUGHES:  Could you clarify that, please?

listnum "WP List 3" \l 12696             MR. TACIT:  I'm asking you if both ILECs and cable companies are providing local exchange services that are in the same geographic market and high speed services that are in the same geographic market.

listnum "WP List 3" \l 12697             MR. CHURCH:  That is not the way the competition analysis would work in the sense that we start at a particular geographic location and then we build from that geographic location, we build the nature of the geographic market.  So, we use anti‑trust market competition principles.

listnum "WP List 3" \l 12698             MR. TACIT:  I think you are trying to anticipate my line of questioning.  All I asked you was whether you think that they are in the same market or not.

listnum "WP List 3" \l 12699             MR. CHURCH:  Do you want to rephrase your question and ask it again because that is not how I interpreted what you asked us.

listnum "WP List 3" \l 12700             MR. TACIT:  Are ILECs and cable companies providing local exchange services that are in the same geographic market?

listnum "WP List 3" \l 12701             MR. CHURCH:  The same geographic market?  I mean, there are many multiple geographic markets across the country.

listnum "WP List 3" \l 12702             MR. TACIT:  And high speed services.  Your answer would be the same?

listnum "WP List 3" \l 12703             MR. CHURCH:  I said it depends on which particular location that you are looking at.

listnum "WP List 3" \l 12704             If I have high speed access provided by a cable company in Saskatoon, it is not in the same geographic market as DSL services provided in Vancouver by the ILEC.

listnum "WP List 3" \l 12705             MR. TACIT:  Would you agree that both of them tend to provide it in Saskatoon and in Vancouver and in Ottawa and in Toronto?

listnum "WP List 3" \l 12706             MR. HUGHES:  We don't know that for a fact.

listnum "WP List 3" \l 12707             We need to know what the geographic market is before we can meaningfully answer your question.

listnum "WP List 3" \l 12708             MR. TACIT:  Let me approach this slightly differently, then.

listnum "WP List 3" \l 12709             The Bureau has put out Merger Enforcement Guidelines in September of 2004 and an excerpt from those was provided to you hopefully through counsel yesterday.  Do you have that document?

listnum "WP List 3" \l 12710             MR. HUGHES:  It will take a moment.

‑‑‑ Pause

listnum "WP List 3" \l 12711             MR. HUGHES:  We have the MEGs themselves.  We don't have the particular excerpts.

listnum "WP List 3" \l 12712             MR. TACIT:  Fair enough.  I can refer to the sections.

listnum "WP List 3" \l 12713             MR. HUGHES:  Sorry, this is an excerpt.  Yes, we do have it; we do have one copy, thanks.

listnum "WP List 3" \l 12714             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12715             THE CHAIRPERSON:  Mr. Hughes, what document are you referring to?

listnum "WP List 3" \l 12716             MR. HUGHES:  Excuse me?

listnum "WP List 3" \l 12717             THE CHAIRPERSON:  Which document are you referring to right now?

listnum "WP List 3" \l 12718             MR. HUGHES:  I was handed a document that has got the words "Cybersurf EX" written on top of it.  It's the MEGs; it's the title page of the MEGs.

listnum "WP List 3" \l 12719             THE CHAIRPERSON:  Does it say MTS followed by exhibits?  Is that the one?

listnum "WP List 3" \l 12720             MR. HUGHES:  No, it says "Cybersurf EX."

listnum "WP List 3" \l 12721             THE SECRETARY:  EX stands for exhibit.  I believe the exhibits were not received, so ‑‑

listnum "WP List 3" \l 12722             MR. HUGHES:  So this is not an exhibit.  Is that what you are telling me?

listnum "WP List 3" \l 12723             THE SECRETARY:  What is the title of your document?

listnum "WP List 3" \l 12724             MR. HUGHES:  It is the front page of the Merger Enforcement Guidelines of 2004.

listnum "WP List 3" \l 12725             THE SECRETARY:  That is the copy that was provided to your lawyer in advance probably, but it was not received before the Commission.

listnum "WP List 3" \l 12726             THE CHAIRPERSON:  Mine says MTS, but I have the document.  Let's go.

listnum "WP List 3" \l 12727             MS PALUMBO:  Mr. Chairman, I do believe that MST made reference to this document yesterday during cross, but I don't know if it was actually entered as an exhibit yesterday.

listnum "WP List 3" \l 12728             MR. McCALLUM:  Mr. Chair, I believe the MTS Allstream Exhibit No. 3 is the merger guidelines, and if that is the document to which Mr. Tacit wishes to refer, that document is already on the record.

                      EXHIBIT MTS‑3:  Information Bulletin of Merger Remedies in Canada Competition Bureau September 22, 2006

listnum "WP List 3" \l 12729             MR. TACIT:  It doesn't matter to me which version we are using.

listnum "WP List 3" \l 12730             THE CHAIRPERSON:  I just wanted to follow you.  What is the title of the document you have?

listnum "WP List 3" \l 12731             MR. TACIT:  It is "Merger Enforcement Guidelines" September 2004.  That is the document.

listnum "WP List 3" \l 12732             THE CHAIRPERSON:  2004.  I have the merger information bulletin and merger remedies, which is clearly not the same document.

listnum "WP List 3" \l 12733             MR. TACIT:  That is not the same thing.

listnum "WP List 3" \l 12734             THE CHAIRPERSON:  Why don't we take a ten‑minute break here and then resume.

‑‑‑ Upon recessing at 10:16 a.m.

‑‑‑ Upon resuming at 10:34 a.m.

listnum "WP List 3" \l 12735             THE CHAIRPERSON:  Would you please take you seats so we can resume.

listnum "WP List 3" \l 12736             Counsel, you have some announcements to make.

listnum "WP List 3" \l 12737             THE SECRETARY:  Yes, Mr. Chairman.

listnum "WP List 3" \l 12738             The undertaking by the Commission yesterday was to provide to the Bureau and obviously to the room copies of the documents to which Commissioner Cram referred to yesterday.

listnum "WP List 3" \l 12739             We have copies which we will call, I guess, CRTC Exhibit 1, the U.S. ILEC data aggregate source FCC ARMIS database report 43‑02.

                      EXHIBIT CRTC‑1:  U.S. ILEC data aggregate source FCC ARMIS database report 43‑02.

listnum "WP List 3" \l 12740             MR. TACIT:  Secondly, we have excerpt    s from Ofcom's document called "The Communications Market, 2007."  It consists of four pages called "Key Points."  Then an excerpt from Section 4 Telecommunications.  So we can call that CRTC Exhibit 2.

                      EXHIBIT CRTC‑2:  Document entitled "The Communications Market, 2007," with excerpt from Section 4 Telecommunication.

listnum "WP List 3" \l 12741             THE SECRETARY:  The third document is in the process of being collated, and it will be Exhibit 3.

listnum "WP List 3" \l 12742             It is the Government Accountability Office document, the GAO document.  It is currently linked on the record in response to Rogers Primus interrogatory 12 April 07‑8 dated May 18, 2007.  That document, the GAO document, there is a link to it already on the record.  It will become Exhibit 3 when they finish collating it.

                      EXHIBIT CRTC‑3:  Information bulletin of Mergers, Remedies in Canada Competition Bureau, September 22, 2006

listnum "WP List 3" \l 12743             THE CHAIRPERSON:  Thank you.

listnum "WP List 3" \l 12744             Now, let's get back to our hearing.  We all have the Merger Enforcement Guidelines before us.  You had some questions on them.  Let's go.

listnum "WP List 3" \l 12745             MR. TACIT:  Thank you very much.

listnum "WP List 3" \l 12746             I would like to keep this going as quickly as possible, so I would very much appreciate if you would try not to anticipate my responses.  I will try to make my questions as specific as possible.

listnum "WP List 3" \l 12747             In looking at the coordinated effect section, which is in part 5 of the Merger Enforcement Guidelines, would you agree with me that product homogeneity and cost symmetries among firms are indicators that should be considered in assessing whether there are coordinated effects?

listnum "WP List 3" \l 12748             MR. CHURCH:  Yes.

listnum "WP List 3" \l 12749             MR. TACIT:  So if the Commission finds as a fact that in certain product and geographic markets, local exchange services or broadband internet services of ILECs and cable companies are in the same product and geographic markets, then the Commission ought to turn its mind to considering this item and whether there could be any coordinated effects?

listnum "WP List 3" \l 12750             MR. CHURCH:  As we have discussed earlier, the reason that the Bureau is less concerned about coordinated effects in this case is, in fact, we have gone through the analysis here and I think that we were thinking of in particular the point I made earlier about the competition to be the pipe into the particular location and the nature of the competition is a winner take all in that pipe, that the competition will be on many dimensions:  Service, reliability, quality, applications and price, all of those kinds of things, which is going to make it difficult.  On a broad scope you can say they are in the same market, but are the services homogenous?  There is going to be some differentiation on those dimensions.

listnum "WP List 3" \l 12751             I guess what I am trying to say to you is that those considerations that are in the MEGs, those considerations that are in the industrial organization literature about going through and figuring out the check list approach in terms of thinking about whether the industry is conducive to coordination or not, that is exactly the analysis that the Bureau has done in coming to our conclusion, as we discussed earlier with Mr. Chairman, that it is a theoretical possibility.  Is it very likely?  The answer to that seems to be no.

listnum "WP List 3" \l 12752             MR. TACIT:  I think the Bureau's position is clear, but I am not asking for your position again.

listnum "WP List 3" \l 12753             I am just asking you whether, if the Commission were to find that certain local exchange services or internet services are in the same product and geographic market, that would be a factor that they should consider in looking at coordinated effects?

listnum "WP List 3" \l 12754             MR. HUGHES:  As Dr. Church was trying to clarify, that is one of many factors.

listnum "WP List 3" \l 12755             MR. TACIT:  Understood, thank you.

listnum "WP List 3" \l 12756             Would you also agree that when individual transactions are small and frequent relative to total market demand, deviations from coordinated behaviour are less profitable than when individual transactions are large and infrequent relative to total market demand?

listnum "WP List 3" \l 12757             MR. CHURCH:  Yes.

listnum "WP List 3" \l 12758             MR. TACIT:  Would you agree with me that consumer transactions with ILECs and cable carriers are typically small and infrequent relative to total market demand?

listnum "WP List 3" \l 12759             MR. CHURCH:  I don't think I would necessarily agree because I would have to do an analysis of the way in which prices and, in particular, marketing campaigns are done to decide whether or not they are ‑‑ a marketing campaign where the price is set, whether you would consider that to be small and infrequent.

listnum "WP List 3" \l 12760             MR. HUGHES:  And, in particular, in business markets.  There can be many fact situations.  It is not a steadfast rule.

listnum "WP List 3" \l 12761             MR. TACIT:  No, but I did specifically refer to residential markets.

listnum "WP List 3" \l 12762             MR. CHURCH:  The general point is that we would look and see what the nature of the transactions are, and again, the way this approach works is that there is a whole list of things that you go through and some of them are more important than others for determining any particular fact situation.  So there is going to be a balancing weigh‑off at the end of this checklist thing.

listnum "WP List 3" \l 12763             The Bureau has already given its position in terms of how we weigh these check‑offs and these things that we think are important in the context of this industry versus implicitly the things that we don't think are so important in terms of coming to an assessment about the likelihood of coordinated effects.

listnum "WP List 3" \l 12764             MR. TACIT:  And the Commission may or may not take the same view.

listnum "WP List 3" \l 12765             MR. CHURCH:  Absolutely.

listnum "WP List 3" \l 12766             MR. TACIT:  Do you agree that when information about prices, rival firms and market conditions is readily available to market participants, it is easier to monitor coordinated behaviour, making such coordination more likely?

listnum "WP List 3" \l 12767             MR. HUGHES:  Are you going to tell me which paragraph it is in the MEGS or I just assume it is in the MEGS that you just read to me?

listnum "WP List 3" \l 12768             MR. TACIT:  It is 524.

listnum "WP List 3" \l 12769             MR. HUGHES:  Yes.  So if it is coming from the MEGS, the answer is yes.

listnum "WP List 3" \l 12770             MR. TACIT:  Okay.  So basically, I take it that you basically stand by all of the provisions relating to coordinated effects in the MEGS?  Let us just cut to the chase.

listnum "WP List 3" \l 12771             MR. HUGHES:  Of course.

listnum "WP List 3" \l 12772             MR. TACIT:  Okay, fair enough.

listnum "WP List 3" \l 12773             Would you agree with the proposition that information about ILEC and cable company prices and service offerings is readily available in the marketplace?  Again, if you want to limit it to the residential side, that is fine.

listnum "WP List 3" \l 12774             MR. CHURCH:  To the extent, I guess, that that information is available on web sites, the answer would be yes.  Interesting question.  Yes.

listnum "WP List 3" \l 12775             MR. TACIT:  And would you agree that ILECs and cable carriers account for the vast proportion of total output of local exchange in broadband internet services?

listnum "WP List 3" \l 12776             MR. CHURCH:  Again, which market are we talking about?

listnum "WP List 3" \l 12777             MR. TACIT:  Take your pick.

listnum "WP List 3" \l 12778             MR. CHURCH:  You are asking the questions.  Which ‑‑

listnum "WP List 3" \l 12779             MR. TACIT:  Let us take Ottawa‑Gatineau, your hometown.

listnum "WP List 3" \l 12780             MR. CHURCH:  So geographic or residential ‑‑ sorry, geographic or product market definition?

listnum "WP List 3" \l 12781             MR. TACIT:  It is a total output question.

listnum "WP List 3" \l 12782             MR. CHURCH:  To understand what output it is, it has to be related to a market.  For an anti‑trust analysis, I need to know in what anti‑trust market, what product dimension and what geographic market dimension you are asserting this total output is in.

listnum "WP List 3" \l 12783             MR. TACIT:  Well, in your hometown, Dr. Church, do you think that ILECs and cable carriers account for the vast proportion of total output of local exchange in broadband internet services?

listnum "WP List 3" \l 12784             MR. CHURCH:  I suspect that is the case.

listnum "WP List 3" \l 12785             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12786             Do you consider ‑‑ does the Bureau consider entry by non facilities‑based carriers to be particularly significant in the marketplace?

listnum "WP List 3" \l 12787             MR. HUGHES:  In our view, it is likely less significant than facilities‑based.

listnum "WP List 3" \l 12788             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12789             If the Commission were to find that there are coordinated effects, hypothetically speaking ‑‑ I know that is not the Bureau's position ‑‑ what would the Bureau's prescription be to deal with that?

listnum "WP List 3" \l 12790             MR. HUGHES:  We will take a moment, please.

‑‑‑ Pause

listnum "WP List 3" \l 12791             MR. HUGHES:  I would like to clarify that.  You are asking who is the person doing something in your hypothetical?

listnum "WP List 3" \l 12792             MR. TACIT:  If there were, let's say, tacit or implicit coordinated effects between an ILEC and a cable company in a specific product and geographic market, what would the Bureau's prescription be on the retail or wholesale side to deal with that situation?

listnum "WP List 3" \l 12793             MR. HUGHES:  And who are you suggesting is going to be doing something?  What are you ‑‑

listnum "WP List 3" \l 12794             MR. TACIT:  The Commission.  I am sorry, that is fair.

listnum "WP List 3" \l 12795             MR. HUGHES:  That is what I am asking.  Thank you.

listnum "WP List 3" \l 12796             MR. TACIT:  Yes.

listnum "WP List 3" \l 12797             MR. CHURCH:  If they find this as a matter of fact, that there is this coordinated exercise of market power, then the Commission has to turn to its instruments that are available to it and decide whether the cost of those instruments warrant the benefit that it would get from controlling that market power.

listnum "WP List 3" \l 12798             The Commission has two options.  They can move back to retail rate regulation or they can do something in the wholesale market.

listnum "WP List 3" \l 12799             As the Bureau ‑‑ as we discussed yesterday, the options to do things in the wholesale market, that depends on your essential facilities regime.  As the Bureau said yesterday, we would suggest that you adopt the right definition of an essential facility.

listnum "WP List 3" \l 12800             Our third bullet says if you mandated access to a particular facility and that resulted in a substantial increase in competition, which if you had the firms engaging in the kind of conduct that you are talking about, assuming that they are engaging in that, then it is likely that to the extent that mandating access would disrupt that coordination, it would result in a substantial increase in competition, that makes it more likely that facility would be found to be essential under our test.

listnum "WP List 3" \l 12801             However, we did say yesterday that if that is not the case, right, if the other two bullets or the first bullet in particular is not met, then you should be ‑‑ it is a very poor instrument choice to deal with market power downstream to either mandate access to facilities which are not essential or to have low prices to facilities which are not essential or to lower the price of facilities which are essential to try and combat market power problems in a downstream market.

listnum "WP List 3" \l 12802             So as I said yesterday, bending your wholesale market regime out of shape to try and control retail market power, whether it be unilateral effect or coordinated effect, is probably a very poor policy choice.

listnum "WP List 3" \l 12803             MR. TACIT:  Thank you.  Your evidence on that point is clear.

listnum "WP List 3" \l 12804             Now, I take it the Bureau's position is that if the owner of an essential facility is not dominant downstream, then the facility cannot be essential; is that correct?

listnum "WP List 3" \l 12805             MR. CHURCH:  Yes.

listnum "WP List 3" \l 12806             MR. TACIT:  Now, doesn't that presuppose that all the possible uses to which the essential facility might be put are know in advance?

listnum "WP List 3" \l 12807             MR. CHURCH:  I think that in any particular case when you are going to say that some facility is essential, you have to be arguing essential for what, and so that would predispose that the definition of essential facility is, in fact, tied to some downstream market, downstream product market, and so whoever is making the allegation that this facility is essential has to tie it to some downstream market.

listnum "WP List 3" \l 12808             MR. TACIT:  Well, I guess what I am getting at is one of the benefits of looking at essential facilities from the perspective of dominance in the wholesale market alone and the ability to leverage that into retail markets, I suggest to you that one of the benefits is that it allows for the possibility for those essential facilities to be used in new and innovative ways that might not otherwise develop at all.

listnum "WP List 3" \l 12809             MR. CHURCH:  Can we take a moment, please?

‑‑‑ Pause

listnum "WP List 3" \l 12810             MR. CHURCH:  Could you restate the question a little bit with a little bit more precision?

listnum "WP List 3" \l 12811             MR. TACIT:  Well, I think you know that one of the differences between the definition of essential services provided by the Bureau and definitions provided by other parties is that the Bureau has the double dominance aspect to its test, the first branch of its test, and others do not.

listnum "WP List 3" \l 12812             Others look at it and say:  If the ILEC or cable company, whoever, is dominant in the upstream market and those facilities are needed in the downstream market, there is an assumption made that the dominant firm will attempt to leverage its power in the upstream market into the downstream market.

listnum "WP List 3" \l 12813             What I am suggesting to you is that one of the benefits of that definition, as opposed to the double dominance definition, is that it does leave open the possibility of more innovation by competitors because you are not saying if this wholesale service can't be used for that specific service downstream which already exists and is provided by an ILEC, then it doesn't have to be provided.

listnum "WP List 3" \l 12814             If you are not putting that constraint on, then you leave open the possibility of greater innovation by competitors who could find innovative uses for that essential facility that ILECs or cable companies might just never think of doing or it may not be economical for them to do but it could be for the competitors.

listnum "WP List 3" \l 12815             What do you have to say about that?

listnum "WP List 3" \l 12816             MR. CHURCH:  We talked earlier about the economics of the double dominance and why when you are assessing market power upstream you have to assess market power downstream.  So it's not something that is redundant, it is something that is necessary.

listnum "WP List 3" \l 12817             The second part of your question I think is interesting, but I think you have to be very careful how you think about that and how you phrase that, because if you don't have this dominance, his downstream dominance that you are talking about, it likely implies that you have some sort of ‑‑ and as you are talking about here, have existing facilities which may be possible to be used in some new application ‑‑ for some reason the ILECs haven't figured out what this new application might be, some entrant has come along with this great idea.  Though, as we talked about yesterday, most of the great ideas, or many of the great ideas come from equipment manufacturers and so you might wonder why it is the entrant that has the idea and not the ILEC.

listnum "WP List 3" \l 12818             Anyhow, leaving that aside, if there is not dominance downstream based on something being used for these facilities, then it likely means that you actually have completing facilities.

listnum "WP List 3" \l 12819             So if you are in a situation where you have competing facilities, then we would expect that normal competition and arrangements between the suppliers of the competing facilities and whoever has this next great idea that that should be a commercial transaction, that there should be ‑‑ a wholesale market starts to develop and there should be access that can be negotiated on commercial terms.

listnum "WP List 3" \l 12820             MR. TACIT:  What if it doesn't, because the technology is disruptive to the ILEC or CLEC and there is therefore no interest on the part of the ILEC or CLEC to offer that capability to the competitor.

listnum "WP List 3" \l 12821             MR. CHURCH:  Again, these are hypothetical possibilities, but you should be asking yourselves ‑‑ and this goes back to the discussion of coordinated effects ‑‑ that if we have the competition happening between the cable company and the ILEC on their networks, right, if I am competing to get the broadband pipes into a location once the cable company ‑‑ once the ILECs pipe, I want to have all of the kinds of applications and variety and kinds of things that you can do.

listnum "WP List 3" \l 12822             So competition is what looks after the interests of consumers, and when competition is possible then these kinds of things that you are talking about I would say have a very low probability of these things not being able to get to the market because competition works.

‑‑‑ Pause

listnum "WP List 3" \l 12823             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12824             I would like to move to just a brief examination of a portion of an article that is on the record and has been discussed already.  I did provide excerpts of this to your counsel yesterday.  It's the "Failure of Competitive Entry Into Fixed‑Line Telecommunications:  Who Is At Fault?" by Crandall and Waverman.

listnum "WP List 3" \l 12825             Thank you, Madam Secretary.

‑‑‑ Pause

listnum "WP List 3" \l 12826             MR. HUGHES:  We have it.

listnum "WP List 3" \l 12827             MR. TACIT:  Do you have it?

listnum "WP List 3" \l 12828             MR. CHURCH:  Yes, we have it.

listnum "WP List 3" \l 12829             MR. TACIT:  All right.  Thank you.

listnum "WP List 3" \l 12830             Could I please direct your attention to the last paragraph:

                      "The jury is still out on the long‑term viability and social welfare consequences of unbundling for broadband purposes.  While there has been little broadband entry through use of the incumbents' loops in the United States and Canada, recent experience in Europe and Japan is more promising.  The potential is certainly brighter than for narrowband as new, innovative services are being offered and new, innovative services bundles (including TV over DSL) are emerging.  In Europe, the major entrants in a number of markets are the ISP arms of foreign incumbents that are using the domestic incumbents' local facilities to deliver broadband connectivity. This cross‑border invasion of incumbent telcos may well lead to innovative services and viable long‑term competition as long as they do not create disincentives for network investment by the home market incumbents."

listnum "WP List 3" \l 12831             Does this not suggest to you that even if ‑‑ let's assume that the Competition Bureau was right, which I am not conceding, but let's assume that it's right and there was excessive unbundling of facilities used in the provision of narrowband retail services in the past, the case for mandating access to broadband platforms is different because of the ability of those platforms to support new and emerging services and service bundles.

listnum "WP List 3" \l 12832             MR. CHURCH:  Again I'm going to come back to the third bullet of our test, right, which says that mandated access results in a significant increase in competition, which is saying that those competitors are able to do good things in the marketplace downstream to the benefit of consumer.  Then assuming the other two bullets are met the facility should be unbundled.

listnum "WP List 3" \l 12833             I think it is interesting in the context of this article to recognize that the first part of, which you didn't distribute to us, explains why the narrowband unbundling in the United States and Canada and elsewhere was not a success and it is written as a forecast of what might happen in terms of broadband unbundling in Europe.

listnum "WP List 3" \l 12834             The evidence is very sketchy at the time it was written, but I think Professor Crandall is going to be here later this week and so you could ask him that.

listnum "WP List 3" \l 12835             They do make the point that regulatory access to ISP services, in Britain in particular, was likely hindered by ‑‑ or ILEC rolling out of ADSL in Britain was likely hindered by regulatory access to ISP services.

listnum "WP List 3" \l 12836             The other point which I think is very important is that ‑‑ this is in the context of Europe, where in certain countries in Europe the cable companies have very low penetration rates and one of the successes that they point to is in France where the innovative service is ‑‑ because there is no cable television available in lots of the country ‑‑ the person who had access to the unbundled loops is providing television services.  So that is the new innovative service that they are able to do.

listnum "WP List 3" \l 12837             So again it comes from this point that if you don't have competing facilities then there may well be a case where you want to mandate access, and the Bureau doesn't disagree with that.  But what the Bureau does suggest is that you have to look and see if you have competing facilities and what the impact of unbundled access is on the potential for getting competing facilities.

listnum "WP List 3" \l 12838             MR. TACIT:  Again, the Bureau's position is clear on that.  All I'm getting at is:  Should the Commission be concerned about the possibility that the economics associated with unbundling wholesale broadband platforms could be different than in the case of the narrowband, the past unbundling that's taken place?

listnum "WP List 3" \l 12839             Could there be additional welfare gains that would justify such unbundling?

listnum "WP List 3" \l 12840             MR. CHURCH:  Our answer is that if it meets the third bullet of our test the answer to that would be yes.

listnum "WP List 3" \l 12841             MR. TACIT:  All right.

listnum "WP List 3" \l 12842             MR. CHURCH:  I'm just suggesting that in this article the actual specific things that they point to as being evidence of those additional services are TV services in areas in which there is not cable television.

listnum "WP List 3" \l 12843             MR. TACIT:  Well, it is a little more general than that.

listnum "WP List 3" \l 12844             If I could direct you to page 140 of the article, the very last paragraph there part way in reads:

                      "In narrowband markets such competition merely replaces an incumbent's services with identical services from an entrant.  The welfare gains and thus the overall prospects for revenue growth and sustainable entry are likely to be limited.  Broadband, however, is a relatively new service with a rapidly increasing number of residential subscribers in Europe.  Since broadband offers consumers the prospect of genuinely new and distinctive services, marketed and bundled for them in genuinely new and distinctive ways, the consumer welfare gains from services‑based broadband competition might be significant, thus sustaining entry."

listnum "WP List 3" \l 12845             MR. CHURCH:  Yes.  All I want to point out is the Bureau agrees if we have evidence that this kind of stuff can happen and if it results in substantial increase in competition, mandated unbundling would be fine.

listnum "WP List 3" \l 12846             But in that sentence you read the key words are "the prospect of genuinely new and distinctive services ... might be significant".

listnum "WP List 3" \l 12847             When you go later in the article and see what actual new services and new bundles they are talking about, they are talking about broadband television in areas where there is no cable TV.

listnum "WP List 3" \l 12848             MR. TACIT:  There may be others as well that we haven't thought of.

listnum "WP List 3" \l 12849             MR. CHURCH:  There may be.

listnum "WP List 3" \l 12850             MR. TACIT:  My final line of questioning is going to be very brief.  For this purpose I would ask you to look at the Bureau's response to Bureau/Cybersurf No. 2.

listnum "WP List 3" \l 12851             I did circulate yesterday a set of the Bureau's responses to the Cybersurf interrogatories.  It's a five‑page document.

‑‑‑ Pause

listnum "WP List 3" \l 12852             MR. HUGHES:  We have it, thanks.

listnum "WP List 3" \l 12853             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12854             At page 2, in response to Cybersurf No. 2, which asks for the Commission's views on whether it was likely that, in the absence of mandating ILECs ‑‑ and cable companies would continue to provide ADSL and TPIA services ‑‑ in response to Part A, the Bureau said that it's likely true that, in the upstream market for hi‑speed Internet access, ADSL and TPIA, whether the market is unregulated by the Commission or mandated but subject to independent price negotiation, as the question postulates, it's likely that access would be provided to competitors, or at least that's the way I read the response.  Is that what the response is intended to convey?

listnum "WP List 3" \l 12855             MR. HARITON:  That's right.

listnum "WP List 3" \l 12856             MR. TACIT:  Okay.  On what empirical data do you base that conclusion, if any?

listnum "WP List 3" \l 12857             MR. HARITON:  Well, it's a question of the logic of it.  If, in fact, you have an incentive to offer a service, you will.  And here it continues to say that where the market isn't regulated, what will happen is that you have independent price negotiation, as the question postulates.

listnum "WP List 3" \l 12858             What you have is a situation where there are two competing networks, where the telephone company has a network that's capable and the cable company has a network that's capable.  They, obviously would rather serve the end customer themselves, for all sorts of reasons.  But if there's going to be a third party, I mean, it's more interesting to have that third party ride on your network than ride on your competitor's network, so you will try to do that.

listnum "WP List 3" \l 12859             I mean, I know that back in the days of long distance, when a large number of resellers had set up shop, various telephone companies set up special packages to be attractive to resellers ‑‑ not ordered, not mandated by the Commission, but from their own initiative, they decided that if these resellers were going to resell it might as well be their own services.

listnum "WP List 3" \l 12860             MR. TACIT:  But that's because resale had been mandated to begin with.  Correct?

listnum "WP List 3" \l 12861             MR. HARITON:  The resale had been mandated, but the fact that you were giving lower prices to resellers ‑‑ and I do remember these packages ‑‑ lower than had been mandated is a sign that you were competing for these resellers' business.

listnum "WP List 3" \l 12862             MR. TACIT:  I'm not quibbling about price, I'm quibbling about availability here...or not quibbling, but asking about availability, and I suggest to you, Mr. Hariton, that a scenario could develop where an ILEC and a cable company, which typically have completely independent networks except for some very, very small functionalities, would both have an interest to keep other competitors out and neither of which has much of an incentive to provide access to its broadband platform if, by not doing so, they can retain the retail customers in each case.

listnum "WP List 3" \l 12863             MR. CHURCH:  Yes.  And so, again, I mean, that's a statement about the extent of wholesale competition between the two networks.  I think the Bureau's been very clear on this, that if you want to retain those customers downstream and those two networks are competing, then, if what the third party has truly is good for consumers, we would expect that, in the competition between those two networks, it would get adopted.

listnum "WP List 3" \l 12864             MR. TACIT:  At the same time, the Bureau has also made it clear that it considers those forms of competition to be less significant, does it not?

listnum "WP List 3" \l 12865             MR. CHURCH:  Well, I know, but, see, in this case, what we postulate is a commercial arrangement whereby that product gets supplied in a cooperative venture between the person who runs the network and the person who brings the product in, then, you know, that's exactly the kind of competition that we think would be facilitated by having competing networks.  Right?  And sometimes it's not two separate companies, it's going to be, you know:  as part of my package you get access to this particular service, this particular feature or this particular characteristic.

listnum "WP List 3" \l 12866             MR. TACIT:  Thank you.

listnum "WP List 3" \l 12867             Those are my questions, Mr. Chairman.

listnum "WP List 3" \l 12868             THE CHAIRPERSON:  Thank you very much.

listnum "WP List 3" \l 12869             Fellow commissioners, any questions?

listnum "WP List 3" \l 12870             Thank you very much, then.

listnum "WP List 3" \l 12871             Madam Giroux, who's our next cross‑examiner?

listnum "WP List 3" \l 12872             THE SECRETARY:  We have one last panel left.  It's a new addition.

listnum "WP List 3" \l 12873             I'm calling on Telecommunications Xittel and la Coalition Québécoise des fournisseurs d'accès à Internet.  Please step forward.

listnum "WP List 3" \l 12874             I will ask Counsel Denton to introduce himself, present his colleague.

listnum "WP List 3" \l 12875             MR. DENTON:  Good morning, Mr. Chairman and Commissioners.

listnum "WP List 3" \l 12876             My name is Timothy Denton.  I represent the Quebec Coalition of Internet Service Providers and Xittel.

listnum "WP List 3" \l 12877             To my right is François Menard, who is my assistant here, and he is from Xittel.

EXAMINATION / INTERROGATOIRE

listnum "WP List 3" \l 12878             MR. DENTON:  Good morning, panel.

listnum "WP List 3" \l 12879             My questions will be blessedly brief, and we will start with the first one.

listnum "WP List 3" \l 12880             As we know, we have been concerned about the incentives to invest when incumbents are required or mandated to share facilities, so the question I have is:  has the Competition Bureau considered the possibility of temporary monopolies to provide the necessary incentives for network investment and innovation?

listnum "WP List 3" \l 12881             MR. HUGHES:  We will take a moment, please.

listnum "WP List 3" \l 12882             MR. CHURCH:  Excuse me, sir, could you please perhaps explain to me what you mean by a "temporary monopoly"?

listnum "WP List 3" \l 12883             MR. DENTON:  A condition under which they would be able to offer the services without having to share facilities for some period and recover whatever they needed to recover in order to be profitable, and then subsequently be required to share certain essential facilities.

listnum "WP List 3" \l 12884             MR. HARITON:  Mr. Denton, I think the scenario you are painting may lead to more investment, but it would not lead to competition in facilities, and one of the things that we are looking for is the benefits of the competitive pressures.

listnum "WP List 3" \l 12885             So that while your scenario ‑‑ I would draw an analogy to a patent, I guess, and a patent is appropriate in certain cases where you give a temporary monopoly and off you go.

listnum "WP List 3" \l 12886             I think, though, that in this industry we are seeing that you are getting innovation and you are getting benefits from facilities builds without necessarily giving the equivalent of a patent over those.  So that it's open entry, everybody can build their networks, facilities, and that, in itself, I think, is a very positive benefit.

listnum "WP List 3" \l 12887             MR. CHURCH:  Excuse me, if can follow up.

listnum "WP List 3" \l 12888             And if, you know, the proposal is to say that what you are talking about is adapting a patent system some how, some way to telecom investment, I think it's important to understand that the reason we have patent laws is because, when I make that innovation, that investment that comes out ‑‑ you know, information is a public good, in the sense that everyone can use it, everyone can share in it.  And so to ensure that we get that investment in R and D and innovation, we grant, you know, specific exclusive rights to use that idea and that information in a market context.

listnum "WP List 3" \l 12889             We do that because we think that people will immediately copy it otherwise, and therefore no one would have an incentive on that, to make that investment in research and development.  It's not clear to me that same kind of market failure involving the "public good" aspect of information, in the context of the patent system, is present here in the context of investments in telecommunications facilities.

listnum "WP List 3" \l 12890             MR. DENTON:  Thank you.  Just a moment.

listnum "WP List 3" \l 12891             So then I take it that if you have not been able to determine from the analysis you provide whether ILECs and cable companies, if they were granted temporary monopolies for new substantial investments, whether it would or would not provide the necessary incentives to invest in facilities.

listnum "WP List 3" \l 12892             I take it that question has not been considered by you in the context of this proceeding?

listnum "WP List 3" \l 12893             MR. HARITON:  Not in the context of temporary monopolies, Mr. Denton, we haven't considered that question.

listnum "WP List 3" \l 12894             MR. DENTON:  Thank you.

listnum "WP List 3" \l 12895             DR. CHURCH:  However, in the context of, you know, the whole scheme of things, clearly the incentives for investment are something that we think is very important and, you know, that is the way we designed the Bureau's three bullets.

listnum "WP List 3" \l 12896             MR. DENTON:  We share that concern, we have different conclusions on the facts.  Thank you.

listnum "WP List 3" \l 12897             Thank you, Mr. Chairman.

listnum "WP List 3" \l 12898             THE CHAIRPERSON:  Thank you very much.

listnum "WP List 3" \l 12899             One last question for you, Dr. Church, before we change panels.  This morning you said you had asymmetric information that is why, you know, it is very hard for you to judge this whole sort of stepping stone approach on which the mandated service was based.  Just theoretically, if you had asymmetric information, if you had all the information you said, on the information available, you couldn't conclude whether that has been successful.

listnum "WP List 3" \l 12900             By the same token, I presume if you had all the information available is it at least theoretically possible that you could say that the stepping stone approach works?

listnum "WP List 3" \l 12901             DR. CHURCH:  I think, just to be clear, when I typically use the term asymmetric information, and I could be wrong, I typically ‑‑

listnum "WP List 3" \l 12902             THE CHAIRPERSON:  Well, I may have misunderstood you.

listnum "WP List 3" \l 12903             DR. CHURCH:  ‑‑ I mean, I typically meant that in the context of the Commission versus the firms that you regulate,  that the firms have more information than you do is typically what I meant by asymmetric information.

listnum "WP List 3" \l 12904             On the other hand, I have said that, you know, in our discussion yesterday with Commissioner Cram, is that we have some evidence, I can't remember the exact paragraph, but it related to the ‑‑ sorry.  There are two paragraphs in our evidence where we talk about the stepping stone tests that have been done, but suggest that it has not happened.  One, I think is the Hausman and Sidack and then the other one would be this Crandall and Waverman Study.

listnum "WP List 3" \l 12905             But, you know, in a specific Canadian context, to see what I suggested was that is that, you know, if we had that information, if we could track through, you know, unbundled loop now been replaced by our own facilities‑based thing, that would give us much more confidence that in fact the stepping stone was being used.  But we don't have that information.  Maybe the Commission does or certainly the parties do.

listnum "WP List 3" \l 12906             THE CHAIRPERSON:  Well, maybe we will hire you to do it on the basis of our evidence.

listnum "WP List 3" \l 12907             Thank you very much.

listnum "WP List 3" \l 12908             So we will take a five‑minute break while the next panel sets itself up.  Thank you very much for your testimony.

listnum "WP List 3" \l 12909             THE SECRETARY:  Mr. Chairman, if you allow me, I would like to summarize all the exhibits that were received before the Bureau panel to straighten up the records.

listnum "WP List 3" \l 12910             THE CHAIRPERSON:  By all means, go ahead.

listnum "WP List 3" \l 12911             THE SECRETARY:  Thank you very much.

listnum "WP List 3" \l 12912             Oral undertakings that were expressed during the cross‑examination:

listnum "WP List 3" \l 12913             CRTC No. 1, comment on U.S. data related to total plant addition and total telephone plant addition aggregated for all reporting ILECs for the period 1996 to 2006.

listnum "WP List 3" \l 12914             CRTC No. 2 undertaking, rewrite of the Bureau's proposed test for whether a service or facility is essential from a retrospective perspective rather than a prospective perspective.

listnum "WP List 3" \l 12915             DR. CHURCH:  Excuse me, am I allowed to comment on your interpretation of the undertaking?

listnum "WP List 3" \l 12916             THE CHAIRPERSON:  (off microphone)

listnum "WP List 3" \l 12917             DR. CHURCH:  Mr. Chairman, as I understood what we talked about was that we would take our third bullet this morning and explain to you how it could be applied retrospective and prospective.

listnum "WP List 3" \l 12918             THE CHAIRPERSON:  Actually, what I thought you were going to do is take the text, which is now written prospectively, and give me a version that is written retrospectively.

listnum "WP List 3" \l 12919             DR. CHURCH:  Okay.

listnum "WP List 3" \l 12920             THE SECRETARY:  MTS undertaking No. 1, require that you provide a summary of the publicly available litigation timelines of the Canada Pipe case.

listnum "WP List 3" \l 12921             The exhibits that were received before the Commission yesterday and this morning:

listnum "WP List 3" \l 12922             MTS No. 1, order varying Telecom decision CRTC‑2006‑15.

listnum "WP List 3" \l 12923             MTS No. 2, excerpt from Telecom Decision 2006‑15 2‑April‑2006, forbearance from the regulation of retail local exchange services.

listnum "WP List 3" \l 12924             MTS No. 3, information bulletin of Mergers, Remedies in Canada Competition Bureau, September 22, 2006.

listnum "WP List 3" \l 12925             Rogers Exhibit No. 1, Report on the ICN Working Group Telecommunications Service

listnum "WP List 3" \l 12926             Exhibit The Bureau No. 1, document from LECG entitled Access Regulations and Infrastructure Investment in the Telecommunications Sector.

                      EXHIBIT BUREAU‑1:  Document from LECG Entitled:  Access Regulation and Infrastructure Investment in the Telecommunications Sector:  An Empirical Investigation

listnum "WP List 3" \l 12927             CRTC Exhibit No. 1, which is a cross to undertaking CRTC No. 1, U.S. ILEC data aggregated source FCC ARMIS Report 43‑02.

listnum "WP List 3" \l 12928             CRTC Exhibit No. 2, the Communication Market 2000, excerpt of the Ofcom Report, August

listnum "WP List 3" \l 12929             CRTC Exhibit No. 3, United States General Accountability Office, Report to the Chairman, Committee on Government Reform, House of Representatives, November 2006 GAO‑07‑80.

listnum "WP List 3" \l 12930             Cybersurf Exhibit No. 1, Competition Bureau's Report entitled Merger Enforcement Guidelines, September 2004.

listnum "WP List 3" \l 12931             That is all, Mr. Chairman.

listnum "WP List 3" \l 12932             THE CHAIRPERSON:  Okay, we will take our five‑minute break now.

‑‑‑ Upon recessing at 1120 / Suspension 1120

‑‑‑ Upon resuming at 1125 / Reprise à 1125

listnum "WP List 3" \l 12933             THE CHAIRPERSON:  Will you please take your seats?

listnum "WP List 3" \l 12934             Madam Giroux‑Girard.

listnum "WP List 3" \l 12935             THE SECRETARY:  Thank you very much.

listnum "WP List 3" \l 12936             I am calling on Mr. Jonathan Daniels, counsel for the companies to introduce his witnesses.

listnum "WP List 3" \l 12937             MR. DANIELS:  Good morning, Mr. Chairman.

listnum "WP List 3" \l 12938             My name is Jonathan Daniels, and along with my co‑counsel, who I believe you have already heard from, Randall Hofley, we are counsel for the companies.

listnum "WP List 3" \l 12939             It is my pleasure to introduce the panel representing Bell Aliant, Bell Canada, SaskTel and Télébec to you this morning.

listnum "WP List 3" \l 12940             Sitting in the front row closest to the panel is Mr. Sal Iacono, Senior Vice‑President in the Enterprise Group of Bell Canada.

listnum "WP List 3" \l 12941             Sitting next to Mr. Iacono is Dr. William Taylor, Senior Vice‑President of NERA and head of its communications practice and its Boston office.

listnum "WP List 3" \l 12942             Sitting next to Dr. Taylor is Mr. Paul Anderson, Senior Director of Sales and Service for Bell Canada's Wholesale Group.

listnum "WP List 3" \l 12943             Sitting next to Mr. Anderson is Mr. Denis Henry, Vice‑President, Regulatory Affairs for Bell Aliant.

listnum "WP List 3" \l 12944             Beside Mr. Henry is Mr. Mirko Bibic, Chief Regulatory Affairs for Bell Canada.

listnum "WP List 3" \l 12945             Next to Mr. Bibic is Mr. Serge Babin, Vice‑President in the Network Operations Group of Bell Canada.

listnum "WP List 3" \l 12946             Immediately behind Mr. Henry is Mr. Peter Waters, our partner in the law firm of Gilbert and Tobin in Sydney, Australia.

listnum "WP List 3" \l 12947             Immediately behind Mr. Anderson is Ms Margaret Sanderson, Vice‑President and head of CRA's Toronto office, as well as CRA's global competition practice.

listnum "WP List 3" \l 12948             Assisting the panel today is Denise Potvin, Fritz Schmidt and Sue Dawes.  In addition, there may be additional people assisting the panel throughout the examination, if it warrants.

listnum "WP List 3" \l 12949             The CVs of our witnesses are on the record, and for brevity sake, I won't go through them all.  However, if I could just take a minute to situate the panel for you and the roles of these individuals.

listnum "WP List 3" \l 12950             Mr. Bibic is responsible for the overall design of the company's proposal and can be viewed as the Chairman of the panel.

listnum "WP List 3" \l 12951             Mr. Henry is equally qualified to speak to the proposal and will also speak to any issues directly related to Bell Aliant.

listnum "WP List 3" \l 12952             Mr. Iacono is here to speak to retail issues.

listnum "WP List 3" \l 12953             Mr. Babin is here to address any technical issues.

listnum "WP List 3" \l 12954             Mr. Anderson is here to speak to the wholesale business unit of Bell Canada.

listnum "WP List 3" \l 12955             Our experts are here to speak to their contents of their specific reports.

listnum "WP List 3" \l 12956             In our letter of September 5th, 2007, we asked parties to indicate whether they had any specific questions for Télébec and SaskTel.  None have so identified.  However, if the Commission has any specific questions for SaskTel or Télébec, we would propose to call a representative from one of those companies to stand in in that event.

listnum "WP List 3" \l 12957             Perhaps at this point I could ask that the witnesses be affirmed, Madam Secretary.

AFFIRMED:  SALVATORE IACONO

AFFIRMED:  WILLIAM TAYLOR

AFFIRMED:  PAUL ANDERSON

AFFIRMED:  DENIS HENRY

AFFIRMED:  MIRKO BIBIC

AFFIRMED:  SERGE BABIN

AFFIRMED:  MARGARET SANDERSON

AFFIRMED:  PETER WATERS

listnum "WP List 3" \l 12958             THE SECRETARY:  Thank you very much.

listnum "WP List 3" \l 12959             Counsel Daniels, do you wish to examine your witnesses?

EXAMINATION / INTERROGATOIRE

listnum "WP List 3" \l 12960             MR. DANIELS:  Can I ask all the panel members to confirm that your qualifications are correctly set out in our letter of October 4th, 2007?

listnum "WP List 3" \l 12961             MR. IACONO:  Yes, they are.

listnum "WP List 3" \l 12962             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 12963             MR. ANDERSON:  Yes.

listnum "WP List 3" \l 12964             MR. HENRY:  Yes.

listnum "WP List 3" \l 12965             MR. BIBIC:  Yes.

listnum "WP List 3" \l 12966             MR. BABIN:  Yes.

listnum "WP List 3" \l 12967             MS SANDERSON:  Yes.

listnum "WP List 3" \l 12968             MR. WATERS:  Yes.

listnum "WP List 3" \l 12969             MR. DANIELS:  Mr. Bibic and Mr. Henry, were the company's evidence and interrogatory responses prepared by you or under your directions with the assistance of the panel members?

listnum "WP List 3" \l 12970             MR. BIBIC:  They were.

listnum "WP List 3" \l 12971             MR. HENRY:  Yes.

listnum "WP List 3" \l 12972             MR. DANIELS:  Are they true to the best of your knowledge and belief?

listnum "WP List 3" \l 12973             MR. BIBIC:  Yes.

listnum "WP List 3" \l 12974             MR. HENRY:  Yes.

listnum "WP List 3" \l 12975             MR. DANIELS:  Mr. Waters, did you prepare a report comparing international wholesale regulations attached in appendix 4 to the evidence entitled "International Comparison of Wholesale Regulation in Canada?"

listnum "WP List 3" \l 12976             MR. WATERS:  Yes, I did.

listnum "WP List 3" \l 12977             MR. DANIELS:  I understand you have a correction you wish to mention?

listnum "WP List 3" \l 12978             MR. WATERS:  Yes, there is a direction in relation to how the tables record forbearance which has occurred in Canada and the United States in relation to leased lines, and transposing that into the EU market framework.

listnum "WP List 3" \l 12979             In Canada, DNA forbearance was incorrectly identified as forbearance in market 12, which is, to use some American expressions, a UNE market, whereas it should have been recorded in market 7, which is a resale market.

listnum "WP List 3" \l 12980             In the United States, the tables correctly identify that there has been forbearance in UNE, but it should have indicated that that was only partial, as it is a process of deregulation and there are still some Y centres that yet to have regulation removed.

listnum "WP List 3" \l 12981             The effect is that the numbers for Canada and the United States go up, but the primary measure in the report is the quartile ranking and there is no change in the quartile ranking, and it has no impact on the CRA report because it looks only at broadband services and not at traditional interface services.

listnum "WP List 3" \l 12982             So, I apologize for that error.

listnum "WP List 3" \l 12983             MR. DANIELS:  Subject to that correction, is the report true to the best of your knowledge and belief?

listnum "WP List 3" \l 12984             MR. WATERS:  Yes, it is.

listnum "WP List 3" \l 12985             MR. DANIELS:  Ms Sanderson, with reference to the report found in appendix 3 of the company's March 15th evidence, "An International Comparison of End‑to‑End Facilities‑Base Competition In Telecommunication" and the update you filed on October 5th, 2007, did you prepare it or was it prepared under your direction?

listnum "WP List 3" \l 12986             MS SANDERSON:  Yes, they both were.

listnum "WP List 3" \l 12987             MR. DANIELS:  Is this report, including the update, true to the best of your knowledge and belief?

listnum "WP List 3" \l 12988             MS SANDERSON:  Yes, they are.

listnum "WP List 3" \l 12989             MR. DANIELS:  Dr. Taylor, with reference to the declaration found in appendices 2 and 5 of the March 15th evidence, as well as appendix 1 to the supplemental July 15th evidence, were they drafted by you or prepared under your direction?

listnum "WP List 3" \l 12990             MR. TAYLOR:  Yes, they were.

listnum "WP List 3" \l 12991             MR. DANIELS:  Are they true to the best of your knowledge and belief?

listnum "WP List 3" \l 12992             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 12993             MR. DANIELS:  Mr. Chairman, before I turn the panel over for cross‑examination, there is one point I wish to offer you and your colleagues.

listnum "WP List 3" \l 12994             Yesterday Commissioner Cram raised a question with the Bureau's panel regarding the Government Accountability Office report from the U.S. which, as I understand, was already on the record of this proceeding, but I now understand is also CRTC Exhibit 3.

listnum "WP List 3" \l 12995             Commissioner Cram also raised questions regarding the 2007 Ofcom report, which now had been put on the record this morning as CRTC Exhibit 2.

listnum "WP List 3" \l 12996             On our panel today we have Dr. Taylor and Mr. Waters.  Dr. Taylor is an expert on the U.S. regulatory regime, and Mr. Waters is an expert on the U.K. regulatory regime and are intimately familiar with the GAO report and the Ofcom report respectively, and would be pleased to address the questions raised by Commissioner Cram or any other Commissioners regarding these reports.

listnum "WP List 3" \l 12997             I wanted to alert the Commission panel to that offer and I leave it to you to decide when there is an appropriate time for such a discussion.

listnum "WP List 3" \l 12998             Having said that, Mr. Chairman, the witnesses are now available for cross‑examination.

listnum "WP List 3" \l 12999             THE SECRETARY:  Thank you.

listnum "WP List 3" \l 13000             For our Webcast listeners, please note the Competition Bureau withdrew its intent to cross‑examine the companies.

listnum "WP List 3" \l 13001             I am now calling counsel Engelhart to proceed on behalf of Rogers Communications.  Thank you.

EXAMINATION / INTERROGATOIRE

listnum "WP List 3" \l 13002             MR. ENGELHART:  Thank you very much, and with me today is Suzanne Blackwell.

listnum "WP List 3" \l 13003             Good morning, Mr. Bibic, Mr. Henry, members of your panel.

listnum "WP List 3" \l 13004             MR. BIBIC:  Good morning.

listnum "WP List 3" \l 13005             MR. ENGELHART:  I would like to start by comparing with you the regulatory regime for essential facilities in the United States with the proposal that Rogers has made in this proceeding.

listnum "WP List 3" \l 13006             Would you agree with me that under both the Rogers' proposal and the FCC rules, the current FCC rules, the incumbent phone companies are required to provide unbundled loops in both the residential and business markets?

listnum "WP List 3" \l 13007             MR. BIBIC:  Based on my understanding of the U.S. regime, Mr. Engelhart, I think that is quite a simplification of the U.S. regime.

listnum "WP List 3" \l 13008             I don't believe there is any UNE regulation for traditional loops in the United States where certain cable co's compete.  So I believe for example that in Omaha, Nebraska and in Anchorage, Alaska, there is no regulation at the UNE level, and I don't believe there is regulation of fibre to the home loops for broadband or for voice.  There are other elements of the U.S. regime where there hasn't been forbearance.

listnum "WP List 3" \l 13009             MR. ENGELHART:  Let's have a look then, if we can, at TheCompanies‑Rogers12April07‑30.

listnum "WP List 3" \l 13010             MR. BIBIC:  I have it.

listnum "WP List 3" \l 13011             MR. ENGELHART:  You've got it.  I have a few spares.

listnum "WP List 3" \l 13012             MR. HOFLEY:  Mr. Chairman, could we perhaps, as counsel to Bell, get a copy of that exhibit?

listnum "WP List 3" \l 13013             THE CHAIRPERSON:  Can you speak into your mic, please?  I can't hear you.

listnum "WP List 3" \l 13014             MR. HOFLEY:  I'm sorry, Mr. Chairman.

listnum "WP List 3" \l 13015             As counsel to Bell, perhaps we could get a copy of that exhibit.  I had understood that that was going to be distributed to us.

listnum "WP List 3" \l 13016             THE SECRETARY:  We will.

listnum "WP List 3" \l 13017             MR. ENGELHART:  If you have a look at page 2 of 4, 3 of 4 and 4 of 4, that is your interrogatory response.  Does that lay out fairly completely the United States regime?

listnum "WP List 3" \l 13018             MR. BIBIC:  Yes.

listnum "WP List 3" \l 13019             MR. ENGELHART:  If we look at page 2 of 4, the first item we see is the DS‑0 loop.  Is that what we would generally consider to be an unbundled loop?

listnum "WP List 3" \l 13020             MR. BIBIC:  That is correct.  It is mentioned there just exactly as I said before.  There has been some forbearance at the UNE element level for those loops.

listnum "WP List 3" \l 13021             MR. TAYLOR:  Could we say, Mr. Engelhart, an unbundled voice grade loop.

listnum "WP List 3" \l 13022             MR. ENGELHART:  Yes.  Thank you, Dr. Taylor.

listnum "WP List 3" \l 13023             I just want to question you about something you said, Mr. Bibic.  UNE.  Why do you keep referring to UNE in this context?

listnum "WP List 3" \l 13024             MR. BIBIC:  My ‑‑ well, perhaps I will leave it to Mr. Taylor.

listnum "WP List 3" \l 13025             MR. TAYLOR:  The requirement in question, the unbundling requirement, is part of the U.S. Telecom Act of 1996, which requires the provision under certain circumstances of unbundled network elements.  That is what UNE stands for.

listnum "WP List 3" \l 13026             Under that regime, there has been forbearance in Omaha and Anchorage and there is a number of petitions before the FCC currently for forbearance in other geographic areas.

listnum "WP List 3" \l 13027             MR. ENGELHART:  So, with the exception of Omaha and Anchorage, unbundled loops have to be provided in business and residential markets everywhere in the United States.  Is that right?

listnum "WP List 3" \l 13028             MR. TAYLOR:  As we speak, unbundled DS‑0 loops have to be provided everywhere in the U.S. except for those MSAs.

listnum "WP List 3" \l 13029             MR. ENGELHART:  Let's just, while we are at it, to be sort of complete, focus for a moment on those two markets where there has been forbearance.

listnum "WP List 3" \l 13030             If I could ask you to have a look at TELUS‑Rogers‑19July07‑109 (revised), in this response, Dr. Weisman, on behalf of TELUS, talks about the Omaha and Anchorage situation.  If you take a look at part (a) of his response, Dr. Weisman says:

                      "To the best of my knowledge, the FCC has only approved two forbearance petitions, one for Omaha, Nebraska and one for Anchorage, Alaska.  There may well be other forbearance petitions pending at this time that is FCC has not yet acted on.  Moreover in both orders, the FCC indicates that these orders should not be treated as a precedent for cases that may arise, arguing in essence that it would be necessary to examine each instance on a case‑by‑case basis."  (As read)

listnum "WP List 3" \l 13031             Then if you look at paragraph (b), if you look over on page 204 revised, in about the middle of the paragraph, it is revealed that the forbearance in question is in nine of Qwest's 24 wire centres in the Omaha MSA.

listnum "WP List 3" \l 13032             In the middle paragraph on page 204 revised, it says:

                      "The FCC did not relieve Qwest of its obligations to continue to provide unbundled loops under the competitive checklist provisions contained in section 271 of the Act.  Section 271 imposes specific obligations on the RBOC, satisfaction of which is required for their re‑entry into the InterLATA long distance market.  Hence, Qwest must continue to provide unbundled loops but it may do so under a just and reasonable pricing standard rather than under the TELRIC pricing standard."

(As read)

listnum "WP List 3" \l 13033             And then over on page 3 of 4, in the first indented paragraph, it states that in Anchorage the forbearance was in five of the 11 wire centres and it says under that paragraph:

                      "In similar fashion to the Omaha order, the FCC did not relieve the incumbent provider, ACS, of its obligation to provide unbundled loops in Anchorage, Alaska, but it did allow for a less restrictive market‑based pricing standard."

(As read)

listnum "WP List 3" \l 13034             Do you believe that Dr. Wiseman's response correctly sets out the state of affairs in Anchorage and Omaha?

listnum "WP List 3" \l 13035             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13036             MR. ENGELHART:  Would you agree with me that under both the Rogers proposal and under the FCC Rules ILECs must provide competitors with DS‑1 and DS‑3 access loops in transport lines unless the wire centres are of a certain size and there are a certain number of fibre‑based co‑locators?

listnum "WP List 3" \l 13037             MR. BIBIC:  Well, Mr. Englehart, we would agree that there is a streamlined test put in place for DS‑1 and DS‑3 access and transport in the U.S. and in that respect there are some similarities between the test that Rogers has proposed and what the FCC has set out.

listnum "WP List 3" \l 13038             But the Rogers test does not go on to propose some of the other elements of the FCC's forbearance test for DS‑1 and DS‑3 access and transport such as a 12‑month transition regime, such as limitations on what can be done with those services during the transition period.

listnum "WP List 3" \l 13039             For example, the transition only applies to the embedded customer base and the CLECs cannot increase their capacity during the transition period.  Rogers, I don't believe, proposes the U.S. rule of permissible price increases during the transition period and there are also restrictions on use and capacity limits.

listnum "WP List 3" \l 13040             MR. ENGELHART:  Okay.  So let us have another look then at TheCompanies‑Rogers‑12April07‑30, and again, we will look at page 2 of 4.

listnum "WP List 3" \l 13041             So we had a look at the first box which was called Mass Market DSO Loop.

listnum "WP List 3" \l 13042             Now, we are going to have a look down at the box "Enterprise Market DS‑1 Loop."  And it says in the first sentence:

                      "Requesting carriers are impaired without access to DS‑1 capacity loops at any location within the service area of an incumbent LEC wire center containing fewer than 60,000 business lines or fewer than 4 fibre‑based co‑locators."

(As read)

listnum "WP List 3" \l 13043             So when the FCC says it is impaired, that requesting carriers are impaired without it, that means that the ILEC has to provide it on a mandated basis; isn't that correct?

listnum "WP List 3" \l 13044             MR. BIBIC:  That is correct, subject to the restrictions and limitation periods that I mentioned and when there is a ‑‑ these are streamlined tests for forbearance, as I understand it, and then when these tests are met, the ILEC can be forborne, subject again to the transition period and the operable limitations on use.

listnum "WP List 3" \l 13045             MR. ENGELHART:  So I think the qualifications you are trying to put on your response, Mr. Bibic, deal with transition periods and forbearance applications.  Are those the two limitations?

listnum "WP List 3" \l 13046             MR. BIBIC:  Correct.  So to be clear, the DS‑1 and DS‑3 access and DS‑1 and DS‑3 transport is regulated in the United States, as I understand it, until such time as these streamlined tests are met that you have been discussing, and when those tests are met, there is a transition period and limitations on use, et cetera, that apply during that transition period.

listnum "WP List 3" \l 13047             I was just pointing out that those portions or elements of the forbearance test do not seem to have been adopted by Rogers in its evidence.

listnum "WP List 3" \l 13048             MR. ENGELHART:  Okay.  But up to the point when the thresholds are met and the forbearance is granted, that is what I am interested in.  I am happy to have you explain what happens after that but up to that point, would you agree with me that both Rogers and the FCC, Rogers' proposal and the current FCC Rules, say that DS‑0s have to be provided an access and transport, DS‑1s and DS‑3s have to be provided on a mandated basis?

listnum "WP List 3" \l 13049             MR. BIBIC:  Yes.

listnum "WP List 3" \l 13050             MR. ENGELHART:  Okay.  And would you agree with me that the thresholds, the point at which the FCC says you don't have to provide them anymore and the point at which the Rogers proposal says you don't have to provide them anymore, are very similar?

listnum "WP List 3" \l 13051             MR. BIBIC:  Yes.

listnum "WP List 3" \l 13052             MR. ENGELHART:  And would you agree with me that other than those DS‑0s, DS‑1s, DS‑3s and dark fibre transport lines for certain wire centres, neither the FCC Rules nor the Rogers proposal contain any other significant essential facility requirements?

listnum "WP List 3" \l 13053             MR. BIBIC:  I am not sure I understood the question there.  You threw in DS‑0s and I thought we were talking about DS‑1s and DS‑3s, and I confess I am not sure what the rules are for DS‑0s in the United States.

listnum "WP List 3" \l 13054             MR. ENGELHART:  I think we covered that first, didn't we, that the DS‑0s were available everywhere in the United States other than those two markets that you mentioned.

listnum "WP List 3" \l 13055             DS‑0s are used sort of synonymously with the mass market loop, the voice great line.  It all means the same thing.

listnum "WP List 3" \l 13056             MR. BIBIC:  You are correct, that is right.

listnum "WP List 3" \l 13057             MR. ENGELHART:  Okay.  So would you agree with me that the Rogers proposal and the current rules in the United States are almost identical or very similar?

listnum "WP List 3" \l 13058             MR. TAYLOR:  Well, Mr. Englehart, help me with the pricing rules in the Rogers proposal.

listnum "WP List 3" \l 13059             MR. ENGELHART:  Certainly.  Let us deal first, Dr. Taylor, with the pricing rules in the FCC currently.

listnum "WP List 3" \l 13060             Would you agree with me that all those facilities that we have been talking about have to be provided under what the FCC calls TELRIC pricing?

listnum "WP List 3" \l 13061             MR. TAYLOR:  Today, with the exception of DS‑0s and a few MSAs, that is correct.

listnum "WP List 3" \l 13062             MR. ENGELHART:  With the exception of the Anchorage and Omaha, it is TELRIC pricing?

listnum "WP List 3" \l 13063             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13064             MR. ENGELHART:  And TELRIC pricing, would you agree with me, is a forward‑looking economic costing methodology that looks at total elemental long‑run incremental cost?

listnum "WP List 3" \l 13065             MR. TAYLOR:  It is forward‑looking, it is total element, and in principle, that is the theory of TELRIC pricing.

listnum "WP List 3" \l 13066             MR. ENGELHART:  Well, just so there is no confusion, take a look, Dr. Taylor, at footnote 2, please, of your evidence, Appendix 5.

listnum "WP List 3" \l 13067             MR. TAYLOR:  Appendix 5.

‑‑‑ Pause

listnum "WP List 3" \l 13068             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13069             MR. ENGELHART:  You say there:

                      "TELRIC is total element long‑run incremental costs and is the forward‑looking economic costing methodology adopted by the FCC in the pricing of unbundled network elements." (As read)

listnum "WP List 3" \l 13070             So you would agree with that?

listnum "WP List 3" \l 13071             MR. TAYLOR:  I agree with that, certainly.

listnum "WP List 3" \l 13072             MR. ENGELHART:  And Mr. Bibic or Mr. Taylor, any of you, would you agree with me that the Rogers proposal is that the facilities that we are talking about should be priced based on the CRTC's Phase II costing methodology?

listnum "WP List 3" \l 13073             MR. BIBIC:  If you say that, I believe that is the case and I'm sure you are not misstating your own test.

listnum "WP List 3" \l 13074             MR. ENGELHART:  Mr. Bibic, or any other member of the panel, would you agree with me that the CRTC's Phase II costing methodology is also a forward‑looking economic costing methodology which looks at total element long‑run incremental cost?

listnum "WP List 3" \l 13075             MR. TAYLOR:  It's been a while since I have looked at Phase 2, but my understanding is that it's likely to be quite different from U.S. TLRIC.  U.S. TLRIC is based on hypothetical forward‑looking costs of an optimally efficient network, that is rebuild the network in the most efficient way for the totality of demand for the element and calculate the changing or the incremental cost for that increment.

listnum "WP List 3" \l 13076             If that is different from Phase 2, then they are different.  If it isn't, then they are not.

listnum "WP List 3" \l 13077             MR. ENGELHART:  Would you agree with me that they are both forward‑looking ‑‑

listnum "WP List 3" \l 13078             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13079             MR. ENGELHART:  ‑‑ they are both long‑run incremental, but that TLRIC uses hypothetical costs and Phase 2 uses actual costs?

listnum "WP List 3" \l 13080             MR. TAYLOR:  That is certainly a difference that I was alert to.

listnum "WP List 3" \l 13081             MR. ENGELHART:  Are you familiar with ‑‑ I have not handed this out because I really didn't know we would be going down this path ‑‑ but are you familiar with Dr. Aron's evidence on behalf of TELUS, where she argues that hypothetical costs are inferior to the use of actual costs as a costing methodology?

listnum "WP List 3" \l 13082             MR. TAYLOR:  Yes, I have read her evidence and I agree with her conclusion.

listnum "WP List 3" \l 13083             MR. ENGELHART:  So the CRTC Phase 2 methodology, while different from the TLRIC methodology is, from a public policy perspective, preferable to that methodology.

listnum "WP List 3" \l 13084             Would you agree?

listnum "WP List 3" \l 13085             MR. TAYLOR:  Well, that method is a better method.  Whether the results are a better result is to be seen after it's cooked.

listnum "WP List 3" \l 13086             MR. ENGELHART:  Well, we generally hope that if our method is better our result is better, don't we?

listnum "WP List 3" \l 13087             MR. TAYLOR:  I will take hope, yes.

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 13088             MR. ENGELHART:  All right, then.

listnum "WP List 3" \l 13089             So given that the Rogers proposal is based on Phase 2, the FCC's rules are based on TLRIC, that the two are quite similar except one uses hypothetical costs and one uses actual costs and that the actual cost method is a better method.

listnum "WP List 3" \l 13090             Would you agree with me that the Rogers proposal and the FCC rules are very similar or almost identical?

listnum "WP List 3" \l 13091             MR. BIBIC:  Which aspect of the rule are you asking about now?  The rule before we get to forbearance I suppose?

listnum "WP List 3" \l 13092             MR. ENGELHART:  Yes.

listnum "WP List 3" \l 13093             MR. BIBIC:  Yes.  I believe you have asked that and we have said they are similar.

listnum "WP List 3" \l 13094             MR. ENGELHART:  Would you give me "very similar"?

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 13095             MR. BIBIC:  I can't remember the modifications you made to your numbers off the top of my head.  I think you rounded up or down.  Probably rounded up, Mr. Engelhart, but I can't remember.

listnum "WP List 3" \l 13096             MR. ENGELHART:  Let me give you a bit of assistance on that.

listnum "WP List 3" \l 13097             MR. BIBIC:  Does much turn on it?  We have already acknowledged that they are similar.

listnum "WP List 3" \l 13098             MR. ENGELHART:  Well, we are here now.

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 13099             MR. ENGELHART:  Take a look, if you could, to Rogers/The Companies 19 July 74.

‑‑‑ Pause

listnum "WP List 3" \l 13100             MR. BIBIC:  You rounded up.  I was right.

listnum "WP List 3" \l 13101             MR. ENGELHART:  Yes.  So high capacity DS loops providing DS‑1 capacity for business lines; the Rogers proposal is that they are mandated at fewer than 60,000 lines in the wire centre.

listnum "WP List 3" \l 13102             For the DS‑3 Rogers proposal is they are mandated at fewer than 40,000; the FCC's rule is fewer than 38,000.

listnum "WP List 3" \l 13103             For transport facilities providing DS‑1 capacity, Rogers proposal is fewer than 40,000; the FCC fewer than 38,000.

listnum "WP List 3" \l 13104             For DS‑3 transport, 25 and 24; for dark fibre transport 25 and 24.

listnum "WP List 3" \l 13105             I think you would say those are "very similar", wouldn't you?

listnum "WP List 3" \l 13106             MR. BIBIC:  Sure.

‑‑‑ Pause

listnum "WP List 3" \l 13107             MR. ENGELHART:  Would you agree with me that the FCC's current rules amount to a virtual elimination of wholesale price controls?

listnum "WP List 3" \l 13108             MR. BIBIC:  For these services specifically?

listnum "WP List 3" \l 13109             MR. ENGELHART:  Well, take a look at Dr. Taylor's March 15, 2007 evidence ‑‑ that is Appendix 5 ‑‑ at page 52, and in particular to paragraph 117.

‑‑‑ Pause

listnum "WP List 3" \l 13110             MR. ENGELHART:  Dr. Taylor says:

                      "The U.S. is characterized by intense retail telecom communications competition, permitting the regulator to largely eliminate wholesale price controls."  (As read)

listnum "WP List 3" \l 13111             Then at paragraph 118, the last sentence reads as follows:

                      "The FCC's virtual elimination of wholesale price control is supported by these competitive developments ... by increasing ILEC and CLEC incentives to make the investment required to meet consumer demand."  (As read)

listnum "WP List 3" \l 13112             Then paragraph 119:

                      "Today, in the 21st Century, a completely new competitive dynamic has developed, offering the consumer compelling advance services in an environment of intense retail price competition.  In that marketplace the FCC has largely eliminated wholesale price controls on the grounds that they are ineffective, unnecessary and generally undermine the welfare of consumers."  (As read)

listnum "WP List 3" \l 13113             So would you agree with me that the rules that the FCC currently has in place amount to a virtual elimination of wholesale price controls?

listnum "WP List 3" \l 13114             MR. TAYLOR:  Well, of course I would agree with you and the logic of that statement is as follows, that the competition, as we say in paragraph 117‑119, is competition mostly from cable companies, but it is competition in broadband markets, and broadband markets where ILECs, Verizon and AT&T, are overbuilding their networks to provide services to compete with people like Rogers.

listnum "WP List 3" \l 13115             In those markets, which we haven't discussed, there is no unbundling requirement on ILECs, there is no price control requirement on ILECs.

listnum "WP List 3" \l 13116             The control that remains and is in the process ‑‑ there is a process in place for removing it for DS‑0s, for DS‑1s and DS‑3s, there is a process in place by which when circumstances warrant the remaining price controls ‑‑ not TLRIC cost‑based price controls but market price controls ‑‑ go away.

listnum "WP List 3" \l 13117             MR. BIBIC:  Mr. Engelhart, just from our perspective, The Companies perspective specifically, of course the point we are trying to make is that there is a narrow breadth of regulation in the U.S. when it comes to these wholesale services and for that which remains regulated there is of course a path to forbearance and you focused on one streamlined test which provides a path to forbearance and in Canada we have broader forms of wholesale regulation and no path to forbearance for any of them.

listnum "WP List 3" \l 13118             MR. ENGELHART:  Look, it's not that complicated.  I'm confused by your response, Dr. Taylor, because you have said there was no loop unbundling, but I thought we had already established that there was DS‑0 loop unbundling everywhere except in nine wire centres in Omaha and five wire centres in Anchorage.

listnum "WP List 3" \l 13119             Hadn't we established that?

listnum "WP List 3" \l 13120             MR. TAYLOR:  We have.  If you mistook what I said about the requirements to unbundle next generation access that is being built, which is what I'm talking about, I don't mean by that to say that DS‑0s in the copper network do not have to be unbundled.  They do.  There are small exceptions today, and petitions for more exceptions before the FCC, which will be settled in December for the first set of those.

listnum "WP List 3" \l 13121             MR. ENGELHART:  And what you were saying in your evidence, Dr. Taylor, and this is the conclusion for appendix, but you describe how the U.S. used to have UNE‑P requirements that are now gone, that the next generation access rules have eliminated or reduced mandated facility requirements, and you are saying after the elimination of those rules, with the remaining rules that we have talked about here, in your opinion that has amounted to a virtual elimination of wholesale price controls.  Is that correct?

listnum "WP List 3" \l 13122             MR. TAYLOR:  Yes.  Take DS‑1 and DS‑3, under section 251 of the act, as long as they are in place, they have to be priced at TELRIC, at, for argument's sake, Phase II costs plus a mark‑up.

listnum "WP List 3" \l 13123             The requirement that remains after they are forborne is just and reasonable, which is interpreted in the U.S. currently as market‑based rates, so...

listnum "WP List 3" \l 13124             MR. ENGELHART:  And that forbearance process, forbearance requirement, forbearance rules in the U.S. is, as we discussed in the first exhibit, that if there's so many lines and so many fibre‑based collocators, you get forborne.  Is that right?

listnum "WP List 3" \l 13125             MR. TAYLOR:  Well, yes, that's the rules as they sit today.

listnum "WP List 3" \l 13126             MR. ENGELHART:  And you are saying that with those rules, compared to the way it was before, in your opinion, as an expert, the FCC has virtually eliminated wholesale price controls?

listnum "WP List 3" \l 13127             MR. TAYLOR:  That's a summary of the entire content of what we have said, but, yes, that's correct.  You are looking at the exceptions, I'm looking at the rule.

listnum "WP List 3" \l 13128             MR. ENGELHART:  How am I looking at the exceptions?

listnum "WP List 3" \l 13129             MR. TAYLOR:  You are looking at continued regulation of DS‑1s ‑‑

listnum "WP List 3" \l 13130             MR. ENGELHART:  Okay.

listnum "WP List 3" \l 13131             MR. TAYLOR:  ‑‑ and DS‑3s and DS‑0s.

listnum "WP List 3" \l 13132             MR. ENGELHART:  Okay.

listnum "WP List 3" \l 13133             Mr. Bibic, is it Bell Canada's view that in the United States there has been a virtual elimination of wholesale price controls and that that statement is true, notwithstanding the existing rules that remain?

listnum "WP List 3" \l 13134             MR. BIBIC:  I adopt Dr. Taylor's evidence for the reasons I have given and also for the reasons he has just given.

listnum "WP List 3" \l 13135             MR. ENGELHART:  So would you agree with me that if the Rogers proposal in this proceeding was adopted that would amount to a virtual elimination of wholesale price controls?

listnum "WP List 3" \l 13136             MR. BIBIC:  No.

listnum "WP List 3" \l 13137             MR. ENGELHART:  But we have established that they are very similar to the American rules.

listnum "WP List 3" \l 13138             MR. BIBIC:  Because you are focusing now on, first of all, DS‑1s and DS‑3s and DS‑0s.  You have proposed a test for forbearance, I believe, of DS‑1s and DS‑3s at the access and transport level, and that is in Rogers‑TheCompanies‑4.  That doesn't speak to what would happen to all the other wholesale services that are in scope in this proceeding.  So that's the first point.

listnum "WP List 3" \l 13139             The second point is if we are going to focus on just the DS‑1s and DS‑3s at the access and transport level, I try to keep in mind that the tests that the FCC has adopted, and you are proposing be adopted in Canada, where based on a different market structure.  Whereas I understand it ‑‑ and I believe there is a long response in the evidence from of TELUS' experts, it's likely Dr. Weisman, who explains the historical and structural use of collocation in the United States, which is far more prevalent, as I understand it, than in Canada.

listnum "WP List 3" \l 13140             The test there is based on market structure and supply/demand conditions in the U.S.  If one were to transpose that rules, as you have proposed, to Canada, there would be, at least I can speak for Bell and Bell Aliant territory in Ontario and Quebec, very, very limited forbearance of DS‑1 and DS‑3 access in transport, despite the fact that there is plenty of evidence on the record that alternative providers, including, principally, the cablecos and your own company, are building these things.

listnum "WP List 3" \l 13141             MR. ENGELHART:  So if I can summarize your three reasons for not accepting that the Rogers' proposal amounts to a virtual elimination of wholesale price controls, you said your first reason was other facilities in scope in this proceeding, your second was the comparability of Canada and the United States, and your third was the increased prevalence of collocation in the U.S.  Have I got those three right?

listnum "WP List 3" \l 13142             MR. BIBIC:  No, I think you ‑‑ my third point is if we were to apply it, in fact, to Canada, we would actually get very little relaxation of regulation for DS‑1 and DS‑3 in Canada.

listnum "WP List 3" \l 13143             MR. ENGELHART:  Because of the collocation or lack thereof ‑‑

listnum "WP List 3" \l 13144             MR. BIBIC:  Well, because of your tests requiring ‑‑ based on the number of business lines and the number of collocation.

listnum "WP List 3" \l 13145             MR. ENGELHART:  Which is the same as the U.S. test?

listnum "WP List 3" \l 13146             MR. BIBIC:  Well, it's the same as the U.S. test, but different market structure.  So if we just try to find ‑‑ I'm just saying look around Bell and Bell Aliant, Ontario and Quebec wire centres and the number of wire centres that have four or more collocators, and in these line densities, very few lines would be forborne in Canada.  So that's my third point.

listnum "WP List 3" \l 13147             MR. ENGELHART:  I didn't get the first one, though, other facilities in scope.  What did that mean?

listnum "WP List 3" \l 13148             MR. BIBIC:  Well, I just meant when you start ‑‑ in your very first question I pointed out that there are a whole bunch of other wholesale services which are regulated in Canada today which are not regulated in the U.S.  That was my point.

listnum "WP List 3" \l 13149             MR. ENGELHART:  But Rogers is saying those can go.

listnum "WP List 3" \l 13150             MR. BIBIC:  Well, I'm not sure they are saying ‑‑ well...let me refresh my memory.

listnum "WP List 3" \l 13151             Rogers also would like ILEC message relay service to be regulated, but not yours ‑‑ the message relay service for the hearing impaired ‑‑ Rogers would like incumbents to provide, on a mandated basis, wholesale DSL provision from remotes ‑‑ of course, not your third‑party Internet access ‑‑ and Rogers would like high‑capacity Ethernet outside bands A and B to be regulated.

listnum "WP List 3" \l 13152             As far as the rest, if you say that those shouldn't be regulated at wholesale, that's, I mean, up to you to say.  I believe that's your position, but I'm not sure.

listnum "WP List 3" \l 13153             MR. ENGELHART:  So the DSL in remotes, would you agree with me that in the U.S., where there's fibre to the remote, the CLECs are allowed to get the copper from the remote to the customers' premises on an unbundled basis?

listnum "WP List 3" \l 13154             MR. TAYLOR:  I believe that's the case, yes.

listnum "WP List 3" \l 13155             MR. ENGELHART:  And that, I understand, Mr. Bibic, is not something that the Canadian phone companies are required to do or prepared to do for DSL providers in Canada?

listnum "WP List 3" \l 13156             MR. BIBIC:  I'm not sure I'm following you.

listnum "WP List 3" \l 13157             MR. ENGELHART:  Access at the remote, if there's fibre from the wire centre to the remote, can DSL providers go into the remote facility and get access to the remaining unbundled portion of the loop there?

listnum "WP List 3" \l 13158             MR. BIBIC:  I don't believe that's the case, but, of course, there are other options in the market.  A downstream market's competitive.  I can give you a detailed explanation as to why I don't think that's appropriate, but...

listnum "WP List 3" \l 13159             MR. ENGELHART:  So there a few differences between the Rogers' proposal and the FCC rules.  I never said they were identical.  Are you saying that it's the message relay service, the DSL service where there are remotes and the Ethernet in bands C and D that Rogers is asking for?  Are those the three things that you think drive the Rogers' proposal off the rails?  Are those, in your view, big differences with the U.S. that make you not accept that the Rogers' proposal amounts to a virtual elimination of wholesale price controls?

listnum "WP List 3" \l 13160             MR. BIBIC:  Well, when I answered that question, I must confess, I thought you were focusing on DS‑1 and DS‑3 access and transport only.  Now I understand you are talking about proposal generally and, I mean, I think the exceptions speak for themselves.

listnum "WP List 3" \l 13161             MR. ENGELHART:  Let's take a look at your second point about the comparability of Canada and the U.S.  I identified to your counsel that I would have occasion to refer to your reply comments in the Telecommunications Policy Review Panel process, and I believe that the Commission has that as an exhibit.

listnum "WP List 3" \l 13162             THE SECRETARY:  This will be Exhibit No. 2.

                      EXHIBIT ROGERS‑2:  Bell Canada's second round submission to the Telecommunications Policy Review Panel ‑ Regulatory Policy ‑ September 15, 2005

listnum "WP List 3" \l 13163             MR. ENGLEHART:  If you could have a look please at paragraph 111 of that document and, in particular, to the second sentence?

listnum "WP List 3" \l 13164             MR. BIBIC:  Mr. Englehart, going back to the first point where we were speaking about the extent to which other services would remain regulated, of course in your proposal DS‑0 loops, so the traditional unbundled loop, would remain regulated under your proposal and we certainly do not believe, in either residential or business markets, that those are essential.  So that is a significant difference.

listnum "WP List 3" \l 13165             MR. ENGLEHART:  But I guess my question is if having those things in the U.S., if you would still describe the United States as having a virtual elimination of wholesale price controls, and our proposal was modelled so closely after the U.S. proposal, why doesn't it amount to a virtual elimination of wholesale price controls in Canada?

listnum "WP List 3" \l 13166             MR. BIBIC:  I am not aware that you have posed the test for forbearance for DS‑0 loops.  If you have ‑‑

listnum "WP List 3" \l 13167             MR. ENGLEHART:  Oh, you are talking about Omaha and Anchorage?

listnum "WP List 3" \l 13168             MR. BIBIC:  Well, there is a path to forbearance, Mr. Englehart.

listnum "WP List 3" \l 13169             MR. ENGLEHART:  You would agree with me that Omaha and Anchorage are not the largest metropolitan areas in the United States, wouldn't you?

listnum "WP List 3" \l 13170             MR. TAYLOR:  Well, I would agree, Mr. Englehart.  But, as we speak before the Commission to be decided by law by December, we have Boston, New York, Philadelphia, Hampton Roads, we have Denver, the largest MSAs in the country.

listnum "WP List 3" \l 13171             MR. ENGLEHART:  As we have discussed, it is only five of the 11 wire centres in Anchorage and nine of the 24 in Omaha that were forborne?

listnum "WP List 3" \l 13172             MR. TAYLOR:  Yes.  Well, the standard was a cable company overbilled standard.

listnum "WP List 3" \l 13173             MR. ENGLEHART:  Well, cable companies have overbilled in a lot of places other than Omaha and Anchorage, haven't they?

listnum "WP List 3" \l 13174             MR. TAYLOR:  Yes, and the ILECs in the United States are busy moving, as rapidly as regulation will permit them, to obtain pricing flexibility and forbearance to compete against cable companies.

listnum "WP List 3" \l 13175             MR. ENGLEHART:  So let us take a look at that sentence in paragraph 111.

listnum "WP List 3" \l 13176             MR. BIBIC:  Let me just catch up to you.

listnum "WP List 3" \l 13177             MR. ENGLEHART:  Yes.  Paragraph 111 in your telecom policy review panel reply comments, second sentence.

                      "In that regard, and given the similarity of market structures between Canada and the U.S., the U.S. should be the much more relevant jurisdiction to policy makers regarding an appropriate access regime, i.e. mandatory wholesale regulation." (As Read)

listnum "WP List 3" \l 13178             Do you agree that the United States has a similar market structure to Canada and that the U.S. should be a relevant jurisdiction to policymakers regarding a mandatory wholesale regulation regime?

listnum "WP List 3" \l 13179             MR. BIBIC:  Mr. Englehart, I mean there are learnings to be had all across the world and we have constantly said that, so I am not going to back away from that.  But that doesn't mean from these statements that we say you take a test and you just blindly apply it in Canada without any regard to some of the differences.  Are the markets generally similar?  Of course they are.

listnum "WP List 3" \l 13180             Stating as a fact, that if we were to apply test you are proposing for DS‑1 and DS‑3 access and transport and applied it in Bell Canada territory, there would be very little forbearance despite a market structure in Canada which sees alternative providers capable of building these facilities.  I mean, our position is clear.

listnum "WP List 3" \l 13181             MR. ENGLEHART:  Well, let us take a look at Dr. Taylor's evidence in paragraph 4.  Again, that is Appendix 5.  In paragraph 4, Dr. Taylor states:

                      "In essence, the FCC requires wholesale price regulation only in the few instances where competition does not or cannot exist, when ILEC services indices of natural monopoly, a doctrine akin to essential services properly applied." (As Read)

listnum "WP List 3" \l 13182             Would you agree with me that the U.S. rules which we have discussed are a properly applied doctrine of essential services?

listnum "WP List 3" \l 13183             MR. TAYLOR:  I would say they are a pragmatic application of principles that can be made consistent with essential facilities as we conceive those in the U.S.

listnum "WP List 3" \l 13184             MR. ENGLEHART:  You backing off a bit from your statement in paragraph 4, Dr. Taylor?

listnum "WP List 3" \l 13185             MR. TAYLOR:  Don't mean to.  Where did I back off?

listnum "WP List 3" \l 13186             MR. ENGLEHART:  Okay, just checking.

listnum "WP List 3" \l 13187             Mr. Bibic, would you agree with me that the Rogers' proposal is a properly applied doctrine of essential services?

listnum "WP List 3" \l 13188             MR. BIBIC:  Which element of the proposal, sir?

listnum "WP List 3" \l 13189             MR. ENGLEHART:  The whole proposal taken together.

listnum "WP List 3" \l 13190             MR. BIBIC:  No, for numerous reasons.  We can start with your test and then we can go onto the application of your test, service by service.  But I can't answer that question in a vacuum without looking at your test, looking at each retail market that is in scope in this proceeding and then applying, you know, giving you my views on the state of competition in those downstream markets.

listnum "WP List 3" \l 13191             For example, you know, this issue of mandated access to wholesale DSL where the line is served from a remote.  I start first by looking at the retail market and I see a vibrantly competitive retail internet market, which the Commission found as recently as last week yet again.  And therefore, I would say there is no essential facility to remedy any problem in that retail market and we would have to go through it one by one.  And now you are asking me to kind of generally endorse your proposal.

listnum "WP List 3" \l 13192             MR. ENGLEHART:  Well, we can drill down into some of the specifics.

listnum "WP List 3" \l 13193             Mr. Chairman, I am happy to keep going, happy to take a break, whatever is convenient for the Chair.

listnum "WP List 3" \l 13194             THE CHAIRPERSON:  (off microphone)

listnum "WP List 3" \l 13195             MR. ENGLEHART:  I can keep going.

listnum "WP List 3" \l 13196             THE CHAIRPERSON:  Are you starting a different line of questioning now?

listnum "WP List 3" \l 13197             MR. ENGLEHART:  No, I think we are still in the same area.  I will keep going.

listnum "WP List 3" \l 13198             THE CHAIRPERSON:  So far, you have been hammering away at the Bell witnesses for the last hour trying to get them to say your proposal is similar to the FCC.  And they are partially agreeing, but not whole..  I don't know, are you going to continue this rather fruitless exchange or are you going to change?

‑‑‑ LAUGHTER / RIRES

listnum "WP List 3" \l 13199             MR. ENGLEHART:  We are going to drill down into some of the specifics now.

listnum "WP List 3" \l 13200             Well, let us have a look then at some of the differences between Canada and the U.S.  Would you agree with me that in both Canada and the U.S. there is vigorous competition in the local telephone and internet markets between cable companies and phone companies?

listnum "WP List 3" \l 13201             MR. BIBIC:  Yes.

listnum "WP List 3" \l 13202             MR. ENGLEHART:  Would you agree with me that in the United States the unbundled local loops that we have talked about can be used for both voice competition and for the provision of hi‑speed internet service by competitors?

listnum "WP List 3" \l 13203             MR. BIBIC:  Do you mean the DS‑0 loops?

listnum "WP List 3" \l 13204             MR. ENGLEHART:  Yes.

listnum "WP List 3" \l 13205             MR. TAYLOR:  Yes, I believe that if a SILEC buys a DS‑0 loop it may use that loop in anyway it intends.  What it cannot do is line splitting, which is using simply the upper frequencies of the loop.

listnum "WP List 3" \l 13206             MR. ENGLEHART:  Right.  And would you agree with me that in the United States cable companies are not required to provide facilities for competitors in either the local telephone or hi‑speed internet markets for either business or residential customers?

listnum "WP List 3" \l 13207             MR. TAYLOR:  That is correct.

listnum "WP List 3" \l 13208             MR. ENGLEHART:  Now, I want to just take a moment to talk about something that has been bothering me about Mr. Waters' evidence.

listnum "WP List 3" \l 13209             Mr. Waters, I wonder if I could ask you to look at The Companies' March evidence, Appendix 4 at page 25?

listnum "WP List 3" \l 13210             MR. WATERS:  Yes.

listnum "WP List 3" \l 13211             MR. ENGLEHART:  Now, in the middle of that page there is a chart, there is an issue, and the first issue is:  Is LLU regulated?  Does that stand for is local loop unbundling regulated?

listnum "WP List 3" \l 13212             MR. WATERS:  Yes.

listnum "WP List 3" \l 13213             MR. ENGELHART:  Under the U.S. there is an X, and under Canada there is a check mark.  Does that mean that local loop unbundling is regulated in Canada but not in the U.S.?

listnum "WP List 3" \l 13214             MR. WATERS:  No, you have to read the whole column together.  This is a problem with checks and crosses, I suppose.  If you read at the bottom two parts of that table, it clearly says that unbundled loops, or what is called outside North America LOU, is regulated in the United States, and it says in the bottom rung that it is regulated and regulation is being reduced, which is a reference to the two areas that have been reduced and to the Verizon applications in respect of the largest cities on the east coast of the United States.

listnum "WP List 3" \l 13215             So, the idea of the check mark was to say that there is a pathway here for DS‑0s to forbearance.  So you have to read it cumulatively.  I apologize if it was misleading in that respect.

listnum "WP List 3" \l 13216             There is no pathway for Canada, so therefore it gets a full tick.  Perhaps I should have put half a cross.

listnum "WP List 3" \l 13217             MR. ENGELHART:  So, Canada gets a check mark, and the U.S. gets an X because of that Omaha and Anchorage situation.  Is that it?

listnum "WP List 3" \l 13218             MR. WATERS:  They are the first two instances of a pathway to forbearance.  A pathway means you take incremental steps.  It started in those two jurisdictions, but as we heard from Dr. Taylor, there are now applications to be shortly decided in respect of the largest cities, including many cities which are similar to Canadian cities, such as Philadelphia on the east coast of the United States.

listnum "WP List 3" \l 13219             MR. BIBIC:  And, of course, as my first answer to your first question pointed out, that for fibre loops, so fibre to the node loops, there is no regulation for broadband, and for fibre to the home loops, so fibre all the way to the premise, there is no regulation for either broadband or voice.

listnum "WP List 3" \l 13220             THE CHAIRPERSON:  When do we get a check mark?  At the end of these proceedings?

listnum "WP List 3" \l 13221             MR. WATERS:  Mr. Chairman, I would be very happy to put a check mark there at the end of these proceedings, perhaps even a mark out of 10.

listnum "WP List 3" \l 13222             MR. ENGELHART:  Mr. Bibic, I think you just said where there is fibre all the way to the home in the U.S. they don't have to provide broadband, but they still have to provide voice.  Is that right?

listnum "WP List 3" \l 13223             MR. BIBIC:  No.  Fibre to the node.

listnum "WP List 3" \l 13224             MR. ENGELHART:  Whether it is fibre to the node or fibre to the home in the United States, would you agree with me that the U.S. ILECs still have to provide a DS‑0 voice grade functionality?

listnum "WP List 3" \l 13225             MR. BIBIC:  For voice only in cases I believe where the ILEC has retired the copper loop.

listnum "WP List 3" \l 13226             MR. ENGELHART:  Right.

listnum "WP List 3" \l 13227             MR. BIBIC:  In cases where the copper loop has not been retired, there is no obligation to provide a voice path or circuit ‑‑ I don't know what the correct term is ‑‑ on the fibre, but presumably because until forborne, the copper loop remains.

listnum "WP List 3" \l 13228             MR. ENGELHART:  Could you have a look, please, at Dr. Taylor's evidence at paragraph 61?

listnum "WP List 3" \l 13229             MR. BIBIC:  Is this his appendix 5 evidence?

listnum "WP List 3" \l 13230             MR. ENGELHART:  That is correct, sir.

listnum "WP List 3" \l 13231             So, I am reading to you from paragraph 61:

                      "As discussed in section 2 above, the FCC in 2004 eliminated the requirement for wholesale TELRIC pricing of many types of local loops and other wholesale offerings.  Recent FCC data indicate the successful impact of the FCC's change in course.  Figure 2 below shows that at the height of the availability of UNE‑P, roughly from 2001 to 2004, the growth of facilities‑base CLEC lines was stagnant.  By early 2004 the courts had effectively removed UNE‑P as a long‑range option for CLECs.  Since that time period, the growth in CLEC facilities‑base lines has been significant."  (As read)

listnum "WP List 3" \l 13232             There is a graph underneath that, figure 2, which graphically shows that.

listnum "WP List 3" \l 13233             In the next paragraph it says:

                      "We note that the figure above likely understates the absolute amount of end‑to‑end facilities‑base CLEC lines because cable telephony lines are underrepresented in the FCC's local competition report."  (As read)

listnum "WP List 3" \l 13234             There is a reference in paragraph 61 to UNE‑P.  We established, Dr. Taylor, that UNE stands for unbundled network element.

listnum "WP List 3" \l 13235             Am I correct that UNE‑P is a somewhat different animal that involved end‑to‑end resale at a discount?

listnum "WP List 3" \l 13236             MR. TAYLOR:  You have to be careful.  Resale at a discount is an entirely separate path under the Telecommunications Act.

listnum "WP List 3" \l 13237             UNE‑P is an oxymoronic combination of an unbundled network platform.  So, it really connects a switching provision, unbundled switching, and an unbundled loop.  So, you have to stretch the word "unbundled" to accommodate that, but that is what UNE‑P was.  It was different from resale, which was a more expensive path for CLECs to get end‑to‑end facilities from the ILEC.

listnum "WP List 3" \l 13238             MR. ENGELHART:  Your evidence says that when the Americans got rid of that oxymoronic system, where you got really bundled switching and loops described as unbundled, when they got rid of that, facilities‑base CLEC lines increased significantly in the U.S.  Is that correct?

listnum "WP List 3" \l 13239             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13240             MR. ENGELHART:  So, would you agree with me, Dr. Taylor, that in the U.S., having the rule that we have described for DS‑0, DS‑1s and DS‑3s on an unbundled basis have not inhibited significant growth in CLEC facilities‑base lines?

listnum "WP List 3" \l 13241             MR. TAYLOR:  No, I can't agree with that.  It doesn't follow from the fact that getting rid of a wholesale requirement in the United States and observing that that increases CLECs use of full facilities‑based access means that a plan in Canada, which does not have a UNE‑P type arrangement is necessarily optimal at all.

listnum "WP List 3" \l 13242             MR. ENGELHART:  I don't think I said anything about Canada in my question.

listnum "WP List 3" \l 13243             MR. TAYLOR:  I'm sorry, then, I misunderstood it.

listnum "WP List 3" \l 13244             MR. ENGELHART:  I said that would you agree with me that in the U.S. the availability of the DS‑0s and the DS‑1s and the DS‑3s on an unbundled basis have not inhibited significant growth in CLEC facilities‑base lines?

listnum "WP List 3" \l 13245             MR. TAYLOR:  I'm sorry.  Of course we don't know what this growth would have been had DS‑0s not been provided on an unbundled basis.  All we can see here is one step upstream, that is if you provide switching together with an unbundled loop at a TELRIC‑based price, and then remove it, you suddenly get significant growth in facilities‑based service.

listnum "WP List 3" \l 13246             It doesn't say what that growth would have been like had there not been access to ‑‑ if access to DS‑0s had not been in place at TELRIC rates.

listnum "WP List 3" \l 13247             MR. WATERS:  Mr. Engelhart, I might have some evidence from the United Kingdom and Australia which informs on this issue, where there is a requirement for a DS‑0 or local loop unbundling in an area where there has been a deployment of a cable network.

listnum "WP List 3" \l 13248             If you look to the Ofcom report from 2007, which Commissioner Cram referred to yesterday, back in 2002 the U.K. cable operator accounted for about 57 per cent of broadband connections, and BT, over its copper network, accounted for 24 per cent.

listnum "WP List 3" \l 13249             Today, following the introduction of local loop unbundling over that period of time, as well as regulated bit stream services, which are similar to your GAS services, the connections by the cable operator have fallen to 24 per cent.

listnum "WP List 3" \l 13250             So, before regulation the broadband connections were divided between copper and cable in much the same way as currently the case in Canada, at least the cable share is similar in Canada.  But today, the cable operator is down at 24 per cent principally because most of the connections have moved across to unbundled loops, including unbundled loops that are used by the cable operator itself.

listnum "WP List 3" \l 13251             If we move to the situation in Australia, in some ways it is a bit the reverse to the United States.  We actually had the deployment ‑‑

listnum "WP List 3" \l 13252             MR. ENGELHART:  Mr. Waters, I asked Dr. Taylor about a situation in the United States with a set of rules.  I don't really want to get into the U.K. and Australian cable market.  I think it is a little bit far afield from my question.

listnum "WP List 3" \l 13253             MR. WATERS:  Distance doesn't reduce the field and information that something can provide.

listnum "WP List 3" \l 13254             MR. ENGELHART:  We have all read your evidence.  This phase of the proceeding is cross‑examinations where I explore certain aspects.  It is not an opportunity for all the witnesses to repeat all of their pre‑filed evidence.

listnum "WP List 3" \l 13255             THE CHAIRPERSON:  On that note, it is 12:30, let's break.  Try to focus your questions for the afternoon.  Thank you.

listnum "WP List 3" \l 13256             We will break for one hour.

‑‑‑ Upon recessing at 1230 / Suspension à 1230

‑‑‑ Upon resuming at 1330 / Reprise à 1330

listnum "WP List 3" \l 13257             THE SECRETARY:  Order, please.

listnum "WP List 3" \l 13258             THE CHAIRPERSON:  Before we resume, I would like to make a couple of observations.

listnum "WP List 3" \l 13259             As you know, this is a lengthy hearing and I am really starting to worry about us losing focus and not doing it on time.  I want to remind everybody that this is a review hearing.  That is what the appearance says very clearly.  It says review of existing mandated services.  It is that perspective.  We are looking at what is there and we are looking at what has to be unmandated and what not.

listnum "WP List 3" \l 13260             Secondly, we shared with all of you our preliminary framework, suggesting the six groupings.  At the end of the day, we will go through all the services and decide which one of those six groupings ‑‑ maybe they have to be slightly refined in terms of suggestions, but that is essentially the structure.  I wanted to share with all of you where we are going.

listnum "WP List 3" \l 13261             We have actually made a list of all existing wholesale services, two pages here, which we will hand out.  When you give me your submissions, I expect you to put Xs in the appropriate column corresponding to one of the six.  So, that is what this is all about.

listnum "WP List 3" \l 13262             Obviously there are implications for the future as to what gets mandated and what does not.  I expect you to address that in your submission when you suggest why one service goes here or there.  It will be obviously not only retrospective, but with the future in mind.

listnum "WP List 3" \l 13263             But at the hearing here I think we should concentrate on the retrospective, and I would ask both questioners and answerers to be succinct and focus on that.  That is what this is all about.

listnum "WP List 3" \l 13264             Thank you.  Mr. Engelhart, over to you.

listnum "WP List 3" \l 13265             MR. ENGELHART:  Thank you, Mr. Chair.

listnum "WP List 3" \l 13266             Dr. Taylor and members of the panel, I wonder if you could have a look at page 23 of Dr. Taylor's evidence.

listnum "WP List 3" \l 13267             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13268             MR. ENGELHART:  In the third sentence of paragraph 48 you state:

                      "Cable companies are increasingly targeting business customers and major cable companies such as Comcast, Cox and Cablevision have announced plans to push into the business segment.  Just as they provide bundled offerings from residential customers, cable companies plan to lure business customers of bundles of voice data and video."  (As read)

listnum "WP List 3" \l 13269             In paragraph 50 you say that:

                      "Virtually all of the major cable companies have expressed interest in the business market."  (As read)

listnum "WP List 3" \l 13270             Would you agree with me that since cable companies are only now planning to enter into the business segment that they would not have been a significant form of competition in the business segment in the United States up to the end of 2005?

listnum "WP List 3" \l 13271             MR. TAYLOR:  It depends on quibbling about "significant," but, yes, I would have to say they did not provide a large portion of business access or transport before 2005.

listnum "WP List 3" \l 13272             MR. ENGELHART:  Having a look, Dr. Taylor, at paragraphs 72 and 73 of your evidence, you talk about wireless as a substitute, but all of your examples and quotes deal with residential households.

listnum "WP List 3" \l 13273             Would you agree with me that wireless substitution for wire line was a lot more common for residential customers than for business customers, at least until the end of 2005?

listnum "WP List 3" \l 13274             MR. TAYLOR:  Common, yes, but certainly business calling, if you look at volume of calls, there is a significant amount of business calling ‑‑ I am sure everyone in this room has a cell phone ‑‑ on phones.

listnum "WP List 3" \l 13275             MR. ENGELHART:  They have cell phones, but the phenomena of wireless substitution, where they abandon their wire line phones and use exclusively wireless phones, would you agree with me that is a lot more common, at least until the end of 2005, for residential customers than for business customers in the United States?

listnum "WP List 3" \l 13276             MR. TAYLOR:  I think I probably would.  There are exceptions.  I am thinking of Nextel which, before Sprint bought it, was a large carrier that specialized in the business market and provided wireless service so that you and I can just push a button and talk to one another, essentially replacing a walkie‑talkie.

listnum "WP List 3" \l 13277             MR. ENGELHART:  Take a look at figure 4 on page 34 of your evidence.  This chart deals with over‑the‑top VoIP providers such as Vonage.  Would you agree with me that until the end of 2005 they had only about a million and a half customers and that there was quite a lot of growth after 2005?

listnum "WP List 3" \l 13278             MR. TAYLOR:  Yes, these are estimates, but that is what the estimates are.

listnum "WP List 3" \l 13279             MR. ENGELHART:  Is it your understanding that prior to the end of 2005 most of these VoIP would have been residential rather than business customers?

listnum "WP List 3" \l 13280             MR. TAYLOR:  I don't know.  I don't have any sense for that.

listnum "WP List 3" \l 13281             MR. ENGELHART:  Please take a look at the chart called figure 8 on page 40 of your evidence, Dr. Taylor.

listnum "WP List 3" \l 13282             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13283             MR. ENGELHART:  This chart is described in paragraph 90 on page 39, where you state:

                      "Actual ILEC switch business lines in 2005 are only 68 per cent of the lines expected.  These trends are depicted in figure 8 below.  Again, these data reflect the ILEC loss of business customers to their competitors, including intermodal competitors, rather than a reduction in the demand for business communication services."  (As read)

listnum "WP List 3" \l 13284             Since very little or relatively little of the line loss would have come from cable companies, wireless companies or VoIP companies, would you agree with me that most of the loss of business lines was not due to intermodal competition, but rather came from CLECs either using their own end‑to‑end facilities or unbundled wholesale facilities from the ILEC or both?

listnum "WP List 3" \l 13285             MR. TAYLOR:  Those, and competitive access providers, yes.

listnum "WP List 3" \l 13286             MR. ENGELHART:  Given that there has been, as you say, only 68 per cent of the lines expected from the ILEC, would you agree with me that the current FCC rules have been very effective in stimulating entry from CLECs into the business segment in the United States?

listnum "WP List 3" \l 13287             MR. TAYLOR:  I am not sure how much the rules have had to do with it.  Competition for business services from CLECs has been strong from 1996, in fact before that, in the United States.  Business has concentrated demand.  Compared to residents customers, they are valuable customers.  That has always been the most competitive part of the local exchange market.

listnum "WP List 3" \l 13288             MR. ENGELHART:  I would like to turn to another area, which is an examination of the extent of facilities‑based competition in the Canadian market.

listnum "WP List 3" \l 13289             I wonder, Mr. Bibic or members of your panel, if you could turn to appendix 1 of the Companies' evidence, page 9 of 54.

listnum "WP List 3" \l 13290             COMMISSIONER del VAL:  Excuse me, which paragraph number, please?

listnum "WP List 3" \l 13291             MR. ENGELHART:  Paragraph 5.  It is dealing with the chart called figure 3, and it says:

                      "Not only is the absolute number of fixed lines declining but the share of fixed lines held by ILECs is also declining at a rapid rate.  It is interesting to note that the ILECs' declining number of lines is not perfectly offset by gains from cable telephony providers.  This reflects that substitution of traditional lines with both wireless and VoIP has become a real and discernible factor in Canadian telephone." (As read)

listnum "WP List 3" \l 13292             So this paragraph, I take it, is dealing with the decline in residential fixed lines and it is saying that because of competition from VoIP and wireless, there are actually less lines than before; is that correct?

listnum "WP List 3" \l 13293             MR. IACONO:  Yes, it is.

listnum "WP List 3" \l 13294             MR. ENGELHART:  But if you take a look at the business lines, which is the line that is underneath that, the business fixed lines, it doesn't seem to be declining.  In fact, it seems to be going up a bit.

listnum "WP List 3" \l 13295             So would you agree with me that in Canada, VoIP and wireless have not led to a decline in the number of business fixed lines?

listnum "WP List 3" \l 13296             MR. IACONO:  Mr. Engelhart, no, I would not agree and I would refer you ‑‑ you can see the numbers very, very explicitly ‑‑ to the most recent CRTC Monitoring Report where it lays out business lines from 2002 to 2006.  In fact, all you need do is also look at some previous reports and you will see the declining trend.

listnum "WP List 3" \l 13297             And looking at the trend in compound annual growth rate terms, if you look at the entire period going back to 1998, the incumbent business lines are declining at an average annual rate of negative 2.4 percent, and the lines for the TSPs as well as the ILEC in non‑incumbent territories have grown on average annually 30 percent.

listnum "WP List 3" \l 13298             So the numbers speak for themselves in terms of what is really happening in the marketplace and how competitive it is.

listnum "WP List 3" \l 13299             MR. ENGELHART:  Mr. Iacono, you may have misunderstood my question.

listnum "WP List 3" \l 13300             Figure 3 deals with total fixed lines, not with ILEC fixed lines.  So it says let's take the ILEC and the CLEC fixed lines, let's add them together so we can see what is happening to the fixed line market.

listnum "WP List 3" \l 13301             MR. IACONO:  Yes.  In fact, Mr. Engelhart, the Monitoring Report, again, has numbers for total which sums incumbent in incumbent territory, TSPs as well as incumbent in non‑incumbent territories, and the total lines, for example, in 2002 were 6,339,000, and in 2006, 6,268,000.

listnum "WP List 3" \l 13302             In fact, if you go back further into previous versions of the Monitoring Report, previous years, you will see that that decline is actually even more acute over a longer time period beginning in 1998.

listnum "WP List 3" \l 13303             So your question in terms of total business lines, the answer is they are declining, and they are declining and the ILEC portion of the decline is obviously a lot higher because the non‑ILECs are growing.

listnum "WP List 3" \l 13304             MR. ENGELHART:  Well, the Telecom Monitoring Report shows it is pretty flat.  I take your point that between '02 and '06 it went down by about 60,000 lines all across Canada.

listnum "WP List 3" \l 13305             Citicorp, on the other hand, which is the source of your Figure 3, it actually shows it going up a bit.

listnum "WP List 3" \l 13306             MR. IACONO:  Well, I certainly can speak to the numbers that are in the Monitoring Report.  I believe those numbers are based on submissions from all of the various parties and the Commission does a very good job of compiling the information.

listnum "WP List 3" \l 13307             If you go back, as I said, to previous versions of the Monitoring Report, to 2000 for example, and you adjust for the differences between one report and another, in 2000 there were 6,800,000 lines, if I have that correct, subject to check and we can certainly verify it, but the number was a lot higher in 2000 than it is in 2006 as well.

listnum "WP List 3" \l 13308             So the compound decline for the ILECs is higher and the overall market is declining.

listnum "WP List 3" \l 13309             And what that is reflecting ‑‑ and there is lots of evidence on this record.  What that is reflecting is the intense competition between modes of local service.

listnum "WP List 3" \l 13310             So you have got basic business services.  You have got Centrex.  You also have substitution going on with regard to IP PBXs, a variety of IP key systems and other IP‑based technologies.

listnum "WP List 3" \l 13311             And when you look at the dynamic there in terms of the equipment manufacturers, what they are doing with new equipment, all of which is predicated on the power of IP to provide converged voice and data applications, what you are seeing is an acceleration in the rate of decline.

listnum "WP List 3" \l 13312             And as I said, that is based on data and information that is collected and presumably verified by the CRTC.

listnum "WP List 3" \l 13313             MR. ENGELHART:  But I mean we are looking at the same data, we are drawing radically different conclusions.  In 2002 ‑‑

listnum "WP List 3" \l 13314             MR. IACONO:  I don't think so, Mr. Engelhart.

listnum "WP List 3" \l 13315             MR. ENGELHART:  In 2002, 6,339,000; 2003, 6,275,000; 2004, 6,178,000; 2005, 6,224,000; 2006, 6,268,000.  Pretty flat.  It is not like residential, where it is falling.

listnum "WP List 3" \l 13316             Doesn't that suggest to you, Mr. Iacono, that the VoIP provision and the wireless provision has not had a big substitution effect in Canadian business fixed lines, unlike Canadian residential fixed lines?

listnum "WP List 3" \l 13317             MR. IACONO:  Mr. Engelhart, I am not sure what numbers and what source you were looking at.  If you can perhaps just tell me the source because I do have a comment but I would like to make sure I know the source first.

listnum "WP List 3" \l 13318             MR. ENGELHART:  I am looking at this year's Monitoring Report, which is what I thought you were referring to.

listnum "WP List 3" \l 13319             MR. IACONO:  Yes.  Which table?

listnum "WP List 3" \l 13320             MR. ENGELHART:  4.2.9.

listnum "WP List 3" \l 13321             MR. IACONO:  4.2.9.

listnum "WP List 3" \l 13322             So as I said before ‑‑ and those are the numbers I gave, going from 6.3 million to 6.2 million.

listnum "WP List 3" \l 13323             Let me come at this a different way.

listnum "WP List 3" \l 13324             I am involved in the enterprise market at Bell Canada and we do all types of work in terms of understanding what is happening in the marketplace.

listnum "WP List 3" \l 13325             We do this day in, day out, based on customer‑initiated RFPs, customer‑initiated RFQs, and I will tell you, the substitution from TDM‑based technologies to IP‑based technologies and MPLS‑based technologies is phenomenally strong.

listnum "WP List 3" \l 13326             In my opinion, based on everything that I see day in, day out, based on the requests that come into my group, for example, for analysis of a particular solution, to cost and price a particular solution based on IP technologies, in the vast majority of cases those are coming from customers that are on TDM.

listnum "WP List 3" \l 13327             So they are migrating from TDM and moving over to IP‑based technologies, and the solutions that are being offered and that are being marketed aggressively by the competitors, cable and otherwise, are for the most part IP‑based solutions.

listnum "WP List 3" \l 13328             All one needs to do is just take a quick look at the web sites of Rogers, MTS Allstream, Primus, and you can see exactly where the focus is, it is in that area.

listnum "WP List 3" \l 13329             So this is a reality.  Abstracting from all the statistics, this is what I deal with day in, day out.

‑‑‑ Pause

listnum "WP List 3" \l 13330             MR. ENGELHART:  I would like to turn now to another area, which is the competitiveness of the business markets in Canada.

listnum "WP List 3" \l 13331             If you can have a look at your Supplementary Evidence of July 5, 2007.

‑‑‑ Pause

listnum "WP List 3" \l 13332             MR. ENGELHART:  In paragraph 7 you state that there are three factors that you want to draw the Commission's attention to.

listnum "WP List 3" \l 13333             The first is the evidence from large business customers that the formal bidding process used to purchase telecommunication services results in a high level of awareness of competitive alternatives.

listnum "WP List 3" \l 13334             In particular, in paragraph 8, you refer to a quote from the Coalition.  You underline the last sentence in the quote which states as follows:

^^"As indicated by the experience of the members of the Coalition, usually three to five service providers would bid on any given large national contract." (As read)

listnum "WP List 3" \l 13335             So would a typical RFP in Ontario perhaps be responded to by Bell, TELUS, Allstream and Rogers, formerly Call‑Net?

listnum "WP List 3" \l 13336             MR. IACONO:  That happens very often but there are others who participate in RFP responses and in construction of RFP solutions.

listnum "WP List 3" \l 13337             MR. ENGELHART:  But if you stop providing a sense of facilities to Allstream and Rogers, won't that mean that business ‑‑ the only one's bidding will be Bell and perhaps TELUS?

listnum "WP List 3" \l 13338             MR. IACONO:  No.

listnum "WP List 3" \l 13339             MR. ENGELHART:  Tell me more.

listnum "WP List 3" \l 13340             MR. IACONO:  Well, let me give you a couple of examples.

listnum "WP List 3" \l 13341             I know that our friends at MTS Allstream, where they deem appropriate, are billing facilities to the customer.

listnum "WP List 3" \l 13342             We have a variety of other opportunities ‑‑ or players have a variety of other opportunities through the electrical utilities for example, Telecom Ottawa is on record I believe in this proceeding and unfortunately I can't recall the interrogatory number where they ‑‑ I'm going from memory here so it is subject to check ‑‑ indicate that they have access into 950 buildings in the Ottawa area in the markets in which they serve.  They have a thousand kilometres of fibre, some lit, some not, some ready to be lit when required.  So there are all types of varieties.

listnum "WP List 3" \l 13343             In fact, what we are seeing as well, again going back to the day‑to‑day experience which creates a lot of consternation at times.  Organizations are partnering with others to put together solutions and that is what competition is all about.  That happens all the time with a lot of players.

listnum "WP List 3" \l 13344             MR. BIBIC:  Of course, Mr. Engelhart, in your question you started by saying "If Bell stopped providing essential services to Allstream and Rogers" and it was a bit of a loaded question where you are presuming they are essential facilities.

listnum "WP List 3" \l 13345             I think the notion that they are just these general essential facilities without identifying what they are, and especially essential facilities to Rogers that has its own network is the grandest of illusions, with all due respect.

listnum "WP List 3" \l 13346             The fact is that Rogers has network and Rogers is capable of building where it doesn't have network, or Rogers is capable of approaching any number of alternative providers, including ourselves, to simply say "Look, we have a gap in our network we want to buy" and Bell would be interested in selling.

listnum "WP List 3" \l 13347             We have a wholesale group that is in the hundreds of millions of dollars.  Close to 40 per cent of those revenues ‑‑ and I'm talking about revenues annually ‑‑ close to 40 per cent of those revenues consist of forborne services which we want to sell to customers.

listnum "WP List 3" \l 13348             Just in the downtown Ottawa core, for example, out of about 200 large buildings that we have looked at, Rogers is in close to 90 per cent of those buildings in Ottawa in the downtown core with either its coaxial cable network or fibre.

listnum "WP List 3" \l 13349             So this is an illusion that has been kind of put forward by the cable companies, including Rogers, in local forbearance applications and in this proceeding.

listnum "WP List 3" \l 13350             So the answer actually is no.

listnum "WP List 3" \l 13351             MR. ENGELHART:  Let's take a look at paragraph 23 of the Competition Bureau's July 5, 2007 evidence.

listnum "WP List 3" \l 13352             Can you have a look at that for me?

‑‑‑ Pause

listnum "WP List 3" \l 13353             MR. BIBIC:  Yes.

listnum "WP List 3" \l 13354             MR. ENGELHART:  They say:

                      "An important implication is that in determining whether the ILEC or other firms are dominant downstream for the purposes of assessing whether a facility is essential.  Competition from firms that use the ILEC's facilities are not to be considered an independent source of competitive constraint.  Instead, the state of competition is assessed by considering what the competitive forces downstream would be but for mandated wholesale access."  (As read)

listnum "WP List 3" \l 13355             I take it, then, that you disagree with the Bureau's views as expressed in paragraph 23?

listnum "WP List 3" \l 13356             MR. BIBIC:  No, I actually agree with that test.  I just disagree with where I suspect you are going with how to apply that test.

listnum "WP List 3" \l 13357             In terms of, again, the Bureau's test, which is by and large what many parties propose and what we propose as you look at state of competition downstream.

listnum "WP List 3" \l 13358             You and I could have a debate as to whether or not the business market is competitive today downstream.  I would say yes, hence no essential facilities.  You would say no, in which case we would have to agree to go to the second element of the test, which is ‑‑

listnum "WP List 3" \l 13359             MR. ENGELHART:  But don't you have to look at how competitive it is using the "but for" test?  Isn't that what the Bureau is saying?

listnum "WP List 3" \l 13360             MR. BIBIC:  Yes, and I would say that "but for" access to mandated elements of the ILEC's network your company would use its own network, which it already has, or would build.  The fact is that your company purchased the Call‑Net assets and wishes to gain as much access to the ILEC's network as possible to continue being able to utilize that network to its benefit.

listnum "WP List 3" \l 13361             The fact remains that Rogers has network and Rogers can use it and where it doesn't it can build, in fact, it does build in many places.  So the elements that we are talking about ‑‑ which you haven't yet identified but which I suspect you are talking about loops, et cetera, and CDN obviously since we talked about that this morning ‑‑ are duplicable.

listnum "WP List 3" \l 13362             MR. IACONO:  Mr. Engelhart, I would like to add.  I would like to add a comment with regard to the actual numbers.

listnum "WP List 3" \l 13363             There was some discussion of this yesterday I believe during cross‑examination of the panel from the Bureau of Competition and there was a reference to ‑‑ again I will use MTS Allstream ‑‑ there was reference to MTS Allstream having over 600,000 business lines in Canada, 620,000 if I recall correctly, and two‑thirds of those are basically not involving loops.  39 per cent involved self‑supply, 25 per cent involved resale and the remainder at 36 per cent involving local loops.

listnum "WP List 3" \l 13364             Then, when I tie that piece of information with the response to an interrogatory that was made in April, which is MTS Allstream/The Companies No. 49, where MTS Allstream indicate that they are migrating numerous Centrix lines, which obviously would be through resale currently, onto self‑supply or unbundled loops.

listnum "WP List 3" \l 13365             Now, I don't know what proportion is migrating to self‑supply or unbundled loops, but the point is that is happening.

listnum "WP List 3" \l 13366             So the proportion of business lines that are served from loops is clearly declining and will continue to decline.  We are seeing that in spades in the residential market.

listnum "WP List 3" \l 13367             MR. ENGELHART:  Could you take a look for me, please, at Rogers/Companies 11?

‑‑‑ Pause

listnum "WP List 3" \l 13368             MR. IACONO:  12 April '07 I presume, Mr. Engelhart?

listnum "WP List 3" \l 13369             MR. ENGELHART:  Yes.

listnum "WP List 3" \l 13370             MR. IACONO:  Yes.  Thank you.

listnum "WP List 3" \l 13371             COMMISSIONER del VAL:  I think it's July 19th.

‑‑‑ Pause

listnum "WP List 3" \l 13372             MR. ENGELHART:  Yes, it is July 19th.  Sorry.

‑‑‑ Pause

listnum "WP List 3" \l 13373             MR. IACONO:  Yes, we have it.  I have it.

listnum "WP List 3" \l 13374             Bear with me, Mr. Engelhart.

‑‑‑ Pause

listnum "WP List 3" \l 13375             MR. ENGELHART:  So there Rogers estimates that in its cable operating territory there is about 400,000 business premises.

listnum "WP List 3" \l 13376             Does that estimate seem reasonable to you?

listnum "WP List 3" \l 13377             MR. IACONO:  Yes, it does.  Based on a quick analysis of number of business establishments in Ontario and Québec, in fact across Canada from Statistics Canada, it seems reasonable.

listnum "WP List 3" \l 13378             MR. ENGELHART:  Since we don't provide cable everywhere in Ontario, Cogeco does, that might mean roughly 500,000 business premises in Ontario.

listnum "WP List 3" \l 13379             Would that seem about fair?

listnum "WP List 3" \l 13380             MR. IACONO:  I can give you the exact number from Statistics Canada, if you would like.

listnum "WP List 3" \l 13381             MR. ENGELHART:  Sure.

listnum "WP List 3" \l 13382             MR. IACONO:  If you could just bear with me for a moment.

‑‑‑ Pause

listnum "WP List 3" \l 13383             MR. IACONO:  I will have to get it later.  I have it here somewhere, but I have too many books, unfortunately.

listnum "WP List 3" \l 13384             But going from memory it's like 700,000, or in that range.

listnum "WP List 3" \l 13385             MR. ENGELHART:  700,000 Ontario and so, what ‑‑

listnum "WP List 3" \l 13386             MR. IACONO:  700,000 Ontario and Québec.

listnum "WP List 3" \l 13387             MR. ENGELHART:  Yes.  So I said 500,000 in Ontario.

listnum "WP List 3" \l 13388             Does that seem about right?

listnum "WP List 3" \l 13389             MR. IACONO:  550,000.

listnum "WP List 3" \l 13390             MR. ENGELHART:  Toronto would be 100,000 or 200,000, something like that?

listnum "WP List 3" \l 13391             MR. IACONO:  That I can't say, I don't know.

listnum "WP List 3" \l 13392             MR. ENGELHART:  Well, let's take a look at...paragraph 120 of Appendix 1 of your evidence.

listnum "WP List 3" \l 13393             MR. IACONO:  Sorry, which paragraph, Mr. Engelhart?

listnum "WP List 3" \l 13394             MR. ENGELHART:  Paragraph 120.

listnum "WP List 3" \l 13395             MR. IACONO:  Thank you.

listnum "WP List 3" \l 13396             MR. ENGELHART:  The first sentence there says:

                      "For instance, Toronto Hydro Telecom, a wholly‑owned subsidiary of Toronto Hydro Corporation, provides data services in Toronto to more than 400 commercial addresses through it's 450‑kilometre fibre optic network.  The company markets to small and large businesses."  (As read)

‑‑ and it goes on.

listnum "WP List 3" \l 13397             So we have got, I don't know, 500,000 commercial premises in Ontario and maybe 100,000 or 200,000 of those in Toronto, and Toronto Hydro goes to 400 commercial addresses, some of which are small businesses.

listnum "WP List 3" \l 13398             Doesn't that indicate to you that there's an awful lot of commercial premises that are not served by Toronto Hydro?

listnum "WP List 3" \l 13399             MR. IACONO:  What it tells me is that Toronto Hydro would not put in fibre into the local 7‑Eleven store, which is a small and medium business.  What it tells me is that they are focusing their efforts, as they should, given the returns possible, by lighting up or putting fibre into complexes of businesses with many people in many offices and many businesses.

listnum "WP List 3" \l 13400             So they are focusing, you know, where the economics make sense, on larger building.  That is to say, they wouldn't go into the local barber shop, which is a small business, or, you know, the local accounting office that has 10 people in it.  So they won't be putting fibre into those locations, I wouldn't think.

listnum "WP List 3" \l 13401             MR. ENGELHART:  Take a look at paragraph 123 of Appendix 1, at the first bullet:

                      "The responding MEUs indicated that at the end of 2004, they provided hi‑speed intra‑exchange digital services to customers in 1,454 locations, in 58 of the 119 exchanges at issue.  (As read)

listnum "WP List 3" \l 13402             I mean, doesn't that indicate to you that the vast, vast majority of business premises in this province, and even in the major centres, don't have an independent facility going into them?

listnum "WP List 3" \l 13403             MR. IACONO:  That may be the case, however, again, just to go back to my example of the 7‑Eleven store, you know, a 7‑Eleven store might have one, two lines, hi‑speed Internet connection for their debit card processing, you know, some POS application.  So that's part (a).

listnum "WP List 3" \l 13404             Part (b) is, when I look at, say, Place Bell Canada, where there is probably 5,000 people in that building, I don't know how many different companies are in the building, but it's quite a few.  So you can look at just establishments and make a correlation to the opportunities, from a business perspective.

listnum "WP List 3" \l 13405             Ninety‑seven percent of business establishments in Canada employ less than 100 people.  In fact, the numbers are actually even more skewed, if you will, as you go down the chain of size.  So, you know, 64 percent in Quebec of small businesses employ between one and four people.  This is Statistics Canada public information.  I just pulled it off their website.  Fifty‑four percent of businesses in Ontario are employing one to four people.

listnum "WP List 3" \l 13406             So if you, say, take the average of two people per that grouping, those small businesses, presumably many of them are located in areas where cablecos have facilities and plant, you know, it wouldn't take, other than the marketing desire to do so, a lot of effort to serve many of those customers using cable plant.  It's a question of marketing strategy and marketing timing as to when the cablecos decide to do that.  I can't decide that for them.

listnum "WP List 3" \l 13407             MR. HENRY:  Mr. Engelhart, if I can just add an example from Atlantic Canada, there's a cable company down there that has made that decision, and they made it four or five years ago, and I can tell you they are very active in the business market.

listnum "WP List 3" \l 13408             Frankly, when the Commission recently denied our forbearance application, on the business side, in Halifax, we were taken aback.  I have to say I don't blame the Commission, because they didn't find that the service was not there, but they just didn't find that, frankly, anybody could prove that they were there.

listnum "WP List 3" \l 13409             So I had one of my people go out with some of our technical people and go to the business parks in Halifax.  We went to five of the business parks, we went to the downtown core of Halifax, we went to Commissioner Duncan's building over in Dartmouth.

listnum "WP List 3" \l 13410             I can tell you, with one exception, and there is one, a small part where they do use unbundled loops, where it's more convenient for them to do that, but in the vast majority of the shopping centres, the mixed residence and business, the office towers, including the Commission's office tower, EastLink is there, and they are there in a big way.

listnum "WP List 3" \l 13411             In fact, I was just reading last week, just in preparing for this hearing, an interview in cart.ca, from Mr. McKeen, who's the co ‑‑

listnum "WP List 3" \l 13412             MR. ENGELHART:  Mr. Henry, could I bring you back ‑‑

listnum "WP List 3" \l 13413             MR. HENRY:  Well, let me just tell you what he says.

listnum "WP List 3" \l 13414             MR. ENGELHART:  Could I bring you back ‑‑

listnum "WP List 3" \l 13415             MR. HENRY:  Can I just tell you what he said?

listnum "WP List 3" \l 13416             MR. ENGELHART:  Could I bring you back?  You can try and work that quote in, but, I mean, would you agree ‑‑ I mean, you have read the Rogers' evidence, you have read our evidence, that in the vast majority of business premises we don't have any facilities in those buildings for either cable television or Internet or any other service, and that the cost of building those laterals is often prohibitive.

listnum "WP List 3" \l 13417             Your view is that, what, this is just completely wrong and the cable companies can wave a magic wand and they will magically have laterals into all of these buildings they are not in?  You guys know something about what it costs to put those laterals in.

listnum "WP List 3" \l 13418             MR. BIBIC:  Well, Mr. Engelhart, all we have seen on the record ‑‑ and the Commission may have otherwise, but all we see on the record are statements from Rogers, like, 5 percent of business subscribe to cable TV and Internet.

listnum "WP List 3" \l 13419             Frankly, what they subscribe to isn't the relevant issue.  The relevant issue is what you can provide to them.  As I said in Ottawa, you are in 90 percent of the buildings.  In my building, at 110 O'Connor, which is a Bell building, guess what, I subscribe to cable TV from Rogers, and in Place Bell, we subscribe to cable TV from Rogers.

listnum "WP List 3" \l 13420             Once you have your cable TV network, your coax network, a cable company can provide business services, you know, to single‑line, two‑line business services, to the small‑ and medium‑size businesses.  The vast majority of businesses in Canada are small‑ and medium‑size businesses, they spend a lot of money.  The prize is there.  You are not going to leave it on the table.

listnum "WP List 3" \l 13421             I mean, if you just look at the evidence that is indeed on the record, and I don't know what you have put on the record, but you have got Cogeco on this record saying cable networks can offer business telephony.  I could point you to the interrog.  They have been offering services since July '07.  Persona has network connections with large numbers of commercial buildings.  That's what they have said.  You, yourselves, have said, in the response to the Bureau on April 12th, number 14, that facilities‑based competition has emerged in residential and small‑/medium‑sized business market by cablecos using their own facilities.

listnum "WP List 3" \l 13422             You are quite willing to build more in places where Aurora Cable is or the Cogeco territory in order to provide, you know, four services to residential customers.  Where the investment makes sense, you will do it.

listnum "WP List 3" \l 13423             And you have network.  It passes most premises, business or otherwise, in your territory.  And most of that network, if not all of it, is two‑way enabled to provide digital telephony.

listnum "WP List 3" \l 13424             So the answer is:  yes, believe you can do it, and you would do it

listnum "WP List 3" \l 13425             At the end of the day, going back to the "but for" test, I think it's a huge and incorrect assumption to make that if loops, residential or business, were not mandated that somehow suddenly no competitor would be able to buy loops.  That's just not the case.

listnum "WP List 3" \l 13426             MR. ENGELHART:  Am I understanding your position, that Rogers is actually in those buildings and is not telling the truth about it or that we are not in the buildings but that we are not telling the truth about how easy it would be to get into the buildings?

listnum "WP List 3" \l 13427             MR. BIBIC:  My evidence is that the cable network passes most premises.  In Ottawa, as I said, 90 percent of 200 buildings in the downtown core, as an example.  Using that coax network, cable companies could provide telephony services to small‑ and medium‑sized businesses, as well as, obviously, Internet and cable, if you so chose.  So that's one segment.

listnum "WP List 3" \l 13428             If you wanted to talk about services, higher capacity data services that larger enterprises need, for example, then there would be options open to the cable companies.  And there's some evidence on the record regarding emulation technology and Serge could talk about what you would need to do in order to make building a lateral connection feasible if you wanted to provide higher capacity data services using fibre.

listnum "WP List 3" \l 13429             MR. ENGLEHART:  Well, let us talk about building those laterals.  We have explained in our evidence what we consider to be the advantages of incumbency and the cost and risk of constructing.  And if you could take a look at paragraph 35 of your second round evidence.

listnum "WP List 3" \l 13430             You say:

                      "As to the risk of construction delays, these are among the normal risks of any construction project in any industry." (As Read)

listnum "WP List 3" \l 13431             That is not really true, is it?  If you are the incumbent you don't have any risk. The RFP comes out and you can bid on it because you are in all those buildings.  If you are not in any of those buildings and the issuer of the RFP wants the services put in in four months you are out of luck.  If you don't know how much it is going to cost you to get into those buildings or if the cost is prohibitive, you simply can't bid.

listnum "WP List 3" \l 13432             You have to agree that, for an incumbent in the telecom business, it is a bit much for you to say this the normal risk of any construction project in any industry.

listnum "WP List 3" \l 13433             MR. BABIN:  Well, if I can just add, Mr. Englehart, from a construction perspective Bell, like any carrier, has to have agreements with the building owner, the buildings are on private property and so the construction delays that Bell would go through are the same construction delays that any competitor would have going into that building.

listnum "WP List 3" \l 13434             In some cases there is duct structures in place.  In those cases, you can use those ducts.  As we have mentioned, in the Ottawa area we did some surveys in some of the buildings. Coaxial cable is actually going into many of the buildings in the downtown core.  Once there is a duct there, you can actually pull in fibre.

listnum "WP List 3" \l 13435             And so the construction delay comment is really related to any carrier would actually go through the same challenges with a building owner.

listnum "WP List 3" \l 13436             MR. ENGLEHART:  You are in all the buildings aren't you, Mr. Babin?  You are there right now.

listnum "WP List 3" \l 13437             MR. BABIN:  It doesn't mean that it is much easier to pull cable in or get agreements with building owners, Mr. Englehart.  We would go through the same process that any other carrier would go through to build facilities or lateral connections into these buildings.

listnum "WP List 3" \l 13438             MR. ENGLEHART:  Yes, obviously, but you are already there.

listnum "WP List 3" \l 13439             MR. IACONO:  Mr. Englehart, actually we are not already there.  We are there for the most part in Ontario and Quebec in many many locations, obviously.  But outside of Ontario and Quebec we are not.  So again, let me go back to relaying my day to day experience.  We deal with responses for national requirements just as your company does and just as others.

listnum "WP List 3" \l 13440             So many of the bids that we respond to or choose to respond to involve locations outside of our incumbent territory.  These are big business locations obviously requiring lots of bandwidth, etc.  What do we do? We need to make a decision do we build, when do we build?  We incur the same risks as anyone else does when they engage in those kinds of decisions. So we don't have every building.

listnum "WP List 3" \l 13441             I just want to make absolutely crystal clear that people don't get the impression that we have every building in Canada, because we don't.

listnum "WP List 3" \l 13442             MR. ENGLEHART:  No, but when you are a SILEC out of your operating territory then you often use these essential facilities.

listnum "WP List 3" \l 13443             MR. IACONO:  Sometimes we do and sometimes we don't.

listnum "WP List 3" \l 13444             MR. BIBIC:  Mr. Englehart, I mean, you are focusing on one paragraph in a supplemental submission which was meant to address submissions from others that these construction delays make it impossible to compete.  And it ignores the bigger picture.  The bigger picture is that Bell is not across the country, neither is TELUS and neither are you, I understand that.

listnum "WP List 3" \l 13445             But when it comes down to it competitors put in bids in response to RFPs, they get the business and then they decide how they are going to provide service.  And in some cases, and we are not saying that everywhere where a competitor it is not connected that they should go out and will go out and have to go out and build in every single case.

listnum "WP List 3" \l 13446             Obviously, there is a progression to this and nothing forecloses anyone from simply coming to any provider, and it can be Bell Canada or an alternative provider that happens to be connected in a building where you have got a customer, and negotiating a commercial arrangement.  As I said, we have a wholesale business that is designed to bring services to market and it is worth hundreds of millions of dollars on a forborne basis alone.

listnum "WP List 3" \l 13447             So there is a leap there from saying, you know, certain of these facilities will no longer be essential and they will be foreclosed from the market.  Then they won't be.  And if they are in a particular situation, there is obviously a means of redress and that is through the Commission using a proper construct of the essential facilities definition, which we all hope is going to come out of this.

listnum "WP List 3" \l 13448             MR. ENGLEHART:  Well, let us take a look at the second sentence in paragraph 35.

listnum "WP List 3" \l 13449             You say:

                      "As to cost differences among competitors, these are perfectly normal and, to a significant degree, provide the fuel for the competitive process." (As Read)

listnum "WP List 3" \l 13450             So you are talking there about the fact that it is much more costly for the entrant than it is for the incumbent to get into those buildings, aren't you?

listnum "WP List 3" \l 13451             MR. BIBIC:  Well, we are talking about how it is not unheard of to expect that different providers in a competitive market will have a different cost structure.  Not that I have any empirical proof of this, but I suspect that in terms of providing residential telephony you guys might have a cost advantage over the incumbent, so that is part of the process.

listnum "WP List 3" \l 13452             We have got to move away from this old‑world regulatory thinking that it is the cost structure that is going to determine the price.  In fact, in a competitive market, as you well know, it is the price that determines the cost structure.  So if somebody goes out there with a price you have got to meet that price and, if your cost structure isn't good enough to make money, you are going to have to reduce your costs.

listnum "WP List 3" \l 13453             And it is an iterative process.  Today, I might have a lower cost structure than you, you will compete hard and you will get your costs down and you will have a lower cost structure than me tomorrow, and I will try to beat you and the next day I will have a lower cost structure.  That is the iterative competitive process.

listnum "WP List 3" \l 13454             MR. ENGLEHART:  Isn't there another possible outcome of the normal competitive process?  If the costs of the entrant are higher than the costs of the incumbent, if the entrant can't respond to time‑limited RFPs or time‑limited requests for services because they have to get into the buildings and the incumbent is already there, isn't the normal competitive process simply going to weed the entrants out of the business and leave all the business to the incumbents?

listnum "WP List 3" \l 13455             MR. IACONO:  That hasn't happened so far and I don't think it ever will.  You know, will see players come and go, that is normal in a competitive market.  We saw it in 2001 with a variety of the SILECs who made investments in very difficult financial times.  The telecom bubble burst and unfortunately, you know, we all know what happened to some of them.  That happens in a competitive environment.

listnum "WP List 3" \l 13456             The intent of competition is competition for the end consumer.  It is not from a competitor perspective in order to protect competitors.  Now, I think Mr. Osborne in the Osborne Report made that very clear and the Bureau makes that very clear.  And I also think that economic analysis or economic theory makes that very clear.

listnum "WP List 3" \l 13457             So at the end of the day, you know, if the entrants ‑‑ and entrant here sounds like it is a brand new company coming from scratch.  You know, when I look at Rogers Cable it is a pretty big organization.  You know, you are not coming with no history and you have got a lot of expertise in a variety of areas.  The risk is you make a decision and you go for it.  Sometimes it is going to pay off, sometimes it is not.

listnum "WP List 3" \l 13458             MR. ENGLEHART:  Well, let us take a look at something that Dr. Taylor said about this very topic that Mr. Bibic's been referring to where they will cheerfully supply us with the facilities.

listnum "WP List 3" \l 13459             If we could look, Dr. Taylor, at your Appendix 2 and, in particular, paragraph 44.

listnum "WP List 3" \l 13460             MR. TAYLOR:  I am there, Mr. Englehart.

listnum "WP List 3" \l 13461             MR. ENGLEHART:  You state:

                      "For telecommunications services what is the potential effect in retail telecommunications markets from the anticompetitive denial or pricing of access to essential wholesale services that ex post regulation would be expected to control?  In economics, such behaviour is termed a price or margin squeeze or a vertically integrated firm (e.g. ILEC) prices its wholesale service at a level that prevents an otherwise efficient, dependant competitor from competing against the price of the ILEC retail services.  A firm that sets a wholesale price for an essential facility that, together with the retail price, entails an anticompetitive price squeeze necessarily sacrifices profits in the short‑run (see Exhibit 1).  Intuitively, this reduction occurs because a component of the cost to an ILEC of supplying the retail service is the opportunity cost, the contribution, wholesale price, less wholesale incremental costs from the wholesale service that is foregone when the ILEC services a retail customer." (As Read)

listnum "WP List 3" \l 13462             I am just mystified by this, and it is not just all the calculus in Exhibit 1.

listnum "WP List 3" \l 13463             If an ILEC can earn a profit of $20 for being a wholesale provider and the retail provider earns a profit of $30, if I am the ILEC and I can squeeze the retailer out of the business and pick up the retail customer, doesn't my profit go from $20 to $50?  Isn't this a good thing, if I am the wholesaler, to squeeze that retailer out?

listnum "WP List 3" \l 13464             MR. TAYLOR:  Well, Mr. Engelhart, it is if, in an unlikely case, you can then keep him out; that is, you recognize, as what paragraph 44 says, is that like predatory pricing, it costs the ILEC profit in the short run.  It could make more money by supplying retail service than by supplying wholesale service in your example.

listnum "WP List 3" \l 13465             If it chooses to price its retail service so low as to squeeze an otherwise efficient firm out of the market, it gives up its mark‑up on the wholesale service and ends up losing profit.

listnum "WP List 3" \l 13466             Well, just as one would do if one were predatory pricing, that is exactly the same analysis.  The problem is it doesn't make sense to do that unless there are barriers to entry that you could keep companies from re‑entering the market and that you could raise your retail price back up and not attract entry.

listnum "WP List 3" \l 13467             The difficulty in this market is once Rogers perhaps mistakenly builds its facilities into other buildings and then hypothetically goes bankrupt, the facilities don't leave; the facilities remain.  Whoever buys your hypothetical assets gets to compete against the ILEC with new and cheaper, that is assets that cost him less than it cost you, and the ILEC has no way to keep him out.

listnum "WP List 3" \l 13468             MR. ENGELHART:  I am more confused now, not less.  I didn't even know Rogers was in this hypothetical.

listnum "WP List 3" \l 13469             You have a wholesaler and they squeeze out a retailer.  So, they were making $20 profit, now they pick up the retail business, they are making an extra $30, they are making $50.  There is no short‑run cost; there is nothing to recoup; they are ahead of the game.

listnum "WP List 3" \l 13470             MR. TAYLOR:  You are talking about instead of lowering the retail price to conduct a price squeeze, you are talking about simply refusing to provide the service?

listnum "WP List 3" \l 13471             MR. ENGELHART:  Or raising it up to a crazy level so that the poor old retailer can't buy your wholesale service and now you can supply the retail service.

listnum "WP List 3" \l 13472             MR. TAYLOR:  If you think about it, that is the same effect.  That is, raising the wholesale price to the high level means that whoever does that gets more profit on the wholesale side, and that is the profit that he gives up when he provides a retail service.

listnum "WP List 3" \l 13473             MR. ENGELHART:  No, he was making a $20 wholesale profit.  The retailer was making a $30 retail profit.  Now the wholesaler squeezes out the retailer and takes over the customer himself.  Now he has a $50 profit.

listnum "WP List 3" \l 13474             There is no loss; there is nothing to recoup; it is all good.

listnum "WP List 3" \l 13475             MR. TAYLOR:  If I understand you, which I don't think I do, we are talking about different circumstances.

listnum "WP List 3" \l 13476             I am talking about a single vertically integrated firm which provides services both at retail at a $20 to $30 margin in your example, and the same firm provides services at wholesale with a $20 margin under your assumptions.  One firm.

listnum "WP List 3" \l 13477             MR. ENGELHART:  Right.

listnum "WP List 3" \l 13478             MR. TAYLOR:  And the story is that if I am the retail provider, every time I win a retail customer I get $30 in profit, we have assumed, but in doing that calculation, I recognize that I have given up ‑‑ I had an alternative.  I could have let a competitor provide it and I would have made $20 from that customer.  That is the comparison that is going on here.

listnum "WP List 3" \l 13479             MR. ENGELHART:  There is one firm that is integrated retail and wholesale.

listnum "WP List 3" \l 13480             MR. TAYLOR:  Correct.

listnum "WP List 3" \l 13481             MR. ENGELHART:  There is a second firm which is retail only.

listnum "WP List 3" \l 13482             MR. TAYLOR:  An entrant, let's call it.

listnum "WP List 3" \l 13483             MR. ENGELHART:  An entrant, let's call it.

listnum "WP List 3" \l 13484             Both firms are making $30 profit on the retail aspect of their business, and the wholesaler is making $20 profit on the wholesale aspect of his business.

listnum "WP List 3" \l 13485             MR. TAYLOR:  I am not with you on the ‑‑ well, you are just assuming that both retail firms are making $30.  We haven't talked about the costs of the ‑‑

listnum "WP List 3" \l 13486             MR. ENGELHART:  Let's assume that.

listnum "WP List 3" \l 13487             MR. TAYLOR:  Fine.

listnum "WP List 3" \l 13488             MR. ENGELHART:  So, I am the wholesaler, I am wholesaling to an unrelated retailer.  I am making $20, he is making $20.  Then I squeeze him out.  Now I am making $50 because I take over the customer.

listnum "WP List 3" \l 13489             There is no short‑run costs.  There is nothing to recoup.  I am ahead of the game.

listnum "WP List 3" \l 13490             MR. TAYLOR:  No.  On day 1 you are making $50.  I am making $30 if I provide service to the retail customer.  I make $20 if I provide the service to you.  No where in this game do I make $50.

listnum "WP List 3" \l 13491             MR. ENGELHART:  You make $30 on the retail operation; you make $20 on the wholesale operation.

listnum "WP List 3" \l 13492             MR. TAYLOR:  But I don't do both with the same customer.  If I provide service to you on the wholesale side, you have the customer, I don't; I don't get the $30.

listnum "WP List 3" \l 13493             MR. ENGELHART:  Let's say that there is a $20 profit to be made in providing a wholesale unbundled loop, and there is a $30 profit to be made by the company that acquires that loop in providing a retail telephone service.

listnum "WP List 3" \l 13494             If I am providing the wholesale loop and the retail service combined, I make $50 profit.  So, why would I not squeeze out the retailer and keep everything for myself?  Isn't that good if I am that wholesaler?  Aren't I ahead of the game as soon as I squeeze that retailer out?

listnum "WP List 3" \l 13495             MR. TAYLOR:  No.

listnum "WP List 3" \l 13496             THE CHAIRPERSON:  But don't you forget the interim?  Until you squeeze him out you forego the $20 that you are getting on the wholesale by selling it to that retailer.  It depends how long it takes to squeeze him out, but that cost you lose.

listnum "WP List 3" \l 13497             MR. ENGELHART:  I lose the $20 but I have a retail customer now and I am making $50.

listnum "WP List 3" \l 13498             MR. TAYLOR:  I don't know where $50 comes from, Mr. Engelhart.

listnum "WP List 3" \l 13499             MR. IACONO:  Mr. Engelhart, perhaps I can help with taking us back to reality.  That is a nice theoretical discussion.

listnum "WP List 3" \l 13500             I remember in the proceeding leading to decision 92‑12 regarding long distance competition, similar discussion and similar issues were raised.  What has happened in the long distance market since 98‑4, equal access, July 1st, which is really when long distance competition took hold, well, a lot of players came in doing strictly resale, buying from companies like Bell.  Eventually as more capability and more capacity and more Bells took place in terms of networks from a long distance carriage perspective, all kinds of different organizations are wholesaling long distance minutes.  Long distance competition, I think everyone in this room will more than agree, it's extremely competitive.

listnum "WP List 3" \l 13501             Again, we have seen players come, we have seen players go; we have seen some grow, we have seen some decline, still in business.  So, price squeeze, it is a nice theoretical conversation.  I haven't seen any illustration or real ‑‑ and I have been in this business a long time, as have you.  We haven't seen that.  There is no requirement to even think about that because it won't happen, and it doesn't happen.

listnum "WP List 3" \l 13502             MR. ENGELHART:  Mr. Iacono, you know perfectly well that in the long distance market a bunch of companies criss‑crossed the country with fibre as part of the .com telecom boom.  If we had multiple facilities going into all these buildings in the business areas, we wouldn't be having this conversation.  It is a completely different market.

listnum "WP List 3" \l 13503             MR. IACONO:  Yes, we would, Mr. Engelhart, because in 1995, when I was responsible at Stentor for the carrier services group, we developed ‑‑ and we didn't have to, no one mandated it ‑‑ we developed some services specifically designed to provide wholesale services to long distance organizations who were competing with our owners, the telephone companies.  It is because there was an economic reason and an economic incentive to do that.

listnum "WP List 3" \l 13504             So, it happens.  Wholesale is alive and well.

listnum "WP List 3" \l 13505             MR. ENGELHART:  Weren't there facilities‑based competitors with long distance networks across the country?

listnum "WP List 3" \l 13506             MR. IACONO:  Yes, there were, just as there are facilities‑based competitors with facilities in various important mark nets the company in Canada.

listnum "WP List 3" \l 13507             MR. ENGELHART:  That is kind of what we are talking about, is how many of those buildings and how many of those facilities.

listnum "WP List 3" \l 13508             MR. IACONO:  We gave examples earlier.  Telecom Ottawa.  I can give you the reference.  I found it, by the way.

listnum "WP List 3" \l 13509             MR. ENGELHART:  The Telecom Ottawa numbers you gave us, that is for Ottawa, Gatineau, Kingston and Cornwall.  Right?

listnum "WP List 3" \l 13510             MR. IACONO:  I did say 1,000 kilometres of fibre.

listnum "WP List 3" \l 13511             MR. ENGELHART:  But that is not just in Ottawa?

listnum "WP List 3" \l 13512             MR. IACONO:  It is not just in Ottawa.  So, it is actually broader than Ottawa.

listnum "WP List 3" \l 13513             MR. ANDERSON:  If I can just add to Mr. Iacono's point and Mr. Bibic's point earlier, the wholesale business for us is absolutely an important part of our market, as Mr. Bibic pointed out.  It is hundreds of millions of dollars for us.  It is a growth business for us.

listnum "WP List 3" \l 13514             We are looking at it as a very important market.  So, we are not interested in getting out of the wholesale business, which is I think some of the discussion.

listnum "WP List 3" \l 13515             MR. ENGELHART:  I want to return to the numerical example with Dr. Taylor, because maybe my quantitative skills have left me, but if I am a stand‑alone telephone provider providing an end‑to‑end service, I make a $50 profit.

listnum "WP List 3" \l 13516             MR. TAYLOR:  No, not in the assumptions that you and I talked about.  In the assumptions that you and I talked about, if you are providing a retail service you are making $30 end‑to‑end.

listnum "WP List 3" \l 13517             MR. ENGELHART:  If I am providing retail service using an unbundled loop.

listnum "WP List 3" \l 13518             MR. TAYLOR:  I don't care what you are providing.  I thought the $30 was for a vertically integrated ILEC.

listnum "WP List 3" \l 13519             MR. ENGELHART:  The vertically integrated ILEC makes $30 in his retail operation and $20 on the wholesale.

listnum "WP List 3" \l 13520             MR. TAYLOR:  Yes, but we are disconnecting here.  The $20 you make at wholesale is not for the same customer.  We have a customer out there.  If I serve him at retail, I make $30.  If I serve him at wholesale, that is selling my wholesale loop to you to provide it, I make $20.  That is the hypothesis.  Am I right?  There ain't no 50, is where this goes.

listnum "WP List 3" \l 13521             MR. ENGELHART:  Go with your example.  It is not mine, but go with yours.

listnum "WP List 3" \l 13522             MR. TAYLOR:  Sorry, then in my example, what it says is that when you provide the retail service at $30, if you are Bell or an ILEC, you scratch your head and you say, well, I can probably do that, and if I do, if I take that customer at $30 profit retail, I have to take into account the fact that I could have not taken him as a retail customer and made $20 by allowing you to serve him.  That is the background.

listnum "WP List 3" \l 13523             In that background, if I think of lowering my $30 price down to something close to $20, well, we haven't really decided what the wholesale price is, but lower in order to squeeze an otherwise efficient competitor, you, for example, out, I recognize that part of that calculus is that I give up my $20 wholesale profit.

listnum "WP List 3" \l 13524             MR. ENGELHART:  But if, in your example, you do the squeeze the other way, you tell the retailer, look, I am not going to provide you with this loop any more, you forego your $20 wholesale, but now you pick up the customer at retail, aren't you still ahead by ten bucks; you are now making a $30 profit?

listnum "WP List 3" \l 13525             MR. TAYLOR:  In this model, I prefer to be in the retail business by $30, that is correct.  I much prefer to be in the wholesale business at $20 than having someone else be in the wholesale business at $20.

listnum "WP List 3" \l 13526             MR. ENGELHART:  But if you are the only wholesaler ‑‑ the clause of yours that I read implies that there is a loss that you could only make up through recoupment.

listnum "WP List 3" \l 13527             In the example that you just gave, there is no loss.  In fact, you are up by ten bucks.

listnum "WP List 3" \l 13528             MR. TAYLOR:  No, the loss is after I have priced my retail service below an efficient price floor so as to drive a customer out, I am then making less money than I do at the retail price of $30.

listnum "WP List 3" \l 13529             MR. ENGELHART:  You haven't lowered your retail price.  You have just closed off the wholesale service.

listnum "WP List 3" \l 13530             MR. TAYLOR:  A different model, so not providing the service at all, in which case the comparison is between making $20 by providing a wholesale service to other carriers or making zero if I lose the customer to some other facilities‑based carrier.

listnum "WP List 3" \l 13531             MR. ENGELHART:  If you keep most of them for yourself, you are ahead of the game?

listnum "WP List 3" \l 13532             MR. TAYLOR:  That is a trade off, yes, but it doesn't follow that you keep most of them.  That is what the business and business planning is about.

listnum "WP List 3" \l 13533             Your examples that we have been ‑‑

listnum "WP List 3" \l 13534             THE CHAIRPERSON:  I do not follow.  I am trying to understand this.

listnum "WP List 3" \l 13535             In his example here, he is the only supplier.  Right?  He is vertically integrated, so he says if I cut you off, I will make that retail business too.

listnum "WP List 3" \l 13536             If the assumptions are correct that Mr. Engelhart makes, surely that is the consequence.

listnum "WP List 3" \l 13537             MR. TAYLOR:  Yes, and if Mr. Engelhart's assumptions are correct, this is an essential facility and we aren't arguing that it has to be made available.  That is, if there is no other provider and it is necessary in the downstream market, fine.

listnum "WP List 3" \l 13538             THE CHAIRPERSON:  So, it is implicit in all of your argument that there is another provider?

listnum "WP List 3" \l 13539             MR. TAYLOR:  It is implicit in ‑‑

listnum "WP List 3" \l 13540             THE CHAIRPERSON:  In this example?

listnum "WP List 3" \l 13541             MR. TAYLOR:  In the argument I am having with Mr. Engelhart, yes.

listnum "WP List 3" \l 13542             THE CHAIRPERSON:  Now I am following you.  Thank you.

listnum "WP List 3" \l 13543             MR. ENGELHART:  But in your example it is a wholesale facility.  The paragraph I read, you said:

                      "A firm that sets a wholesale price for an essential facility, that, together with the retail price, entails an anti‑competitive price squeeze."  (As read)

listnum "WP List 3" \l 13544             I thought Exhibit 1 is attempting to prove that a rational wholesaler would not squeeze out a retailer even if they had an essential facility.

listnum "WP List 3" \l 13545             MR. TAYLOR:  That is correct.

listnum "WP List 3" \l 13546             MR. ENGELHART:  And I thought doesn't our numerical example show that there is no cost and there is no need for recoupment if you pick them up at the retail level?  The only way your example works is if you lose those customers to some other retail provider.

listnum "WP List 3" \l 13547             MR. TAYLOR:  No.  The reason the example works, if you look at it, is because this is a price squeeze calculation and what we are doing is lowering the retail price, sacrificing some your $30 margin in order to drive a competitor out of business.  That is where the loss comes from.

listnum "WP List 3" \l 13548             MR. BIBIC:  Mr. Engelhart, going back to where we started right after lunch time, which is to bring it back to what is an essential facility, what isn't an essential facility ‑‑

listnum "WP List 3" \l 13549             MR. ENGELHART:  Hang on just one sec, Mr. Bibic.

listnum "WP List 3" \l 13550             I don't know, Mr. Chair, I am cognizant of the time.

listnum "WP List 3" \l 13551             THE CHAIRPERSON:  Do bring this to ground because I am just as confused as you.

listnum "WP List 3" \l 13552             MR. ENGELHART:  We have got ‑‑ it is an essential facility?

listnum "WP List 3" \l 13553             MR. TAYLOR:  Yes.

listnum "WP List 3" \l 13554             MR. ENGELHART:  There is a $30 profit if you provide the retail service.  There is a $20 profit if you provide the wholesale service.

listnum "WP List 3" \l 13555             MR. TAYLOR:  That is where we start, yes.

listnum "WP List 3" \l 13556             MR. ENGELHART:  There is an integrated supplier who has wholesale and retail operations.  There is a competitor who has retail and acquires the essential facility.

listnum "WP List 3" \l 13557             I am the wholesaler.  I am making $20 supplying to that retailer.  I refuse to give him access to the facilities, so he has to exit the business.  I pick up the customer at retail, so now I am making $30 profit whereas before I was making $20.  I am saying there is no loss, there is no cost to recoup.  I am ahead of the game.

listnum "WP List 3" \l 13558             MR. TAYLOR:  Yes, we are looking at two different scenarios.  You are looking at refusal to supply the wholesale facility, the essential facility.

listnum "WP List 3" \l 13559             I am looking at a constraint on the pricing of the retail facility.  I am assuming, I guess, that this is an essential facility.  So, following the rules, the ILEC is going to provide that essential facility at a price consistent with their $20 wholesale margin.

listnum "WP List 3" \l 13560             Then the question becomes:  What is the retail price?  Does the retail supplier have an incentive to lower his retail price to drive its competitor out of business?  That is where the cost ‑‑

listnum "WP List 3" \l 13561             MR. ENGELHART:  That is not what your evidence says.  Your evidence says a firm that sets a wholesale price for an essential facility, that (together with the retail price) entails an anti‑competitive price squeeze.

listnum "WP List 3" \l 13562             MR. TAYLOR:  I am sorry, where are you?

listnum "WP List 3" \l 13563             MR. ENGELHART:  I am in paragraph 44 of appendix 2, and it is the third sentence.  So, you are saying a firm that sets a wholesale price for an essential facility, that, together with the retail price, entails an anti‑competitive price squeeze, necessarily sacrifices profits at least in the short run.

listnum "WP List 3" \l 13564             So, in our example, the wholesaler would set such a prohibitively high price for the loop that the retailer would have to exit the business, and then the wholesaler, therefore, loses the retailer as a wholesale customer, loses $20, but then picks up the customer at retail, now he is making $30.  There is no cost; there is nothing to recoup.

listnum "WP List 3" \l 13565             MR. TAYLOR:  No, that isn't the correct interpretation.

listnum "WP List 3" \l 13566             The issue here is what the margin is between the wholesale price and a retail price that generates a price squeeze.  This isn't brand new economics.  This is nothing that I made up.  This is standard issue.

listnum "WP List 3" \l 13567             That difference is the difference that is explained in appendix 1.  What it takes into account that perhaps I am not explaining well is the notion that if the vertically integrated firm doesn't provide the wholesale service, instead chooses to provide the retail service, it loses its margin on the wholesale service.

listnum "WP List 3" \l 13568             MR. ENGELHART:  But it makes more margin now that it is also a retailer.

listnum "WP List 3" \l 13569             MR. TAYLOR:  Well, it is not also a retailer in this model.  We are thinking of this as there is a customer out there, am I going to serve that customer at retail, am I going to serve that customer at wholesale.

listnum "WP List 3" \l 13570             MR. ENGELHART:  So your hypothetical is not dealing with an integrated company, your hypothetical is dealing with a pure wholesaler?

listnum "WP List 3" \l 13571             MR. TAYLOR:  No.  When I say ‑‑ think of what an ILEC does.  When an ILEC competes with you, with your company to provide business service in a building, it implicitly has a choice.

listnum "WP List 3" \l 13572             It can provide retail service to that customer or it can say, no, I can make more money in some circumstances by providing the assumed essential facility and making $20.  In any case, if I have to bid my price, my retail price, my $30 down low enough, I am going to make more money letting the competitor, the entrant provide it and I still make 20 bucks at wholesale.  That is the part that you have to take into account.

listnum "WP List 3" \l 13573             MR. ENGELHART:  Let's stop messing with the retail price.

listnum "WP List 3" \l 13574             What you are doing here, as you said in paragraph 44, is setting such a high wholesale price that you have squeezed this guy out of the business.  You are not changing the retail price.

listnum "WP List 3" \l 13575             MR. TAYLOR:  Well, in my mind, I am changing the retail price but it doesn't matter because it is the margin that matters.

listnum "WP List 3" \l 13576             MR. ENGELHART:  Okay.  So I have set the high wholesale price, I have driven the guy out of the business, I have lost my $20 of wholesale profit, but now I have picked up that customer at retail, now I am making $30 profit.  Why have I incurred any cost that needs to be recouped?

listnum "WP List 3" \l 13577             MR. TAYLOR:  I am taking the ‑‑ I am sorry if it reads poorly but I am taking the other view.  I am taking the view of we have required to provide the wholesale service at a given price.

listnum "WP List 3" \l 13578             THE CHAIRPERSON:  If an ILEC does what he suggests, where is the cost to him?

listnum "WP List 3" \l 13579             MR. TAYLOR:  If I can charge a higher price for the wholesale service, so I leave my retail price where it is, I have a customer out there we are trying to attract and I simply raise the wholesale price to a level where he can't compete, then yes, he is out of business and this model does not apply.

listnum "WP List 3" \l 13580             THE CHAIRPERSON:  But also, the ILEC did not really suffer anything.  There is a short interruption where he doesn't make that wholesale profit but that is very short.

listnum "WP List 3" \l 13581             MR. TAYLOR:  Correct.  Nor did the ILEC provide the wholesale price at a regulated price.

listnum "WP List 3" \l 13582             THE CHAIRPERSON:  Right.

listnum "WP List 3" \l 13583             MR. TAYLOR:  Remember, we are assuming this is an essential facility.

listnum "WP List 3" \l 13584             THE CHAIRPERSON:  Right.  Right.

listnum "WP List 3" \l 13585             MR. TAYLOR:  And in all of the worlds I know, including Canada, part of the requirement that you provide an essential facility is a pricing requirement.  Otherwise, you would price it at infinity ‑‑

listnum "WP List 3" \l 13586             THE CHAIRPERSON:  Right.

listnum "WP List 3" \l 13587             MR. TAYLOR:  ‑‑ and the requirement is meaningless.

listnum "WP List 3" \l 13588             So yes, Mr. Engelhart, under your view, you could say that if you price the wholesale facility at infinity, the firm will make $30, but that isn't the case I am looking at.  That isn't the case that proves there is no incentive to price squeeze.

listnum "WP List 3" \l 13589             THE CHAIRPERSON:  Okay.  Now, you seem to have lost Mr. Engelhart but you haven't lost me.  Can you walk me through your example, what is the situation that you contemplate?

listnum "WP List 3" \l 13590             MR. TAYLOR:  Suppose that the wholesale price is given ‑‑

listnum "WP List 3" \l 13591             THE CHAIRPERSON:  Yes.

listnum "WP List 3" \l 13592             MR. TAYLOR:  ‑‑ a regulated price.  The retail price is determined in the market, unregulated.

listnum "WP List 3" \l 13593             THE CHAIRPERSON:  Mm‑hmm.

listnum "WP List 3" \l 13594             MR. TAYLOR:  The concern is that without, say, a price floor, which is commonly what regulators put, that the vertically integrated firm is going to lower the retail price ‑‑

listnum "WP List 3" \l 13595             THE CHAIRPERSON:  Okay.

listnum "WP List 3" \l 13596             MR. TAYLOR:  ‑‑ so that the margin between the regulated wholesale price and the retail price is too small to permit competition ‑‑

listnum "WP List 3" \l 13597             THE CHAIRPERSON:  Yes.

listnum "WP List 3" \l 13598             MR. TAYLOR:  ‑‑ from any competitor.

listnum "WP List 3" \l 13599             And my point is or this exercise is that as you lower the retail price ‑‑

listnum "WP List 3" \l 13600             THE CHAIRPERSON:  You take the hit, yes.

listnum "WP List 3" \l 13601             MR. TAYLOR:  ‑‑ you take the hit.

listnum "WP List 3" \l 13602             THE CHAIRPERSON:  Yes.

listnum "WP List 3" \l 13603             MR. TAYLOR:  And that is economically equivalent to the same argument as a price squeeze and why a price squeeze under most circumstances ‑‑ not a price squeeze but predatory pricing and why predatory pricing isn't frequently thought or at least in some markets thought to be a significant problem.

listnum "WP List 3" \l 13604             MR. ENGELHART:  Okay.  I think we are there.

listnum "WP List 3" \l 13605             I want to talk to you now, Mr. Bibic, about your proposal for the Commission, the way the Commission, in your view, should deal with these essential facilities, which, in your view, I suppose, will become former essential facilities.

listnum "WP List 3" \l 13606             I wonder if you could take a look at section 3.4.3 entitled "Market Analysis" on page 46 of your March 15th evidence.

listnum "WP List 3" \l 13607             COMMISSIONER del VAL:  I am sorry, Mr. Engelhart, could you repeat the reference, please?

listnum "WP List 3" \l 13608             MR. ENGELHART:  Yes.  That is the Bell March 15th evidence, section 3.4.3, which is on page 46, and in particular paragraph 81.

listnum "WP List 3" \l 13609             COMMISSIONER del VAL:  Thank you.

‑‑‑ Pause

listnum "WP List 3" \l 13610             MR. ENGELHART:  I will actually go up to paragraph 80 where you say:

^^"This section will demonstrate that ex ante wholesale regulation should be removed regardless of the state of competition in different market situations." (As read)

listnum "WP List 3" \l 13611             Then you say how this happens in paragraph 81.  So this is, as I take it, what the Commission should do.

^^"The first question asked in the analysis is whether there is competition in the relevant retail market.  If the answer is yes, then the next question is whether there are at least two end‑to‑end facilities‑based providers.  If the answer to this question is also yes, then clearly, since there is effective end‑to‑end facilities‑based competition in the retail market, there are no essential facilities." (As read)

listnum "WP List 3" \l 13612             Then in 82 you say:

^^"But even if there are not two end‑to‑end facilities‑based providers, it does not necessarily mean there is an essential facility.  It is therefore completely inappropriate to regulate wholesale access on an ex ante basis." (As read)

listnum "WP List 3" \l 13613             Then in paragraph 83 you say:

^^"If the answer to the second question is no, in other words, there is effective competition in the relevant retail market but all competing service providers are using some facilities from one other provides, let's say the ILEC, there is at least the possibility of an essential facility that would require regulated wholesale access.  It should not, however, be presumed that this is the case.  For the reasons given below, it is more likely that given the opportunity and sufficient time for competitors to adjust to a situation where incentives to invest are allowed to operate under normal market conditions, end‑to‑end facilities‑based competition will emerge."   (As read)

listnum "WP List 3" \l 13614             So I want to just try and operationalize how this is actually going to work with the Commission.

listnum "WP List 3" \l 13615             So say at the end of this proceeding the Commission says:  We agree with Bell, there is no more ex ante essential facilities.  You folks go off but if you have a problem you can always come back and argue ex post that there are some essential facilities.

listnum "WP List 3" \l 13616             So Rogers decides, geez, we really do need those DS‑0s and DS‑1s and DS‑3s and everything we asked for.  So we go to Bell and we say:  Look, we want those things.

listnum "WP List 3" \l 13617             And in my hypothetical, Bell says:  No, we are not giving unbundled copper loops anymore and as for DS‑1s and DS‑3s, help yourself to our retail rates but we are not providing any discounts to wholesalers here.

listnum "WP List 3" \l 13618             Now, we then go to the Commission and we say:  We want you to do an ex post analysis, and the Commission follows your market analysis.

listnum "WP List 3" \l 13619             So they ask the first question:  Is there end‑to‑end facilities‑based competitors?

listnum "WP List 3" \l 13620             So they look at Toronto and they say:  Well, there are a couple of hundred thousand business buildings here but between the hydro company and other folks, there are 1,000 or 1,500 of those buildings that have end‑to‑end facilities.

listnum "WP List 3" \l 13621             So if those are the facts that the Commission finds, is the answer to the first question yes, there are end‑to‑end facilities‑based providers, so Rogers is out of luck?  Is that the end of the analysis?

listnum "WP List 3" \l 13622             MR. BIBIC:  Which retail market are you talking about now?  You moved around a bit.

listnum "WP List 3" \l 13623             MR. ENGELHART:  The business market ‑‑ the market for business telecommunications services in Toronto.

listnum "WP List 3" \l 13624             MR. BIBIC:  Which one?  Are you talking about high capacity data services, low capacity basic internet, are you talking about business primary exchange service?

listnum "WP List 3" \l 13625             MR. ENGELHART:  All of the above.

listnum "WP List 3" \l 13626             MR. BIBIC:  Well, you have to look at them one by one.

listnum "WP List 3" \l 13627             MR. ENGELHART:  So with all of these services, because Rogers provides, say, all of them to all business customers, we feel we need DS‑0s, DS‑1s and DS‑3s, and Bell says:  Look, there are end‑to‑end facilities‑based providers.  Look at these 1,000 buildings here, they have fibre going right to them.

listnum "WP List 3" \l 13628             Under your analysis, is the Commission supposed to say:  I am sorry, Rogers, we are following Bell's analysis, there are end‑to‑end facilities in a thousand of these buildings and as for the other 300,000 or 200,000 or 100,000 customers you are out of luck because there are some end‑to‑end facilities‑based providers in Toronto so we can't look any further.

listnum "WP List 3" \l 13629             Is that how your analysis works?

listnum "WP List 3" \l 13630             MR. BIBIC:  I wasn't aware that there were 300,000 business customers in Toronto.

listnum "WP List 3" \l 13631             So the point I'm trying to make is, you have to look at the market and you are making some gross generalizations there.

listnum "WP List 3" \l 13632             So let's take the business internet market first, or business telephony.  Take business internet.  So you start off with your product market.  I just identified it.  You start off with your geographic market.  The geographic market might be the City of Toronto.

listnum "WP List 3" \l 13633             So the Commission could very well look and say this is a very competitive marketplace, in fact Rogers has co‑ax into 90 per cent of these buildings, if we take Ottawa, and can provide business internet services to all of those buildings over it's co‑ax network.

listnum "WP List 3" \l 13634             Clearly the market is competitive so the analysis would stop right there.  There is not an essential facility, there is no problem in the downstream market.  That would be one example.

listnum "WP List 3" \l 13635             Let's take another example.

listnum "WP List 3" \l 13636             MR. ENGELHART:  What if instead of having facilities into 90 per cent of the buildings you had them into 10 per cent of the buildings?  How does the analysis go then?

listnum "WP List 3" \l 13637             MR. BIBIC:  Okay.  So then let's assume, just to make it even clearer, that the Commission comes to the view that maybe there is a downstream competition problem in whatever product market and whatever geographic market and it says maybe there is a downstream problem.  Because the downstream dominance test is the first screen, as we heard the Bureau say yesterday and today and with which I would agree.

listnum "WP List 3" \l 13638             So then you would go look at the other two elements of the test, the key one being is the facility in question connection to a building duplicable.  I would suggest to you, Mr. Engelhart, that if Rogers is in 10 per cent of the buildings that in and of itself demonstrates duplicability, or perhaps the Commission would even like to get more granular and decide:  Well, let's look at the revenues to be earned in this market versus the cost to build.

listnum "WP List 3" \l 13639             The problem with the model we have today, the regulatory model we have today, is that all of us actually, whether or not it is Bell in the west or TELUS in the east or yourselves, people start looking at the cost to build versus the cost to lease, and that creates the wrong equation.

listnum "WP List 3" \l 13640             MR. ENGELHART:  Mr. Bibic ‑‑

listnum "WP List 3" \l 13641             MR. BIBIC:  No, but this gets to duplicability, Mr. Engelhart.

listnum "WP List 3" \l 13642             MR. ENGELHART:  No, no.  I'm trying to figure out ‑‑

listnum "WP List 3" \l 13643             MR. BIBIC:  Mr. Engelhart, it just gets to duplicability.

listnum "WP List 3" \l 13644             MR. ENGELHART:  I'm trying to figure out operationally how the Commission does it.

listnum "WP List 3" \l 13645             I know your theory, we are talking here about the operation.

listnum "WP List 3" \l 13646             You lay out a nice algorithm here.  You say, in paragraph 81:

                      "The first question as to the analysis is whether there was competition in the relevant market."  (As read)

listnum "WP List 3" \l 13647             The answer you gave is yes.  Good.  So in our algorithm we move to the next question:  Are there at least two end‑to‑end facilities‑based providers?  So the data that the Commission has is 10 per cent of the buildings have end‑to‑end facilities‑based providers, 90 per cent don't.

listnum "WP List 3" \l 13648             So in that case does the Commission then say:  Well, the answer to the second question is also yes, or is the answer to the second question no, in which case we move to the third question.

listnum "WP List 3" \l 13649             MR. BIBIC:  I think a more clear expression of the algorithm, Mr. Engelhart, is in our opening statement.  You might want to look at that and maybe we can work through that algorithm.

listnum "WP List 3" \l 13650             THE CHAIRPERSON:  Before you do, can I just ask:  Did you say a geographic market you accept in his example would be Toronto?  You wouldn't do it on a building‑by‑building basis or on exchange basis or something like this?

listnum "WP List 3" \l 13651             MR. BIBIC:  Our proposal would be to use the geographic markets already determined to be ‑‑ as already defined by the Commission.  That is why you have to look at the product market.

listnum "WP List 3" \l 13652             THE CHAIRPERSON:  All right.

listnum "WP List 3" \l 13653             MR. BIBIC:  The Commission has said that for, for example, digital network access services, the geographic market is the wire centre.  For local exchange service clearly the geographic market as determined in the forbearance decision is the exchange.  For high capacity multi‑wavelength services the Commission has determined that geographic market to be the census metropolitan area.  That is why you have to start with the product.

listnum "WP List 3" \l 13654             THE CHAIRPERSON:  That is a clarification in the example you were walking us through with Mr. Engelhart we didn't get to.  That's very important that we first of all know what is the geographic market.

listnum "WP List 3" \l 13655             MR. BIBIC:  Correct.

listnum "WP List 3" \l 13656             THE CHAIRPERSON:  All right.

listnum "WP List 3" \l 13657             MR. ENGELHART:  So this isn't the algorithm here in paragraph ‑‑

listnum "WP List 3" \l 13658             MR. BIBIC:  If you look at page 2 of our opening statement that would be an example.

listnum "WP List 3" \l 13659             There are two places where we have provided a clear expression of our test and one is page 2 of our opening statement in the context of the format that the Commission proposed.

listnum "WP List 3" \l 13660             MR. ENGELHART:  I thought that page 2 was an ex ante test.

listnum "WP List 3" \l 13661             MR. BIBIC:  It is, but ‑‑

listnum "WP List 3" \l 13662             MR. ENGELHART:  We are dealing now with your ex post proposal.

listnum "WP List 3" \l 13663             MR. BIBIC:  Mr. Engelhart, please let me finish.  I was going to tell you, there are two places where you can get a clear expression.  I said on page 2 of our opening statement in the context of the Commission's ex ante test, or ‑‑ and that's where you cut me off ‑‑ or if you look at our response to The Companies/CRTC July 19 1002.  You will get there an expression of the algorithm in an ex post context.

listnum "WP List 3" \l 13664             COMMISSIONER CRAM:  Can you repeat what interrog it was?

listnum "WP List 3" \l 13665             MR. BIBIC:  Yes, Companies/CRTC July 19 1002.

‑‑‑ Pause

listnum "WP List 3" \l 13666             THE CHAIRPERSON:  I see it is 3 o'clock, why don't we take this opportunity to take a 10‑minute break while they try to find that document.

‑‑‑ Upon recessing at 1458 / Suspension à 1458

‑‑‑ Upon resuming at 1515 / Reprise à 1515

listnum "WP List 3" \l 13667             THE CHAIRPERSON:  Would you take your seats, please.

listnum "WP List 3" \l 13668             Mr. Engelhart, can we expect to speedily gallop to the finish line?

listnum "WP List 3" \l 13669             MR. ENGELHART:  I'm on my last question, my last area of questioning, so we are almost done.

listnum "WP List 3" \l 13670             Mr. Bibic, you were explaining to us your algorithm.

listnum "WP List 3" \l 13671             MR. BIBIC:  I will try to make it clearer by using three examples.  Let's say it's residential telephony and let's say it's in a hypothetical exchange.

listnum "WP List 3" \l 13672             So first example you have Bell, you have a cable company ‑‑

listnum "WP List 3" \l 13673             MR. ENGELHART:  Just humour me here, let's not do residential, I'm trying to figure out in the business market.

listnum "WP List 3" \l 13674             In the business market the Commission has said there is no more ex ante essential facilities, there just aren't.  We are listening to Mr. Bibic and he speaks words of wisdom, so we are not going to have any more ex ante.

listnum "WP List 3" \l 13675             It's ex post, knock yourselves out, but please feel free to come back to us if you have a problem.

listnum "WP List 3" \l 13676             Rogers has a problem.  We want those DS‑0s, DS‑1s and DS‑3s.  We go to the Commission, we say "We are here, it's ex post, we want you to mandate access, Bell is not playing nice with us", and you say "Ah, but Rogers, or someone is already in 10 per cent of these buildings.  Between Rogers and other folks they are in 10 per cent of the buildings."

listnum "WP List 3" \l 13677             What then does the Commission do with that evidence?  Do they say "Sorry, Rogers, you're out of luck", or do we move to question 3?

listnum "WP List 3" \l 13678             MR. BIBIC:  It's not as simple as that.  I will use your product market, that's okay.  So let's use your product market.

listnum "WP List 3" \l 13679             It is business telephony and you look at our test.  You can use the one that we set out in The Companies/CRTC that I pointed to before.

listnum "WP List 3" \l 13680             So you say:  Is the facility required as an input by all competitors or potential competitors to provide business telephony services downstream?

listnum "WP List 3" \l 13681             The answer is:  I need a loop, the answer is DS‑0.  You need loop, DS‑0.

listnum "WP List 3" \l 13682             So then you go to the next question:  The facility is controlled by a carrier ‑‑ the facility in this case is the DS‑0 loop ‑‑ is controlled by a carrier, Bell ‑‑ that provides the same or similar service or services in the relevant downstream market ‑‑ the answer is yes ‑‑ and by denying competitors access to the facility, reasonable terms and conditions, the carrier has prevented or substantially lessened competition in the relevant downstream market.  And we wrote "has prevented or substantially lessened" because it is an ex post test.  Right?

listnum "WP List 3" \l 13683             So the question is ‑‑ Okay, we say to Rogers:  We will not provide you, Rogers, with DS‑0 loops.  So the Commission has to decide:  Has that prevented or substantially lessened competition in the relevant downstream market?

listnum "WP List 3" \l 13684             If there happens to be another provider of business telephony services the answer is no.  So we stop there.

listnum "WP List 3" \l 13685             If the answer is there is no other provider, it's just us and you, and by denying access we have prevented or substantially lessened competition, the Commission would go to step 3:  Is it practical or feasible for any competitor to economically or technically duplicate?

listnum "WP List 3" \l 13686             I think at that point the Commission would say:  Well, Rogers, why are you coming to us to ask for DS‑0 loops when we all know you have a cable network that extends to almost all the buildings in the exchange over which you can clearly provide business telephony services because your co‑ax cable is the equivalent of a DS‑0 loop.  So they would tell you in that example:  No, it's not an essential facility.

listnum "WP List 3" \l 13687             Well, then I know what your next question is:  Well, what if it's not a DS‑0, what if we we are talking about DS‑3, because DS‑3 is a higher capacity.

listnum "WP List 3" \l 13688             And perhaps you can't provide DS‑3 equivalent services over your co‑ax network, then the question is, in terms of duplicability:  Can the cable company use its own fibre to provide services?   In other words, fibre access.

listnum "WP List 3" \l 13689             The Commission would have regard to the fact that you happen to have a lot of fibre access in this hypothetical exchange, or the Commission could examine "Well, can Rogers build fibre access where it doesn't already have it?

listnum "WP List 3" \l 13690             There is the analytical framework.

listnum "WP List 3" \l 13691             MR. ENGELHART:  So does the Commission ‑‑

listnum "WP List 3" \l 13692             THE CHAIRPERSON:  If rather than refusing to supply you, agreed to supply but at an exhorbitant price that Rogers is not willing to pay, then you would expect us to arbitrate?

listnum "WP List 3" \l 13693             MR. BIBIC:  I would expect that at that point, if we refuse to provide ‑‑ well, if we provide at exhorbitant prices, if we are willing to provide at exhorbitant prices and that will have the effect of substantially lessening or preventing competition, then you would go to the next stage again, duplicability.  So it may be ‑‑

listnum "WP List 3" \l 13694             THE CHAIRPERSON:  But at the end of the day we would presumably arbitrate a price.

listnum "WP List 3" \l 13695             MR. BIBIC:  If you find that it's an essential facility, yes, you would.

listnum "WP List 3" \l 13696             THE CHAIRPERSON:  All right.

listnum "WP List 3" \l 13697             Mr. Engelhart, go ahead.

listnum "WP List 3" \l 13698             MR. BIBIC:  Mr. Chairman, just ‑‑

listnum "WP List 3" \l 13699             MR. ENGELHART:  The problem I have is that this is a definition of essential facilities.

listnum "WP List 3" \l 13700             MR. BIBIC:  Sorry, Mr. Engelhart, may I just answer the Chairman's question.

listnum "WP List 3" \l 13701             Under our model, though, we are suggesting that the Commission allow parties to negotiate their own pricing for essential facilities.  Now, of course, if we can't agree, then the Commission would arbitrate.

listnum "WP List 3" \l 13702             Sorry, Mr. Engelhart.

listnum "WP List 3" \l 13703             MR. ENGELHART:  What I am trying to figure out is what happens.

listnum "WP List 3" \l 13704             Are you saying that the Commission gives a different answer depending on who is asking.  So, if Rogers asked for it, in your hypothetical, you would say the Commission would say, no, Rogers, you can't have it because you have cable facilities in the area.  But, if Primus was asking for it, then the Commission would grant relief.  Is that what you are saying?

listnum "WP List 3" \l 13705             MR. BIBIC:  No.  I was using Rogers as an example, but you would look at a reasonably efficient competitor.  Can this functionality be duplicated?

listnum "WP List 3" \l 13706             So, if Primus were to come and say, well, we need loops, the Commission would look around and say, well, wait a minute, loops are duplicatable.  Cable companies have done it or the costs of doing ‑‑ the revenues that can be generated from building exceed the costs.  It can be done.  Then ‑‑

listnum "WP List 3" \l 13707             MR. ENGELHART:  So, in all of the major urban markets in Canada, or let's say in Ontario and Quebec, in your operating territory, since some of the buildings have fibre going to them, 50 or 100 or 200 buildings have fibre going to them from electric utilities or Allstream or somebody, you are saying that the Commission would say to all of these applicants, the facilities are duplicatable so you can't have them, go away?

listnum "WP List 3" \l 13708             MR. BIBIC:  Right, and the essential facilities test may not be met under several branches.  It may be that because of that, because there are a number of different providers who have connected different buildings, that the state of competition downstream is sufficiently competitive.

listnum "WP List 3" \l 13709             The fact that there are many different providers who have connected different buildings shows that there is a wholesale market, and it also shows that the facility is duplicatable.

listnum "WP List 3" \l 13710             MR. ENGELHART:  Just so we are clear, what you are saying that after the Commission declares these facilities to be not ex ante essential, and we all go on our way, when we come back to the Commission and say, please declare these facilities to be essential an on ex post basis, in your submission the Commission should send us all away in all of the urban markets in Canada because somebody has built some facilities to some buildings; therefore, they are duplicable; therefore, there is no such thing has an essential facility?

listnum "WP List 3" \l 13711             MR. BIBIC:  The first point I would want to make is ‑‑ I mean, I am not here saying that there can't be the possibility of an essential facility.  I could see scenarios where there might be.

listnum "WP List 3" \l 13712             We should rely on the policy direction and let market forces work to the maximum extent feasible, which is what the policy direction says:  Let the parties come to their own commercial terms.  If they can't, I am not foreclosing the possibility that in some cases there would be an essential facility.  So, you are making, again, a very general statement.

listnum "WP List 3" \l 13713             MR. ENGELHART:  But I am trying to figure out how it works.  You are saying if it is duplicatable, if somebody has built something to some building, it is not duplicatable.  So, let's get it out in the open now so we are not horribly disappointed after the ex post proceeding starts and we find out we just wasted our time with our application.

listnum "WP List 3" \l 13714             You are saying if someone has built something it is duplicatable, and, therefore, it is not essential.  That is what you are saying?

listnum "WP List 3" \l 13715             MR. BIBIC:  Well, transport can be built.  It has been shown.  Digital loops can be dealt.  You have done it; many others have done it.  DS‑0 loops have been built.  You have done it.

listnum "WP List 3" \l 13716             So, the answer is, in our view, there is very little that is essential ex ante.  I am not foreclosing the possibility that somebody may be able to make out a case in a particular exchange for a given product market, but, yes, the bottom line is that there is very little that we feel is essential ex ante.  It has been duplicated.  It is duplicatable.  Cable companies are the poster children for that proof.

listnum "WP List 3" \l 13717             MR. ENGELHART:  Let's take the Toronto exchange for example.  Say that you have proven that people have built facilities to the Toronto Dominion Centre, to Scotiabank Plaza, to the Royal Bank Tower, to the Commission Union Tower, and then someone comes to the Commission and says, I am trying to serve all of the industrial parks out in Etobicoke and Scarborough and North York, and to spend 10,000 bucks to get into one of these industrial parks to serve one customer with one DS‑1, I will never make any money, but if I could have essential facilities into these industrial parks, then I could build up some critical mass and I could eventually replace them with my own facilities.

listnum "WP List 3" \l 13718             Does the Commission say, I'm sorry, somebody has built fibre to the TD Centre, therefore these facilities are duplicatable, it is not an essential facility in all these industrial parks?

listnum "WP List 3" \l 13719             MR. BIBIC:  The access seeker would have to establish that it really isn't duplicatable for anybody but the ILEC to reach your business park, and I suspect it would be certainly open to you to establish that the revenues that you could generate by connecting that business park with your own facilities would come no where close to covering the cost.  But that would be for the access seeker to make out under our proposal.

listnum "WP List 3" \l 13720             MR. ENGELHART:  Coming back to paragraph 81, which I really think is the algorithm ‑‑ I think the interrog that you have brought us to is a definition which tells you how to set up the regime.

listnum "WP List 3" \l 13721             I think section 3.4.3 is an operational algorithm for how the Commission should administer that regime, and it says:

                      "The first question asked in the analysis is whether there is competition in the relevant retail market."  (As read)

listnum "WP List 3" \l 13722             You bet, there is.

                      "If the answer is yes, then the next question is whether there are at least two end‑to‑end facilities‑base providers."  (As read)

listnum "WP List 3" \l 13723             The problem with question 2 is what does it mean?  I mean, we understand what it means in the residential market because cable goes to all the buildings, cable goes to all the houses.  But if there is an end‑to‑end facilities provider or providers that cover 90 per cent of the business buildings, you might be inclined to say, well, I think the answer is yes to that question.

listnum "WP List 3" \l 13724             What if it is 10 per cent; what if it is 8 per cent; what if it is 3 per cent; and what if the buildings are different?  What if the people have built to the 8 per cent of the buildings where it is economical for them to do so and they haven't built to the 92 per cent of the buildings where it is not economical to do so, what does the Commission do in that case?

listnum "WP List 3" \l 13725             MR. BIBIC:  Mr. Engelhart, let's go back to the real world now.  Let's take buildings in the downtown core of Ottawa, where big businesses need high capacity services.  Well, it turns out that Rogers happens to be in many or most of them and has shown that if it hasn't connected all of them, it certainly can.  So, it is duplicatable.

listnum "WP List 3" \l 13726             It may only be in 10 per cent of the buildings, but it also happens that most of the revenues are generated by the 10 per cent of the buildings it is in.

listnum "WP List 3" \l 13727             So, there you will be looking at services required by those big businesses, high capacity data and voice.

listnum "WP List 3" \l 13728             If you want to look instead at all the other buildings, in other 90 per cent of the buildings in Ottawa, well, those are probably small‑ and medium‑sized businesses who, as Mr. Iacono has pointed out, represent most of the buildings in Canada and 75 per cent of those businesses only need one‑ or two‑line service.  So, you now are talking about a totally different type of service and you can deliver those services over coax, cable networks.

listnum "WP List 3" \l 13729             In that case, maybe Rogers hasn't fibred up those buildings.  I suspect they may not have.  But it turns out that Rogers may have 60, 70, 80, 90 per cent of those buildings already connected, in which case, well, the facility, the loop, the DS‑0, isn't duplicatable.

listnum "WP List 3" \l 13730             You keep pointing me to, well, what if it is 10 per cent?  Well, maybe that 10 per cent represents most of the revenues and, in that event, looking at the proper retail product market, the facility in question, fibre access, is duplicatable.

listnum "WP List 3" \l 13731             MR. ENGELHART:  You have totally ignored the question, which is the person wants to serve the industrial marks, or maybe he wants to serve the downtown buildings and the industrial parks.  There are no competitive facilities into those industrial parks.

listnum "WP List 3" \l 13732             So, you are saying that the Commission should assume that the facilities exist, even if they don't, and send the applicant away.  You are saying there is no such thing as an essential facility; they just don't exist.

listnum "WP List 3" \l 13733             MR. BIBIC:  I don't think your hypothetical is all that applicable to the real world, but it would be open to the Commission to say, there is a problem ‑‑ I have answered this actually ‑‑ there is a problem in the industrial park, no one can go in but the ILEC and build there, the revenues don't justify the costs, in which case the access seeker may have made out a case for duplicability.  I said it would be up to the access seeker to make that case and put the evidence forward.

listnum "WP List 3" \l 13734             In that case, the Commission certainly could say there is an essential facility in that area and mandate access.

listnum "WP List 3" \l 13735             MR. HENRY:  Let me give you an example of what happens in these industrial parks, at least again back to my Halifax example.

listnum "WP List 3" \l 13736             East Link sits at the same table as us, at the planning stage with the municipality.  We are both going to lay fibre in that business park and the developer lays conduit and we both participate in the planning stage, and then when any one of us gets a customer, we just pull it through.

listnum "WP List 3" \l 13737             MR. ENGELHART:  Mr. Henry, you are talking about a green field development.  Not every single industrial park hasn't been built yet.  A lot of them have been.

listnum "WP List 3" \l 13738             I am just trying to understand  whether there really is ‑‑

listnum "WP List 3" \l 13739             MR. HENRY:  In the non‑green field development, you typically have fibre in the buildings, in the large buildings.

listnum "WP List 3" \l 13740             MR. ENGELHART:  Look, I am trying to understand whether there really is an ex post process.  Your evidence says, look, don't make any of these things ex ante essential.  You can always come back later and argue ex post that they are essential.

listnum "WP List 3" \l 13741             I am trying to find out whether there really is an ex post process, and I think what you are telling me is in the cities, anyway, there is not.  If somebody has built fibre to some place, if some cable companies have some coaxial facilities that are going to the residential areas and nearby to some of the business buildings, there are no essential facilities, I admire your honesty.  I just want to get it on the record so that we know what we are dealing with.

listnum "WP List 3" \l 13742             MR. BIBIC:  The ex post process that we are proposing is the one that will rely to the maximum extent feasible on market forces, number one.

listnum "WP List 3" \l 13743             Number two, I suspect that there will be very few cases where competitors will bring forward complaints because we will be open to reaching commercial arrangements.

listnum "WP List 3" \l 13744             Number three, should that not happen or should a competitor nevertheless feel aggrieved, clearly there is an ex post process under our proposal under this test and I think I have answered now twice or this will be the third time your hypothetical with respect to the business park.  That will be for the Commission to decide.

listnum "WP List 3" \l 13745             I may be suggesting if that were an application, that the facilities are duplicatable in a business park, but it depends on the facts.  You will be arguing that they aren't, and I would suggest that in that eventuality, the complainant would put forward evidence of cost versus revenues and then the Commission would decide.

listnum "WP List 3" \l 13746             So, I don't think it is correct to say that we don't have a process.  We actually do have a process.

listnum "WP List 3" \l 13747             I think you are arguing with me about whether or not at the end of the day access to an essential facility ‑‑ or, sorry, an essential facility will be properly made out under a properly constructed test.

listnum "WP List 3" \l 13748             MR. ENGELHART:  Mr. Bibic, could you take a look at Dr. Taylor's evidence of March 15th to appendix 2 of your evidence, and, in particular, to paragraph 5 of Dr. Taylor's declaration?

listnum "WP List 3" \l 13749             Dr. Taylor says:

                      "Second, when retail markets are effectively competitive but require dependency‑like competitors, an unregulated ILEC might be able to exercise wholesale market power.  In this case, the wholesale service would be considered essential as that term is defined by the Competition Bureau in the sense that competitors require it to compete in the downstream market and there is some likelihood of ILEC anti‑competitive conduct in the retail market."  (As read)

listnum "WP List 3" \l 13750             Dr. Taylor goes on in paragraph 6 to say:

                      "Even in this case, however, ex ante regulation would likely be self‑defeating.  Without a market trial we would never know what market‑based wholesale prices might be and what competition would emerge at those rates and become sustainable in the retail markets."  (As read)

listnum "WP List 3" \l 13751             Is that really what you are suggesting here, Mr. Bibic?  Is Bell suggesting that the Commission should say to Rogers, look, we know that there isn't much facilities‑base competition, we know that the competition there is heavily dependent on the use of ILEC facilities, but we are going to let things go for a few years and give it a market trial.  Is that what Bell is suggesting is Commission should do?

listnum "WP List 3" \l 13752             MR. BIBIC:  We can make this very long and I could argue with you about whether or not I agree with all the premises in your question about there not being facilities‑base competition in Canada.  So I will let that go and go straight to the question.

listnum "WP List 3" \l 13753             Take an example.  An exchange where Bell, only Bell and an unbundled loop user compete residential telephony, if you will.  There is no cable company there.  If we deny access to that unbundled local loop, I think that a case for essential facility could be made out in that exchange.

listnum "WP List 3" \l 13754             If we grant access to the unbundled local loop, well, there is no complaint to ever be brought forward to the Commission.  That is one example.

listnum "WP List 3" \l 13755             Another example is we are an exchange and only Bell and Rogers compete and you choose to compete over the CallNet facilities you acquired and you say, Commission, I really want those loops at mandated prices.  My evidence would be those loops are duplicatable.  Rogers has a cable network in that exchange.  Rogers is using its cable network almost everywhere else in its territory.  They should use it in this hypothetical exchange as well.  It doesn't foreclose Bell and Rogers from reaching an arrangement if you really, really, really want to use your CallNet network, and we can discuss that.  But it wouldn't be for the Commission, in my submission, in that scenario, to mandate access to essential facilities.

listnum "WP List 3" \l 13756             MR. ENGELHART:  Try answering the question.

listnum "WP List 3" \l 13757             MR. BIBIC:  Well, I did.  That is the example that Dr. Taylor is referring to.

listnum "WP List 3" \l 13758             MR. ENGELHART:  Dr. Taylor says it is an essential facility, it is, but the Commission should engage in a market trial.  The Commission should say even though it is an essential facility, we are going to have a little market trial.  We are going to wait a few years and see what happens.

listnum "WP List 3" \l 13759             That is in Dr. Taylor's evidence.  Is that Bell's position?

listnum "WP List 3" \l 13760             MR. TAYLOR:  Let's explain Dr. Taylor's position, and then perhaps we can decide if that is Bell's.

listnum "WP List 3" \l 13761             This is the circumstance in which the downstream market is, by assumption, effectively competitive.  We are assuming ‑‑ this is my case 2 in my testimony, and we assume that without access to essential facilities, call them loops, that Bell would have market power in that market.  They don't because there is currently access granted.

listnum "WP List 3" \l 13762             Now, think of the choice.  You can either say the facility is essential and will remain essential because at the price that Rogers in this example has to pay, Rogers finds it convenient, not perhaps necessary, but convenient, to purchase loops because Rogers is comparing the price of building their own loops with what they can lease them for.  That is the wrong test.  That is why that is not a good idea.  That freezes the facilities in that case, which we have assumed to be essential, to essentiality forever.

listnum "WP List 3" \l 13763             The better course of wisdom, one more congruent with the regulatory philosophy, as I understand it in Canada, is to permit market forces to work to find out, to essentially force, if you like, Rogers to build.

listnum "WP List 3" \l 13764             MR. ENGELHART:  That is what I understood you to be saying.

listnum "WP List 3" \l 13765             So, you are recommending to the Commission, even if they are essential facilities, let's have a market trial for a few year, let's not make anything essential, and let's see what happens, let's see if those rascals build after all.

listnum "WP List 3" \l 13766             Mr. Bibic, is that Bell's position?  Are you saying that the Commission should adopt a market trial even where the facilities are essential?

listnum "WP List 3" \l 13767             MR. BIBIC:  That is why we built in that transitional period.  During that transition period, competitors can build or they can negotiate alternative arrangements with ILECs or with other providers who may have those facilities, at the end of which ‑‑

listnum "WP List 3" \l 13768             MR. ENGELHART:  I think your position is a whole year of transition, isn't it?

listnum "WP List 3" \l 13769             MR. BIBIC:  That is correct.

listnum "WP List 3" \l 13770             MR. ENGELHART:  So, at the end of that year, do we keep the market trial going, so even where they are essential, the Commission says, no need to apply, we are having a market trial, as Dr. Taylor says, we are going to force you guys to build, because otherwise you will just take the easy way out.

listnum "WP List 3" \l 13771             MR. BIBIC:  I don't think we are ‑‑ well, let me try again, then.

listnum "WP List 3" \l 13772             The decision would come out and the Commission would say, there are no essential services ex ante other than what we have characterized as technical services which we don't define as essential.  There will be a transition period.  It could be a year.  We propose a year.  The Commission might say it is two or three.

listnum "WP List 3" \l 13773             During that one‑, two‑ or three‑year period, companies make arrangements or competitors build, or they happen to use the facilities they already have that they are not using.  For example, Bell in the west, we stopped using our own facilities and we stopped building because of the CDN decision.  So, we could go back to using those, for example.

listnum "WP List 3" \l 13774             If that is not feasible because we don't have facilities, for example, and we can't reach an agreement with the incumbent during that one‑ or two‑ or three‑year period, certainly at some point in time we could figure out that it cannot be duplicated, an arrangement can't be reached and an application could be made to the Commission, in which case it would make a finding ex post of essentiality.

listnum "WP List 3" \l 13775             At that point it wouldn't say, well, you know, we found these things to be non‑essential ex ante.  You have come forward with an valid ex post complaint.  We find in your favour ex post, but we are still going to keep going with no mandated access because we are going to do a market trial.  That is not what we are suggesting.

listnum "WP List 3" \l 13776             MR. WATERS:  Mr. Engelhart, at the risk of providing you with a long distance example ‑‑

listnum "WP List 3" \l 13777             MR. ENGELHART:  So, you are rejecting Dr. Taylor's proposal, then?

listnum "WP List 3" \l 13778             MR. BIBIC:  No, I think what Dr. Taylor is proposing is that ex ante there is no need to find an essential service for these reasons.

listnum "WP List 3" \l 13779             What we are saying is we agree with that ex post; we acknowledge that there might be a finding.

listnum "WP List 3" \l 13780             MR. ENGELHART:  But I think what Dr. Taylor was saying is you have to put their feet to the fire, you have to cut them off for a few years to find out what they really are up to.  Is that your position too?

listnum "WP List 3" \l 13781             MR. TAYLOR:  Hang on, let's not exaggerate Dr. Taylor's position.  Dr. Taylor's position is, at the moment, you sit comparing the cost to lease with the cost to build, and society and customers are harmed by your facing that decision.

listnum "WP List 3" \l 13782             A better decision is, I think, one which puts a market trial in place.

listnum "WP List 3" \l 13783             MR. WATERS:  Mr. Engelhart, that is exactly what happened in Hong Kong when local loop unbundling was withdrawn.  It is going to be withdrawn in 2008.  At the time the decision was made, about 53 per cent of buildings in Hong Kong were connected by competitive fibre network.  Within the first six months after the regulator made that decision, the number of buildings that were connected by alternative networks increased to 71 per cent, went up by half, because basically the regulator said, this is going away, get on your bike and build your own network, and that is exactly what they did.

listnum "WP List 3" \l 13784             MR. ENGELHART:  I get it.  All your experts like this market trial idea, Mr. Bibic, they are fond of it.

listnum "WP List 3" \l 13785             My question to you is:  When this is over and the Commission makes an ex post finding of essentiality, is it your position that the Commission should mandate access to the facility or deny access in an effort to stimulate a market trial?

listnum "WP List 3" \l 13786             MR. BIBIC:  I think I have answered that, but I will try again.

listnum "WP List 3" \l 13787             We started from the policy direction.  It says rely to the maximum extent feasible on market forces.  So, our position is with the view ‑‑ and with respect to wholesale services it said create incentives ‑‑

listnum "WP List 3" \l 13788             MR. ENGELHART:  Are you sure you don't want to go back to 92‑12?  It is a pretty simple question.  If there is a finding of essentiality, do you grant access ex post or do you say no, because we are conducting a market trial?

listnum "WP List 3" \l 13789             MR. BIBIC:  Mr. Engelhart, I guess I must not be understanding the question.

listnum "WP List 3" \l 13790             If there is a complaint filed on an ex post basis and the Commission finds that the test for essentiality is met with respect to that facility to remedy a problem downstream in a particular product market, then, yes, access to that essential facility would be mandated in that geographic market to remedy that downstream problem.  The answer is yes.

listnum "WP List 3" \l 13791             MR. ENGELHART:  Thank you, Mr. Bibic.  Those are my questions.

listnum "WP List 3" \l 13792             THE CHAIRPERSON:  Mr. Bibic, following up this last exchange, you posited basically an all or nothing, that absolutely everything will be considered non‑essential, and then you have your market trial and you can...is there a halfway house, that there's some services would be essential and the other ones you would unmandate, but subject to the ex post tax, as you say it?

listnum "WP List 3" \l 13793             I mean, you say everything should be ex post.  I mean, I was just wondering whether ‑‑ you know, when you look at all the, well, 200 services which you have mandated right now, forget about the ones who we consider interconnection or public good, but the other ones, is it absolutely necessary for us to take this black‑and‑white approach that you suggest or is there a halfway house possible?

listnum "WP List 3" \l 13794             MR. BIBIC:  Well, I think you are asking me whether or not its possible for the Commission to develop an ex ante structure for some services.

listnum "WP List 3" \l 13795             THE CHAIRPERSON:  That's right.  Do you see some criteria that one would use to say, "The solution that Bell proposes is too drastic, these essential services we will consider to do on an ex ante basis, the rest of them we will do on an ex post?

listnum "WP List 3" \l 13796             MR. BIBIC:  Well, if the Commission were to go down that route, I think that where it should kind of focus its attention is not on transport.  I think there's been generally acknowledged that there hasn't been a problem, typically, in building transport facilities.  And the focus perhaps should be, in that case, on access and low capacity access, so, for example low speed data loops.

listnum "WP List 3" \l 13797             But even there, I think ‑‑ I mean, it's been established that they are duplicable, but, typically, I think, the focus would be on access.  And not at the high speeds, because high speeds, the revenue possibilities are just too attractive.  I don't see a situation where competitors wouldn't build.

listnum "WP List 3" \l 13798             But if I were in the Commission's shoes concerned about this and wanting to develop an ex ante structure, that's where I would put my focus.  And I say that without prejudice, too, what I really believe, which is that all these things are duplicable.

listnum "WP List 3" \l 13799             THE CHAIRPERSON:  Thank you.

listnum "WP List 3" \l 13800             Commissioner Cram, you have some questions?

listnum "WP List 3" \l 13801             COMMISSIONER CRAM:  Thank you.

listnum "WP List 3" \l 13802             So what do you say, Mr. Bibic, about when I was talking to the Competition Bureau yesterday and talking about duplicability, and that you do not simply look at the test of if it's been done before it can be done again?  That's how I'm interpreting your test for duplicability.

listnum "WP List 3" \l 13803             MR. BIBIC:  I mean, I think the fact that it's been done before is a very good indication that it can be done again.  Mr. Engelhart put to me this question of, for example, in a business park, the fact that I have done it at the CN Tower doesn't mean I can do something at the business park.

listnum "WP List 3" \l 13804             I think, you know, the Commission should look there at the proper equation, which is the revenues to be generated by building versus the cost to build.  And our view is ‑‑ I mean, we tried to put some scenarios on the record about that, to say, "And Commission, this is a really important issue, and if you put your mind to it and you look at the evidence, we suspect that, you know, under basic scenarios, it can be shown that the cost to build is worthwhile, given the revenues".

listnum "WP List 3" \l 13805             The problem with the model or the regime we have today is that the frame of reference we all have, as providers, and that would include Bell in the west, is that we say, "Well, look, I can lease it for this rate, why would I bother building?", and that's not the proper equation.

listnum "WP List 3" \l 13806             So I think the fact that it's been done before ‑‑

listnum "WP List 3" \l 13807             COMMISSIONER CRAM:  So that's the whole criteria?

listnum "WP List 3" \l 13808             MR. BIBIC:  ‑‑ is a very good indication.

listnum "WP List 3" \l 13809             COMMISSIONER CRAM:  Oh, that's not the only criteria, then, as to duplicability?  You say now it's a good indication, but before you were saying, if it's been done before, then...so is there any other thing we would consider in deciding duplicability?

listnum "WP List 3" \l 13810             MR. BIBIC:  No, I don't think so.  And it depends on the context, again.  If you are talking about residential service, frankly, the fact that it's been done by the cablecos, I think the analysis stops there for so many reasons.  But if you are talking about, you know, high‑capacity data services in downtown cores, and there is evidence that competitors have connected some areas but not all, then you go into that kind of analysis of revenues versus cost to build.

listnum "WP List 3" \l 13811             COMMISSIONER CRAM:  What about the situation of an RFP for, say, the Royal Bank and they have to get a loop in Indian Head, Saskatchewan?  If they have built local loops before, they can build a local loop in Indian Head, Saskatchewan, my hometown, by the way?

listnum "WP List 3" \l 13812             MR. BIBIC:  Well, I mean, if ‑‑

listnum "WP List 3" \l 13813             COMMISSIONER CRAM:  Population 1,987.

listnum "WP List 3" \l 13814             MR. BIBIC:  Well, Ms Cram, if you have got a customer there that's ‑‑ it's a national customer, take a bank, and there's a branch in a very small town, then I don't think that the service provider's economics will crumble if, in that particular situation, when all else fails, the provider buys our service at retail.

listnum "WP List 3" \l 13815             COMMISSIONER CRAM:  Okay, okay.  And your argument about how we would decide ex post is service‑specific and exchange‑specific.  Correct?

listnum "WP List 3" \l 13816             MR. BIBIC:  No, it would be product market and geographic market.  So the geographic market may be the exchange, it may not be, it depends on the service.

listnum "WP List 3" \l 13817             COMMISSIONER CRAM:  All right, okay.  Okay.

listnum "WP List 3" \l 13818             And you know we can't retroactively set rates.

listnum "WP List 3" \l 13819             MR. BIBIC:  Not unless they are interim.

listnum "WP List 3" \l 13820             COMMISSIONER CRAM:  And so what are you suggesting, that we would deem that you would file them and they would be deemed interim or that you would ‑‑

listnum "WP List 3" \l 13821             MR. BIBIC:  Under our proposal, we ‑‑

listnum "WP List 3" \l 13822             COMMISSIONER CRAM:  Yes, under the negotiate‑first idea.  I mean, you know, say somebody desperately wants a DS‑3, and you may not necessarily want them to have it, so you say, "It's going to cost you, you know, a gazillion dollars" ‑‑ because to me that's a more likely scenario than the scenario that Mr. ‑‑ I'm as tired as you ‑‑ Engelhart was saying.  The more likely scenario is not a refusal to deal, it's okay if you want to pay a gazillion dollars.

listnum "WP List 3" \l 13823             And because they want that contract, and, say, they want the contract to the Royal Bank, and they have to pay a gazillion dollars to get the loop in Indian Head, and then they come to us and say, "Deem it essential", well, a year later or maybe six months, I mean we are getting very efficient, later we say, "Yeah, it's essential and Rogers should have only paid half a gazillion", but Rogers is out a half a gazillion, unless we can retroactively set rates.  Right?

listnum "WP List 3" \l 13824             THE CHAIRPERSON:  I think you answered your own question.  That's how we would do it.

listnum "WP List 3" \l 13825             COMMISSIONER CRAM:  But we can't under the act.

listnum "WP List 3" \l 13826             MR. BIBIC:  Yes, I think the mechanism that the Commission could use in that instance ‑‑

listnum "WP List 3" \l 13827             COMMISSIONER CRAM:  I'm sorry, I didn't hear.

listnum "WP List 3" \l 13828             MR. BIBIC:  Okay, no, it's okay.

listnum "WP List 3" \l 13829             So let's assume that the complaint is properly made out ‑‑

listnum "WP List 3" \l 13830             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 13831             MR. BIBIC:  ‑‑ and the facility is actually essential, you know, at the moment that the competitor senses trouble, they could file an application with the Commission, and the Commission could immediately make an interim order saying, "Look, we will sort this out, but in the meantime pay X", and ‑‑

listnum "WP List 3" \l 13832             COMMISSIONER CRAM:  So that's another application we have to deal with?

listnum "WP List 3" \l 13833             MR. BIBIC:  No, no, it's the same application.  It's the application ‑‑

listnum "WP List 3" \l 13834             COMMISSIONER CRAM:  Oh.

listnum "WP List 3" \l 13835             MR. BIBIC:  ‑‑ from the competitor saying, "Whoa, whoa, whoa, there's an essential facility here, and if you don't do something quick, Commission, we are going to be toast in this scenario", and the Commission could say, "Okay, well, we have got to take three months, six months to decide this, but in the meantime, right now, we will make an interim order requiring the ILEC, who is refusing to be nice, to provide that service at a price".

listnum "WP List 3" \l 13836             And then six months later the Commission makes a decision, the decision is the service is not essential, in which case there's no harm and we go back to the competitor and say, you know, "We want to be reimbursed" or the Commission says, "It is an essential facility at this rate", in which case you have got your ability to go back.

listnum "WP List 3" \l 13837             COMMISSIONER CRAM:  Yes.  And even though the ILEC wasn't being nice, there's no repercussions for the ILEC?

listnum "WP List 3" \l 13838             MR. BIBIC:  Well, the ILEC ‑‑

listnum "WP List 3" \l 13839             COMMISSIONER CRAM:  That's your term, by the way, the ILEC not being nice.

listnum "WP List 3" \l 13840             MR. BIBIC:  Well, just because I'm playing along with your scenario ‑‑

listnum "WP List 3" \l 13841             COMMISSIONER CRAM:  Yes, I know.

listnum "WP List 3" \l 13842             MR. BIBIC:  ‑‑ to which I don't agree, but...

listnum "WP List 3" \l 13843             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 13844             MR. BIBIC:  Mr. Anderson's job is to service wholesale customers, so we will be in the business of selling at wholesale.

listnum "WP List 3" \l 13845             I know there's been some discussion yesterday about amps, and what happens without amps, and I think you are going there.  The fact is the forbearance itself, any forbearance decision from the Commission is the ultimate manifestation of an ex post model.  You forbear, and on an ex post basis, we operate in the marketplace.

listnum "WP List 3" \l 13846             If the market turns out not to be competitive later on, then the Commission always has the ability to step back in or it could be dealt with ‑‑ the issue could be dealt with by the Competition Bureau, as it is in all other markets.

listnum "WP List 3" \l 13847             COMMISSIONER CRAM:  In two to 10 years, yes.

listnum "WP List 3" \l 13848             MR. BIBIC:  Well, I mean I think we heard the Bureau on that.  If you feel, Ms Cram, that they are too slow, you always have the ability to step back in.  Many forbearance orders are conditional and that means the Commission retains the jurisdiction to step back in.

listnum "WP List 3" \l 13849             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 13850             THE CHAIRPERSON:  By the way, we don't feel they are too slow, they don't have the proper tools either.

listnum "WP List 3" \l 13851             MR. BIBIC:  Well, they did get a bit more money not too long ago.

listnum "WP List 3" \l 13852             THE CHAIRPERSON:  Yes.  The power is what I am talking about, not money.

listnum "WP List 3" \l 13853             MR. BIBIC:  Mm‑hmm.

listnum "WP List 3" \l 13854             COMMISSIONER CRAM:  Your answer to my question is if the ILEC was not being nice, there would be no repercussions flowing to him as a result of your proposal.  There would be no fines.  You would not lose any money.  There are no repercussions for doing anything.

listnum "WP List 3" \l 13855             I know you say you are not going to do it but we have to prepare the world for everything.

listnum "WP List 3" \l 13856             MR. BIBIC:  But, Ms Cram, the ultimate tool that the Commission has is to declare that facility essential, in which case the remedy is being forced to provide access on a mandated basis.

listnum "WP List 3" \l 13857             The other tool that the Commission has is to re‑regulate at retail should the behaviour be such that market power is regained and abused.

listnum "WP List 3" \l 13858             These are powers that the Commission has and I would suggest to you that they can be quite powerful.

listnum "WP List 3" \l 13859             COMMISSIONER CRAM:  Mr. ‑‑ well, I don't know who would know.  My memory is it was the company that consisted of MTS and Bell, the successor to Bell West.  When they went into business, they had zero self‑provision lines.

listnum "WP List 3" \l 13860             MR. BIBIC:  Do you mean the predecessor to Bell in the west?

listnum "WP List 3" \l 13861             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 13862             MR. BIBIC:  Okay.

listnum "WP List 3" \l 13863             MR. IACONO:  Bell Intrigna, I believe you mean.

listnum "WP List 3" \l 13864             COMMISSIONER CRAM:  Intrigna?

listnum "WP List 3" \l 13865             MR. IACONO:  Yes.

listnum "WP List 3" \l 13866             COMMISSIONER CRAM:  I was thinking Enigma or something like that.

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 13867             COMMISIONER CRAM:  I knew it was an "I" or an "E" but I couldn't remember.  They wouldn't name themselves Enigma anyway, would they?  No.

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 13868             COMMISSIONER CRAM:  So Intrigna.  They didn't self‑provision?  They had no self‑provision lines at that time?

listnum "WP List 3" \l 13869             MR. IACONO:  Commissioner Cram, unfortunately, I don't know.  I don't know.

listnum "WP List 3" \l 13870             COMMISSIONER CRAM:  Well, you can find out.

listnum "WP List 3" \l 13871             MR. IACONO:  We can find out.  We can certainly find out.

listnum "WP List 3" \l 13872             COMMISSIONER CRAM:  And you said that now it is primarily self‑provision.  Did you say that?

listnum "WP List 3" \l 13873             MR. IACONO:  No, I said we self‑provision where it is economical to do so.

listnum "WP List 3" \l 13874             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 13875             MR. IACONO:  And as Mr. Bibic indicated earlier, the CDN decision, obviously, changed the character of the economics of building or not building.

listnum "WP List 3" \l 13876             COMMISSIONER CRAM:  Sure.

listnum "WP List 3" \l 13877             And can you tell me what percentage I should add to the 41 percent on page 45 of the Monitoring Report to represent Bell's self‑provisioning?

listnum "WP List 3" \l 13878             MR. BIBIC:  None.  We heard your question yesterday, Ms Cram, and we went back and we believe that the percentages in 4.2.2 of the Monitoring Report ‑‑ is that the table ‑‑

listnum "WP List 3" \l 13879             COMMISSIONER CRAM:  Yes.  Yes.

listnum "WP List 3" \l 13880             MR. BIBIC:  ‑‑ you were at ‑‑ includes the out‑of‑territory incumbents.

listnum "WP List 3" \l 13881             COMMISSIONER CRAM:  And what is your basis for that?

‑‑‑ Pause

listnum "WP List 3" \l 13882             MR. BIBIC:  Well, Ms Cram, it might be easier if we just ‑‑ we could file it in writing, kind of do the analysis that we have put forward.

listnum "WP List 3" \l 13883             COMMISSIONER CRAM:  Sure.

listnum "WP List 3" \l 13884             MR. BIBIC:  I think it will be easier than me trying to explain and having it explained to me and then explaining it to you.

listnum "WP List 3" \l 13885             COMMISSIONER CRAM:  Yes.

listnum "WP List 3" \l 13886             MR. BIBIC:  It will be convoluted.

listnum "WP List 3" \l 13887             COMMISSIONER CRAM:  Could you also explain to me why the report prefaces itself as saying all ILEC data includes out‑of‑territory data and why this would be accepted from that statement?

listnum "WP List 3" \l 13888             MR. BIBIC:  Yes, we can ‑‑ we will try to sort it out and file it in writing.

listnum "WP List 3" \l 13889             COMMISSIONER CRAM:  Okay.  And alternately, if you were in error, you will give me the percentage that should be added to the 41 percent?

listnum "WP List 3" \l 13890             MR. BIBIC:  Well, we wouldn't be able to give a national figure, we would only be able to supplement to the extent of our lines, of course.

listnum "WP List 3" \l 13891             COMMISSIONER CRAM:  No, I am talking about Bell West.

listnum "WP List 3" \l 13892             MR. BIBIC:  Of course.

listnum "WP List 3" \l 13893             COMMISSIONER CRAM:  Yes.  Mm‑hmm.  Thank you.

listnum "WP List 3" \l 13894             MR. BABIN:  I would add, Ms Cram, since CDN in 2005 we have actually been leasing a lot of loops and not self‑provisioning or self‑building.

listnum "WP List 3" \l 13895             COMMISSIONER CRAM:  Yes, I have heard you say that ‑‑

listnum "WP List 3" \l 13896             MR. BABIN:  Okay.

listnum "WP List 3" \l 13897             COMMISSIONER CRAM:  ‑‑ your panel say it several times.

listnum "WP List 3" \l 13898             THE CHAIRPERSON:  Okay, thank you, Mr. Engelhart.

listnum "WP List 3" \l 13899             Madame Giroux‑Girard, who can we squeeze in for our last half‑hour?

listnum "WP List 3" \l 13900             THE SECRETARY:  Thank you.

listnum "WP List 3" \l 13901             We will now proceed with MTS Allstream as Shaw Communications and TELUS Communications informed us that they withdrew their intent to cross‑examine.

‑‑‑ Pause

listnum "WP List 3" \l 13902             THE CHAIRPERSON:  Mr. Bibic, Commissioner Cram reminds me that it would be very useful if you could have that information tomorrow that you are going to file regarding the explanation.

listnum "WP List 3" \l 13903             MR. BIBIC:  Yes, we will put it together tonight, no problem.

listnum "WP List 3" \l 13904             THE CHAIRPERSON:  Thanks.

‑‑‑ Pause

listnum "WP List 3" \l 13905             THE CHAIRPERSON:  Okay, Madame Giroux‑Girard, who do we have now?

listnum "WP List 3" \l 13906             THE SECRETARY:  MTS panel and I don't know who will take the stand.

listnum "WP List 3" \l 13907             Monica?  Please proceed if you are ready.

EXAMINATION / INTERROGATOIRE

listnum "WP List 3" \l 13908             MS SONG:  Yes.  My name is Monica Song.  I appear on behalf of MTS Allstream in this proceeding.

listnum "WP List 3" \l 13909             Thank you, panel, for taking the time to be with us this afternoon.

listnum "WP List 3" \l 13910             Since Mr. Engelhart has so ably set the table with his discussion of the transition period, I think rather than unset the table, I will start there this afternoon with you.

listnum "WP List 3" \l 13911             It is my understanding that it is your company's proposal in this proceeding that after a one‑year transition period all tariffs for currently mandated competitor services would be eliminated; correct?

listnum "WP List 3" \l 13912             MR. BIBIC:  That is right.  The end of ‑‑ all non‑essential services at the end of the transition period would be forborne unless there were a finding of essentiality and then they would be re‑regulated in that particular instance.

listnum "WP List 3" \l 13913             MS SONG:  Actually, I had not understood that before this time.

listnum "WP List 3" \l 13914             So you are not just saying that the tariffs would be lifted, you are actually saying that the Commission would find that they would be forborne, all of the currently mandate competitor services would be forborne?

listnum "WP List 3" \l 13915             MR. BIBIC:  All services would be forborne ‑‑ well, this is how it would work.

listnum "WP List 3" \l 13916             The Commission would issue, under our proposal, a conditional forbearance order saying that at the end of the transition period they would be forborne outright unless and until there were a finding of essentiality, and during the transition period, should an incumbent reach a commercial arrangement with a competitor, so Bell and MTS Allstream in this case, during the transition period, then that would also be forborne as between the provision by Bell of services to MTS even during the transition period.

listnum "WP List 3" \l 13917             MS SONG:  And just so I am clear, you are talking about forbearance pursuant to section 34, that all existing competitor services would be subject to a forbearance order under section 34?

listnum "WP List 3" \l 13918             MR. BIBIC:  A conditional forbearance order under section 34.

listnum "WP List 3" \l 13919             MS SONG:  Okay.  Now, after this one‑year period, it would then be open, under your proposal, for competitors to come forward to the Commission or the Commission to initiate, on its own motion, processes to determine whether or not the very services that have just been de‑tariffed are in fact essential; correct?

listnum "WP List 3" \l 13920             MR. BIBIC:  Correct, and in our model, the finding of essentiality would be limited to a particular geographic market and in order to address a specific harm in a specific product market.

listnum "WP List 3" \l 13921             MS SONG:  Right, and I will be getting to that aspect of your proposal later.

listnum "WP List 3" \l 13922             I want to explore with you how long this process of applying to the Commission for a re‑finding of essentiality is likely to take.

listnum "WP List 3" \l 13923             Now, I take it from your position in this proceeding that these would be contested proceedings, contested by Bell et al, correct?

listnum "WP List 3" \l 13924             MR. BIBIC:  I am not sure we ‑‑ do you mean that it would be ‑‑

listnum "WP List 3" \l 13925             MS SONG:  You don't follow?

listnum "WP List 3" \l 13926             MR. BIBIC:  No, I don't follow.

listnum "WP List 3" \l 13927             MS SONG:  Okay, let me explain it.

listnum "WP List 3" \l 13928             You have already said that all existing competitor services should be detariffed, so I'm assuming that it's your position that these services are not essential.  So if somebody comes to the Commission after the one‑year transition period and says, "No, actually, we think these are, in fact, essential, please remandate, retariff", you would be contesting that application ‑‑

listnum "WP List 3" \l 13929             MR. BIBIC:  Well, I see now.

listnum "WP List 3" \l 13930             MS SONG:  ‑‑ consistent with your presentation?

listnum "WP List 3" \l 13931             MR. BIBIC:  I guess you are assuming in the question that we haven't been able to reach an arrangement, et cetera, in which case there's a complaint.  Yes.

listnum "WP List 3" \l 13932             MS SONG:  Correct.  Yes.  Okay, good.

listnum "WP List 3" \l 13933             Now, I would like you to turn to our company's evidence, March 15th evidence, and I will just give everyone a moment to turn to that.

listnum "WP List 3" \l 13934             In particular, I would like to refer to ‑‑

listnum "WP List 3" \l 13935             MR. BIBIC:  Excuse me, Ms Song, I was just conferring with my colleague and I didn't hear the first part of the question ‑‑

listnum "WP List 3" \l 13936             MS SONG:  No problem.

listnum "WP List 3" \l 13937             MR. BIBIC:  ‑‑ so I will be right back.

listnum "WP List 3" \l 13938             What paragraph were you referring to?

listnum "WP List 3" \l 13939             MS SONG:  I was actually going to refer everyone present to Appendix D, E and F.

listnum "WP List 3" \l 13940             MR. BIBIC:  Okay.

listnum "WP List 3" \l 13941             MS SONG:  Okay.

listnum "WP List 3" \l 13942             Now, if you will turn up Appendix D, Appendix D contains a table that sets out the processes that led up to Telecom Order CRTC 2007‑22, which dealt with Ethernet services.  And just for clarity's sake, Appendix E...are you with me, Mr. Bibic?

listnum "WP List 3" \l 13943             MR. BIBIC:  I'm with you.

listnum "WP List 3" \l 13944             MS SONG:  Okay.  Appendix E describes the process, or the many processes, actually, that led up to the establishment of DSL, wholesale DSL tariffs and the Commission's January 2007 DSL orders ‑‑ order, sorry. And Appendix F, of course, deals with the processes that were involved in establishing the Commission's CDN regime.

listnum "WP List 3" \l 13945             Do you see that?  And there's no debate over that.

listnum "WP List 3" \l 13946             MR. BIBIC:  That's what they say.

listnum "WP List 3" \l 13947             MS SONG:  Okay.

listnum "WP List 3" \l 13948             MR. BIBIC:  I haven't read them before now, though.

listnum "WP List 3" \l 13949             MS SONG:  Okay.  Now, you may have to refer to the pages in these appendices, if you haven't read them before, but I will help you with that.

listnum "WP List 3" \l 13950             So if you turn up Appendix D again, which deals with Ethernet services, and I put to you ‑‑ and perhaps you know this so you don't need to refer to the table, but you will agree with me that this process involved numerous interventions on retail and wholesale Ethernet tariffs filed by Bell and TELUS?

listnum "WP List 3" \l 13951             MR. BIBIC:  Yes, many of these things can take a long time.  I think the Commission's certainly shown an ability to move much faster.  We never complain when things go fast.  We have no problems with quick, expedited procedures to deal with essentiality complaints.  Not at all.

listnum "WP List 3" \l 13952             As Ms Cram pointed ‑‑ well, during the exchange with Ms Cram one of the solutions might be to overcome this worry about excessively lengthy proceedings is to make an interim order right at the outset, and settle up one way or the other at the end of the process.

listnum "WP List 3" \l 13953             MS SONG:  Right.  I think that the answer to my question is yes, so thank you, Mr. Bibic.

listnum "WP List 3" \l 13954             You will also agree with me that the processes that led up to the Commission's 2007 Ethernet order also involved an application by AT&T Canada, on the 15th of April, 2003.  And if you need the page reference, that would be at the bottom of the fourth page of Appendix D.

listnum "WP List 3" \l 13955             MR. BIBIC:  I have no reason to object.  I have no firsthand knowledge, but...

listnum "WP List 3" \l 13956             MS SONG:  Right.  Okay.

listnum "WP List 3" \l 13957             So the point is that, in fact ‑‑ in fact ‑‑ the process that led up to the Ethernet order, the Commission's 2007 Ethernet order, did involve numerous application and tariff intervention processes.  Correct?

listnum "WP List 3" \l 13958             MR. BIBIC:  Yes, during a period of time when the Commission was very slow.  And we took great pains to point that out quite often at the time.

listnum "WP List 3" \l 13959             MS SONG:  Yes.  Okay.

listnum "WP List 3" \l 13960             I could go through the same exercise with the respect to Appendix E, which deals with asymmetric digital subscriber line service...okay, but I would suggest to you ‑‑

listnum "WP List 3" \l 13961             MS IACONO:  Ms Song ‑‑

listnum "WP List 3" \l 13962             MS SONG:  Yes.

listnum "WP List 3" \l 13963             MS IACONO:  ‑‑ given that you mentioned the ADSL, GAS and HSA, I would just like to make a comment on that one, if I may.

listnum "WP List 3" \l 13964             MS SONG:  You can.  I will give you an opportunity ‑‑

listnum "WP List 3" \l 13965             MR. IACONO:  Thank you.

listnum "WP List 3" \l 13966             MS SONG:  ‑‑ to make a comment later, but I would like to continue on with this examination.

listnum "WP List 3" \l 13967             MR. IACONO:  Well, it's definitely relevant to the examination, but when you are ready, I will be ready.  Thank you.

listnum "WP List 3" \l 13968             MS SONG:  Thank you.

listnum "WP List 3" \l 13969             MR. BIBIC:  Well, Ms Song, I'm not too sure what is your question ‑‑

listnum "WP List 3" \l 13970             MS SONG:  Okay, I will take you ‑‑

listnum "WP List 3" \l 13971             MR. BIBIC:  ‑‑ with respect to Appendix E.

listnum "WP List 3" \l 13972             INTERVIEWER 2:  ‑‑ through, Mr. Bibic.

listnum "WP List 3" \l 13973             MR. BIBIC:  Yes, I think we should.

listnum "WP List 3" \l 13974             MS SONG:  Sorry.

listnum "WP List 3" \l 13975             Okay, so with respect to Appendix E, because we have already established this appendix summarizes the many processes that led up to the Commission's January 2007 ADSL order, you will agree with me that this process also involved numerous competitor interventions on ADSL tariffs filed by the former monopolies.  Correct?

listnum "WP List 3" \l 13976             MR. BIBIC:  Well, it depends what you mean by "process".  I mean, do you ‑‑ I mean, there are many ‑‑

listnum "WP List 3" \l 13977             MS SONG:  What I mean by "process" ‑‑

listnum "WP List 3" \l 13978             MR. BIBIC:  ‑‑ many different elements, many different ‑‑

listnum "WP List 3" \l 13979             MS SONG:  ‑‑ is interventions.  Sorry.  What I mean by "process" is interventions on tariff applications.  That's my question.

listnum "WP List 3" \l 13980             MR. BIBIC:  Is it the very same tariff application all the way through that you are referring to?

listnum "WP List 3" \l 13981             MS SONG:  No, actually, there were many tariff applications.

listnum "WP List 3" \l 13982             MR. BIBIC:  Okay, so what I suspected.

listnum "WP List 3" \l 13983             MS SONG:  Okay, so you agree with me with that.

listnum "WP List 3" \l 13984             MR. BIBIC:  Well, the regulatory environment and the business environment isn't a static thing.  There are different services offered, different requests by competitors, different proposals to amend tariffs, so it's not surprising that for a given service there are a number of tariff applications, and then submissions and counter‑submissions, and then decisions, and then Part VIIs.

listnum "WP List 3" \l 13985             So the fact that there are many tariff applications would tend to show thicker appendices than if there were one tariff application in question, that's the only point I'm trying to make.

listnum "WP List 3" \l 13986             MS SONG:  Right.  In actual fact, in the case of ADSL, there were fewer tariff notice proceedings and a greater number of applications, so I'm going to turn to that.

listnum "WP List 3" \l 13987             If you look through this table, you will see that it refers to not one, not two, but three separate Part VII applications.  Okay?  The first was on the 17th of July, 2000.  It was filed by the Coalition for Better Co‑location.

listnum "WP List 3" \l 13988             MR. BIBIC:  Could you refer me to the page, please, Ms Song?

listnum "WP List 3" \l 13989             MS SONG:  Page 2.

listnum "WP List 3" \l 13990             MR. BIBIC:  Page 2?

listnum "WP List 3" \l 13991             MS SONG:  It's all in chronological order.

listnum "WP List 3" \l 13992             MR. BIBIC:  Okay, I'm with you.

listnum "WP List 3" \l 13993             MS SONG:  Okay, great.

listnum "WP List 3" \l 13994             So you see that, 17th of July 2000, the Coalition for Better Co‑location had to file a Part VII application submitting that ‑‑ or requesting co‑location of competitor equipment at remote terminals in order to provide DSL service?  Do you see that?

listnum "WP List 3" \l 13995             MR. BIBIC:  I do.

listnum "WP List 3" \l 13996             MS SONG:  Okay, great.

listnum "WP List 3" \l 13997             And the second application was filed on August 15th, 2001, by the independent members of the Canadian Internet Access Providers.  Do you see that?

listnum "WP List 3" \l 13998             MR. BIBIC:  I do.

listnum "WP List 3" \l 13999             MS SONG:  In that application, IMK requested that the ILECs file wholesale tariffs for ADSL service.  Do you have any reason to object to that?

listnum "WP List 3" \l 14000             MR. BIBIC:  I don't.  I don't know firsthand, but...

listnum "WP List 3" \l 14001             MS SONG:  Okay.  And then finally ‑‑

listnum "WP List 3" \l 14002             MR. BIBIC:  I'm told there's no reason to object to that.

listnum "WP List 3" \l 14003             MS SONG:  Great.  And then finally, there's a third Part VII application on April 15th, 2003, by AT&T Canada.  It's the same application that I referred to earlier in the Ethernet appendix ‑‑

listnum "WP List 3" \l 14004             MR. BIBIC:  Okay.

listnum "WP List 3" \l 14005             MS SONG:  ‑‑ but it also involved a request for mandated access to ADSL service and, similarly, for CDN services, in Appendix F.

listnum "WP List 3" \l 14006             Appendix F describes the processes that were required in order to implement the Commission's 2002 decision to mandate access to the unbundled components of competitor digital network access services.  Do you see that?

listnum "WP List 3" \l 14007             MR. BIBIC:  I do.

listnum "WP List 3" \l 14008             MS SONG:  And that looks to be what it represents?  Yes?

listnum "WP List 3" \l 14009             MR. BIBIC:  If you say so.

listnum "WP List 3" \l 14010             MS SONG:  Okay, good, take my word for it.

listnum "WP List 3" \l 14011             So it is also my understanding that prior to these applications and tariff interventions on the part of competitors, that there were numerous attempts to negotiate with the former monopolies to get the access which was the subject of the interventions and the applications.

listnum "WP List 3" \l 14012             Do you any reason to believe otherwise, members of the panel, perhaps Mr. Anderson?

listnum "WP List 3" \l 14013             MR. BIBIC:  Would you repeat your question please, Ms Song?

listnum "WP List 3" \l 14014             MS SONG:  It is my understanding that prior to these interventions and application processes that competitors try on numerous occasions to negotiate access to the services that is the subject of the interventions.  Do you have any reason to believe otherwise?

listnum "WP List 3" \l 14015             MR. IACONO:  Ms Song, I don't know the particulars for Ethernet or CDN in terms of attempts to negotiate or not.  I can say one thing, that often these types of discussions tend to be very very complicated, number one. Number two, the interests of the different parties tend to be rather different, so it is making it very hard to do them on a, you know, one on 10 basis.

listnum "WP List 3" \l 14016             What we are talking about here is unilateral negotiations.  But what I do want to point out though, and this is what I wanted to add earlier, with respect to the DSL process and the example and the timeline provided here, one of the first things that I was asked to do when I took over the carrier services group in 2004, actually it was the marketing group within carrier services, was to sit down and finally resolve the DSL access and pricing issue with industry.

listnum "WP List 3" \l 14017             And over a period of about three months or so which began, and I am going from recollection only, sometime in the August or so timeframe 2004 and, in fact, some of the people in the room here today were part of those discussions and negotiations.  We culminated the process within about three months, we filed the tariff which lead to approval, I think it is 6767D.  We filed that tariff after having negotiated with about seven or eight of the industry participants in the DSL space.

listnum "WP List 3" \l 14018             You know, was everyone 100 per cent happy?  No, nor were we of course.  But we ended up with a process and a structure for rates which made sense in the environment we were in.  We filed those with the CRTC for approval.  The members of the groups that represented the participants also filed and I believe the letter was actually filed by MTS Allstream on behalf of the participants and supported and had comments on some of the other issues that were still outstanding and there were issues that were still outstanding.

listnum "WP List 3" \l 14019             But my point is that that process of negotiating what turned out to be the tariff ‑‑ actually, I am not involved anymore ‑‑ but I believe that the structure of that tariff is still in place and is still being used.  That is a great example, in my opinion, of when parties get together to try to negotiate and come to a resolution on something that had been outstanding for a long long time.

listnum "WP List 3" \l 14020             So that is one example of, I think, which could potentially be precedent setting going forward in terms of the actual ability to be able to do it.

listnum "WP List 3" \l 14021             MR. SONG:  Mr. Iacono, you are not pretending that Tariff Notice 6767 resolved all outstanding competitor ADSL issues, are you?

listnum "WP List 3" \l 14022             MR. IACONO:  No, no.  And I actually said that there were still issues around it, absolutely.

listnum "WP List 3" \l 14023             MS SONG:  Right.  And there is actually one tariff issue in 6622 that remains outstanding to this day.

listnum "WP List 3" \l 14024             MR. IACONO:  Correct.

listnum "WP List 3" \l 14025             MS SONG:  Over six and a half, seven years outstanding, correct?

listnum "WP List 3" \l 14026             MR. IACONO:  Correct.  But the issue that I am referring to that got resolved through the negotiation process was a very fundamental one and that was the character, nature, structure of the tariff and the price points within that tariff.  And prior to that tariff negotiation process the rates charged varied, the terms and conditions may have varied. And what we did is we put before the CRTC a tariff that is commonly used and it is used for all ISP customers with volume discounts and term discounts, structured in the way a negotiation tariff would normally workout.

listnum "WP List 3" \l 14027             MS SONG:  Right.

listnum "WP List 3" \l 14028             MR. IACONO:  So it is just one example.

listnum "WP List 3" \l 14029             MS SONG:  Right.  And the tariff that you are actually referring to, under Tariff Notice 6767D, that is reflected in your company's HSA and GSA tariffs, right?

listnum "WP List 3" \l 14030             MR. IACONO:  HSA and GAS, yes.

listnum "WP List 3" \l 14031             MS SONG:  Sorry, GAS, okay.  And that is hi‑speed access and what does GAS stand for, gateway access service?

listnum "WP List 3" \l 14032             MR. IACONO: Gateway ‑‑ yes.

listnum "WP List 3" \l 14033             MS SONG:  And HSA is a fully bundled internet access service, correct?

listnum "WP List 3" \l 14034             MR. IACONO:  HSA, perhaps Mr. Anderson can ‑‑

listnum "WP List 3" \l 14035             MR. ANDERSON:  No, it is actually dedicated.  It is not bundled, it is a dedicated service.

listnum "WP List 3" \l 14036             MS SONG:  I actually don't see dedicated and bundled as being the opposite, so what do you mean by dedicated as opposed to bundled?

listnum "WP List 3" \l 14037             MR. ANDERSON:  Well, I guess the response is that it is a dedicated service in terms of end‑to‑end connectivity.

listnum "WP List 3" \l 14038             MS SONG:  Right, so it is bundled. So if a competitor would like to co‑locate and use a portion of its network to provide the internet service it can't do that using this tariff, correct?

listnum "WP List 3" \l 14039             MR. ANDERSON:  That is correct.

listnum "WP List 3" \l 14040             MS SONG:  Right.  And those are the kinds of issues that are still outstanding, correct, in 6622 for example?

listnum "WP List 3" \l 14041             MR. ANDERSON:  As I understand it.

listnum "WP List 3" \l 14042             MS SONG:  Yes.

listnum "WP List 3" \l 14043             MR. BIBIC:  It may be back to the Chairman's list of services.  This is a service that we, in final submissions, will put in the nonessential box because the retail market is very competitive, the cable companies offer service and the ILECs offer service.

listnum "WP List 3" \l 14044             The cable companies nationally have a greater share than the telephone companies, you know, to the extent that other providers want access to services like this.  Then we would hope to negotiate with them on a commercial basis, removing the need for these endless complaints about, you know, the mandated terms and conditions of them.

listnum "WP List 3" \l 14045             MS SONG:  Right.  But I think the point here is that you are promoting facilities‑based competition.  If you have an internet service provider who wants to provide service, partially at least, on the basis of its own facilities, HSA tariff is not the appropriate vehicle.

listnum "WP List 3" \l 14046             MR. IACONO:  TPI tariffs are available through the cablecos and there is an alternative available.

listnum "WP List 3" \l 14047             MS SONG:  Thank you.

listnum "WP List 3" \l 14048             So the point that we were discussing before Mr. Iacono's intervention was the point that these interventions, tariff interventions and applications, the ones that are described in Appendices D, E and F of MTS Allstream's March 15 evidence were often preceded by protracted negotiations.  And I think the answer is you have no reason to disbelieve that or to think otherwise, correct?

listnum "WP List 3" \l 14049             MR. BIBIC:  And we have no reason to believe that the same would occur in the environment we propose either, Ms Song.  I think the regulatory regime begets this kind of activity and so, under our proposal, we don't think we would get to this type of thing.  And again, as I said at the beginning, we would be the first to raise up our hands and say let us move fast.

listnum "WP List 3" \l 14050             MR. IACONO:  And, Ms Song, there is no reason to believe that the outcome of the GAS, HSA negotiations with industry can't be duplicated, excuse the pun, in future in other negotiation context, that is really the intent.

listnum "WP List 3" \l 14051             THE CHAIRPERSON:  Hopefully, not six and a half years.

listnum "WP List 3" \l 14052             MR. BIBIC:  It was three months actually.  That round of negotiations was three months.

listnum "WP List 3" \l 14053             THE CHAIRPERSON:  Okay.  Well, Mr. Bibic, I just want to understand from your point of view where is your incentive under your proposal to come to a negotiated solution quickly?

listnum "WP List 3" \l 14054             MR. BIBIC:  Well, the incentive we have, Mr. Chairman, is if you take this example of ADSL, which is wholesale internet service, the incentive we have is that the cable companies have a larger share, so we have a choice.  For every retail customer we don't get the cable company gets it.  So we might as well, if we are going to lose the customer and not get the customer, have the customer on our network through the wholesale service we provide to independent ISP.  So there is a commercial incentive for us to enter into wholesale businesses.

listnum "WP List 3" \l 14055             Another great example is local telephony.  The cable companies have come in and they are trying to secure share and they are developing wholesale channels for their telephony service which is causes us to do the same, and we intend, and we have developed a wholesale primary exchange service that we are going to be marketing that has nothing to do with the Commission mandating us to do it.  Because competitive retail markets lead to the development of wholesale markets.

listnum "WP List 3" \l 14056             MS SONG:  Thank you.

listnum "WP List 3" \l 14057             Just following up on Mr. Iacono's last point actually on the availability of TPIA, TPIA is not typically available to competitors in business markets.

listnum "WP List 3" \l 14058             Correct?

listnum "WP List 3" \l 14059             MR. IACONO:  I don't know.  Mr. Anderson perhaps knows.

listnum "WP List 3" \l 14060             MS SONG:  Perhaps I will get an occasion to ask somebody who does know later on in this proceeding.

listnum "WP List 3" \l 14061             For example, on the point of negotiation, it is my understanding that on the issue of access to customers whose premises are served by copper facilities that connect the so‑called remotes, my understanding is that prior to the Coalition for Better Competition's Part 7 application in July 2000, extensive discussions actually took place in the CISC to deal with this issue.

listnum "WP List 3" \l 14062             Do you have any reason to believe that wasn't the case?

listnum "WP List 3" \l 14063             MR. BIBIC:  I don't know, but I have no reason to dispute the point.

listnum "WP List 3" \l 14064             MS SONG:  All right.  Then similarly, prior to AT&T Canada's application for next generation services, including ethernet services,  it is my understanding that AT&T Canada approached Bell Canada's Carrier Services Group, attempted to negotiate ethernet access and transport services, was initially met with a claim that Bell didn't offer these services, eventually that position was retreated from, but at the end of the day those negotiations were entirely unfruitful and therefore led to the Part 7 application.

listnum "WP List 3" \l 14065             Do you have any reason to believe that was not the case?

listnum "WP List 3" \l 14066             MR. BIBIC:  Well, you have said a lot there and I'm not prepared to accept all of that without checking into it.

listnum "WP List 3" \l 14067             So I'm not going to answer yes or no, but I guess you can proceed.

listnum "WP List 3" \l 14068             MS SONG:  Well, if you have any other information to the contrary then you can come back to me tomorrow with that.

listnum "WP List 3" \l 14069             MR. BIBIC:  That's right.

listnum "WP List 3" \l 14070             MS SONG:  All right.

listnum "WP List 3" \l 14071             So notwithstanding all of these processes, some of which took five, six, seven, perhaps even eight years now, it is your company's position in this proceeding that the regimes for CDN, DSL, ethernet should be lifted immediately upon the conclusion of a one‑year transition period.

listnum "WP List 3" \l 14072             Is that ‑‑ again, just to confirm your position in this proceeding.

listnum "WP List 3" \l 14073             MR. BIBIC:  Well, the fact that a competitor filed a Part 7 in the past doesn't necessary make that Part 7 a valid one.  Many Part 7s filed by competitors are rejected and some are.

listnum "WP List 3" \l 14074             And the fact that a competitor may seek access to a facility on the basis that it is essential doesn't necessarily make it essential.  There should be a proper test for essentiality properly applied.

listnum "WP List 3" \l 14075             And none of that speaks to any of the incentives we would have today to sell services on a commercial basis to competitors, recognizing that if we didn't and the complaints were valid, that the Commission could step in.

listnum "WP List 3" \l 14076             One of the problems we have with the regime today, it's a little bit of a race to the bottom.  We can't really enter into any commercial negotiations and give what a particular customer really wants without recognizing that that is going to have to be made available to absolutely everybody, regardless of whether or not the same terms and conditions should apply.

listnum "WP List 3" \l 14077             I mean, you reach a deal with one person today it has to be tariffed, and then once you have a tariff everyone can gain access to it.  So it stunts or gets in the way of what would be a normal commercial negotiation.

listnum "WP List 3" \l 14078             MS SONG:  Right.

listnum "WP List 3" \l 14079             MR. BIBIC:  So if the regime were changed and we relied on market forces to the maximum extent feasible as the policy direction says, I suspect much of this behaviour will melt away on both sides.

listnum "WP List 3" \l 14080             MS SONG:  I believe I had a question and I don't think I got an answer, unless you are prepared to answer it now.

listnum "WP List 3" \l 14081             Is the answer yes or no?

listnum "WP List 3" \l 14082             MR. BIBIC:  The answer was ‑‑ the question was:  Is it your position that despite these appendices that essential services ‑‑ well, mandated services should be ‑‑ these services should be declared non‑essential and the answer is yes.

listnum "WP List 3" \l 14083             MS SONG:  All right.  It wasn't actually in spite of the appendices, it is actually in spite of the time and the resources and the processes before this Commission that have preceded and established the current regimes, such as they are, for CDN, ADSL, DSL and ethernet, your position is that after a one‑year transition period they should immediately be lifted?

listnum "WP List 3" \l 14084             MR. BIBIC:  I would point out to you, Ms Song, that in ‑‑ give me a moment.

‑‑‑ Pause

listnum "WP List 3" \l 14085             MR. BIBIC:  In the case of CDN access and collocation links, the Commission already found them to not be essential, but nevertheless they are treating them as essential.

listnum "WP List 3" \l 14086             In the case of GAS and HSA, the Commission has already found them to be Category 2 and hence not essential.

listnum "WP List 3" \l 14087             In the case of wholesale ethernet the Commission has already found them to be Category 2 and hence not essential.

listnum "WP List 3" \l 14088             Nevertheless, we have the regime we have today.

listnum "WP List 3" \l 14089             MS SONG:  Right.  I will get to that, Mr. Bibic.

listnum "WP List 3" \l 14090             I realize that you are trying to get a lot in upfront.  I will get to discussing the actual services that enable competition in business markets, but I think ‑‑

listnum "WP List 3" \l 14091             MR. BIBIC:  Well, you referred to those services in specific ‑‑

listnum "WP List 3" \l 14092             MS SONG:  In order for our discussion today, this afternoon and tomorrow, to proceed at a reasonable pace, I think we are going to need to have some question and answer, questions that have answers to them.  Because I will keep asking them until I get an answer.

listnum "WP List 3" \l 14093             MR. BIBIC:  All right.

listnum "WP List 3" \l 14094             MS SONG:  Okay?  Thank you.

listnum "WP List 3" \l 14095             THE CHAIRPERSON:  Ms Song, on that note I think I see it's 4:30 ‑‑

‑‑‑ Laughter / Rires

listnum "WP List 3" \l 14096             THE CHAIRPERSON:  ‑‑ we will close and hopefully tomorrow you will get your answers.

listnum "WP List 3" \l 14097             Thank you very much.

listnum "WP List 3" \l 14098             MS SONG:  Thank you, Chairman.

listnum "WP List 3" \l 14099             THE CHAIRPERSON:  We will meet at 8:30 tomorrow morning.

‑‑‑ Whereupon the hearing adjourned at 1630,

    to resume on Thursday, October 11, 2007 at

    0830 / L'audience est ajournée à 1630, pour

    reprendre le jeudi 11 octobre 2007 à 0830

 

                      REPORTERS

 

 

 

______________________          ______________________

Jean‑Marc Bolduc                   Jean Desaulniers

 

 

 

 

______________________          ______________________

Barbara Neuberger                  Jennifer Cheslock

 

 

 

 

______________________          ______________________

Sharon Millett                     Monique Mahoney