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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
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 15, 2007 Le 15 octobre 2007
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
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Canadian Radio‑television and
Conseil de la radiodiffusion et des
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 15, 2007 Le 15 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
RESUMED: DALE HATFIELD 1240 / 8618
RESUMED: IAN PATTINSON
RESUMED: DAVID WATT
RESUMED: SUZANNE BLACKWELL
RESUMED: ROGER WARE
Cross-examination by The Companies (Cont'd) 1240 / 8619
Cross-examination by TELUS 1363 / 9517
Cross-examination by MTS Allstream 1466 /10133
Cross-examination by Primus 1475 /10233
Cross-examination by PIAC 1482 /10281
Cross-examination by Cybersurf 1503 /10399
Cross-examination by Xittel 1536 /10633
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
BUREAU-3 Response to CRTC undertaking - 02 1239 / 8613
to provide the Commission with a
rewrite of the Bureau's test for
an essential facility from a
CRTC-6 CRTC Undertakings register 1335 / 9316
CRTC version 2007-15-15
COMPANIES-5 Joint Center report dated 1361 / 9506
June 2006, "Broadband and
Unbundling Regulations in OECD
COMPANIES-6 LECG Report dated September 2007 1361 / 9507
COMPANIES-7 "Watt's New" clipping - Winter 1361 / 9508
2006 entitled, "Net Optiks/Rogers
partnership provides innovative
network for Catholic schools
COMPANIES-8 Globe and Mail clipping - 1362 / 9509
"Solutions for the little guy" -
COMPANIES-9 Clipping dated 7 October 2007 1362 / 9510
with photo and EASY IP title
COMPANIES-10 Clipping from Rogers.com - 1362 / 9511
TELUS-1 Rogers Cable letter dated 1465 /10127
Aug. 17, 2007 re: Application by
Rogers Cable Communications Inc.
to Amend Class 1 Regional Licence
for Cable Broadcasting
Distribution Undertakings in
TELUS-2 Rogers letter dated July 5, 2006 1465 /10128
re: Application to Review and
Varyu Telecom Decision
CRTC 2006-9 - Disposition of
Funds in the Deferral Accounts
- vi -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
TELUS-3 Competition Bureau - Speaking 1466 /10129
Notes for Sheiradan Scott -
June 13, 2007
CRTC-7 "Abuse of Dominance under the 1475 /10227
1986 Canadian Competition Act"
COMPANIES-11 The Companies - Survey of 1475 /10228
buildings in Ottawa Downtown Core
CYBERSURF-2 "Consequences of 1519 /10516
March 1, 2006
CYBERSURF-3 "Canadian Boradband Growth Ranks 1519 /10516
29th out of 30 OECD Countries"
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Monday, October 15, 2007
at 0831 / L'audience reprend le lundi
15 octobre 2007 à 0831
LISTNUM 1 \l 1 \s 86078607 THE CHAIRPERSON: Good morning.
LISTNUM 1 \l 18608 Mr. Daniels, I believe you were in full flight, so please continue.
LISTNUM 1 \l 18609 MR. DANIELS: Thank you very much, Mr. Chairman.
LISTNUM 1 \l 18610 THE SECRETARY: Mr. Chair, if you will allow me.
LISTNUM 1 \l 18611 THE CHAIRPERSON: Yes, sure.
LISTNUM 1 \l 18612 THE SECRETARY: There were some filings with me this morning.
LISTNUM 1 \l 18613 I am acknowledging reception of the Bureau Exhibit No. 3 in response to an undertaking from the CRTC to a rewrite of the Bureau's proposed test for whether a service or facility is essential.
EXHIBIT BUREAU‑3: Response to CRTC undertaking - 02 to provide the Commission with a rewrite of the Bureau's test for an essential facility from a restrospective perspective
LISTNUM 1 \l 18614 MS PALUMBO: Mr. Chair ‑‑
LISTNUM 1 \l 18615 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 18616 MS PALUMBO: ‑‑ we have provided the secretary with copies of the undertaking. This was in relation to the rewrite of the Bureau's proposed test for whether a service or facility is essential from a retrospective rather than a prospective perspective and that is what that undertaking is satisfying.
LISTNUM 1 \l 18617 THE CHAIRPERSON: Thank you very much, Ms Palumbo. I appreciate your doing this in a timely manner because then we can use your retrospective definition now as we hear the other submissions.
LISTNUM 1 \l 18618 Thank you.
RESUMED: DALE HATFIELD
RESUMED: IAN PATTINSON
RESUMED: DAVID WATT
RESUMED: SUZANNE BLACKWELL
RESUMED: ROGER WARE
EXAMINATION (CONT'D) / INTERROGATOIRE (SUITE)
LISTNUM 1 \l 18619 MR. DANIELS: Thank you, and good morning, Mr. Chairman and panel.
LISTNUM 1 \l 18620 When last we left off ‑‑
LISTNUM 1 \l 18621 MR. WATT: I am sorry to interrupt but we had taken a couple of undertakings on Friday to go and check on some matters and I think probably it would be best if I just reported on those while you are still at the cross‑examining table and then if you would like to follow up you will have an opportunity to do that.
LISTNUM 1 \l 18622 MR. DANIELS: Go right ahead.
LISTNUM 1 \l 18623 MR. WATT: At Volume 4 of the Transcript at paragraphs 8333 to 8369 Rogers undertook to review the FCC's dedicated transport rulings regarding the necessary number of fiber‑based co‑located competitors. This was the question as to whether the number was 4 or 3, if you recall that, on Friday.
LISTNUM 1 \l 18624 We can confirm that with respect to transport facilities at the capacities of DS‑3s and dark fiber the FCC applied a threshold of fewer than 3 fiber‑based co‑located competitors as the standard for impairment and not 4, as stated in Rogers' submissions in this proceeding.
LISTNUM 1 \l 18625 Specifically, for those facilities the FCC found that competitors would not be impaired without mandated access at DS‑3 or dark fiber facilities where the wire centres at both ends of the transport facility had either at least 3 fiber‑based co‑locators or more than 24,000 business lines.
LISTNUM 1 \l 18626 You will recall in the context of the discussion on DNA we discussed the importance of having those conditions met at both ends of the route, at both wire centres, in order to be forborne.
LISTNUM 1 \l 18627 Just to complete the table, we confirm that the top three rows in our table with respect to DS‑1 at the access level and then DS‑1 transport remain at the 4 fiber‑based co‑locator level.
LISTNUM 1 \l 18628 THE CHAIRPERSON: If you go to your opening statement, page IV ‑‑
LISTNUM 1 \l 18629 MR. WATT: Right.
LISTNUM 1 \l 18630 THE CHAIRPERSON: ‑‑ the table there, so for dark fiber for transport I should insert "3" instead of "4"?
LISTNUM 1 \l 18631 MR. WATT: Exactly.
LISTNUM 1 \l 18632 THE CHAIRPERSON: And the rest stays the same?
LISTNUM 1 \l 18633 MR. WATT: The rest stays the same.
LISTNUM 1 \l 18634 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 18635 MR. WATT: As I say, both wire centres on that route have to have 3 in order to be let go.
LISTNUM 1 \l 18636 So that is the first matter.
LISTNUM 1 \l 18637 Then the second matter was further on on Friday afternoon and this is now at Transcript paragraphs 8455 and 8505.
LISTNUM 1 \l 18638 Rogers undertook to review the per building and per route caps that the FCC imposed on competitor use of mandated access at transport facilities where the FCC general criteria for mandated wholesale was met.
LISTNUM 1 \l 18639 Briefly, the CRTC limits a competitor to 10 DS‑1 unbundled loops to any single building or 1 DS‑3 to that single building, and then similar rules apply on the transport level as well, again, on a per route basis.
LISTNUM 1 \l 18640 In our view, this is a very granular approach to the issue of market unbundling. We do see some merits to it in the sense that it does very precisely identify what the revenue opportunities are to a competitor to a particular building or a particular route and grant them access up to certain levels with those conditions.
LISTNUM 1 \l 18641 However, at this time we think while the Commission certainly should be aware of this and consider it in its assessment of our proxy model, we would place the emphasis on the proxy model that we put before you and still wish that to be used as a starting point for the Rogers position.
LISTNUM 1 \l 18642 And then you can adapt it as you see fit given the data information that you have, and again, that rests on the revenue opportunity, i.e. the number of lines, et cetera, and then the alternative supply by the facilities‑based fiber co‑locators.
LISTNUM 1 \l 18643 That concludes my undertakings. Thank you.
LISTNUM 1 \l 18644 THE CHAIRPERSON: Are you going to file something in accordance with what you just said or does the record speak for itself?
LISTNUM 1 \l 18645 MR. WATT: I thought the record could probably speak for itself and I will save the paper.
LISTNUM 1 \l 18646 THE CHAIRPERSON: Okay, fine. I wanted to understand how you intend to proceed. Thank you.
LISTNUM 1 \l 18647 MR. WATT: Although I might ‑‑ what we probably should re‑file are ‑‑ I think there are three or four places in the record where we have the table.
LISTNUM 1 \l 18648 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 18649 MR. WATT: And so we will just replace those 4s with 3s.
LISTNUM 1 \l 18650 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 18651 Mr. Daniels.
LISTNUM 1 \l 18652 MR. DANIELS: Thank you.
LISTNUM 1 \l 18653 When last we left off we had been talking about ‑‑ well, besides just the FCC test, we had been talking generally about the second exception. In your testimony with the Competition Bureau you had pointed out that there was one exception of an unbundled loop in the residential market which was the one case where despite getting retail forbearance on the basis of facilities‑based competition that you still sought an exception. And then we talked about a second possible exception, the CDN test and the DNA.
LISTNUM 1 \l 18654 So I would like to begin this morning by talking about two other exceptions that I think are in your proposal. Let's just see if we can get agreement on them and we can, at least for one of them, move on very quickly.
LISTNUM 1 \l 18655 You have proposed, as I understand it, that Ethernet be regulated at the wholesale level everywhere except bands A and B.
LISTNUM 1 \l 18656 Am I correctly characterizing your proposal in that sense?
LISTNUM 1 \l 18657 MR. WATT: Yes, you are.
LISTNUM 1 \l 18658 MR. DANIELS: Okay. And so can we agree then ‑‑ and as I say, just move on from that ‑‑ that in terms of at the retail level, Ethernet is forborne or the IP‑VPN service upon which it is generally provided in the market, those are forborne at the retail level; can we agree on that?
LISTNUM 1 \l 18659 MR. WATT: Frankly, I am not aware of that and the rationale, obviously, for our proposal is that we think it is unlikely if you are going to have the necessary fiber facilities into those smaller locations but we will check on the retail treatment of Ethernet.
LISTNUM 1 \l 18660 MR. DANIELS: Well, are you familiar with that ‑‑ and to be fair, I haven't given you this in terms of an exhibit because I really don't want to get into the details.
LISTNUM 1 \l 18661 But are you familiar with the Wide Area Network, the WAN, forbearance that was issued in 2000? Are you familiar with that decision in terms of generally providing for forbearance for wide area networks which has generally been used?
LISTNUM 1 \l 18662 MR. WATT: No, actually I can't say that I am. I'm surprised to hear the date 2000. But we will go and check.
LISTNUM 1 \l 18663 MR. DANIELS: All right. So subject to check, you will check to see on the basis that retail forbearance has been granted in Ethernet and IP VPN services, that being a third exception.
LISTNUM 1 \l 18664 So let me move on, then, to the fourth exception which I would like to present to you. That has to deal with your proposal regarding our GAS and HSA service, which is high‑speed internet service.
LISTNUM 1 \l 18665 MR. WATT: Maybe just before we do move on, I just had a note passed to me, however, that there certainly are Ethernet tariffs that do exist.
LISTNUM 1 \l 18666 MR. DANIELS: Okay. Well, as I say, in terms of the vast majority of services I'm putting to you ‑‑ and you can subject to check in terms of the retail Ethernet as service, as well as falling under an IP VPN which generally upon which the wholesale input Ethernet could be in the retail market ‑‑ I'm putting to you that is forborne under the wide area network forbearance, just for your reference.
LISTNUM 1 \l 18667 MR. WATT: Okay, fair enough. We will check.
LISTNUM 1 \l 18668 MR. DANIELS: Yes, Order CRTC 2000‑553, just to make it a little easier for your reference.
LISTNUM 1 \l 18669 Moving, then, onto the fourth exception which I would like to put to you, and that is your proposal regarding GAS, HSA, which is our wholesale DSL product.
LISTNUM 1 \l 18670 So I assume we can agree that there has been retail internet forbearance since 1999 in Canada?
LISTNUM 1 \l 18671 MR. WATT: Yes, there has.
LISTNUM 1 \l 18672 MR. DANIELS: I don't really want to take you through the whole logic or all the arguments, so I just want to see if we can move through this a little quickly.
LISTNUM 1 \l 18673 But as I understand it, you have said in your evidence that the internet market is competitive and specifically you raised at one point a distinction between the local market and the internet market. I don't want to get into the differences here at this point of our discussion, but in terms of that discussion, specifically when we ask you in an interrogatory, which can be found at Tab Z of our material ‑‑
LISTNUM 1 \l 18674 COMMISSIONER CRAM: Which tab again? I'm sorry?
LISTNUM 1 \l 18675 MR. DANIELS: This is Tab Z.
LISTNUM 1 \l 18676 For those of you who don't have our material tabs, that is Rogers/The Companies 12 April 07‑31.
LISTNUM 1 \l 18677 Do you have that there?
LISTNUM 1 \l 18678 MR. WATT: Yes, I do.
LISTNUM 1 \l 18679 MR. DANIELS: When we, The Companies, asked you to explain the basis for the conclusion that there are more facilities‑based alternatives in the internet market than there are in the local telephony market, you said "In the internet market" ‑‑ I'm reading your answer from (a), just the first sentence:
"... there are a number of widely deployed mobile and fixed wireless satellite‑based and wireline‑based competitors." (As read)
LISTNUM 1 \l 18680 Just so we can agree, your proposition is that on the internet market there is facilities‑based alternatives?
LISTNUM 1 \l 18681 Is that correct?
LISTNUM 1 \l 18682 MR. WATT: I think our position is, consistent with our request, that outside Bands A and B there are very limited facilities, hence our request for access to GAS in those areas.
LISTNUM 1 \l 18683 MR. DANIELS: Mr. Watt, are we confusing ‑‑ I think we may be confusing your Ethernet proposal and your GAS proposal. Because as I understood your GAS proposal, it is not based on banding, it is based on the remote issue, which we are going to get into.
LISTNUM 1 \l 18684 MR. WATT: It is the remote issue, that is correct.
LISTNUM 1 \l 18685 MR. DANIELS: So it's not ‑‑
LISTNUM 1 \l 18686 MR. WATT: No, it is the remote. That's what I had in mind. My apologies
LISTNUM 1 \l 18687 MR. DANIELS: All right. So your position, then again, so let me just understand ‑‑ I was just putting a general proposition before you that in the internet market there are facilities‑based alternatives.
LISTNUM 1 \l 18688 We can agree on that? I'm just reading your sentence right here, the first sentence in line (a), you have listed them there.
LISTNUM 1 \l 18689 MR. WATT: There are alternatives. We don't think that they are perfect alternatives in certain areas and not at the same cost structure certainly in the business market.
LISTNUM 1 \l 18690 MR. DANIELS: With that in mind I'm going to ask you to turn back ‑‑ because we will talk a little bit about that in a minute.
LISTNUM 1 \l 18691 But I'm going to ask you to turn back to your opening statement where I think you have articulated your test for an essential facilities.
LISTNUM 1 \l 18692 So this is in our binder that we gave you for ease of reference. It is Tab D as in David or Daniels.
LISTNUM 1 \l 18693 Just to be clear, I think we have given you two binders so it's the Jonathan Daniels binder, because my colleague, Mr. Hofley, has a separate binder.
LISTNUM 1 \l 18694 I'm looking at page 2 of your opening statement.
LISTNUM 1 \l 18695 MR. WATT: Yes, I have it.
LISTNUM 1 \l 18696 MR. DANIELS: I'm just going to give a minute for other people to find it.
LISTNUM 1 \l 18697 MR. DANIELS: So if I look at page 2, your second bullet is your proposed definition for an essential facilities.
LISTNUM 1 \l 18698 So I would just like to go through this.
"An essential facility means an input used by competitors to provide services in the downstream market." (As read)
LISTNUM 1 \l 18699 So that's strictly an input. We won't spend time on that.
LISTNUM 1 \l 18700 The second one:
"Where an input is controlled by a supplier that possesses market power in respect of its supply, such that absent mandated supply of the input on regulated terms the supplier could use its market power in the relevant upstream market to prevent or lesson, in a non‑trivial manner, competition in the relevant downstream markets." (As read)
LISTNUM 1 \l 18701 Then your third part is:
"It's not feasible to duplicate the input or an input equivalent functionality having regard to economic or technical factors." (As read)
LISTNUM 1 \l 18702 Now, I want to focus for a moment on the residential internet market.
LISTNUM 1 \l 18703 Can we agree that the cable companies ‑‑ I assume we can agree that you have the capability of providing high‑speed internet service in the residential cable market?
LISTNUM 1 \l 18704 MR. WATT: Yes.
LISTNUM 1 \l 18705 MR. DANIELS: All right.
LISTNUM 1 \l 18706 In fact ‑‑ and if we want we can turn to it, it's in Tab AA, but in the CRTC's Monitoring Report ‑‑ actually, maybe we should just so that we are all in agreement.
LISTNUM 1 \l 18707 So this is Tab AA. This is a reference in binder ‑‑ this is a reference in the second page of that tab that says "Page 55 of 97" in the printout we have, but I actually think it is page ‑‑
LISTNUM 1 \l 18708 THE SECRETARY: Mr. Daniels, I'm sorry.
LISTNUM 1 \l 18709 MR. DANIELS: Yes?
LISTNUM 1 \l 18710 THE SECRETARY: You are filing this as an exhibit?
LISTNUM 1 \l 18711 MR. DANIELS: No, I believe, Madam Secretary, that this is the CRTC's Telecommunication Monitoring Report 2007 which has been filed already as a CRTC exhibit.
LISTNUM 1 \l 18712 THE SECRETARY: Thank you.
LISTNUM 1 \l 18713 MR. DANIELS: I'm simply using this to make it easier for the Commission and the panel to follow along.
LISTNUM 1 \l 18714 So what is written in my copy is "Page 55 of 97", because I think this is an internet copy, but for those who have the actual version of the Monitoring Report I believe it is page 71.
LISTNUM 1 \l 18715 This is figure 4.4.2 and if we look at this figure we can see in the most recent year 2006 that cable of all internet represents, in the residential market, 47 per cent of accesses.
LISTNUM 1 \l 18716 So can we agree here that here we are referring ‑‑ in this page we are referring to coaxial cable network? This isn't counting the figure beforehand would do ‑‑ this is a technology description so their cable is referring to coaxial or fibre.
LISTNUM 1 \l 18717 Is that correct? That's your understanding?
LISTNUM 1 \l 18718 MR. WATT: In the residential market it will be coaxial cable.
LISTNUM 1 \l 18719 MR. DANIELS: I just wanted to be clear, we are not, this isn't going to include Rogers using unbundled loops to provide ‑‑ in this chart here ‑‑ because this is done on, if you read it, "residential internet access technology mix". The page before would have the market share number.
LISTNUM 1 \l 18720 MR. WATT: I think that's probably correct.
LISTNUM 1 \l 18721 MR. DANIELS: All right.
LISTNUM 1 \l 18722 MR. WATT: I believe our use of DSL is combined almost entirely, if not entirely, to serving the business market.
LISTNUM 1 \l 18723 MR. DANIELS: So just looking at this, in the residential market, just looking at this in our general understanding, can we agree that in terms of high‑speed internet services that the facility is clearly duplicable?
LISTNUM 1 \l 18724 We see a large amount of DSL, we see an even larger amount of cable across the country. As a general proposition the facility is duplicable?
LISTNUM 1 \l 18725 MR. WATT: I think that's fair to say in the residential market in territories where cable companies are present and operating.
LISTNUM 1 \l 18726 MR. DANIELS: So then can we also agree then, going back to your test that, at least let us talk residential market, that as an essential facilities they don't meet the third prong of your test in the residential market? Is that a fair statement?
LISTNUM 1 \l 18727 MR. WATT: I think it is a fair statement for the cable company that is operating in that particular territory. I think for Rogers to go outside its cable footprint area it would be a fair statement.
LISTNUM 1 \l 18728 MR. DANIELS: Just so we are clear, in your test, all right, just going back to your test, when you say:
"It is not feasible to duplicate the input or an input equivalent function not having regard to economic or technical factors." (As Read)
Now, I have taken that to mean that we are looking at generally whether it can be duplicated. We are not looking at whether any one individual company can duplicate it.
LISTNUM 1 \l 18729 MR. WATT: I think, in a general sense, that is correct. But I think our view is that this facility cable is able to provide access into a home because it has a wire, it is leveraging off its video service that places its wire in there. To us, it is a very open question as to whether any additional party will be able to place a third wire into that home.
LISTNUM 1 \l 18730 THE CHAIRPERSON: But surely that is not the issue. It can't be the issue according to your definition. Your definition just says whether it is feasible. Somebody has already done it, so it is clearly feasible.
LISTNUM 1 \l 18731 MR. WATT: That is true. I was just trying to make it clear that we think that it is only the cable company that has that feasibility.
LISTNUM 1 \l 18732 THE CHAIRPERSON: Yes, but whether that cable company is Rogers or whether it is Shaw or somebody else's is irrelevant for the purpose of your test.
LISTNUM 1 \l 18733 MR. WATT: Fair enough.
LISTNUM 1 \l 18734 DR. WARE: If I could just, Mr. Chair, clarify one point. Is that duplicable, at least in my view, is an economic test not a technological test. And so, of course, it is true that a cable company has already done it, as you said. But at the margin, of course, the question might be the next entrant could do it and that is an economic test and it depends on economies of scale and it depends on barriers to entry over a variety of kinds.
LISTNUM 1 \l 18735 So, you know, I don't think it is quite as simple as saying that somebody has already done it so it can be done. It depends on economies of scale relative to the size of the market and what additional barriers there might be to another.
LISTNUM 1 \l 18736 THE CHAIRPERSON: You will have to help me out here. I thought these were sequential. I thought we were going to, first of all, look at market power. And surely, if there is a telco and a cable into one building then it is very hard to say that one of them has market power. So we don't even get to duplicability.
LISTNUM 1 \l 18737 DR. WARE: You are saying that with two firms there will be no market power?
LISTNUM 1 \l 18738 THE CHAIRPERSON: Well, I mean, it is obviously a question of facts in that situation. But using your favourite economic phrase, all other things being equal, if there are two people going into the same building you would assume that neither one of them has market power.
LISTNUM 1 \l 18739 DR. WARE: Well, with respect, I wouldn't assume that, because I ‑‑
LISTNUM 1 \l 18740 THE CHAIRPERSON: Well, that is why I said help me out here.
LISTNUM 1 \l 18741 DR. WARE: Well, I mean, my view is if we look at, you know, what we have learned from competition policy, competition authorities around the world would not endorse a merger from three firms to two firms. Why not? Because they would expect a substantial lessening of competition. In other words, the result would be market power.
LISTNUM 1 \l 18742 So, you know, I would generally think that, of course the particular circumstances matter a great deal, but generally speaking when we see two firms we expect there to be market power.
LISTNUM 1 \l 18743 THE CHAIRPERSON: Yes sure, because you are worried about coordinated behaviour or price leadership or incentive. But I understood the definition put forward by Rogers to be sequential, that you first of all look at one and two before you come to three. Am I wrong there?
LISTNUM 1 \l 18744 DR. WARE: Well no, I don't have a problem with that. And I can't speak for Rogers of course on the definition that they put forward, but I just wanted to make I guess two points really; that it is really an economic issue, duplication; and secondly, that two to three could be a lot different from one to two.
LISTNUM 1 \l 18745 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 18746 MR DANIELS: Just so I understand Rogers' position, because I understand Dr. Ware saying he can't speak for Rogers, can I get you to turn back again to the Rogers‑Companies‑31, which is at tab Z? As I understand your position, and I just want to confirm this, again, you said:
"There are a number of widely deployed mobile and fixed wireless satellite and wireline competitors in the internet market." (As Read)
LISTNUM 1 \l 18747 And then if you look at the very last line, on page 2, your last statement you said in answer to a question:
"The ILECs are not dominant in the residential internet market and might be dominant in the business retail market." (As Read)
That is your position.
LISTNUM 1 \l 18748 So we can agree then that the ILECs are not dominant in the residential retail internet market?
LISTNUM 1 \l 18749 MR. WATT: Not dominant, yes, I would agree with that. But as we say, in the business market we feel in a majority of locations there is not a second wire into that business. We have asked for access to unbundled local loops ‑‑
LISTNUM 1 \l 18750 MR. DANIELS: Okay, I understand that. But, Mr. Watt, I mean I am just being upfront in terms of the beginning and in terms of what I am focused on here. I am focused on your exceptions and I am trying to understand your exceptions and that is why I'm focusing on the residential market, because I understand your position, whether I agree or not, about us dominant in the business market.
LISTNUM 1 \l 18751 But as long as we are agreed that the ILECs are not dominant in the residential market, I am trying to understand this exception about the GAS and the HSA. Because I am reading your test here and I am trying to put it together, so that is why I am ‑‑
LISTNUM 1 \l 18752 MR. WATT: I think Ms Blackwell will try and clarify for you that the primary purpose of our request for GAS, for most, is in order to serve the business market. And then Ms Blackwell will clarify with respect to voice.
LISTNUM 1 \l 18753 MS BLACKWELL: Mr. Daniels, I will just take you to paragraph 172 of the March evidence filed by Rogers. What was clearly set out at the start of that paragraph right above it, there are two instances where wholesale access to services should be maintained on the same terms and conditions as currently established. We described these as exceptions. This is in the section discussing the business market. So with respect to DSL and GAS and so forth the issue is with respect to the remotes in the business market, this is where this exception arises.
LISTNUM 1 \l 18754 In the residential market the discussion with respect to remotes starts at paragraph 203 of the Rogers' March evidence and that is really with respect to the voice market. And if you look at the context of the discussion that continues through to paragraph 212 of that section, it is with respect to where Rogers has had difficulty obtaining loops and as with respect to the voice market and particularly with respect to the outside of the Rogers' Cable footprint.
LISTNUM 1 \l 18755 So I understand your discussion with Mr. Watt has been with respect to the high‑speed internet market in the residential services segment, but I don't think that that is particularly relevant to the exceptions that we have discussed in the March evidence.
LISTNUM 1 \l 18756 MR. DANIELS: So, if I understand your clarification, your position is that your request GAS and HSA is strictly limited to the business market and that it would not be available in the residential market under your proposal?
LISTNUM 1 \l 18757 MS BLACKWELL: Just wait for Mr. Watt to catch up with us here.
LISTNUM 1 \l 18758 MR. WATT: The issue in the residential market is outside our serving territory where we do not have our cable facility and we would use the unbundled local loop to provide both voice service and data service. But by virtue of the fact that the telephone companies have deployed remotes in those areas, we cannot get the copper connectivity all the way through from the customer back to the central office.
LISTNUM 1 \l 18759 We are unable, without some additional technical work, deployment of additional technologies, to provide high‑speed internet service together with our voice service that we are providing on the unbundled loop. And, in that case, we would like to have access to the wholesale facility of the telephone company in order to be able to provide both voice and data services in those circumstances.
LISTNUM 1 \l 18760 THE CHAIRPERSON: Can you repeat the opening? Where would this apply?
LISTNUM 1 \l 18761 MR. WATT: This would apply in locations where Rogers is using an unbundled local loop to provide voice service.
LISTNUM 1 \l 18762 Let's say Calgary. We have the unbundled local loop, and we can provide our voice service, but if the telephone company has deployed technology involving a remote, fibre, and then copper doesn't go all the way back to the central office, there are technologies that allow ‑‑ there is some spare copper that could come back, and we could get that. But in the absence of that, without access to the wholesale DSL tariff, we couldn't provide data service. We would be limited. Our loop is only useful for the voice purpose.
LISTNUM 1 \l 18763 Mr. Pattison, would you like to add to that?
LISTNUM 1 \l 18764 MR. PATTISON: Yes. The loop that we end up receiving in the central office is incapable of providing hi‑speed service because it goes through the remote technology.
LISTNUM 1 \l 18765 THE CHAIRPERSON: So you are missing the piece that would go from the office to the remote.
LISTNUM 1 \l 18766 MR. WATT: Yes, that's correct, we are missing that copper piece.
LISTNUM 1 \l 18767 MR. DANIELS: Just so we are clear ‑‑ because, quite frankly, I just heard two different things from Ms Blackwell and Mr. Watt ‑‑ is it your position ‑‑
LISTNUM 1 \l 18768 I heard you say: We would like it.
LISTNUM 1 \l 18769 Is it your position that GAS, in that situation, in the residential market, should be provided ‑‑ be mandated by this Commission?
LISTNUM 1 \l 18770 MR. WATT: Yes.
LISTNUM 1 \l 18771 MR. DANIELS: All right. So, then, we are back to, with all due respect, the conversation about it only being in business. We can put that aside. In fact, you are looking for it in the residential market.
LISTNUM 1 \l 18772 Now that we have confirmed that, and we have also confirmed that the ILECs are not dominant in the residential market, and we can confirm that there are cable alternatives in the residential market for internet, you have also confirmed that there are many other facility‑based alternatives, so we are not going to get into all of these other issues about only two.
LISTNUM 1 \l 18773 Quite frankly, I am trying to understand, when I look at your definition of essential facilities, how it meets the definition of essential facilities.
LISTNUM 1 \l 18774 Let me be clear. Does it meet your definition of essential facilities, or does it not meet your definition of essential facilities?
LISTNUM 1 \l 18775 And is it an exception to your definition of an essential facility?
LISTNUM 1 \l 18776 MR. WATT: I think we believe that, without the mandated supply, subject to (ii) in the bullet, the supplier could use the market power that it has.
LISTNUM 1 \l 18777 We are not saying that it's dominant in that market, but it could use the market power that it has to lessen, in a non‑trivial fashion, us competing in the downstream market.
LISTNUM 1 \l 18778 Mr. Daniels, as you are aware, there have been a lot of examples where Bell has refused to provide the facilities in remotes and we have lost customers.
LISTNUM 1 \l 18779 I know there are debates about the costs that making the technology available to us impose upon you and so on and so forth, but it is a very serious situation.
LISTNUM 1 \l 18780 MR. DANIELS: Mr. Watt, just so we are clear, when you say remotes here, you are talking about a situation where you can get access to voice. The fact is that you are co‑located and you can get access to voice, but you are saying: I can't get access to DSL.
LISTNUM 1 \l 18781 That is the situation we are talking about here, right?
LISTNUM 1 \l 18782 MR. WATT: Yes, that is correct.
LISTNUM 1 \l 18783 MR. DANIELS: All right. And GAS is available.
LISTNUM 1 \l 18784 MR. WATT: Correct.
LISTNUM 1 \l 18785 MR. DANIELS: All right. So there is no situation where you have been refused access to GAS.
LISTNUM 1 \l 18786 MR. WATT: Not that we are aware of, no. And we would like to see that situation persist.
LISTNUM 1 \l 18787 MR. DANIELS: Just as a finer point on this, just so I understand it, the places that you are talking about, the areas where you face this problem, are the areas outside your territory where you are co‑located and you can't get an unbundled loop that is pure copper, but you can put voice over it, and you can't put DSL.
LISTNUM 1 \l 18788 In that situation, the homes may have, and likely do have, both cable and a phone wire. Correct?
LISTNUM 1 \l 18789 MR. WATT: I would think that the vast majority would, yes.
LISTNUM 1 \l 18790 MR. DANIELS: Okay. I am trying to understand. Why in that situation wouldn't wholesale cable internet be mandated?
LISTNUM 1 \l 18791 Why is it only the ILECs who are being mandated in your so‑called situation of this problem here?
LISTNUM 1 \l 18792 Why is it one and not the other?
LISTNUM 1 \l 18793 MR. WATT: Why is it one and not the other?
LISTNUM 1 \l 18794 MR. PATTISON: Sir, as the product owner, I can tell you that we would much prefer to be using DSL, because we manage the quality of service across that service.
LISTNUM 1 \l 18795 MR. DANIELS: I am not sure that that is an explanation.
LISTNUM 1 \l 18796 Is it just a preference issue?
LISTNUM 1 \l 18797 I am asking about it more as a policy matter, Mr. Watt, in terms of ‑‑ why is it one over the other?
LISTNUM 1 \l 18798 MR. WATT: I think that, principally, as I say, our interest lies in extending our service in the business market. In the residential market we would like to have it because we feel that it goes along with our unbundled loop offer in residential markets, which, in turn, makes economics better for unbundled loops in business, but I can see the inconsistency that you are pointing out.
LISTNUM 1 \l 18799 In this case, it is simply that we are not required to provide the unbundled facility for voice purposes, but if the telephone companies are, we are going to expend money to get that facility, and we think we should be able to provide a broader suite of services to those customers in those locations.
LISTNUM 1 \l 18800 THE CHAIRPERSON: Mr. Watt, I wonder if you could rephrase it in terms of what this is about. I mean whether we should mandate or not.
LISTNUM 1 \l 18801 You say "We would like," and I have trouble with what that means.
LISTNUM 1 \l 18802 Could you rephrase it? Should the CRTC mandate or not mandate these things?
LISTNUM 1 \l 18803 MR. WATT: We think they should mandate those things. Otherwise, we think there will be a non‑trivial reduction in competition.
LISTNUM 1 \l 18804 MR. DANIELS: Mr. Watt, could I get you to turn to Tab FF of the material?
LISTNUM 1 \l 18805 This is the response to Interrogatory Rogers‑CRTC‑12 April 07‑204.
LISTNUM 1 \l 18806 I am looking at the second page of that interrogatory.
LISTNUM 1 \l 18807 Have you found it?
LISTNUM 1 \l 18808 I would like to point out your answer to (b):
"The appropriate wholesale regulatory treatment for ILEC and cable company service should be determined by assessing each of the respective services ‑‑ "
LISTNUM 1 \l 18809 COMMISSIONER CRAM: Excuse me, Mr. Daniels. Did you say "FF", as in "Father Father"?
LISTNUM 1 \l 18810 MR. DANIELS: I did.
LISTNUM 1 \l 18811 It is right at the back.
LISTNUM 1 \l 18812 COMMISSIONER CRAM: All right.
LISTNUM 1 \l 18813 THE CHAIRPERSON: There is another bunch of tabs.
LISTNUM 1 \l 18814 COMMISSIONER CRAM: There is another bunch of tabs. Thank you.
LISTNUM 1 \l 18815 THE CHAIRPERSON: Commissioner Cram is missing the second page.
LISTNUM 1 \l 18816 MR. DANIELS: I strongly apologize for that.
LISTNUM 1 \l 18817 We have two binders, which may be causing some of the confusion.
LISTNUM 1 \l 18818 THE CHAIRPERSON: Okay. I think we are there.
LISTNUM 1 \l 18819 MR. DANIELS: Great.
"The appropriate wholesale regulatory treatment for ILEC and cable company services should be determined by assessing each of the respective services against the same essential service definition and associated criteria. This procedure provides for regulatory symmetry." (As read)
LISTNUM 1 \l 18820 Do you see that there, Mr. Watt?
LISTNUM 1 \l 18821 MR. WATT: I do.
LISTNUM 1 \l 18822 MR. DANIELS: Can we agree that what you have just proposed violates the principle of what I have just read?
LISTNUM 1 \l 18823 MR. WATT: I think in the residential market it well might.
LISTNUM 1 \l 18824 MR. DANIELS: Thank you.
LISTNUM 1 \l 18825 Mr. Chairman, I am going to turn my questions over now to my colleague, Mr. Hofley. Thank you.
LISTNUM 1 \l 18826 MR. HOFLEY: Mr. Chairman, that means a switch of binders. There is another binder. You will be very pleased to know that I spent my weekend determining that I didn't need ‑‑ did not need ‑‑ to take you to all of those tabs; in fact, did not need to take you to many of those tabs.
LISTNUM 1 \l 18827 THE CHAIRPERSON: Thank you, Mr. Hofley. I expect you and others not to ask questions that have already been answered, and I am sure, as usual, you were assiduous in your preparation, but a lot of these things have been answered by others.
LISTNUM 1 \l 18828 MR. HOFLEY: And that is why it has been cut back, Mr. Chairman.
LISTNUM 1 \l 18829 MR. HOFLEY: Good morning, all. My name is Randall Hofley. I am co‑counsel here with Jonathan Daniels for The Companies, and I will have a few questions for you this morning. If I go too fast, please don't hesitate to slow me down, but I am trying to expedite things, given our time constraints.
LISTNUM 1 \l 18830 I hope the binders ‑‑ we have provided you with five as opposed to one ‑‑ will help you expedite matters.
LISTNUM 1 \l 18831 I would like to begin with you, Mr. Hatfield, since you have come a very long way, and I feel you have been left out so far. But I only really have one area that I wanted to ask you questions about.
LISTNUM 1 \l 18832 In reading your report, Mr. Hatfield, I had the sense that you believe that a regulator's focus should be on the physical layer or the lowest layer of your protocol stack model. Would you agree with that?
LISTNUM 1 \l 18833 MR. HATFIELD: I don't think that completely characterized it.
LISTNUM 1 \l 18834 I think my comment was that the market power tends to be in the lower part of the protocol stack, not necessarily always at the physical level. The example that we were just discussing where you have fibre to a remote, then copper beyond that, would be an example where you couldn't get to the wires, therefore, you couldn't put on your own ADSL.
LISTNUM 1 \l 18835 So, that might be a situation where we are quite a bit above the pure physical layer.
LISTNUM 1 \l 18836 MR. HOFLEY: But, generally speaking, you would agree with me that the focus ‑‑ I mean, if you look at tab MM, there is an interrogatory response from The Companies and they quote you when you talk about your focus being on the challenges that reside at the physical layer or the lower layers of the protocol stack. Do you recall that?
LISTNUM 1 \l 18837 MR. HATFIELD: Yes. I just don't want to be sort of held to just the physical layer, because there can be situations where the market power lies higher in the stack.
LISTNUM 1 \l 18838 MR. HOFLEY: I will just quote it to you to help you. It is tab MM, and you don't need to turn it up. It is at page 3 of 7 where they are quoting you, and it says:
"This analysis focuses on the challenges that reside at the lower layers of the protocol stack; that is, the physical network layer." (As read)
LISTNUM 1 \l 18839 Do you recall saying that?
LISTNUM 1 \l 18840 MS SONG: Could counsel please refer, for the benefit of the rest of us in the room, which interrog response he is referring to.
LISTNUM 1 \l 18841 MR. HOFLEY: I have done that again. I am very sorry.
LISTNUM 1 \l 18842 It is Rogers/CRTC 12 April 07‑101. It is at tab MM of the binder. It is at page 3. There is a quote there from Mr. Hatfield about midway down the page. It is at the end of the quote.
LISTNUM 1 \l 18843 MR. HATFIELD: Okay. I am looking at, then, the ‑‑
LISTNUM 1 \l 18844 MR. HOFLEY: It begins "In light of these considerations."
LISTNUM 1 \l 18845 MR. HATFIELD: Oh yes, I see. The very last sentence in that paragraph?
LISTNUM 1 \l 18846 MR. HOFLEY: Right, the very last sentence.
LISTNUM 1 \l 18847 MR. HATFIELD: Okay.
LISTNUM 1 \l 18848 MR. HOFLEY: Okay? So, your testimony is the same as was there. Correct, Mr. Hatfield?
LISTNUM 1 \l 18849 MR. HATFIELD: No, my testimony is what is in quotes above.
LISTNUM 1 \l 18850 MR. HOFLEY: Would you agree with that statement?
LISTNUM 1 \l 18851 MR. HATFIELD: The last sentence?
LISTNUM 1 \l 18852 MR. HOFLEY: Yes.
LISTNUM 1 \l 18853 MR. HATFIELD: No. I say above here, it is in the lower layers, not just in the physical layer.
LISTNUM 1 \l 18854 MR. HOFLEY: Okay. So, the lower layers of the protocol stack?
LISTNUM 1 \l 18855 MR. HATFIELD: That is my testimony.
LISTNUM 1 \l 18856 MR. HOFLEY: Would your principal focus be on the physical layer, the network structure?
LISTNUM 1 \l 18857 MR. HATFIELD: As I said before, not in all cases.
LISTNUM 1 \l 18858 MR. HOFLEY: In the context of the protocol stack model, Mr. Hatfield, at the physical layer, what is the difference between DS‑3 private line and Ethernet? Is there any difference?
LISTNUM 1 \l 18859 MR. HATFIELD: DS‑3 private line, I believe DS‑3 is TDM architecture. In other words, it uses a different way of organizing the bits on a TDM stream than you would on an Ethernet layer.
LISTNUM 1 \l 18860 MR. HOFLEY: But Ethernet is a layer 2 service. Correct? It either rides over a layer 1 private line network or over equipment that provides both the layer 1 connectivity ‑‑
LISTNUM 1 \l 18861 MR. HATFIELD: That was a little quick. If we could go back.
LISTNUM 1 \l 18862 MR. HOFLEY: Ethernet ‑‑ I am talking about your protocol stack model.
LISTNUM 1 \l 18863 MR. HATFIELD: Yes.
LISTNUM 1 \l 18864 MR. HOFLEY: Ethernet is a layer 2. Correct? It is not the physical layer?
LISTNUM 1 \l 18865 MR. HATFIELD: Yes, meaning it is riding on copper of whatever other facility, that is correct.
LISTNUM 1 \l 18866 MR. HOFLEY: Right. So, it either rides over a layer 1 private line network ‑‑
LISTNUM 1 \l 18867 MR. HATFIELD: I am a little confused by your term "private line."
LISTNUM 1 \l 18868 MR. HOFLEY: A physical private line connection.
LISTNUM 1 \l 18869 MR. HATFIELD: Dedicated?
LISTNUM 1 \l 18870 MR. HOFLEY: Yes.
LISTNUM 1 \l 18871 MR. HATFIELD: Yes, okay.
LISTNUM 1 \l 18872 MR. HOFLEY: Or over equipment that provides both the layer 1 connectivity, as well as layer 2 Ethernet over the same physical fibre.
LISTNUM 1 \l 18873 MR. HATFIELD: I believe that is correct, yes.
LISTNUM 1 \l 18874 MR. HOFLEY: In the context of your barrier discussion, if problems at the physical layer required access, required mandated access from the Commission to CDN, and Ethernet services are effectively the same, how can they both be essential, Mr. Hatfield?
LISTNUM 1 \l 18875 MR. HATFIELD: My testimony is if the upper layer, in other words, the service that is riding on it can both get access to the same pairs of copper wires or the same fibre, then I would say there is no difference.
LISTNUM 1 \l 18876 There might be some co‑location issues about making sure you can get your equipment in in both cases.
LISTNUM 1 \l 18877 MR. HOFLEY: Thank you, Mr. Hatfield.
LISTNUM 1 \l 18878 Professor Ware, I would like to move to you, if I could. Professor Ware, just a quick question about the title of your report.
LISTNUM 1 \l 18879 The title of your report is "The Proper Application of the Essential Facility Concept in Canadian Telecommunications." I was struck by that, "The Proper Application." Have you reviewed all of the services listed by each company as essential under their definition or under yours or Rogers' definition and applied that definition to the services?
LISTNUM 1 \l 18880 I am confused about the words "the proper application" of the essential facility concept.
LISTNUM 1 \l 18881 MR. WARE: No, Mr. Hofley. I haven't reviewed each individual service in terms of its applicability or eligibility.
LISTNUM 1 \l 18882 When I say "the proper application," the meaning of those words is intended to be a methodological discussion. It's not intended to produce an outcome and, in fact, neither do I at the end of that report where I find individual services to be essential or non‑essential.
LISTNUM 1 \l 18883 MR. HOFLEY: When you say "a methodological discussion," you mean simply about the appropriate definition of essential facilities. Is that what you mean?
LISTNUM 1 \l 18884 MR. WARE: I mean, definition and application, yes. What it means ‑‑ I mean, obviously definitions can be a single line or they can be ‑‑ there are a lot of conceptual issues here, as you know. So, it is a discussion of the methodological issues.
LISTNUM 1 \l 18885 MR. HOFLEY: And that was your mandate; that was what Rogers requested that you do?
LISTNUM 1 \l 18886 MR. WARE: Yes, it was, as I understood it anyway.
LISTNUM 1 \l 18887 MR. HOFLEY: But would you agree with me that you went beyond that mandate in parts of your report, and let's take one, for example. You have a section of your report which is called "Mandatory Access and Investment: The Empirical Evidence." Do you recall that? It begins at paragraph 34 of your report, Dr. Ware.
LISTNUM 1 \l 18888 MR. WARE: Yes, I do recall that.
LISTNUM 1 \l 18889 MR. HOFLEY: Can you tell me how that was related to your mandate to discuss the essential facilities definition and the methodology associated with the essential facilities definition?
LISTNUM 1 \l 18890 MR. WARE: That was an additional mandate.
LISTNUM 1 \l 18891 MR. HOFLEY: So, one you didn't ‑‑ you then just mention a new one?
LISTNUM 1 \l 18892 MR. WARE: Right.
LISTNUM 1 \l 18893 MR. HOFLEY: In this section, you ‑‑
LISTNUM 1 \l 18894 MS BLACKWELL: Mr. Hofley, I don't want to interrupt, but part of the discussion, as it says at the beginning of Dr. Ware's evidence, has been, first paragraph of that, "to assess the evidence filed by other parties in this proceeding with respect to the proper application of essential facilities."
LISTNUM 1 \l 18895 I believe a number of parties have, in their evidence, discussed the impact on investment as a result of whether you define essential facilities too broadly or too narrowly, which was something that Rogers itself addressed in its March evidence of trying to find a proper balance and, as we proposed, a nuanced approach between the hard extreme of too broad and too narrow.
LISTNUM 1 \l 18896 So, in that context, Dr. Ware took a few paragraphs in his submission, in the supplementary evidence filed on behalf of Rogers in July, to look at the issue of is there empirical evidence of the impact on investment with respect to how other countries and other academics have assessed the impact on investment where you have a broad or not so broad scope of mandated access.
LISTNUM 1 \l 18897 MR. HOFLEY: Thank you, Ms Blackwell. I am happy to understand that from you.
LISTNUM 1 \l 18898 I am really most concerned with what Dr. Ware understood to be his mandate, not what you understood to be Dr. Ware's mandate.
LISTNUM 1 \l 18899 So, if we could just turn to the report, Dr. Ware, again, this section, paragraph 34. You say actually beginning at paragraph 38, when you discuss this issue of mandatory access and investment, you say that you have conducted ‑‑ and I am quoting ‑‑ "a balanced review of the evidence." Do you recall that?
LISTNUM 1 \l 18900 MR. WARE: Can you point me to that, please?
LISTNUM 1 \l 18901 MR. HOFLEY: Paragraph 38.
LISTNUM 1 \l 18902 MR. WARE: Yes, I have it. Thanks.
LISTNUM 1 \l 18903 MR. HOFLEY: Do you recall saying that?
LISTNUM 1 \l 18904 MR. WARE: Yes, I do.
LISTNUM 1 \l 18905 MR. HOFLEY: What is the evidence that you looked at? Is it the evidence that you cite in your report, Dr. Ware?
LISTNUM 1 \l 18906 MR. WARE: Yes, it is.
LISTNUM 1 \l 18907 MR. HOFLEY: And the balanced review is your review. Correct? That is what you are referring to?
LISTNUM 1 \l 18908 MR. WARE: Yes.
LISTNUM 1 \l 18909 MR. HOFLEY: Here in this section you are disputing the point that mandatory access regimes create disincentives for investments. Correct?
LISTNUM 1 \l 18910 MR. WARE: That is correct, yes.
LISTNUM 1 \l 18911 MR. HOFLEY: And you refer to some studies. Correct?
LISTNUM 1 \l 18912 MR. WARE: Yes, I do.
LISTNUM 1 \l 18913 MR. HOFLEY: You say ‑‑ the first study you refer to is the Willig Report. Do you recall that?
LISTNUM 1 \l 18914 MR. WARE: Yes, I do.
LISTNUM 1 \l 18915 MR. HOFLEY: And you say:
"With respect to Willig et al in a report filed..."
This is at the beginning of paragraph 39:
"...in a report filed for AT&T concluded that access by CLECs at cost‑based rates had caused ILEC capital expenditures to increase and increase with decreasing access prices." (As read)
LISTNUM 1 \l 18916 Do you recall that?
LISTNUM 1 \l 18917 MR. WARE: Yes, I do.
LISTNUM 1 \l 18918 MR. HOFLEY: Are you familiar with the Willig Study, Professor Ware?
LISTNUM 1 \l 18919 MR. WARE: Yes, I am.
LISTNUM 1 \l 18920 MR. HOFLEY: Is the punch line of the article that the level of ILEC investment in the U.S. is positively related to the level of UNE pricing? Is that the punch line of the article, Dr. Ware?
LISTNUM 1 \l 18921 MR. WARE: Well, I don't know if it is the punch line of the article or not. It is a conclusion of the article.
LISTNUM 1 \l 18922 MR. HOFLEY: Would you agree, Dr. Ware, that if an ILEC has to provide unbundled network elements, they are required to provide unbundled network elements, that ILEC would have to also make investments in certain wholesale infrastructure? Would you agree with that?
LISTNUM 1 \l 18923 MR. WARE: Well, it is perfectly possible, yes.
LISTNUM 1 \l 18924 MR. HOFLEY: Do you know if the Willig Study separated ILEC investment between UNE‑based investment; in other words, the investment they had to undertake to support providing of unbundled local loops and other ILEC investment? In other words, do you know whether the study separated out the investment that they undertook to comply with the mandated access and that they undertook otherwise?
LISTNUM 1 \l 18925 MR. WARE: No, I don't.
LISTNUM 1 \l 18926 MR. HOFLEY: Isn't it possible, Dr. Ware, that the correlation between the ILEC investment and the lower UNE prices is driven by the ILEC investment to support UNE competition? In other words, to comply with the mandated access?
LISTNUM 1 \l 18927 MR. WARE: I think we ought to look at the document, but as I recall from reading Willig's paper, the hypothesis that he was testing was whether, as a result of mandated access, the ILEC would engage in I think what he calls defensive investment, which is investment that is designed to increase their competitiveness with respect to the entry under mandated access of the CLEC, of the competitor.
LISTNUM 1 \l 18928 He concludes that that hypothesis is supported by the data.
LISTNUM 1 \l 18929 Now, in response to ‑‑
LISTNUM 1 \l 18930 MR. HOFLEY: But, Dr. Ware, he does not separate out the investment that is made by ILECs as a result of meeting the FCC's requirement to provide UNE‑P from the investments they made otherwise. So, would you agree with me that unless you do that, the correlation is nothing but a correlation?
LISTNUM 1 \l 18931 MR. WARE: Well, no, I wouldn't. But in order to seriously debate Dr. Willig's paper, I think we would have to look at it, but I am willing to stand by the statement I just made, which is that he tests the hypothesis and he finds support for it.
LISTNUM 1 \l 18932 MR. HOFLEY: The next report you refer to, Dr. Ware, is that of Mr. Crandall. Do you recall that?
LISTNUM 1 \l 18933 MR. WARE: Yes, I do.
LISTNUM 1 \l 18934 MR. HOFLEY: You say:
"Crandall 2005 reviewed all the empirical studies to date and concluded that when carefully analyzed, none of the studies supported the view that mandatory access rates had influenced the level of capital spending by Bell companies." (As read)
LISTNUM 1 \l 18935 Do you recall that?
LISTNUM 1 \l 18936 MR. WARE: Yes, I do.
LISTNUM 1 \l 18937 MR. HOFLEY: There you are referring, I believe we had confirmed in an interrogatory, you are referring to Robert Crandall's "Competition and Chaos: U.S. Telecommunications Since the 1996 Telecom Act." Correct?
LISTNUM 1 \l 18938 MR. WARE: Yes.
LISTNUM 1 \l 18939 MR. HOFLEY: Dr. Ware, you don't, in making this statement, cite to any portion of this piece, and I can tell you that we have had a look and we can't find in the Crandall piece any support for the statement that I just quoted you.
LISTNUM 1 \l 18940 So, can you take us to where in Crandall's "Competition and Chaos: U.S. Telecommunications Since 1996" you base that statement on?
LISTNUM 1 \l 18941 MR. WARE: First I would have to have the document.
LISTNUM 1 \l 18942 MR. HOFLEY: It is your report, Dr. Ware, and you have cited that ‑‑
LISTNUM 1 \l 18943 MR. WARE: Yes, but if you want me to take you to it right now, I would have to have the document.
LISTNUM 1 \l 18944 I think it was submitted as an exhibit by, was this by you or by someone else?
LISTNUM 1 \l 18945 MR. HOFLEY: We provided you with an excerpt, but I am asking you where in the Crandall report you base this statement on?
LISTNUM 1 \l 18946 MR. WARE: I would be willing to take an undertaking to do that.
LISTNUM 1 \l 18947 MR. HOFLEY: That would be fine. Thank you, Mr. Chairman.
LISTNUM 1 \l 18948 Just by the by, are you aware that in this monograph by Mr. Crandall ‑‑ and he will be here, Mr. Chairman, so I won't belabour this, he will be here on behalf of TELUS, I believe ‑‑ are you aware that Dr. Crandall is critical of the Willig Study that you cited?
LISTNUM 1 \l 18949 MR. WARE: Yes, I read a couple of quotes from it last night, from this excerpt, and he says the proposition put forward by Dr. Willig is unlikely.
LISTNUM 1 \l 18950 MR. HOFLEY: Right, and doesn't he say ‑‑ I am quoting:
"Furthermore, one cannot assume that investment responds to UNE‑P rates. If those rates are measured for a period after the capital expenditures take place, one would have to show that subsequent investment expenditures fall or rise with differences in UNE‑P rates." (As read)
LISTNUM 1 \l 18951 Do you recall that, reading that last night?
LISTNUM 1 \l 18952 MR. WARE: You would have to point me to that in the document.
LISTNUM 1 \l 18953 MR. HOFLEY: Well, the document is there, Mr. Chairman. Maybe we can move on. And plus, Mr. Crandall will be here.
LISTNUM 1 \l 18954 Now, are you aware, Dr. Ware, that there are some more recent studies than "Competition in Chaos" by Mr. Crandall which support the proposition that investment levels fall with mandated access?
LISTNUM 1 \l 18955 Were you here, for example, for the testimony of the Bell panel?
LISTNUM 1 \l 18956 DR. WARE: Most of it, yes.
LISTNUM 1 \l 18957 MR. HOFLEY: So are you aware that there have been other more recent studies since 2005 which suggest that ‑‑ and suggest strongly, I would say to you ‑‑ that investment levels fall with mandated access?
LISTNUM 1 \l 18958 MR. WARE: The only study that I have seen is one that I have found, more recently than my report, which is ‑‑ there is a manuscript by Waverman and some colleagues which was under the LECG brand name, which was published in ‑‑ well no, it hasn't been published rather, I am sorry, but it has a date of September 2007, which I have looked at.
LISTNUM 1 \l 18959 MR. HOFLEY: I think that is fair and you are right, it was after your report was filed, Dr. Ware.
LISTNUM 1 \l 18960 I would like to take you to Tab RR, which is an exhibit which is entitled "Broadband and Unbundling Regulations in OECD Countries" by Scott Wallsten. This was provided to you last Wednesday, I believe, Dr. Ware.
LISTNUM 1 \l 18961 MR. WARE: Yes, I have it.
LISTNUM 1 \l 18962 MR. HOFLEY: And would you agree with me that this report is dated June 2006?
LISTNUM 1 \l 18963 MR. WARE: Yes.
LISTNUM 1 \l 18964 MR. HOFLEY: And that it is an OECD ‑‑ it takes OECD data from 30 countries over five years, from 1999 to 2003?
LISTNUM 1 \l 18965 MR. WARE: Okay.
LISTNUM 1 \l 18966 MR. HOFLEY: Now, if I could take you to ‑‑ well, would you agree with me ‑‑ I think you have had an opportunity to look at this because, as I said, I gave it to your counsel last Wednesday.
LISTNUM 1 \l 18967 Would you agree with me that this report finds, using ITU data, that more extensive sub‑loop unbundling is negatively correlated with broadband penetration because of the negative effect on incumbents' investment incentives?
LISTNUM 1 \l 18968 MR. WARE: I would agree with you up to the last phrase. I don't recall the qualifier about that, because of the negative effect on the incumbents' investment incentives. If you can point me towards that conclusion.
LISTNUM 1 \l 18969 MR. HOFLEY: Well perhaps we can take you to the key findings, Professor Ware, at page 1 of Tab MM, the Wallsten Report.
LISTNUM 1 \l 18970 It is about three pages in, Mr. Commissioner ‑‑ Mr. Chairman.
LISTNUM 1 \l 18971 MR. WARE: What page are you on?
LISTNUM 1 \l 18972 MR. HOFLEY: Page 1.
LISTNUM 1 \l 18973 You see, about ‑‑ towards the bottom of the page, you will see I have actually highlighted, commissioners, the sections in the margins.
"The most extensive form of mandatory unbundling included here, so‑called sub‑loop unbundling, appears to slow penetration growth." (As read)
LISTNUM 1 \l 18974 Do you see that?
LISTNUM 1 \l 18975 MR. WARE: Yes, I do but we are talking about broadband penetration here, not investment. I don't believe Mr. Wallsten had any investment data in this study.
LISTNUM 1 \l 18976 MR. HOFLEY: So penetration growth does not require investment, Dr. Ware?
LISTNUM 1 \l 18977 MR. WARE: Well, of course it does but this study is largely about laying cable on the ground. It is largely about the rollout of cable in countries which for the most part ‑‑ of course, not true of Canada ‑‑ started from very low levels of cable footprints.
LISTNUM 1 \l 18978 MS BLACKWELL: Mr. Hofley, if I could just add.
LISTNUM 1 \l 18979 When you said sub‑loop unbundling, I believe the same report says that ‑‑ an example that is UNE‑P, where you have the loop and the switching, an access regime that Canada has not had.
LISTNUM 1 \l 18980 MR. HOFLEY: And I understand that but we are testing the fundamental proposal.
LISTNUM 1 \l 18981 Let's turn to page 6, Dr. Ware, bottom of the page.
"In sum, there is still a debate about the effects of unbundling policies. Most economists and most studies conclude that unbundling in the U.S. reduce incentives to invest..." (As read)
LISTNUM 1 \l 18982 There is the incentives to invest piece.
"...in hi‑speed internet infrastructure." (As read)
LISTNUM 1 \l 18983 Do you see that?
LISTNUM 1 \l 18984 MR. WARE: I do.
LISTNUM 1 \l 18985 MR. HOFLEY: So you would disagree with most studies and most economists; correct?
LISTNUM 1 \l 18986 MR. WARE: No, I would just point to the fact ‑‑ well, two points actually.
LISTNUM 1 \l 18987 One is I note that Mr. Wallsten does not cite anybody there at all.
LISTNUM 1 \l 18988 And secondly, that, as I just said a few minutes ago, the investment in hi‑speed cable footprint has already taken place in Canada, which puts it in a very different position than these countries.
LISTNUM 1 \l 18989 MS BLACKWELL: Mr. Hofley, I could also point to ‑‑ the OECD's Communications Outlook for 2007 has a statement:
"Quite clearly, competition from new entrants over unbundled lines has also helped spur investment in several markets." (As read)
LISTNUM 1 \l 18990 So I think what we are seeing is depending on which study you are looking at, how the equations that the econometric analyses are specified, which is very, very important if you ask economists and econometricians, you can get different answers.
LISTNUM 1 \l 18991 I think in the context of this proceeding, as the Chair said earlier last week, this is a review process. So in Canada we have the benefit of saying we have had an access regime that included certain components, some of which Rogers has proposed be kept, some not.
LISTNUM 1 \l 18992 You can actually look back in time and see the impact on investment as a result of that access regime. You don't necessarily have to go to these conflicting reports depending on how the equation was specified, whether investment was part of it, how it was reflected.
LISTNUM 1 \l 18993 You can look at the Canadian experience and say has ICT investment increased, have competitors in the telecommunications market in Canada increased their investment, the Telecommunications Monitoring Report, reports on ‑‑
LISTNUM 1 \l 18994 MR. HOFLEY: Ms Blackwell, did you write this report?
LISTNUM 1 \l 18995 MS BLACKWELL: No, sir, I did not write this report ‑‑
LISTNUM 1 \l 18996 MR. HOFLEY: Okay.
LISTNUM 1 \l 18997 MS BLACKWELL: ‑‑ but I am trying to be helpful.
LISTNUM 1 \l 18998 MR. HOFLEY: Now, Ms Blackwell, I am asking Dr. Ware about his report. I haven't asked about Rogers' evidence. I am asking Dr. Ware about his report ‑‑
LISTNUM 1 \l 18999 MS BLACKWELL: Right.
LISTNUM 1 \l 19000 MR. HOFLEY: ‑‑ and I am testing what Dr. Ware says and that is that he conducted a balanced review of the evidence.
LISTNUM 1 \l 19001 MS BLACKWELL: I appreciate that, Mr. Hofley. I am also just trying to provide the commissioners and the staff with some understanding of the context of where all these studies rest within the key issue in this proceeding, one of which is if they increase or decrease the access regime, is there going to be an impact on investment, and I am saying they can look at the Canadian evidence at hand.
LISTNUM 1 \l 19002 THE CHAIRPERSON: Ms Blackwell, this is very helpful but really, the proceedings will go faster if you let counsel conduct their cross‑examination the way they want to.
LISTNUM 1 \l 19003 Mr. Hofley.
LISTNUM 1 \l 19004 MR. HOFLEY: Thank you.
LISTNUM 1 \l 19005 Can we now turn to the Waverman study you appropriately referred to, Dr. Ware. And that, again, is September 2007, LECG. It is at Tab SS of the binder I provided both the panel and the Commission.
LISTNUM 1 \l 19006 MR. HOFLEY: Now, you have had an opportunity to look at this. It was mentioned last week, Dr. Ware.
LISTNUM 1 \l 19007 DR. WARE: Yes, I have.
LISTNUM 1 \l 19008 MR. HOFLEY: And this is the study that you quite fairly pointed out came in after your report was written?
LISTNUM 1 \l 19009 MR. WARE: Yes, it is.
LISTNUM 1 \l 19010 MR. HOFLEY: Now, would you agree with me that this study looks at 12 countries over a five‑year period, 2002 to 2006?
LISTNUM 1 \l 19011 MR. WARE: Yes.
LISTNUM 1 \l 19012 MR. HOFLEY: And can you agree with me that this study, unlike perhaps others, utilizes econometric methods to test the impacts of specific aspects of access regulation embodied in the price of unbundled local loops on investment in alternative access platforms, also called last mile access infrastructures?
LISTNUM 1 \l 19013 MR. WARE: Well, it does, but the conclusion relating to investment is in fact a simulation. It's not a study of investment data. What Professor Waverman does here is, his dependent variable in this study is actually broadband penetration and then what he does is he estimates a set of structural equations based on broadband penetration. Then he says, "Let's suppose that there is 100 Euros of investment associated with an additional household, additional connection, and let's use our estimated equations to simulate the effect of different access regimes. Then he says, with 100 Euro assumption this is how much more investment we would have got." So that is not really a study of investment.
LISTNUM 1 \l 19014 MR. HOFLEY: Have you conducted any econometric studies in this area, Dr. Ware?
LISTNUM 1 \l 19015 MR. WARE: No, I haven't.
LISTNUM 1 \l 19016 MR. HOFLEY: Or a simulation?
LISTNUM 1 \l 19017 MR. WARE: No.
LISTNUM 1 \l 19018 MR. HOFLEY: Can we go to what he concluded, Dr. Ware? If we go to "Key Findings", page 3, it is paragraph 1.11. Would you agree there that at least he says in 1.12 that:
"Our econometric analysis shows that all else equal a reduction of 10 per cent in the LLU price causes an 18 per cent fall in the subscriber share of alternative infrastructure." (As read)
LISTNUM 1 \l 19019 Do you see that?
LISTNUM 1 \l 19020 MR. WARE: Yes, I do.
LISTNUM 1 \l 19021 MR. HOFLEY: That is one of his key findings.
LISTNUM 1 \l 19022 I think for non‑economists like me the next sentence is the one that I think I start to understand, Mr. Chairman, and that is where he says:
"This 18 per cent fall in subscriber share results in hundreds of thousands less broadband subscriber lines that utilize alternative access technologies." (As read)
LISTNUM 1 \l 19023 So that would be speaking, depending on whether you agree with this methodology or not, Dr. Ware, to investment, wouldn't it?
LISTNUM 1 \l 19024 MR. WARE: Well, with the qualification that I just made.
LISTNUM 1 \l 19025 MR. HOFLEY: Yes.
LISTNUM 1 \l 19026 MR. WARE: Really the investment part is a kind of an add‑on. As I said, there are no investment data in this study.
LISTNUM 1 \l 19027 MR. HOFLEY: No.
LISTNUM 1 \l 19028 Then he goes on to say:
"Thus intense access regulation. as measured through the LLU price, weakens facilities‑based competition and the benefits that such competition delivers." (As read)
LISTNUM 1 \l 19029 Next:
"This fall in subscriber levels has the impact of reducing investment in alternative access platforms in both the short‑term and the long‑term." (As read)
LISTNUM 1 \l 19030 Do you see that?
LISTNUM 1 \l 19031 MR. WARE: Yes, I do.
LISTNUM 1 \l 19032 MR. HOFLEY: Now, would you agree with me that a balanced review of the literature would have, had you had it at the time, included the Waverman study?
LISTNUM 1 \l 19033 MR. WARE: Oh certainly, yes. Absolutely.
LISTNUM 1 \l 19034 MR. HATFIELD: Could I add a point here?
LISTNUM 1 \l 19035 We are focused here on increasing the investment in the access part of the network but, as my testimony goes to, there is an awful lot of investment and innovation that is occurring up the protocol stack. So by mandating access at the lower levels you may be very well promoting lots of investment at higher levels in the protocol stack that is not addressed in these studies.
LISTNUM 1 \l 19036 MR. HOFLEY: Thank you for that. I do agree we are focusing, although we did have the debate I believe on Friday about innovation at the lower levels of the protocol stack on Friday. But I take your point about the upper levels.
LISTNUM 1 \l 19037 COMMISSIONER del VAL: Mr. Hofley, may I just ask one point of clarification?
LISTNUM 1 \l 19038 On that paragraph 1.12 it says:
"Our econometric analysis shows that all else being equal..." (As read)
LISTNUM 1 \l 19039 I'm wondering if Dr. Ware or Mr. Hatfield could give me an example of what else would have to be equal?
LISTNUM 1 \l 19040 MR. WARE: Madam Commissioner, we would have to look at his ‑‑ the way this is done is by writing down a series of structural equations and then looking at the estimated coefficients and then identifying those as partial derivatives in a mathematical sense, in the sense that what it means is suppose we hold everything else constant, so essentially that means the price of everything else and it means whatever else he has on the right‑hand side in his equations.
LISTNUM 1 \l 19041 And if we just change ‑‑ I'm sorry, I'm just going back. I have lost the paragraph now.
LISTNUM 1 \l 19042 If I just change the LLU price what happens to the variable on the left‑hand side, which actually is the share of broadband penetration by alternative access technology?
LISTNUM 1 \l 19043 COMMISSIONER del VAL: I think I understand that, but I was just wondering what was on the right‑hand side.
LISTNUM 1 \l 19044 MR. WARE: Well, I would have to go and look. I honestly can't remember exactly.
LISTNUM 1 \l 19045 MS BLACKWELL: Commissioner del Val, I think at a very basic level what you are trying to do is, you try to gather all the variables that you think will explain this broadband penetration and some of the other variables in the equation may account for a larger share of the movement in what you are trying to figure out what makes that move.
LISTNUM 1 \l 19046 In the Waverman report if you look just at what is the impact of the LLU pricing, that relationship, but recognizing there are other things like population density might have a factor, as I think the Wallsten report actually speaks to.
LISTNUM 1 \l 19047 COMMISSIONER del VAL: Thank you.
LISTNUM 1 \l 19048 MR. WARE: Madam Commissioner, on page 20 for example he has one of his equations anyway, 20 of the report. For example he has things like HHI, which is the Herfindahl‑Hirschman Index of concentration, and GDP on the right‑hand side. So he is trying to allow for things like differences in income levels for example.
LISTNUM 1 \l 19049 THE CHAIRPERSON: Go ahead, Mr. Hofley.
LISTNUM 1 \l 19050 MR. HOFLEY: Mr. Chairman, thank you.
LISTNUM 1 \l 19051 I would like to turn to whomever I guess now, the Rogers panel.
LISTNUM 1 \l 19052 Thank you, Dr. Ware.
LISTNUM 1 \l 19053 I would like to begin by taking you to paragraphs 88 and 89 of your March 15th evidence. This is the section of your evidence in which you are discussing economic barriers. You will see the heading starts at paragraph 84, which is page 22 of 61, but what I want to take you to is that page 23 of 61. You are talking about the economic barriers that face competitors to the ILECs.
LISTNUM 1 \l 19054 Do you recall this section of your evidence, Mr. Watt?
LISTNUM 1 \l 19055 MR. WATT: Yes, I do.
LISTNUM 1 \l 19056 MR. HOFLEY: I would like to do a bit of an experiment and ask you if you would agree with me.
LISTNUM 1 \l 19057 Let's start at paragraph 88 and I'm going to replace the word "ILECs" with "cable cos". So I'm going to read you these and I will ask you your views.
"The cable cos of course already have ubiquitous facilities at the lowest layers of the protocol stack and can rely on these facilities to offer customers comprehensive service packages at higher layers." (As read)
LISTNUM 1 \l 19058 Would you agree with me with that?
LISTNUM 1 \l 19059 MR. WATT: No, I wouldn't. I would reword that sentence, following upon your proposal:
"The cable companies of course already have almost ubiquitous facilities to residential premises at the lowest levels of the protocol stack and can rely on these facilities to offer customers comprehensive service packages in the residential market at the higher level." (As read)
LISTNUM 1 \l 19060 MR. HOFLEY: So this is back to the lateral connection issue.
LISTNUM 1 \l 19061 Is that a fair statement?
LISTNUM 1 \l 19062 MR. WATT: I'm not quite ‑‑
LISTNUM 1 \l 19063 MR. HOFLEY: The last mile.
LISTNUM 1 \l 19064 MR. WATT: The last mile is better.
LISTNUM 1 \l 19065 MR. HOFLEY: I'm sorry.
LISTNUM 1 \l 19066 MR. WATT: Generally I think the ILECs preferred that the lateral connection to be a fibre‑based facility. It is the last mile, co‑ax and fibre.
LISTNUM 1 \l 19067 MR. HOFLEY: The last mile. I apologize.
LISTNUM 1 \l 19068 MR. WATT: Into those 95 per cent of locations we don't have a facility today. Yes.
LISTNUM 1 \l 19069 MR. HOFLEY: Now, let's go to the next sentence.
"The cable cos facilities..."
LISTNUM 1 \l 19070 We will agree to disagree on that:
"The cable cos facilities were built and paid for while the cable cos operated monopolies and the investments have been recovered so as to ensure a reasonable rate of return on the investments." (As read)
LISTNUM 1 \l 19071 MR. WATT: I would again disagree with that sentence, the reason being that cable companies were granted exclusive franchises in a territory. So you could say it was, in that sense, a monopoly over the provision of television signals over wires in that franchise area.
LISTNUM 1 \l 19072 There were other alternatives for radio signals so, in that sense, they were not a monopoly supplier of signals. With respect to investments have been recovered through rates set so as to ensure a reasonable rate of return on investments, that is not true. The rates were regulated, but there was no guaranteed rate of return in the sense. Television services are not viewed as an essential service. In fact, our penetration peaked out in the order of 84 per cent of homes.
LISTNUM 1 \l 19073 There was no guaranteed rate of return. We set our rates and then we realized the return that we did. But no rate base was established with a guaranteed rate of return on that rate base. Those investments were entirely at risk.
LISTNUM 1 \l 19074 MR. HOFLEY: More like a price cap model?
LISTNUM 1 \l 19075 MR. WATT: For basic rates, when we at one time had 12, 14 channels and then subsequently grew up to 60, 72, there was a cap after a period of time. You will have to recall, in the early 1970s when cable started out there was zero penetration, so there was much less regulation. When penetration reached higher levels there were caps eventually placed on basic rates, yes, and then they were related to capital investment, et cetera.
LISTNUM 1 \l 19076 MR. HOFLEY: And CAPEX increases were allowed?
LISTNUM 1 \l 19077 MR. WATT: When you say CAPEX increases were allowed, we were always allowed to spend as much as money as we possibly could and Rogers did.
LISTNUM 1 \l 19078 MR. HOFLEY: I apologize, there was specific provision to allow for rate increases for CAPEX?
LISTNUM 1 \l 19079 MR. WATT: In the late 1980s, early 1990s there were specific provisions. But that time I think the Commission felt that they needed to pay some attention to the economics of the cable industry because it was penetrating fairly widely at that point. So there was put in place a mechanism whereby the rates for basic service was related to the capital expenditure in that system. And if you spent a certain amount of money, you could increase your rate up to a certain level. And there is a long history to what happened to this after. It was supposed to sunset after a period of years and so on and so forth, but that is not worth getting into now.
LISTNUM 1 \l 19080 MR. HOFLEY: That is your qualification, on that sentence?
LISTNUM 1 \l 19081 MR. WATT: That is my qualification, exactly, came from zero to fully penetrated in 45 years with no guaranteed rate of return, residential market.
LISTNUM 1 \l 19082 MR. HOFLEY: Now, the last sentence:
with the qualifications you have given,
"afford cable companies substantially lower risks than new entrants encounter in making similar investments." (As Read)
LISTNUM 1 \l 19083 Would you agree with that? Entrants who don't have facilities, for example.
LISTNUM 1 \l 19084 MR. WATT: This one doesn't fit quite so neatly. These arrangements ‑‑
LISTNUM 1 \l 19085 MR. HOFLEY: The arrangements are referred to above.
LISTNUM 1 \l 19086 MR. WATT: Right, the fact that we have almost ubiquitous facilities in residential locations, et cetera, afford the cable companies substantially lower risks than new entrants encounter in making similar investments. Now, I take it the lower risks in reference here are with respect to ‑‑ well, I am having trouble now. Lower risks in making similar investments into ‑‑
LISTNUM 1 \l 19087 MR. HOFLEY: What did you mean when you ‑‑
LISTNUM 1 \l 19088 MR. WATT: ‑‑ to the telecom market.
LISTNUM 1 \l 19089 MR. HOFLEY: What did you mean when you said the ILECs face substantially lower risks?
LISTNUM 1 \l 19090 MR. WATT: The ILECs face substantially lower risks because they already have the facilities in place and the guaranteed rate of return. So I guess we would take the context in the historical sense, that the risks were lower historically. Maybe to move this along, there is no doubt that new entrants today face greater risk, absolutely.
LISTNUM 1 \l 19091 MR. HOFLEY: Than the cable companies?
LISTNUM 1 \l 19092 MR. WATT: They face greater risks than cable companies and ILECs in the residential market, absolutely correct.
LISTNUM 1 \l 19093 MR. HOFLEY: Okay, thank you. Can I move on just to try and understand, since your focus has been, at least even in your answers in the last five minutes, on the business side? I would like to just try and clarify and understand your evidence with respect to Rogers' share of the business market.
LISTNUM 1 \l 19094 And I provided you with a number of exhibits in the tabs and I am hoping this won't take very long, Mr. Chairman, but I think it is actually important for the Commission to understand what is on the record.
LISTNUM 1 \l 19095 Now, in paragraph 5 of March 15 evidence you state, you will recall, that your share of the business market is less than 3 per cent. Do you recall that?
LISTNUM 1 \l 19096 MR. WATT: Yes, I do.
LISTNUM 1 \l 19097 MR. HOFLEY: Now, how was that calculated?
LISTNUM 1 \l 19098 MR. WATT: Ms Blackwell has the detailed calculations on her computer here and she will find the reference in the record.
LISTNUM 1 \l 19099 MR. HOFLEY: You might want to go to tab F of our binder, Ms Blackwell, it is a response of yours to Rogers‑Primus‑12‑April‑07‑2.
LISTNUM 1 \l 19100 MS BLACKWELL: Okay, yes, we have those documents.
LISTNUM 1 \l 19101 MR. HOFLEY: Now, maybe to expedite this along, would you agree with me that this calculation was based on total business NAS for all of Canada, correct?
LISTNUM 1 \l 19102 MS BLACKWELL: That is correct.
LISTNUM 1 \l 19103 MR. HOFLEY: So that is in and outside of Rogers' operating territory, correct?
LISTNUM 1 \l 19104 MS BLACKWELL: I mean, the other issue here of course is the Rogers' business lines that we are doing ex post the Call‑Net acquisition, so of course we would have the Rogers' lines that are also served through the leased facilities that the company relies on outside of its cable footprint.
LISTNUM 1 \l 19105 MR. WATT: Yes, you would have to say outside the cable footprint, because Rogers' operating territory for business solutions spans the entire country.
LISTNUM 1 \l 19106 MR. HOFLEY: So inside your cable footprint, Mr. Watt, what would you estimate that market share to be? If it is 3 per cent nationally, what do you think it would be in your cable footprint? A rough number, like would it go up to 8 or 9 or what would it be?
LISTNUM 1 \l 19107 MR. WATT: Rather than guess, we should probably go back and try and provide you with an educated calculation on that.
LISTNUM 1 \l 19108 MR. HOFLEY: That would be fine, thank you.
LISTNUM 1 \l 19109 MS BLACKWELL: Just recognizing that the denominator, if you will, is from the telecom monitoring report and I don't recall seeing footprints, for the business market, lines broken out by province, which would be probably the starting point in order to isolate the denominator for the equivalent of the Rogers' footprint. So it may not be possible to actually calculate an accurate ‑‑
LISTNUM 1 \l 19110 MR. HOFLEY: Well, do your best, but I would be interested in knowing what if we just looked at in your territory as opposed to across the country. You can only do what you can do, Ms Blackwell, and I appreciate that.
LISTNUM 1 \l 19111 Now, you would agree with me though that these are lines in which Rogers' provides service, so it doesn't include the number of premises past, correct, that is another figure that we go to?
LISTNUM 1 \l 19112 MR. WATT: It is indeed another figure that we go to.
LISTNUM 1 \l 19113 MR. HOFLEY: Right. Now, I would like to talk to you about that other figure. And you will recall that that is an estimate that you made in response to an interrogatory from the Competition Bureau, it is 12‑April‑07 interrogatory 8, it is at tab G, Mr. Chairman, members of the Commission.
LISTNUM 1 \l 19114 You will recall there that your estimate was 5 per cent. You estimated that Rogers' supplies 5 per cent of business premises in its cable footprint with cable television services. Do you recall that?
LISTNUM 1 \l 19115 MR. WATT: Yes, I do.
LISTNUM 1 \l 19116 MR. HOFLEY: Now, that doesn't tell us how many businesses would be within a premise, correct? Like, if it was a multiunit building this would just tell us the premise, correct, the address?
LISTNUM 1 \l 19117 MR. WATT: The calculation actually was with respect to the number of customers with cable TV. So if, for example, there were 50 customers of ours within say First Canadian Place, that would have counted as 50, so in a sense it would have over‑counted in that case, we would have counted as 50 when really it is only one building.
LISTNUM 1 \l 19118 We don't have an accurate count. We do not know precisely how many buildings out of the 400 ‑‑ and again, I should say we have estimated from Dunn & Bradsteet material and Stats Canada information roughly 400,000 business locations within our cable operating footprint. That is an estimate. We do not know precisely how many of those business we have physical coax into. We do know that we have roughly 20,000 cable TV subscribers in business premises.
LISTNUM 1 \l 19119 So that is the estimate of the 5 per cent. You could probably consider ‑‑ we would have to see the condition of the plant, but it could be 6 or 7 percent with people who, at one time, took cable TV for business and internet and then cancelled. So there would be remaining facilities into those locations.
LISTNUM 1 \l 19120 But we are quite convinced that we have facilities in the 5 to 7 percent range for coax, and with fibre ‑‑ we have approximately 1,850 fibre connections into buildings. That is not all entirely within our cable footprint. We have ‑‑
LISTNUM 1 \l 19121 MR. HOFLEY: I'm sorry to interrupt, Mr. Watt, but so that I can understand ‑‑
LISTNUM 1 \l 19122 I am looking at your answer ‑‑
LISTNUM 1 \l 19123 MR. WATT: Yes.
LISTNUM 1 \l 19124 MR. HOFLEY: ‑‑ and it says ‑‑ the first April answer said:
"Rogers estimates that it supplies 5 percent of business premises in its cable footprint with cable television services."
LISTNUM 1 \l 19125 Right?
LISTNUM 1 \l 19126 MR. WATT: Correct.
LISTNUM 1 \l 19127 MR. HOFLEY: So that's how you estimate it, by the cable television services.
LISTNUM 1 \l 19128 MR. WATT: That 5 percent, and I just went on to say that there will probably be, maybe, a percent or 2 more where legacy facilities ‑‑ where people at one time took cable television in a business location and have now cancelled.
LISTNUM 1 \l 19129 I don't know that number. My estimate may be too high, but I just want you to understand that the 5 percent is not precise to 2 decimal points.
LISTNUM 1 \l 19130 MR. HOFLEY: I didn't think it was, and your answers were fairly stated in the interrogatory responses.
LISTNUM 1 \l 19131 If we go over to ‑‑
LISTNUM 1 \l 19132 THE CHAIRPERSON: Excuse me. You have totally confused me with your answer. I just want to understand this.
LISTNUM 1 \l 19133 The 5 percent refers to 5 percent of 400,000?
LISTNUM 1 \l 19134 MR. WATT: That's correct. That's how many buildings that we have coaxial cable in.
LISTNUM 1 \l 19135 THE CHAIRPERSON: You just explained to me a moment ago that it's not buildings, it is business premises in buildings.
LISTNUM 1 \l 19136 You used the example of First Canadian Place.
LISTNUM 1 \l 19137 So I presume what you are saying is that there are 500,000 business premises, whether in one building or multiple buildings, and you serve 5 percent of those.
LISTNUM 1 \l 19138 MR. WATT: I'm sorry, I am not only confusing you, I am confusing myself.
LISTNUM 1 \l 19139 This 20,000 into business ‑‑
LISTNUM 1 \l 19140 I think I see the confusion.
LISTNUM 1 \l 19141 We have translated or inferred that each one of those would be one business, one building, in making this statement.
LISTNUM 1 \l 19142 THE CHAIRPERSON: You assumed that.
LISTNUM 1 \l 19143 MR. WATT: We assumed that.
LISTNUM 1 \l 19144 THE CHAIRPERSON: But you may be over‑counting, because there may be more than one business in a building.
LISTNUM 1 \l 19145 MR. WATT: That's correct. There may be over‑counting on that side, but I may be slightly under‑counting, in the sense that people who took the service historically, and now have cancelled, that wire is still in that location, but it wouldn't have shown up on this count.
LISTNUM 1 \l 19146 THE CHAIRPERSON: So I should read 400,000 business premises, really, as 400,000 buildings.
LISTNUM 1 \l 19147 MR. WATT: Four hundred thousand buildings.
LISTNUM 1 \l 19148 THE CHAIRPERSON: Yes. Okay. Thank you.
LISTNUM 1 \l 19149 MR. HOFLEY: I thought I understood it, and now I am confused.
LISTNUM 1 \l 19150 It is the premises, the building. It could have many businesses in it, or it could have one. Correct?
LISTNUM 1 \l 19151 MR. WATT: Correct.
LISTNUM 1 \l 19152 MR. HOFLEY: Thank you.
LISTNUM 1 \l 19153 If I take you over to another one of your answers on the same issue ‑‑ it is Rogers‑MTS Allstream‑12 April 07‑107.
LISTNUM 1 \l 19154 It can be found at Tab I of the compendium.
LISTNUM 1 \l 19155 I note that there, again, you say the same thing in the first paragraph: "approximately 5 percent of business locations to provide cable television services."
LISTNUM 1 \l 19156 It says:
"In many cases where cable facilities are in a building they are suitable for video services only and not for telecommunications services." (As read)
LISTNUM 1 \l 19157 Do you see that?
LISTNUM 1 \l 19158 MR. WATT: Yes, I do.
LISTNUM 1 \l 19159 MR. HOFLEY: That was your evidence at that time.
LISTNUM 1 \l 19160 Then you were asked some further questions about this. At Tab J, which is Rogers‑The Companies‑19 July 07‑11, you were asked a follow‑up question on this, and you will see there that the answer has changed somewhat. It says:
"Rogers identified the number of business premises that subscribe to cable television and hi‑speed internet services from Rogers in its cable operating territory." (As read)
LISTNUM 1 \l 19161 Do you see that?
LISTNUM 1 \l 19162 MR. WATT: I do.
LISTNUM 1 \l 19163 MR. HOFLEY: So now we have said that it's not just cable television service any more, it includes hi‑speed internet services.
LISTNUM 1 \l 19164 I am a bit confused, though, as to the previous reference that I read to you, where it said that these locations don't, or cannot, or many of them cannot provide telecommunications services.
LISTNUM 1 \l 19165 Would you agree with me that, at least, many of them can, or is that where the 5 percent ‑‑
LISTNUM 1 \l 19166 MR. WATT: Oh, absolutely. We are just clarifying that in not all cases in business premises is the plant capable of providing hi‑speed internet, in the sense that there are certain building owners, believe it or not, who would not allow us to upgrade the plant to provide the two‑way capability, for whatever reason. Principally, they were ‑‑
LISTNUM 1 \l 19167 Well, I will leave it at that.
LISTNUM 1 \l 19168 MR. HOFLEY: I was curious, because 5 percent doesn't change, even though between April and July you have added services.
LISTNUM 1 \l 19169 In April you were saying that the 5 percent was with cable television, and in July you said that it now includes hi‑speed internet.
LISTNUM 1 \l 19170 The 5 percent number stayed the same.
LISTNUM 1 \l 19171 MR. WATT: I was clarifying the earlier answer, that's all.
LISTNUM 1 \l 19172 MR. HOFLEY: The original answer.
LISTNUM 1 \l 19173 MR. WATT: The original answer.
LISTNUM 1 \l 19174 MR. HOFLEY: I see.
LISTNUM 1 \l 19175 MR. WATT: I thought that we should.
LISTNUM 1 \l 19176 MR. HOFLEY: Okay. Now, I want to talk to you about the statement that you are not connected in a number of these buildings.
LISTNUM 1 \l 19177 Were you here for Mr. Bibic's testimony on October 10th, which was last Tuesday, Mr. Watt?
LISTNUM 1 \l 19178 MR. WATT: Yes, I was.
LISTNUM 1 \l 19179 MR. HOFLEY: Mr. Bibic stated at page 511 of the transcript:
"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 percent of those buildings in Ottawa in the downtown core with either its coaxial cable network or fibre."
LISTNUM 1 \l 19180 Do you recall hearing that?
LISTNUM 1 \l 19181 MR. WATT: I do.
LISTNUM 1 \l 19182 MR. HOFLEY: Given the 5 percent, and given this statement, do you disagree with what Mr. Bibic has said about the large buildings in downtown Ottawa?
LISTNUM 1 \l 19183 MR. WATT: This is absolutely one of the key items in this proceeding: to what extent do we have access into buildings.
LISTNUM 1 \l 19184 Bell says that we go up and down the road near 90 percent of them. We say that ‑‑
LISTNUM 1 \l 19185 MR. HOFLEY: I'm sorry, Mr. Watt, let's be careful. He did not say that you went down the road past 90 percent of them, he said that Rogers is in close to 90 percent of those buildings in Ottawa in the downtown core, according to their survey of the 200 large buildings.
LISTNUM 1 \l 19186 What I am asking is, do you disagree with that?
LISTNUM 1 \l 19187 MR. WATT: I do disagree with that.
LISTNUM 1 \l 19188 MR. HOFLEY: Could you, then, undertake to look at the downtown core of Ottawa and provide us with the number that you think is right?
LISTNUM 1 \l 19189 MR. WATT: Yes, if he would provide us with the list of the 200 buildings.
LISTNUM 1 \l 19190 MR. HOFLEY: I would be happy to do that, if that is agreeable to the Commission, Mr. Chairman.
LISTNUM 1 \l 19191 THE CHAIRPERSON: By all means, let's have a clarification on that.
LISTNUM 1 \l 19192 MR. HOFLEY: I would like to turn to a different topic now, Mr. Watt.
LISTNUM 1 \l 19193 MR. WATT: To speed things along, I can tell you that we counted, and we have 53 buildings in the greater Ottawa region connected with fibre.
LISTNUM 1 \l 19194 MR. HOFLEY: We will give you our list, and you can have a look at that ‑‑
LISTNUM 1 \l 19195 Oh, fibre. I apologize. With fibre. Okay.
LISTNUM 1 \l 19196 MR. WATT: We provided that list to the Commission in our response to Bureau No. 8(b).
LISTNUM 1 \l 19197 MR. HOFLEY: Just to be fair, Mr. Bibic's testimony, when he said "is in", is fibre or cable. So what we are going to be asking you is whether you are in the building with fibre or cable.
LISTNUM 1 \l 19198 MR. WATT: Or coaxial cable, as well.
LISTNUM 1 \l 19199 MR. HOFLEY: Correct.
LISTNUM 1 \l 19200 Ninety percent of 200 large buildings was his testimony, and I think you have just agreed that you will take that list and you will look at it and tell us whether you think that list is right.
LISTNUM 1 \l 19201 MR. WATT: That's correct. We will have to track through whether there is coaxial cable in those buildings.
LISTNUM 1 \l 19202 MR. HOFLEY: I just wanted to make sure that you understood what he said.
LISTNUM 1 \l 19203 MR. HOFLEY: My friend here wants to make sure that we are clear. It is either/or fibre or coaxial cable. I think you understood that. Right?
LISTNUM 1 \l 19204 MR. WATT: I do, and you of course understand the limitations of coax.
LISTNUM 1 \l 19205 MR. HOFLEY: I do.
LISTNUM 1 \l 19206 I would like to talk about Rogers voice service to business or lack thereof, Mr. Watt.
LISTNUM 1 \l 19207 If I can take you to Rogers/Bureau 12 April 07‑37, it is at tab K, I believe, of the compendium in front of the Commission. If you turn the page over to page 2, you will see that you have stated that:
"Rogers notes that at the current time it does not offer any business voice services using cable facilities." (As read)
LISTNUM 1 \l 19208 Do you see that?
LISTNUM 1 \l 19209 MR. WATT: I do.
LISTNUM 1 \l 19210 MR. HOFLEY: That is even single line or two‑line services. Is that right?
LISTNUM 1 \l 19211 MR. WATT: I am going to ask Mr. Pattinson, who owns this product, to speak to that.
LISTNUM 1 \l 19212 MR. HOFLEY: Thank you. Sorry, Mr. Pattinson.
LISTNUM 1 \l 19213 MR. PATTINSON: Yes, that is correct. We do not provide business telephony service on the coax network today.
LISTNUM 1 \l 19214 MR. HOFLEY: Are you aware of what other cable companies are offering in terms of business voice solutions over their network, Mr. Pattinson?
LISTNUM 1 \l 19215 MR. PATTINSON: I am aware that other cable companies are starting the process of entering into business telephony starting with extremely small businesses, but do not have the complete host and suite of business telephony products that we would provide today under CDNS.
LISTNUM 1 \l 19216 MR. HOFLEY: Are you aware that QMI offers business voice services over coaxial cable, Mr. Pattinson?
LISTNUM 1 \l 19217 MR. PATTINSON: I am aware that there are several cable companies that are starting to offer business telephony services.
LISTNUM 1 \l 19218 MR. HOFLEY: So, would several include EastLink and Shaw as well, to your knowledge?
LISTNUM 1 \l 19219 MR. PATTINSON: Yes. Again, just to confirm, they are starting with services that only service extremely small businesses and not large businesses, which are where we use services from CDNS.
LISTNUM 1 \l 19220 MR. HOFLEY: Let me see if I can try and understand how you service small business customers today, given that you don't provide voice services using cable facilities, Mr. Pattinson.
LISTNUM 1 \l 19221 I would like you to assume the following example. Rogers cable plant passes a small business in a geographic location served by an ILEC central office where Rogers is co‑located. If you need to take down notes, please do. I am really not trying to mislead you here.
LISTNUM 1 \l 19222 So, Rogers cable plant passes a small business in a geographic location served by an ILEC CO where Rogers is co‑located. The small business requests a single telephone service, as well as digital cable TV and hi‑speed from Rogers.
LISTNUM 1 \l 19223 Can you describe the approach Rogers would take to provide service to this customer? For example, will Rogers automatically request an unbundled loop from Bell or the ILEC, depending on what the territory is?
LISTNUM 1 \l 19224 MR. PATTINSON: So, if I understand your question, the customer in this example is ordering three products from Rogers: A television service, an internet service and a telephony service.
LISTNUM 1 \l 19225 MR. HOFLEY: Yes, a small business customer.
LISTNUM 1 \l 19226 MR. PATTINSON: Small business customer. We would potentially be able to provide internet and television service through our coax network and an order would be placed for that, and I can describe how we would evaluate whether the customer was serviceable or not.
LISTNUM 1 \l 19227 Then for the business service, at the moment we do not have the ability even to provide a single line or a two‑line business customer on the coax network. So, an order would be placed and the appropriate serviceability checks for an unbundled loop to that location.
LISTNUM 1 \l 19228 MR. HOFLEY: How is a single line business service any different than the residential voice service that you provide over the coaxial cable, Mr. Pattinson?
LISTNUM 1 \l 19229 MR. PATTINSON: A business service requires a business 911 record, as well as a business directory listing record, which is a completely different system from the residential system.
LISTNUM 1 \l 19230 Then eventually as that business grows and they need more than one line, they will require multi‑line hunting, which is a feature that is not yet available.
LISTNUM 1 \l 19231 MR. HOFLEY: You are going beyond my hypothetical now. We are talking about a small business who wants a single line or perhaps two lines, and you have said that there are some back office problems with providing that single line. Correct?
LISTNUM 1 \l 19232 MR. PATTINSON: There are back office OSS, as well as technology constraints, that exist inside the soft switch today that would prevent us from being able to provide that second line.
LISTNUM 1 \l 19233 MR. HOFLEY: Have you determined when you can start serving these kind of customers using your cable facilities, Mr. Pattinson? If you can't serve them today, like, when?
LISTNUM 1 \l 19234 MR. PATTINSON: It is something that we are starting to work on. We are evaluating what the changes are that will need to be made to the OSS, as well as when we will receive software upgrades from third party suppliers, which are still yet to be determined.
LISTNUM 1 \l 19235 MR. HOFLEY: So, QMI and Shaw and EastLink have solved these problems, at least to the point where they can provide the service that they are providing, but you are going to take some more time?
LISTNUM 1 \l 19236 MR. PATTINSON: I think in your example of EastLink, they are using a different switching technology they deployed many years ago using circuit switch. We have not. But we recognize there is opportunity there and we would like to develop it.
LISTNUM 1 \l 19237 MR. HOFLEY: Could I turn you to ‑‑ every once in a while I have to make sure I am doing this right; my colleague here.
LISTNUM 1 \l 19238 Could I turn you to a recent article that is at tab S of the compendium. For those listening it is called "Watt's New," catchy title. It is published by Brantford Power and Brantford Hydro in the winter of 2006. Do you see that, Mr. Pattinson or Mr. Watt, whoever is appropriate?
LISTNUM 1 \l 19239 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19240 MR. HOFLEY: This announces that NetOptiks, a division of Brantford Hydro Inc., and Rogers Cable Communications completed an innovative, award‑winning solution using a fibre coaxial hybrid network that delivers hi‑speed internet access to 35 schools. So, you are familiar with this. Correct?
LISTNUM 1 \l 19241 MR. PATTINSON: Yes, I am.
LISTNUM 1 \l 19242 MR. HOFLEY: The article describes the customized network combines the facilities of NetOptiks fibre assets and the coaxial ADSL facilities of Rogers to provide hi‑speed internet access and other IT applications to all of the board's schools using MPLS. Do you see that?
LISTNUM 1 \l 19243 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19244 MR. HOFLEY: And it says that:
"Educators and students are now able to layer voice, video and other applications on top of data all over a single network." (As read)
LISTNUM 1 \l 19245 Do you see that?
LISTNUM 1 \l 19246 MR. PATTINSON: I think I see that they say that there is a platform of possibilities, of which they have not layered those applications over the network, but I do see that.
LISTNUM 1 \l 19247 MR. HOFLEY: Right, it is a possibility. So, it is possible to offer voice over the MPLS network. Is that a fair statement?
LISTNUM 1 \l 19248 MR. PATTINSON: That is not voice being provided by Rogers. In this case ‑‑ and this is not a Rogers press release, nor is it a partnership or a GV. In this case, NetOptiks is a customer of Rogers, where Rogers is only providing the underlying MPLS network.
LISTNUM 1 \l 19249 Any type of services referred to in here are not being provided by Rogers in any way.
LISTNUM 1 \l 19250 MR. HOFLEY: But it is still being provided over your network. Correct?
LISTNUM 1 \l 19251 MR. PATTINSON: Not in all cases. They have their own sites.
LISTNUM 1 \l 19252 MR. HOFLEY: In some cases ‑‑
LISTNUM 1 \l 19253 MR. PATTINSON: You will notice a black box where they are providing their own fibre drops, but ‑‑
LISTNUM 1 \l 19254 MR. HOFLEY: In some cases it is being provided over your network?
LISTNUM 1 \l 19255 MR. PATTINSON: In some cases it is being provided over the MPLS data network.
LISTNUM 1 \l 19256 MR. HOFLEY: Thank you.
LISTNUM 1 \l 19257 I would like you to turn in your compendium to the next tab, it is tab T. It is an article called "Solutions for the Little Guy." I think the little guy here is small‑ and medium‑sized business or maybe just small business. It is a 10 September, 2007 article.
LISTNUM 1 \l 19258 It quotes Sarah Bryant, your Vice‑President of Small Business Marketing as talking about your new product called Easy IP, which is described as a hosted integrated communication solution that delivers converged voice and data network access, and you will see I have highlighted, Ms Bryant says:
"The suite spot for us for that solution is anywhere between five and 49 employees, which is really ideal in terms of the combinations it offers." (As read)
LISTNUM 1 \l 19259 I take it you are familiar with Easy IP, Mr. Pattinson or Mr. Watt?
LISTNUM 1 \l 19260 MR. PATTINSON: Yes, I am quite familiar with this product. It is one of many in a suite of our business products that we provide to customers today.
LISTNUM 1 \l 19261 MR. HOFLEY: If I go over to the next tab, which is excerpts from ‑‑
LISTNUM 1 \l 19262 MR. PATTINSON: If I could just add, then, sir, I would like to say that to date ‑‑
LISTNUM 1 \l 19263 MR. HOFLEY: I am not finished with Easy IP, sorry, but go ahead.
LISTNUM 1 \l 19264 MR. PATTINSON: You are, okay?
LISTNUM 1 \l 19265 MR. HOFLEY: No, I am not finished, sir, just so you know.
LISTNUM 1 \l 19266 If I go over to the next page, there is the website for Easy IP. I want to make sure I gave you a chance to talk about it.
LISTNUM 1 \l 19267 MR. PATTINSON: Sorry, you are at what tab now, please?
LISTNUM 1 \l 19268 MR. HOFLEY: It is tab U.
LISTNUM 1 \l 19269 MR. PATTINSON: Yes.
LISTNUM 1 \l 19270 MR. HOFLEY: I don't actually think there is an exhibit number that has been given to these. Maybe I am going through these too quickly.
LISTNUM 1 \l 19271 THE SECRETARY: Actually, I was going to resume all the exhibits you filed before the break.
LISTNUM 1 \l 19272 MR. HOFLEY: Thank you. I am just trying to move this along.
LISTNUM 1 \l 19273 You will see there that this exhibit describes your Easy IP communication solution, Mr. Pattinson, and it talks about there the features that it provides, correct, right at the beginning of the website?
LISTNUM 1 \l 19274 MR. PATTINSON: That is correct.
LISTNUM 1 \l 19275 MR. HOFLEY: So it talks about local land line service and long distance minutes, hi‑speed internet access and e‑mail, exciting new productivity features, network upgrade, easy to use web IP, web‑based administration tools, and it refers to the new Mitel 5224 IP phones.
LISTNUM 1 \l 19276 These are the services, you would agree with me, that are provided over Easy IP?
LISTNUM 1 \l 19277 MR. PATTINSON: Yes, they are.
LISTNUM 1 \l 19278 MR. HOFLEY: If I go down further, I believe it says ‑‑ well, let me ask you this. So, is Easy IP a way to deliver voice to business customers?
LISTNUM 1 \l 19279 MR. PATTINSON: Yes, it is.
LISTNUM 1 \l 19280 MR. HOFLEY: I am looking at a quote, if I turn the page over ‑‑
LISTNUM 1 \l 19281 MR. PATTINSON: You are in which exhibit now, please?
LISTNUM 1 \l 19282 MR. HOFLEY: Still in U, just turn the page over one. You will see there it says:
"Unlike consumer voice‑over‑IP services that run on the public internet, with Easy IP, your voice and data traffic run over our private IP network for the security and call quality you need." (As read)
LISTNUM 1 \l 19283 Do you see that?
LISTNUM 1 \l 19284 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19285 MR. HOFLEY: Is this a private IP network not unlike the one we referred to in the NetOptiks example that we just discussed?
LISTNUM 1 \l 19286 MR. PATTINSON: That is correct. Then I will add, sir, that this product was built on the former CallNet network. It is 100 per cent built on that former network using unbundled loops. We would love to be able to bring this product to the cable network, but we cannot, at this point, due to many upgrades that I have referred to earlier on that need to be made on the voice soft switches, as well as our doc sys network.
LISTNUM 1 \l 19287 MR. HOFLEY: But you are not suggesting that it can't be done over fibre or coax, are you, Mr. Pattinson?
LISTNUM 1 \l 19288 MR. PATTINSON: At the moment there are large technology hurdles that are preventing it being delivered over the coax network.
LISTNUM 1 \l 19289 MR. HOFLEY: Doesn't the Mitel system that you referred to actually provide for delivery of voice services over coaxial cable or over fibre?
LISTNUM 1 \l 19290 MR. WATT: If I could interject, because the point may have been missed, one would have to have that coax network or the fibre network into the physical location. That is the key item. This service runs off the mandated facilities that are the ‑‑
LISTNUM 1 \l 19291 MR. HOFLEY: Right, but it could be over coax if it was in the building, or over fibre if it was in the building. Is that is your point, Mr. Watt?
LISTNUM 1 \l 19292 MR. PATTINSON: If I could refer to the quote that you referred to at the bottom of the fifth paragraph that talked about the suite spot between five and 49, the cable network at this point is not capable of providing that service to greater than about eight customers due to congestion issues in the upstream doc sys channel.
LISTNUM 1 \l 19293 MR. HOFLEY: But, again, it can be provided over fibre or coax? You are not saying that is not technically possible. Correct?
LISTNUM 1 \l 19294 MR. PATTINSON: I would love to be able to provide this product on the coax network to recover margin from very expensive T‑1 resale that we buy from you today.
LISTNUM 1 \l 19295 MR. HOFLEY: I will just leave that.
LISTNUM 1 \l 19296 THE CHAIRPERSON: Can you come to the punch line here? I don't quite understand. I am lost here.
LISTNUM 1 \l 19297 You are trying to establish if they can establish phone over coaxial or not?
LISTNUM 1 \l 19298 MR. HOFLEY: Yes.
LISTNUM 1 \l 19299 THE CHAIRPERSON: Does this IP document, Easy IP that you have just introduced, does that demonstrate yes, they can, or no?
LISTNUM 1 \l 19300 MR. HOFLEY: It seems to be, with the testimony, it demonstrates that they are not, but that it is technically possible to do so.
LISTNUM 1 \l 19301 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 19302 MR. HOFLEY: I think that is what I just heard.
LISTNUM 1 \l 19303 MR. PATTINSON: It is technically possible at the smallest level. So, up to eight customers, and that is still several years away. That is the Pandion multiple technologies from third parties, as well as a lot of heavy lifting inside of our own OSS back end that we intend to do.
LISTNUM 1 \l 19304 It is my mandate, at the direction of Ted Rogers, to always build our products on our network, where we can deliver that quality of service.
LISTNUM 1 \l 19305 MR. HOFLEY: Let's talk about building those products, then, Mr. Chairman, and move on to the seat to the business side.
LISTNUM 1 \l 19306 THE CHAIRPERSON: I would like to make a general comment for you and for other counsel.
LISTNUM 1 \l 19307 We, as a panel here, would find it very useful, when you go through a line of questioning and you get the answers you want, before you move on you sort of deliver the conclusion of what this was all about. It would help us put it in context because very often we sit here and follow the exchange and say, okay, what did you prove or disprove by this exchange. Rather than having us guess or waiting for a submission a month from now, it would be helpful if you just shortly summarized it. Thank you.
LISTNUM 1 \l 19308 MR. HOFLEY: Was that sufficient, my last one, Mr. Chairman?
LISTNUM 1 \l 19309 THE CHAIRPERSON: That was perfect.
LISTNUM 1 \l 19310 MR. HOFLEY: I apologize, I should have done that.
LISTNUM 1 \l 19311 I am now going to move on to my last set of questions, Mr. Chairman, and this relates to Rogers' position in respect of CDN at DS‑3 above and Ethernet. So, these are the more hi‑speed business services.
LISTNUM 1 \l 19312 THE CHAIRPERSON: Before you do that, I notice it is 10:30. I think we should take a ten‑minute break. Thank you.
‑‑‑ Upon recessing at 1030 / Suspension à 1030
‑‑‑ Upon resuming at 1042 / Reprise à 1042
LISTNUM 1 \l 19313 THE CHAIRPERSON: Madam Secretary, you have an announcement?
LISTNUM 1 \l 19314 THE SECRETARY: Yes, thank you, Mr. Chairman.
LISTNUM 1 \l 19315 Please be seated.
LISTNUM 1 \l 19316 I am presenting at this moment the next CRTC exhibit, which is the undertakings requested by all the parties involved since last week. It is dated 15 October 2007 and it is logged as Exhibit No. 6. It has already been distributed on everybody's table.
EXHIBIT CRTC‑6: CRTC Undertakings register CRTC version 2007-15-15
LISTNUM 1 \l 19317 THE SECRETARY: As for all the exhibits filed by the Companies this morning, after their cross‑examination, I will summarize everything that was filed before the Commission.
LISTNUM 1 \l 19318 Thank you.
LISTNUM 1 \l 19319 THE CHAIRPERSON: Okay, Mr. Hofley, proceed.
LISTNUM 1 \l 19320 MR. HOFLEY: Thank you. I won't be long. I had hoped to finish before the break but unfortunately I didn't, so I apologize for that.
LISTNUM 1 \l 19321 THE CHAIRPERSON: Our bladders can only take two hours.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 19322 MR. HOFLEY: Mr. Chairman, as I said, my last area of questions for this panel deals with CDN at DS‑3 above and Ethernet.
LISTNUM 1 \l 19323 Should I be directing my questions to you on this, Mr. Pattinson, or to you, Mr. Watt, or both? I will tell you what, you answer when you ‑‑
LISTNUM 1 \l 19324 I just want to situate your services on Ethernet for the purposes of the Commission and so what I have done is I have provided the Commission at Tab BB an excerpt from Rogers website. It is Tab BB of the compendium.
LISTNUM 1 \l 19325 I just want to get you to have a look at that and then just highlight for me the services you provide and then I have a few questions to do with those and we will be done.
LISTNUM 1 \l 19326 Do you have that?
LISTNUM 1 \l 19327 MR. PATTINSON: We do.
LISTNUM 1 \l 19328 MR. HOFLEY: Thanks.
LISTNUM 1 \l 19329 Now, here it says that:
"Rogers offers transport land solutions to Canadian businesses of all sizes, connecting local or national lands via traditional copper accesses such as DSL T1 and T3, as well as next generation broadband Ethernet accesses such as ET‑1, E‑10, E‑100 and OCX." (As read)
LISTNUM 1 \l 19330 Do you see that?
LISTNUM 1 \l 19331 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19332 MR. HOFLEY: It is a combination of both traditional copper accesses as well as next generation broadband accesses; correct?
LISTNUM 1 \l 19333 MR. PATTINSON: Correct.
LISTNUM 1 \l 19334 MR. HOFLEY: Is that what that means? Okay.
LISTNUM 1 \l 19335 I am not a technical person, Mr. Pattinson, so forgive me if I ask silly questions.
LISTNUM 1 \l 19336 Then you go on and you talk about your fiber to the premises footprint and you say:
"That covers all primary metropolitan centres and many secondary business centres across the country." (As read)
LISTNUM 1 \l 19337 What do you mean by secondary business centres there?
LISTNUM 1 \l 19338 MR. PATTINSON: Small cities, places that we do not have network running into.
LISTNUM 1 \l 19339 MR. HOFLEY: Okay. And ‑‑
LISTNUM 1 \l 19340 MR. WATT: I can add here when it says our fiber to the premise footprint, it is 850 (sic) buildings. They are all in eastern Canada. The large cities are obviously Toronto, Montreal, Ottawa. Secondary would be the smaller locations, the GT fiber assets in Fredericton and Saint‑John.
LISTNUM 1 \l 19341 That is our fiber to the premise footprint to that, nothing aside from a few fiber facilities in Vancouver that Mr. Pattinson will speak to.
LISTNUM 1 \l 19342 MR. HOFLEY: I just want to make sure, Mr. Watt. Did you just say 850 or 1,850?
LISTNUM 1 \l 19343 MR. WATT: One thousand eight hundred and fifty.
LISTNUM 1 \l 19344 MR. HOFLEY: That is what I thought.
LISTNUM 1 \l 19345 MR. WATT: And as I say, that is provided ‑‑ each street address provided to the Commission in confidence in response to the Bureau 8(b), the attachment.
LISTNUM 1 \l 19346 MR. HOFLEY: Then you go on to talk about the larger metropolitan areas and I think ‑‑ and again, I hope I have my terminology right ‑‑ are fiber, and I think it is the metro area network footprint covers Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver.
LISTNUM 1 \l 19347 Am I right on that, metro area networks ‑‑
LISTNUM 1 \l 19348 MR. PATTINSON: That is correct.
LISTNUM 1 \l 19349 MR. HOFLEY: ‑‑ offering Ethernet services?
LISTNUM 1 \l 19350 MR. PATTINSON: Yes. This is the former Call‑Net network and I agree that it is a fabulous inner‑city and metro network but it doesn't go into those buildings.
LISTNUM 1 \l 19351 MR. HOFLEY: Okay. And then you talk about your international partnerships and these are agreements that you enter into to provide your customers with services for their various locations, just like the ILECs do out‑of‑territory; correct?
LISTNUM 1 \l 19352 MR. PATTINSON: I am sorry, could you repeat that?
LISTNUM 1 \l 19353 MR. HOFLEY: The reference to the international partnerships, that is just simply a reference to the fact that you enter into agreements with other TSPs in other locations so that your customers can get access in other locations; correct ‑‑
LISTNUM 1 \l 19354 MR. PATTINSON: That is correct.
LISTNUM 1 \l 19355 MR. HOFLEY: ‑‑ just like the ILECs do?
LISTNUM 1 \l 19356 MR. PATTINSON: So that we can provide service to customers outside of ‑‑
LISTNUM 1 \l 19357 MR. HOFLEY: Outside of your territory?
LISTNUM 1 \l 19358 MR. PATTINSON: ‑‑ and that is into the metropolitan area network, which in most cases, sir, only has three or four nodes.
LISTNUM 1 \l 19359 MR. HOFLEY: Okay.
LISTNUM 1 \l 19360 MR. PATTINSON: It is nice but it is very small.
LISTNUM 1 \l 19361 MR. HOFLEY: And finally, it says under the detail section that:
"Rogers was ranked by business analysts as the number three Ethernet provider in Canada." (As read)
LISTNUM 1 \l 19362 Do you see that?
LISTNUM 1 \l 19363 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19364 MR. HOFLEY: Okay. You have both cable and telephony network; correct? That is what you just said, I think; right, Call‑Net?
LISTNUM 1 \l 19365 MR. PATTINSON: We have cable networks and we have TDM networks.
LISTNUM 1 \l 19366 MR. HOFLEY: Right. And that is similar to QMI, to Vidéotron?
LISTNUM 1 \l 19367 MR. PATTINSON: I would suggest they are more limited to ‑‑ Vidéotron, as an example, would be more cable‑ and DocSys‑oriented.
LISTNUM 1 \l 19368 MR. HOFLEY: But they do have telephony as well, just like you, correct?
LISTNUM 1 \l 19369 MR. PATTINSON: They have some telephony services.
LISTNUM 1 \l 19370 MR. HOFLEY: Right.
LISTNUM 1 \l 19371 Now, I would like you to turn if I could ‑‑ I would like to take you to and ask you questions about your fellow cable companies and why they can do things that you are not yet doing.
LISTNUM 1 \l 19372 So if we turn ‑‑ I hope that I am helping where we are going there, Mr. Chairman, although it is against every instinct I have as a cross‑examiner.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 19373 MR. HOFLEY: I can feel my stomach turning as I speak.
LISTNUM 1 \l 19374 THE CHAIRPERSON: Life is a trade‑off, Mr. Hofley.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 19375 MR. HOFLEY: Mr. Pattinson, so if I could take you to Tab DD, which is QMI‑Bureau 12Apr07‑1.
LISTNUM 1 \l 19376 You will see there that QMI says that they provide:
"...local telephone service and internet access service over a hybrid optical fiber coaxial cable network to residential customers and small business customers, up to two local phone lines." (As read)
LISTNUM 1 \l 19377 But they also provide:
"...advanced business telephony data and internet access services over fiber to the premises to medium and large businesses." (As read)
LISTNUM 1 \l 19378 Do you see that?
LISTNUM 1 \l 19379 MR. PATTINSON: Yes, I do.
LISTNUM 1 \l 19380 MR. HOFLEY: And then if you turn to Tab EE, which is QMI‑Bureau 12Apr07‑23, we see there down under (e) and (g) that QMI says:
"With limited exceptions all of QMI's CDN‑equivalent services are self‑supplied." (As read)
LISTNUM 1 \l 19381 Were you aware of that?
LISTNUM 1 \l 19382 MR. PATTINSON: No, I'm not.
LISTNUM 1 \l 19383 MR. HOFLEY: But you don't have any basis for disputing that, do you?
LISTNUM 1 \l 19384 MR. PATTINSON: I see what is written here, but I'm not ‑‑
LISTNUM 1 \l 19385 MR. HOFLEY: If I go over to the next tab, which is QMI 12 April 2007‑24, you will see again under (e) and (g) ‑‑
LISTNUM 1 \l 19386 MR. PATTINSON: I'm sorry, you are in FF now?
LISTNUM 1 \l 19387 MR. HOFLEY: I believe I am. I apologize. FF.
LISTNUM 1 \l 19388 You will see there it says:
"With limited exceptions all of QMI's Ethernet services are self‑supplied." (As read)
LISTNUM 1 \l 19389 So QMI can do this, but Rogers can't. Is that what you are saying? They can self‑supply, they can provide CDN‑equivalent services and Ethernet services through self‑supply, but you are saying that you cannot?
LISTNUM 1 \l 19390 MR. PATTINSON: I think what it's saying here is in the buildings for which they have access they are providing those services. I don't think they are commenting on their entire territory.
LISTNUM 1 \l 19391 MR. HOFLEY: I'm just reading what they are saying. So you just said you don't know what they are saying, but ‑‑ you have just said you can read the words, but you are not sure what the extent is. So are you just speculating as to whether that is what they are saying?
LISTNUM 1 \l 19392 MR. PATTINSON: No.
LISTNUM 1 \l 19393 MR. HOFLEY: Because I read it and it says:
"With limited exceptions all of QMI's Ethernet services are self‑supplied." (As read)
LISTNUM 1 \l 19394 MR. WATT: I think actually your question was why can QMI do this ‑‑ why can Rogers not do it when QMI can do it?
LISTNUM 1 \l 19395 The fact is that we do provide sophisticated data services over our own facilities where we have those facilities. In other cases obviously we use the telephone companies.
LISTNUM 1 \l 19396 QMI provides the services where they have the fibre connections into the buildings as well. Their emphasis is different historically than Rogers Call‑Net because Call‑Net operated right across the country and had a grander ambition in terms of providing service.
LISTNUM 1 \l 19397 QMI has started small within its cable footprint in Montréal ‑‑ and you can speak to them about this ‑‑ and they have taken a different strategic approach.
LISTNUM 1 \l 19398 They also note, though, that there are instances where they do require telephone company unbundled facilities and presumably that is for accounts that are multi‑location businesses where you require, in order to bid at all, to serve all the locations and their network doesn't go everywhere so they have to use ‑‑ even though it is not their strategic focus, they have to use telco facilities to couple with their own.
LISTNUM 1 \l 19399 MR. HOFLEY: You would agree with me that they haven't asked for that to be regulated, though.
LISTNUM 1 \l 19400 You would agree with me that they haven't asked for CDN or Ethernet services to be regulated, wouldn't you ‑‑ be mandated?
LISTNUM 1 \l 19401 MR. WATT: You mean in the context of this proceeding?
LISTNUM 1 \l 19402 MR. HOFLEY: Yes. Yes.
LISTNUM 1 \l 19403 MR. WATT: I believe that is the case. They are certainly presumably availing themselves of the tariffs that exist today.
LISTNUM 1 \l 19404 MR. HOFLEY: QMI also provides wholesale services in this area.
LISTNUM 1 \l 19405 Were you aware of that? Wholesale high‑speed internet services?
LISTNUM 1 \l 19406 MR. PATTINSON: Yes.
LISTNUM 1 \l 19407 MR. HOFLEY: CDN service or wholesale private line services, wholesale Ethernet services?
LISTNUM 1 \l 19408 Have you talked with QMI about using their wholesale services?
LISTNUM 1 \l 19409 MR. PATTINSON: We do buy some services today from QMI.
LISTNUM 1 \l 19410 MR. HOFLEY: I think you said earlier, mr. Pattinson, that you were aware of EastLink's different strategy with respect to providing business services than Rogers.
LISTNUM 1 \l 19411 Perhaps just to make things go faster, would you agree with me that EastLink provides CDN and Ethernet services to business using their own facilities?
LISTNUM 1 \l 19412 MR. PATTINSON: I don't know about CDN, but I do know that they provide services on their own network to residences and businesses.
LISTNUM 1 \l 19413 MR. HOFLEY: In fact there is a response to an interrogatory from you that sets that out. That's why I'm trying to expedite this. That, by the way, is EastLink/Rogers 12 April 07‑04.
LISTNUM 1 \l 19414 Were you aware that EastLink is also providing wholesale internet private line and Ethernet services?
LISTNUM 1 \l 19415 MR. PATTINSON: Yes, I am.
LISTNUM 1 \l 19416 MR. HOFLEY: If I take you to Tab JJ, which is EastLink/TELUS 12 April 07‑3, you will see there again, like QMI, that EastLink says that it:
"... offers the majority of its services ..."
LISTNUM 1 \l 19417 It is the second paragraph:
"... via it's own facilities and attempts to rely minimally on third parties." (As read)
LISTNUM 1 \l 19418 Do you see that?
LISTNUM 1 \l 19419 Mr. Watt, does EastLink have a different business strategy than Rogers? Again, just like QMI has a business strategy, does EastLink have a different business strategy?
LISTNUM 1 \l 19420 MR. WATT: EastLink has had a different business strategy. As you are aware, EastLink was the first cable company to provide telephony services. They started in, I think, about the 1997‑98 timeframe using circuit switch technology. That circuit switch was used for residential and then they have evolved it into business.
LISTNUM 1 \l 19421 None of the other cable companies chose to use circuit switch technology in the provision of their cable telephony service so they have a history of pursuing a different technology path and a different strategy than ‑‑
LISTNUM 1 \l 19422 MR. HOFLEY: Arguably they made some risky investments. Correct? They innovated?
LISTNUM 1 \l 19423 MR. WATT: We don't think actually they did innovate using circuit switch technology. We think we innovated using IP packet cable standards and we are happy with our strategic choice.
LISTNUM 1 \l 19424 MR. HOFLEY: With every strategic choice comes consequences. Correct, Mr. Watt?
LISTNUM 1 \l 19425 MR. WATT: Yes.
LISTNUM 1 \l 19426 MR. HOFLEY: Just out of curiosity, have you made wholesale services EastLink? Have you made any arrangements to use any of their wholesale services?
LISTNUM 1 \l 19427 MR. PATTINSON: I think we buy a small amount.
LISTNUM 1 \l 19428 MR. HOFLEY: Would you agree with me that these companies, EastLink and QMI, you are as equally well capitalized as these companies? You have similar or greater means to invest.
LISTNUM 1 \l 19429 Would that be a fair statement, Mr. Watt? You are a big company.
LISTNUM 1 \l 19430 MR. WATT: We are a big company. Well, I think to put it into perspective, EastLink, QMI, other cable companies, they provide their business services directly to businesses where they have facilities into those businesses. We do the same.
LISTNUM 1 \l 19431 We chose to go farther and have more expansive offerings so that we tie more locations together using more telco facilities.
LISTNUM 1 \l 19432 Certainly our plan is to grow scale in that fashion and then finance additional capital expenditures. As is quite evident, Rogers definitely wants to expend the money, it wants to have the end‑to‑end control, and that is the plan we are laying out.
LISTNUM 1 \l 19433 If we can't get there and build a viable business by coupling both our own facility to leased facilities we will not be able to go forward and increase our investment and reach the self‑supply stage.
LISTNUM 1 \l 19434 MR. HOFLEY: Mr. Watt, these are my last questions.
LISTNUM 1 \l 19435 Were you here on Friday morning when The Companies were testifying?
LISTNUM 1 \l 19436 MR. WATT: I was here for a portion Friday morning.
LISTNUM 1 \l 19437 MR. HOFLEY: Well, you may recall during that testimony that Mr. Ruby characterized The Companies' position as the "trust me" theme. He didn't give them an opportunity to respond. I'm sure they would have said their theme is "trust the market".
LISTNUM 1 \l 19438 But I am seeing a theme emerge from your submissions here and I do want to give you, in fairness, an opportunity to respond.
LISTNUM 1 \l 19439 The theme that I see emerging is that your position before the CRTC is really "Don't rush me". That is really your position here before the CRTC, is "Don't rush me."
LISTNUM 1 \l 19440 Is that a fair description, albeit short?
LISTNUM 1 \l 19441 MR. WATT: No, I don't think it is fair at all.
LISTNUM 1 \l 19442 Our position here before the CRTC is we are looking to them to establish the proper regulatory rules such that competition can develop on an economic basis. We are asking for terms, economic terms that allow us to proceed in this market. Without those economic terms we can't proceed.
LISTNUM 1 \l 19443 So it is not a question of saying "Don't rush me", we are saying "Please, put in place a regime that makes it economic for us to develop and grow into using our own facilities over time."
LISTNUM 1 \l 19444 MR. HOFLEY: Is your five‑year transition period you proposed enough time for that?
LISTNUM 1 \l 19445 MR. WATT: Well, I think it might be worthwhile having Mr. Pattinson explain the obstacles that companies do face in placing facilities into buildings on a widespread basis. Just leaving aside the issue of the simple economics, we are a big company but with a billion business locations across the country. And you have seen the numbers in terms of fibre, the numbers are large, a million times, even a hundred thousand, you are looking at significant amounts of money.
LISTNUM 1 \l 19446 But more than that, it is not just the absolute amount of the money, the issue is can you make any money by having invested that money? Because we have to realize, we have got a certain market share, say it is 3 or 4 per cent, but we have to get customers to switch to us from the incumbents in order to provide us the revenue to pay for those investments. If that is not the case, then we simply will not make those investments.
LISTNUM 1 \l 19447 MR. HOFLEY: I understand, Mr. Watt, and I understand your are in the business of making money. Did you say a billion businesses?
LISTNUM 1 \l 19448 MR. WATT: I may have said a billion, I didn't think I did, I thought I said a million.
LISTNUM 1 \l 19449 MR. HOFLEY: Okay, no, I am sorry, I just wanted to make sure.
LISTNUM 1 \l 19450 So the answer is your five‑year transition period may not be enough, depending on the situation, is that fair?
LISTNUM 1 \l 19451 MR. WATT: Well absolutely, yes, because the five‑year transition period, are we seriously going to contemplate putting in coax into every one of those million business locations? That is putting facilities into all the businesses that the telephone companies have put facilities into as they have grown up over a 100 years. I just don't think that that is very likely to be the case, hence our request to have unbundled local loops be deemed an essential facility. And we don't think that that would go away after a five‑year transition period.
LISTNUM 1 \l 19452 MR. HOFLEY: So in other words, that kind of mandated access won't incent your investment in these areas and will have regulation in perpetuity in this area?
LISTNUM 1 \l 19453 MR. WATT: It depends upon the economics in those locations. And if it doesn't make economic sense, then ‑‑
LISTNUM 1 \l 19454 MR. HOFLEY: You have regulation in perpetuity?
LISTNUM 1 \l 19455 MR. WATT: ‑‑ then you might insert some of those locations. However, what you are probably more likely to find, and this will be over time, as we grew out, that there would be a subset of customers where we didn't put the facilities in, but you would be satisfied that it is a small enough number that we can let the market go.
LISTNUM 1 \l 19456 And if there is any attempted abuse that, because it would be small, the cable companies having grown out to a fair extent, it would be able to go into those buildings and discipline.
LISTNUM 1 \l 19457 MR. HOFLEY: Mr. Watt, I asked a simple question. Does this mean regulation in perpetuity?
LISTNUM 1 \l 19458 MR. WATT: It could be, but you always have the option available to apply for forbearance if you think the conditions change. But it could be the case ‑‑
LISTNUM 1 \l 19459 MR. HOFLEY: Those are my questions.
LISTNUM 1 \l 19460 THE CHAIRPERSON: Presumably rather than in perpetuity, you mean until the next wholesale review?
‑‑‑ LAUGHTER / RIRES
LISTNUM 1 \l 19461 MR. HOFLEY: Well, you will see that our position, Mr. Chairman, is there shouldn't be another wholesale review, but obviously that is an option.
LISTNUM 1 \l 19462 I don't have any further questions. I would like to thank the panel for their attention and for their answers.
LISTNUM 1 \l 19463 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 19464 Madam Secretary, who is next? Oh, do you have a question? Sorry, Commissioner Cram had a question.
QUESTIONS BY THE COMMISSION
LISTNUM 1 \l 19465 COMMISSIONER CRAM: Mr. Watt, I am sitting here and I think twice, once with the Bureau and now with Bell, you talked about more than a duopoly. I read the direction or the variation in our forbearance order and why is it that I can't read into that that the government thinks we have met our mandate of sustainable competition if there is a duopoly only in the wireline market?
LISTNUM 1 \l 19466 In other words, should we hope for more when the government, under the variation, has said, you are doing a great job if you have got two on wireline?
LISTNUM 1 \l 19467 MR. WATT: Bearing in mind that that it is premised on mandated wholesale facilities in the business market in order to achieve that second player, our principal concern in this proceeding is that but for those facilities you would be down to simply one competitor in much of the business market.
LISTNUM 1 \l 19468 As to whether two should be the goal or three should be the goal, possibly I should ask Roger Ware to speak to the generally recognized benefits that more diverse competition brings than just two.
LISTNUM 1 \l 19469 DR. WARE: Excuse me, Commissioner Cram, if I could just very briefly speak to that, and I did have an exchange with the Chair about this. But certainly, among competition agencies a three to two merger would not be permitted unless there were extraordinary efficiency gains.
LISTNUM 1 \l 19470 You know, based on the standards used by competition agencies around the world, we would normally expect a duopoly to involve some market power. And so two to three is something that is worth having. And in terms of the, for example, the Commission has revised definition of an essential facility, would generally involve a substantial increase in competition.
LISTNUM 1 \l 19471 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 19472 And in the residential market, what about the duopoly issue, Mr. Watt?
LISTNUM 1 \l 19473 MR. WATT: Well, again, that is why we have asked for access to unbundled local loops so that we can, outside our cable footprint territory, bring in a third player into that particular market and we think, say there are benefits through that, and that removal of access to those loops would cause us to exit that market. And there are 180,000 customers currently in just three metropolitan areas that take our service, they would not longer be taking service from us and we think that would be a lessening of competition.
LISTNUM 1 \l 19474 COMMISSIONER CRAM: And what would be the impact on your Call‑Net business and residential market on a scale of 1 to 10, 10 being exiting the business, 1 being trivial? What will be the impact on that Call‑Net sector if we increased the mark‑up to 20 per cent and then subsequently in a year or two later increased it to 25 per cent?
LISTNUM 1 \l 19475 MR. WATT: So if I took an average cost of an unbundled local residential loop at say $12 and the mark‑up today is 15 per cent, we would have to do the inverse ‑‑ the mark‑up say $1.50, about $2.00 of that is ‑‑ I think maybe at $1.50 of that is mark‑up and you are going to increase the mark‑up from 15 to 20, so 25 per cent you would be adding 50 cents to the cost of a loop.
LISTNUM 1 \l 19476 That would deteriorate our economics. Would we exit the market at that point given the, you know, if we are going to retain access to the loop for business purposes, they are going to be co‑located there, get those synergies, would deteriorate our economics. I could not make the categorical statement that we would withdraw I don't believe.
LISTNUM 1 \l 19477 Mr. Pattinson, would you like to ‑‑
LISTNUM 1 \l 19478 MR. PATTINSON: Commissioner Cram, I would also add that in the likelihood that those loops were unregulated, I believe that it is fair to estimate that the QoS requirements would dissolve. And from a product perspective, we would not be able to rely on services being available to the residential market in a quick manner. And we have spent a great deal of time with the Commission over the last five years trying to get those QoS indicators enforced and I would be very very concerned. And it would limit my ability to be able to react quickly to a customer and say that I can actually provide service.
LISTNUM 1 \l 19479 COMMISSIONER CRAM: You mean, if something is not declared to be essential or mandated the QoS would dissolve? I mean, the QoS is always there, wouldn't it always be there?
LISTNUM 1 \l 19480 DR. WARE: If the loops were completely unregulated, that was the example I was bringing.
LISTNUM 1 \l 19481 COMMISSIONER CRAM: Oh, if it is a forborne ‑‑
LISTNUM 1 \l 19482 DR. WARE: If it was completely forborne.
LISTNUM 1 \l 19483 COMMISSIONER CRAM: All right. I understand.
LISTNUM 1 \l 19484 My final question is on the Willing Report and the issue of investment.
LISTNUM 1 \l 19485 In that wholesale regime, did the FCC require the ILECs to sell loops if they were available, or to build loops for the demand?
LISTNUM 1 \l 19486 Are you aware?
LISTNUM 1 \l 19487 MS BLACKWELL: I am trying to think of it in the context of the second decision in 2005, and even the previous one.
LISTNUM 1 \l 19488 The impression I have is that it certainly acknowledged the fact that, for the most part, those loops are in place.
LISTNUM 1 \l 19489 Even in Rogers' own evidence, when we talk about Greenfield builds, assuming all potential entrants to a new subdivision had equal access to the opportunity to put facilities in the conduits as the subdivision was being built, then that may not be a circumstance where you would have an essential facility.
LISTNUM 1 \l 19490 So, from that perspective, in the Rogers' context, you might want to take a look at that Greenfield build.
LISTNUM 1 \l 19491 I can't recall off the top of my head exactly which interrogatory response it was.
LISTNUM 1 \l 19492 In the U.S. market, though, with respect to forcing the incumbent local exchange company to put in place a copper loop, in particular, I would have to check, but I don't think they were mandating access where it was not already built.
LISTNUM 1 \l 19493 Certainly, that is something, I think, in the expert evidence that Mr. Hatfield talked about. There is a totally different issue in terms of incentives ‑‑ that you might be impacting the incentives to invest of the incumbent when you are talking about facilities that are in place.
LISTNUM 1 \l 19494 COMMISSIONER CRAM: In other words, even if we were dividing the capital for provisioning between UNEP and other capital, they would probably be building the UNEP for their own purposes in terms of investment.
LISTNUM 1 \l 19495 MS BLACKWELL: UNEP is the loop plus the switch.
LISTNUM 1 \l 19496 COMMISSIONER CRAM: The access, yes.
LISTNUM 1 \l 19497 MS BLACKWELL: Right. And I think the FCC recognized in the 2005 decision that switching, in particular, had become something that most competitors could readily put in place.
LISTNUM 1 \l 19498 In the context of the protocol stack, it is higher up in the layers of the stack; whereas, the actual transmission path, the physical network and some of the other parts that reside lower in the stack, that's where you have issues.
LISTNUM 1 \l 19499 So when they took away UNEP, they really just took away the switching part of it.
LISTNUM 1 \l 19500 COMMISSIONER CRAM: Thank you.
LISTNUM 1 \l 19501 Thank you, Mr. Chair.
LISTNUM 1 \l 19502 THE CHAIRPERSON: Thank you very much.
LISTNUM 1 \l 19503 Let's have the next cross‑examiner, Madam Secretary.
LISTNUM 1 \l 19504 THE SECRETARY: Thank you, Mr. Chairman.
LISTNUM 1 \l 19505 I would now ask TELUS to come forward while I summarize the exhibits filed by The Companies.
LISTNUM 1 \l 19506 The Companies Exhibit No. 5 will be the Joint Centre report by Scott Wallsten of June 2006.
EXHIBIT COMPANIES‑5: Joint Center report dated June 2006, "Broadband and Unbundling Regulations in OECD Countries"
LISTNUM 1 \l 19507 THE SECRETARY: Exhibit No. 6 will be the LECG Expert Report, dated September 2007.
EXHIBIT COMPANIES‑6: LECG Report dated September 2007
LISTNUM 1 \l 19508 THE SECRETARY: Exhibit No. 7 will be the "Watt's New" newsletter clipping.
EXHIBIT COMPANIES‑7: "Watt's New" clipping - Winter 2006 entitled "Net Optiks/Rogers partnership provides innovative network for Catholic schools"
LISTNUM 1 \l 19509 THE SECRETARY: Exhibit No. 8 will be the Globe and Mail September 10, 2007 clipping, entitled "Solutions for the Little Guy".
EXHIBIT COMPANIES‑8: Globe and Mail clipping - "Solutions for the Little Guy" - Sept. 10, 2007
LISTNUM 1 \l 19510 THE SECRETARY: Exhibit No. 9 will be the clipping with a picture of the EASY IP, dated 7 October 2007
EXHIBIT COMPANIES‑9: Clipping dated 7 October 2007 with photo and EASY IP title
LISTNUM 1 \l 19511 THE SECRETARY: The last exhibit will be The Companies Exhibit No. 10, a clipping entitled "Ethernet Services".
EXHIBIT COMPANIES‑10: Clipping from Rogers.com - "Ethernet Services"
LISTNUM 1 \l 19512 Counsel Rogers, when you are ready, you may proceed.
LISTNUM 1 \l 19513 THE CHAIRPERSON: Mr. Rogers, welcome again.
LISTNUM 1 \l 19514 I would appreciate it if, like Mr. Hofley, you would not ask questions that have been asked before.
LISTNUM 1 \l 19515 Also, sir, give some guidance to the panel as to where you are going and what you have concluded once you have finished your questioning.
LISTNUM 1 \l 19516 Thank you.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 19517 MR. ROGERS: I will endeavour to do so, Mr. Chairman. Thank you.
LISTNUM 1 \l 19518 Mr. Chairman and members of the panel, good morning. To facilitate the whole process, in terms of documentation, it will go much more smoothly if everyone has certain documents in front of them.
LISTNUM 1 \l 19519 We have provided a black duotang folder, which I hope has reached the Commission panel members. It should also be in the hands of all of the witness panels. That will make things much easier in terms of access to documents.
LISTNUM 1 \l 19520 The other documents which you will want to have readily at hand are the Rogers March 15 evidence and your supplemental evidence of July.
LISTNUM 1 \l 19521 THE CHAIRPERSON: For the benefit of your co‑counsel, you will still have to read out some of the references, because they don't have this duotang in front of them.
LISTNUM 1 \l 19522 MR. ROGERS: I will do so, Mr. Chairman.
LISTNUM 1 \l 19523 In terms of the record, a number of the documents in the folder are actually already exhibits in the proceeding, so they don't need to be made exhibits in a formal sense.
LISTNUM 1 \l 19524 Other documents are to be introduced, and I trust that the Secretary will, at the conclusion, do the customary assignment of numbers.
LISTNUM 1 \l 19525 Mr. Watt, I will begin with you. You can obviously handle this yourself or with anybody else.
LISTNUM 1 \l 19526 I would like to begin by asking you to turn to the attachment to the Commission's letter of October 3rd, which sets out the six‑part framework that the Commission asked all of us to consider.
LISTNUM 1 \l 19527 I expect that you have had a chance to consider that, Mr. Watt.
LISTNUM 1 \l 19528 MR. WATT: Yes, we have.
LISTNUM 1 \l 19529 MR. ROGERS: I would like to begin by seeing if there are any elements of that Commission framework on which there may be, possibly, some convergence, if I could use that term.
LISTNUM 1 \l 19530 For example, you would agree, I believe, that there are some services that are essential, and without getting into the definition of what "essential" means, you would agree that there are some, and that they should continue to be mandated at the conclusion of this proceeding.
LISTNUM 1 \l 19531 MR. WATT: Yes.
LISTNUM 1 \l 19532 MR. ROGERS: For the services or facilities determined by the Commission in this proceeding to be non‑essential, you would agree that there should be a phase‑out over some transition period.
LISTNUM 1 \l 19533 MR. WATT: Yes.
LISTNUM 1 \l 19534 MR. ROGERS: And your proposed transition period is five years.
LISTNUM 1 \l 19535 MR. WATT: Yes.
LISTNUM 1 \l 19536 MR. ROGERS: And you are aware that the TELUS proposal is three to five years, depending on the facility.
LISTNUM 1 \l 19537 MR. WATT: Yes, I am aware of that.
LISTNUM 1 \l 19538 MR. ROGERS: Do you see any merit ‑‑ this came up in a discussion with the Chairman on an earlier day ‑‑ to considering the possibility of different transition periods for different facilities?
LISTNUM 1 \l 19539 Do you think that's worth further consideration?
LISTNUM 1 \l 19540 MR. WATT: Yes, I think it's worth consideration.
LISTNUM 1 \l 19541 MR. ROGERS: If you were to assume that the Commission will, during the transition period, continue to set regulated tariff rates for these non‑essential facilities, subject to the phase‑out, would you have any objection if the Commission also permitted the incumbent and the CLEC during that period to negotiate mutually agreeable terms different from the tariff, provided the tariff always remains in place as a backstop?
LISTNUM 1 \l 19542 MR. WATT: Yes.
LISTNUM 1 \l 19543 MR. ROGERS: Could you elaborate?
LISTNUM 1 \l 19544 MR. WATT: Yes. We think that the incumbent and the purchaser or the current leaser of the facility should be able to negotiate during the five‑year period for non‑essential services that are going to be ‑‑
LISTNUM 1 \l 19545 MR. ROGERS: I misunderstood you. I said "Would you have any objection," and I think your answer is, you have no objection.
LISTNUM 1 \l 19546 MR. WATT: That's right, we have no objection.
LISTNUM 1 \l 19547 MR. ROGERS: All right. That's fine.
LISTNUM 1 \l 19548 MR. WATT: Just to confirm, for the non‑essential services.
LISTNUM 1 \l 19549 MR. ROGERS: Right.
LISTNUM 1 \l 19550 MR. WATT: Yes.
LISTNUM 1 \l 19551 MR. ROGERS: Provided the tariff remains in place over that period.
LISTNUM 1 \l 19552 With regard to the Commission's Category 5, the public good, you would agree, I take it, that the current arrangements for 9‑1‑1, message relay service, and so on, should continue, more or less, as they are?
LISTNUM 1 \l 19553 MR. WATT: Yes.
LISTNUM 1 \l 19554 MR. ROGERS: And the last of the categories, which is interconnection, that is, Category 6, whether one labels this as an essential service or not ‑‑ there are different views on the point ‑‑ you would also agree that interconnection should be mandated for all service providers?
LISTNUM 1 \l 19555 It is necessary?
LISTNUM 1 \l 19556 MR. WATT: Yes, we do. We just were nervous when we saw the attachment, the comment in parenthesis, "such as direct connection."
LISTNUM 1 \l 19557 There was a lengthy discussion about the importance of access tandem, and some parties think that should not be maintained as a regulated service. We believe it should.
LISTNUM 1 \l 19558 But, yes, we agree that the current interconnection arrangements should continue in place. So there is agreement there.
LISTNUM 1 \l 19559 MR. ROGERS: On that, as well.
LISTNUM 1 \l 19560 Mr. Watt, this has gone very smoothly so far. We could save an enormous amount of time if you were to simply deem to agree to all of my subsequent proposals.
LISTNUM 1 \l 19561 The Chairman, I think, would be ready to agree with that, if you would. I take that is a no. All right.
LISTNUM 1 \l 19562 Given that we have a six‑part framework to consider as presented by the Commission, that framework or any variation of it, of course, assumes that there will be a definition of essential facility. It is a critical part of establishing that framework and, of course, a central issue in this proceeding.
LISTNUM 1 \l 19563 I would like now to turn to your definition of a central facility as you have proposed it. That, of course, is found in your evidence, and I am turning, for the sake of convenience, to your paragraph E‑22, which is the Executive Summary of your March 15 evidence, if you would like to turn that up.
LISTNUM 1 \l 19564 Do you have that, Mr. Watt?
LISTNUM 1 \l 19565 MR. WATT: I will in just one moment.
LISTNUM 1 \l 19566 MR. ROGERS: It is your three‑part definition.
LISTNUM 1 \l 19567 MR. WATT: Yes, we have it.
LISTNUM 1 \l 19568 MR. ROGERS: For the purposes of this discussion, I am going to focus on the third element.
LISTNUM 1 \l 19569 Before we get to that, though, I think you have said earlier that all three elements are necessary. I will wait until you get to it, Mr. Watt.
LISTNUM 1 \l 19570 MR. WATT: Yes, I have it.
LISTNUM 1 \l 19571 MR. ROGERS: And all three elements of the test are necessary. Correct?
LISTNUM 1 \l 19572 MR. WATT: Correct.
LISTNUM 1 \l 19573 MR. ROGERS: The third element reads:
"It is not feasible to duplicate the input, having regard to economic and/or technical factors." (As read)
LISTNUM 1 \l 19574 Correct?
LISTNUM 1 \l 19575 MR. WATT: Yes.
LISTNUM 1 \l 19576 MR. ROGERS: I would like to understand the third element a little more clearly when you refer to an input that may or may not be feasible to duplicate. Do you mean duplication of exactly the same physical facility or duplication of the particular functionality provided over that facility?
LISTNUM 1 \l 19577 MR. WATT: Actually, if you look to our opening statement, I think you have drawn my attention to the three bullets in the March 15th evidence.
LISTNUM 1 \l 19578 MR. ROGERS: Right.
LISTNUM 1 \l 19579 MR. WATT: There we did say, in the March 15th evidence:
"It is not feasible to duplicate the input, having regard to economic and/or technical factors." (As read)
LISTNUM 1 \l 19580 Then there was subsequent discussion from various parties as to whether it really should read "or an input of equivalent functionality."
LISTNUM 1 \l 19581 So, we have ‑‑
LISTNUM 1 \l 19582 MR. ROGERS: You have revised the test?
LISTNUM 1 \l 19583 MR. WATT: We have revised that test, so for us it now reads:
"It is not feasible to duplicate the input or an input of equivalent functionality..."
Which was your question, I believe.
"...having regard to economic and/or technical factors." (As read)
LISTNUM 1 \l 19584 That is in our opening statement on page 2.
LISTNUM 1 \l 19585 MR. ROGERS: I thought that was the case. In fact, you had used that language earlier in your March 15 evidence in paragraph 213. So you have updated the test.
LISTNUM 1 \l 19586 Duplication can mean in this context either self‑supply or supply obtained from a third party. Correct?
LISTNUM 1 \l 19587 MR. WATT: Yes.
LISTNUM 1 \l 19588 MR. ROGERS: I would like you to refer to another part of your March 15 evidence, and this is at paragraph 213, the one I just referred to a moment ago. I will give you a moment to turn that up.
LISTNUM 1 \l 19589 Do you have that, Mr. Watt?
LISTNUM 1 \l 19590 MR. WATT: I do.
LISTNUM 1 \l 19591 MR. ROGERS: What I would like you to look at in that paragraph, and I will read the relevant lines:
"Based on a foregoing analysis, Rogers submits that it is not economically feasible to duplicate the ILEC loops used to serve residential customers in areas where the company does not already have a coaxial cable network." (As read)
LISTNUM 1 \l 19592 Do you see that line?
LISTNUM 1 \l 19593 MR. WATT: I do.
LISTNUM 1 \l 19594 MR. ROGERS: Mr. Watt, you are no doubt aware, as other members of the panel are, that in mid‑August Rogers filed an application with the CRTC to build out its existing cable service footprint west of Toronto into the areas Oakville and Burlington. You're aware of that?
LISTNUM 1 \l 19595 MR. WATT: Yes, I am aware of the application.
LISTNUM 1 \l 19596 MR. ROGERS: And also north into Aurora?
LISTNUM 1 \l 19597 MR. WATT: Yes.
LISTNUM 1 \l 19598 MR. ROGERS: In those particular areas there are already both a cable system in the west side of Toronto, it would be Cogeco, as well as a telephone company network, and such plans proposed by Rogers in this case are sometimes referred to as an overbuild. You have heard the term?
LISTNUM 1 \l 19599 MR. WATT: I have heard the term.
LISTNUM 1 \l 19600 MR. ROGERS: The new cable plant that you intend to put in, it will be, I am asking you, the advanced digital capability that you have in most other parts of Toronto to provide digital video services and telecom and telephone services; that is what you intend?
LISTNUM 1 \l 19601 MR. WATT: Yes, where we build plant in these locations it will be the advanced network, and I can explain further what our intentions are.
LISTNUM 1 \l 19602 MR. ROGERS: I am fine with what you said so far.
LISTNUM 1 \l 19603 Subject to the Commission approving your application to extend into these territories, it is feasible to duplicate the equivalent of the ILEC loops, the loop access service in these areas?
LISTNUM 1 \l 19604 MR. WATT: Well, what Rogers is proposing to do is, as you know the cable companies are adjacent. We are running into a situation in the rapidly growing areas in these rapidly developing new subdivisions in these high‑growth areas, there are subdivisions going up that are just over the line into Cogeco or Aurora Cable territory. There are Greenfield sites.
LISTNUM 1 \l 19605 We intend to go in with the trenching and provide service to those subdivisions. Those are our intentions in these areas.
LISTNUM 1 \l 19606 In fact, some of these subdivisions actually sit on either side of the line, so that some would partially be in Cogeco, some in Rogers. So we are proposing to go into those Greenfield sites and extend our cable operations to grow.
LISTNUM 1 \l 19607 MR. ROGERS: So you have an existing cable footprint now, the existing licensed area. You see the prospect of expanding and growing into it and building out facilities into a residential market?
LISTNUM 1 \l 19608 MR. WATT: As I say, the current plan is to grow into Greenfield residential developments. There are no plans to overwire the downtown core of Oakville in the existing locations.
LISTNUM 1 \l 19609 MR. ROGERS: The plant that you put in, of course, will be Rogers cable plant, but there will likely be a telephone company plant, likely Bell, put into those areas as well?
LISTNUM 1 \l 19610 MR. WATT: In most cases there generally would be, but as you are probably aware, there are a number of subdivisions where Bell, for reasons of their own, have decided not to put their facilities into certain new home subdivisions.
LISTNUM 1 \l 19611 MR. ROGERS: Where there is a Bell facility or a network either in place already or one which will go in at the same time, what I am suggesting to you is that in those circumstances you will be building out new plant or capacity into a residential market and, in the process of doing so, duplicating the functionality which otherwise could be delivered, the loop functionality that otherwise would be delivered over the telephone company plant?
LISTNUM 1 \l 19612 MR. WATT: Yes, that is correct. Where they enter, we would both go into the trench, to the new home, and we would each be duplicating a functionality of the other in that regard.
LISTNUM 1 \l 19613 MR. ROGERS: When you extend your network west, as you propose to do, you will be installing the same mix of fibre and coax digital system. We talked about that earlier.
LISTNUM 1 \l 19614 Regarding your planned expansion into Oakville and Burlington, you would agree with me that there are businesses in Oakville and Burlington, aren't there?
LISTNUM 1 \l 19615 MR. WATT: Yes.
LISTNUM 1 \l 19616 MR. ROGERS: And if there are neighbourhoods that you plan to go into which are mixed business and residential use, do you plan to deliberately avoid those neighbourhoods and not construct plant there?
LISTNUM 1 \l 19617 MR. WATT: No, we don't plan to deliberately avoid those neighbourhoods. As they go up in the neighbouring adjacent territory we are going to put our plant in. With respect to, say, any new ‑‑ what is the word I am looking for ‑‑ industrial malls in those areas, and I would confirm that, but I expect we will be putting our facilities nearby. Again, the issue, and Mr. Pattinson can add to this possibly, is whether we would put the coax into each of those units at the current time as we build. I am not sure.
LISTNUM 1 \l 19618 MR. ROGERS: All right. We don't need to get into particularly the nature of the technology, but what we have established is that you are going to go into new areas where you don't have plant today. There will, in most cases, be some telephone company plant, maybe not everywhere, and you will be duplicating by the new build a functionality which the telephone company will also have through its plant?
LISTNUM 1 \l 19619 MR. WATT: We will be doing that in the new territories if the application is approved, where new development is going forward where it is near our existing plant, just as we do within our licenced territory today where there is a new subdivision. Bell and ourselves, in the vast majority of cases, both go into the trench at the same time and duplicate each other's functionality.
LISTNUM 1 \l 19620 I do want to just clarify, though, that if there is a new subdivision, other than the far side of Oakville that is no where near our plant, that will have to be looked at on a case‑by‑case basis. The ones we are interested in are the ones that are near the neighbouring border.
LISTNUM 1 \l 19621 MR. ROGERS: Fine. We talked earlier about the presence of mixed use business and residents in those neighbourhoods, and you are prepared to build out into the neighbourhoods which are also commercial or business?
LISTNUM 1 \l 19622 MR. WATT: There are two points there.
LISTNUM 1 \l 19623 We are certainly prepared to build out into the mixed use locations. Into the business locations I believe we will be as well. Those are our aspirations.
LISTNUM 1 \l 19624 MR. ROGERS: Right. It would seem rather foolish to embark on a new build and just leave all the businesses out?
LISTNUM 1 \l 19625 MR. WATT: That it would. You really need to be in the trench at the outset to improve the economics.
LISTNUM 1 \l 19626 MR. ROGERS: I would ask you to turn to paragraph 93 of your March 15 evidence. I will give you a moment.
LISTNUM 1 \l 19627 MR. ROGERS: Do you have that?
LISTNUM 1 \l 19628 MR. WATT: I do.
LISTNUM 1 \l 19629 MR. ROGERS: I am looking at the second sentence in that paragraph which reads:
"This is a discussion of the economics of constructing facilities." (As read)
LISTNUM 1 \l 19630 The second sentence reads:
"The average cost per customer is lower where there is higher density and shorter loop lengths. Business customer locations are often clustered within a small geographic area. This can reduce the cost per customer where traffic can be aggregated." (As read)
LISTNUM 1 \l 19631 Do you see that?
LISTNUM 1 \l 19632 MR. WATT: Yes, I do.
LISTNUM 1 \l 19633 MR. ROGERS: You make very similar statements to almost the same effect, if you want to check, in paragraph 153. There is a further discussion of the same kind of analysis of business markets. You talk about concentrated dense urban areas, shorter loop lengths, and you go on to say:
"These factors can produce higher average revenues for a business customer." (As read)
LISTNUM 1 \l 19634 MR. WATT: Yes.
LISTNUM 1 \l 19635 MR. ROGERS: All of which seems to make perfectly good sense.
LISTNUM 1 \l 19636 In most cases, let's take the flip side of that analysis, the residential markets, by definition, are less dense, they are longer loops lengths, and they have lower average revenue per customer. It is the converse of what you just submitted.
LISTNUM 1 \l 19637 We have just discussed a case in which you plan to build out into new residential markets. These are the markets of Oakville, Burlington and so on. If the economics of serving these new residential service areas by your analytical test, comparing economics, justify Rogers building new facilities, in spite of the lower density and longer loops, wouldn't it make sense that the economics of serving the business community are even better? It follows logically from your own analysis.
LISTNUM 1 \l 19638 MR. WATT: I am not sure that it does follow logically because I am not sure we are talking about the same thing.
LISTNUM 1 \l 19639 We are talking about going into a Greenfield residential location, Greenfield business location, the plant is nearby. It may be that the economics are better because of the factors you identified.
LISTNUM 1 \l 19640 It is certainly not the case that one can compare building in to a Greenfield residential development with building into an existing industrial mall where the construction is already completed. Two very different things.
LISTNUM 1 \l 19641 The other comment I would make with respect to businesses is that ‑‑ well, there are also some additional costs in terms of gear as well, as you know. The coax needs pieces of equipment attached on the end. So, it is not simply the coax. It is the cost of providing the business service.
LISTNUM 1 \l 19642 MR. ROGERS: I understand that, Mr. Watt, but it is your analysis. You are the ones that cited the words "the higher density, the shorter loop lengths, the lower costs and the higher revenue per customer," all of which seems to make perfectly good sense in network economics.
LISTNUM 1 \l 19643 It seems to me that if you are prepared to build out into the residential areas, then surely, you would be prepared, given that economic structure and the possibilities, to overcome those costs, nothing is free, and to take advantage of the economics in the business community which you have just described.
LISTNUM 1 \l 19644 MR. WATT: Now, are you making that comment with respect to a Greenfield residential development and a Greenfield business development, or are you trying to say that the economics of building out to business locations in an existing location are the same as building to a Greenfield residential location? Because I am saying they are absolutely not. It is immensely more extensive to build in after the fact, after the industrial mall, the buildings, are in place as compared to building into a Greenfield location.
LISTNUM 1 \l 19645 MR. ROGERS: Mr. Watt, my questions are really derived based on your evidence. You are the ones that said serving the business community is generally, all other things equal, a better proposition because the costs are lower, the average revenue is higher, the density is greater.
LISTNUM 1 \l 19646 You can answer this question whether you are prepared to discuss a new business park or a new business building going up or going into an existing area. We are well aware of what you have said of how difficult that is. But it seems to me that you cannot ignore the fundamental economics which you put into your own evidence. You have the prospect of a 30‑ or 40‑storey building or, as you said earlier today, First Canadian Place, with huge revenue opportunities. Of course it is going to cost you to put facilities in. That is given; that is true of every business. But you have such enormous potential in such great density. This is your analysis.
LISTNUM 1 \l 19647 MR. WATT: I am going to ask Mr. Pattinson to explain what the economics would be to provide a facility after the fact into a building such as the Portage Buildings here in Gatineau, and I think that could help everyone's understanding.
LISTNUM 1 \l 19648 MR. ROGERS: Sure.
LISTNUM 1 \l 19649 MR. PATTINSON: Certainly. So, I think using an example of this very building, and let's presume that in this case Rogers fibre is running down the street ‑‑ that is a phrase that I have heard repeatedly during these proceedings.
LISTNUM 1 \l 19650 So, if we use the example of the coffee shop that is literally outside the hall here, and they have placed an order with Rogers for, let's say, for example, $59 cable internet service, the first thing that we would learn after placing the order is that the closest FOSC, which is a fibre optic service capsule, is actually located about one kilometre away. Dissimilar from the cable and coax network, where we could simply splice, we cannot splice that fibre right outside the building. We need to go back one kilometre and then start pulling that towards this building.
LISTNUM 1 \l 19651 We then discover that the entrance facility to Phrase IV is full and in cases is full with copper as well as blue fibre, or sometimes it is considered to soon be full. So, in this case, our alternative access or entrance facility is actually located at the Phase I building, which is down the street. So, we reroute four kilometres of fibre, and after great negotiation with the landlord and the building superintendent, we finally gain access to the ducts in Phase I.
LISTNUM 1 \l 19652 We then have to go aerial across the roof, with about 1800 metres of conduit, down into the telecom room, and then back up to that coffee shop.
LISTNUM 1 \l 19653 On a good day, this costs us about $25,000 and takes about four months. That is if all the moons and stars align. On a bad day, this can cost us $120,000 and take eight to 12 months, if at all.
LISTNUM 1 \l 19654 And unfortunately, in both my good day and bad day example, that $59 internet service has no financial return. It is very difficult to run that service into this building.
LISTNUM 1 \l 19655 MR. ROGERS: I am not going to belabour the point. You are going to come back with further confirmation on an undertaking this morning in terms of access into certain buildings in Ottawa.
LISTNUM 1 \l 19656 I think we have established what you have to say about new greenfield operations. I take it that you can't argue that building access is full in a building that isn't built yet?
LISTNUM 1 \l 19657 In a greenfield place, you are going to go in, as you just indicated to me, that where there is a new business or a new business park, of course you would want to be there and you would do the best you can to anticipate the future revenues that will occur and build accordingly.
LISTNUM 1 \l 19658 So we will leave the speech that we just heard and we will hear more on that but I think we have established our point with regard to new builds.
LISTNUM 1 \l 19659 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 19660 Mr. Watt, maybe you can clarify for me something. I understand the economics of feasibility but when you say technically feasible and we are talking about functionality, what are we talking principally, is it access to the building that is the main impediment?
LISTNUM 1 \l 19661 MR. WATT: What is the main impediment to getting into an existing building?
LISTNUM 1 \l 19662 THE CHAIRPERSON: In your definition ‑‑
LISTNUM 1 \l 19663 MR. WATT: Mm‑hmm.
LISTNUM 1 \l 19664 THE CHAIRPERSON: ‑‑ you say it is not feasible to duplicate the input on input of equivalent functionality having regard to the economic and/or technical factors.
LISTNUM 1 \l 19665 I understand the economics, no question. We have just gone through this.
LISTNUM 1 \l 19666 What would be the technical factors that you cannot duplicate?
LISTNUM 1 \l 19667 MR. WATT: The technical ‑‑ I think I will ask Mr. Pattinson to speak about the issue as to whether you could technically run T1s on coaxial cable. There is a technical limitation as to what can be done at higher speeds for business services on the coaxial cable and that would be the technical issue we have in mind.
LISTNUM 1 \l 19668 MR. PATTINSON: I am sorry, Mr. Chair, if you could please ‑‑
LISTNUM 1 \l 19669 THE CHAIRPERSON: Keep it really dumb.
LISTNUM 1 \l 19670 MR. PATTINSON: ‑‑ repeat your question again and I will ‑‑
LISTNUM 1 \l 19671 THE CHAIRPERSON: I want to know what kind of technical barriers you are talking about. The economic barriers I understand.
LISTNUM 1 \l 19672 But the technically not feasible to duplicate, I guess what you are telling me is there is a limited capacity of what you can do on a coaxial and you would need to lay another cable, if I understand you, to provide the service?
LISTNUM 1 \l 19673 MR. PATTINSON: That is correct. The coax network was designed and has been over the last 40 years designed primarily for residential use, starting, of course, with television and then a best‑efforts internet service with significant technological constraints for upstream bandwidth.
LISTNUM 1 \l 19674 That is less of an issue for residential but it is of great need by businesses because they often are serving a lot of content through their internet service upstream to other people on the internet and so then that means we need to move towards fiber‑based services.
LISTNUM 1 \l 19675 And then, in this last example that I just provided, bringing that fiber into the building and providing that coax service takes a great deal of time, is extremely expensive and has very limited return.
LISTNUM 1 \l 19676 THE CHAIRPERSON: But that is still an economic issue at that point in time. So there are no technical barriers, they are all economic at the end of the day?
LISTNUM 1 \l 19677 MR. WATT: If I could try maybe. I have the benefit of not knowing as much of the technical issues.
LISTNUM 1 \l 19678 So our coaxial plant, if it provides ‑‑ you have heard the term 850 megahertz of capacity. Of that 850 megahertz, the technical constraint is that 800 megahertz of it sends traffic downstream, broadcasts out from a location to a home or a business. There is only about 25 megahertz of capacity that can send traffic upstream, coming back from a home or a business.
LISTNUM 1 \l 19679 Businesses typically want symmetrical data flows. So with a T1 they get 1.54 megabits per second both ways guaranteed quality of service.
LISTNUM 1 \l 19680 When we come to offer that type of service through the T1 emulation, we have to go and look at our upstream capacity. At only 25 megahertz, it is all full currently. We have to hive off a piece of that and typically if we were to take 3.5 megahertz, it will give us 8 megabits per second upstream. That is it.
LISTNUM 1 \l 19681 A business customer wants about the 1.54. With the protocols on top, it takes up about 2 megabits. So a coax could only give us four T1s upstream and we might get ‑‑ it is a combination of technical and economic at this point.
LISTNUM 1 \l 19682 We could do that but the economic return is in the order of, say, maybe $800 for the four T1s to the business. We can use that same capacity to serve 250 residential customers who pay us $40 a month. So the economics are significantly better.
LISTNUM 1 \l 19683 So there is a technical constraint limitation in the upstream bandwidth, upstream capacity, that then makes it a poor alternative.
LISTNUM 1 \l 19684 Now ‑‑
LISTNUM 1 \l 19685 THE CHAIRPERSON: Again, it may be a poor alternative but the bottom line is it is always an economic decision. You haven't pointed out to me yet one technical barrier that you can't overcome.
LISTNUM 1 \l 19686 MR. WATT: Well, I think you have to run ‑‑ the technical barrier is the amount of bandwidth you can derive on that upstream and it is limited, it is constrained. So you would have to put in a second coax.
LISTNUM 1 \l 19687 THE CHAIRPERSON: Precisely, and that is too expensive and therefore it is not economic.
LISTNUM 1 \l 19688 I just wondered because you used the word "technical." You always say technical in conjunction with the cost of supplying that technology, I gather. There is nothing that is inherently technical, it is not just economics, it is just technically you can't do it. That is what I was wondering about.
LISTNUM 1 \l 19689 MR. PATTINSON: If I could use an example of a 50 megabit per second symmetrical IP‑VPN service that a business would offer, we cannot technically provide that service today on the cable network because of constraints moving upstream.
LISTNUM 1 \l 19690 There are promises of technology that are coming but it is a significant technical hurdle.
LISTNUM 1 \l 19691 THE CHAIRPERSON: Okay. So if you take your cable network as a base, then there actually are technical barriers, that is what you are telling me, you would have to build a whole new network?
LISTNUM 1 \l 19692 MR. PATTINSON: Correct.
LISTNUM 1 \l 19693 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 19694 MR. PATTINSON: We would have to build fiber.
LISTNUM 1 \l 19695 MR. WATT: Maybe just ‑‑ I don't want to beat the point into the ground but Mr. Hatfield, would you like to comment on this issue?
LISTNUM 1 \l 19696 MR. HATFIELD: No, I think the point is made. The technical limitations stem from the existing architecture, the existing network, and if one would replace it, obviously one could ‑‑ at great economic cost, one could then remove those constraints.
LISTNUM 1 \l 19697 I think you are right, ultimately all technical constraints come down to economics but in this case it becomes infeasible.
LISTNUM 1 \l 19698 THE CHAIRPERSON: So your given assumption is the existing network, using the existing network for the services and what are the technical limitations to that? That is the reference for technical limitations.
LISTNUM 1 \l 19699 MR. HATFIELD: Another example we indicated was the difficulty in splicing into fiber without going back. That is a technical limitation today one could imagine but it is just not technically feasible to splice it right outside the building like you would like to.
LISTNUM 1 \l 19700 THE CHAIRPERSON: Sorry for the digression. Back to you, Mr. Rogers.
LISTNUM 1 \l 19701 MR. ROGERS: I think it helped to clarify things, Mr. Chairman.
LISTNUM 1 \l 19702 I have one supplemental on the discussion that you just had. It is a technical question and you may want to respond either now or through an undertaking.
LISTNUM 1 \l 19703 Can you confirm that the cable DocSys 3 standards currently permit both T1 emulation and VPN service? Does the standard exist today?
LISTNUM 1 \l 19704 MR. PATTINSON: There is a DocSys 3 standard that has been developed that has great promises of increased downstream as well as upstream and my understanding is that it is just beginning the testing and certification process. So there are certainly great promises and we hope that they materialize.
LISTNUM 1 \l 19705 MR. ROGERS: But can you confirm that it is a standard that is available for the cable industry to use today and that it is in use?
LISTNUM 1 \l 19706 MR. PATTINSON: There is a documented standard that exists that has been published by CableLabs but CableLabs has just begun the process actually in the last two weeks of the first of three phases of certification and testing that will be completed in Q4 of 2008, Q1 of 2009 at the latest because there are three different testing phases.
LISTNUM 1 \l 19707 MR. ROGERS: Fine.
LISTNUM 1 \l 19708 I think I would like to, before we take a break, finish off on this application which you filed for the extension of service territory into Oakville. I provided in the bound black volume, at Tab 1, a copy of that application and I would ask you to turn to that.
LISTNUM 1 \l 19709 MR. WATT: Yes, I have it.
LISTNUM 1 \l 19710 MR. ROGERS: Mr. Watt, I would ask you to turn to paragraph 12.
LISTNUM 1 \l 19711 Do you have that?
LISTNUM 1 \l 19712 MR. WATT: Yes, I do.
LISTNUM 1 \l 19713 MR. ROGERS: Mr. Watt, in this section of the application to the Commission Rogers is discussing competing technologies which are now starting to have an effect on Rogers' business and competing with its business.
LISTNUM 1 \l 19714 I will start with the sentence that begins "However".
"However, several technologies are beginning to impact the way in which our services are delivered. These technologies include: broadband, IP‑based voice, data and video delivery services, the mass market deployment of optical fibre technologies to the residential and business markets and the deployment of broadband wireless access." (As read)
LISTNUM 1 \l 19715 Do you see that language?
LISTNUM 1 \l 19716 MR. WATT: I do see it.
LISTNUM 1 \l 19717 MR. ROGERS: I would like to focus in particular on the words:
"...the mass market deployment of optical fibre technologies to the residential and business markets..." (As read)
LISTNUM 1 \l 19718 When you use that language, what service providers, either existing or potential, was Rogers referring to?
LISTNUM 1 \l 19719 MR. WATT: Actually, in part we were referring to our own plans to expand fibre optics to business locations.
LISTNUM 1 \l 19720 We say several times "beginning to impact the way in which our services are delivered".
LISTNUM 1 \l 19721 Principally the other item that we have in mind there is the ‑‑ and I forget the name that Bell gave to their plan, but their plan announced, in either late 2004‑2005, to drive fibre deeper into residential neighbourhoods. You will recall this. I think it's a $1.7 billion plan to drive fibre deeper into neighbourhoods, enabling Bell's DSL throughput to increase from 8 megabits per second, I believe, to 26 megabits per second, and I think in certain circumstances even higher with bonding, and so on and so forth.
LISTNUM 1 \l 19722 So that in our understanding this not only will increase the speed of their high‑speed internet services, but provide the ability to offer their IPTV service that we anticipate shortly.
LISTNUM 1 \l 19723 MR. ROGERS: I understand that. I thought you would probably refer to telephone company plant expansion. I thought you also, in that reference I drew your attention, might be referring to the hydro utilities and their affiliates, because you specifically refer to such companies in paragraph 14 of this application.
LISTNUM 1 \l 19724 If you turn to the next page, you indicate there that "They are entering".
LISTNUM 1 \l 19725 Do you see that reference?
LISTNUM 1 \l 19726 MR. WATT: Yes, I do.
LISTNUM 1 \l 19727 MR. ROGERS: And they are beginning to provide services similar to those provided by Rogers, such as telecom and internet service in competition?
LISTNUM 1 \l 19728 MR. WATT: Yes, they do provide service to certain customers.
LISTNUM 1 \l 19729 MR. ROGERS: So that would represent yet another form of physical network facilities' alternatives, duplication in other words of the underlying functionality as these types of plants build out, the ones you were referring to in your application?
LISTNUM 1 \l 19730 MR. WATT: Yes, there would be increasing ‑‑ well, there would be facilities. As you know, they are fairly limited. The municipal electrical utilities are now providing voice services, but in terms of the physical plant they do have some physical plant in the ground of fibre optics.
LISTNUM 1 \l 19731 MR. ROGERS: But much of this proceeding, as you appreciate, Mr. Watt, we are looking for evidence of duplicability and Rogers put this in the application to amend your cable licence to show that duplicability is occurring.
LISTNUM 1 \l 19732 Correct?
LISTNUM 1 \l 19733 MR. WATT: In certain circumstances there is duplicability occurring, but into the vast majority of buildings and locations the economics do not permit the duplicability.
LISTNUM 1 \l 19734 MR. ROGERS: Well, I think by your last comment you mean your economics, but you are not suggesting that duplicability of that network facility by others is impossible, because if that was your belief you wouldn't have put it in the application.
LISTNUM 1 \l 19735 MR. WATT: No, it's not our belief. It may not turn out well for some companies, but hopefully it will turn out well for others, but it will have been a wise decision.
LISTNUM 1 \l 19736 MR. ROGERS: From the market's point of view, all the market cares about is whether or not there are alternatives.
LISTNUM 1 \l 19737 Correct? That's the way a market functions?
LISTNUM 1 \l 19738 MR. WATT: Yes.
LISTNUM 1 \l 19739 MR. ROGERS: In this regard I would like you to turn to Tab 2 of the binder that we provided, the Compendium of Documents.
LISTNUM 1 \l 19740 For those who are following in the room, this document is part of the record of the proceeding already. It is an Interrogatory Response Telecom Ottawa/Cogeco 12 April 07 No. 1. I will be referring you mostly to the first page.
LISTNUM 1 \l 19741 Mr. Watt, you have a copy of that with you?
LISTNUM 1 \l 19742 MR. WATT: Yes, we do.
LISTNUM 1 \l 19743 MR. ROGERS: Again for the room, this company that answered this is Telecom Ottawa, an affiliate of Ottawa Hydro, and they indicate, on the first page of this response, that they have a fibre‑based network constructed across Ottawa. Their language is:
"It connects 950 buildings in Ottawa with self‑supplied fibre." (As read)
LISTNUM 1 \l 19744 Do you see that language at the bottom of the first page?
LISTNUM 1 \l 19745 MR. WATT: Yes, I do.
LISTNUM 1 \l 19746 MR. ROGERS: Many of the electric utility telecom operators that have sprung up, aren't they often quite interested in serving or leasing capacity to large business or other telecom providers?
LISTNUM 1 \l 19747 Isn't that typically the approach?
LISTNUM 1 \l 19748 MR. WATT: I'm going to ask Mr. Pattinson to address this issue. He has direct experience in dealing with these entities.
LISTNUM 1 \l 19749 MR. ROGERS: What I'm asking is: Is it often the case they are trying to get into the wholesale market?
LISTNUM 1 \l 19750 MR. PATTINSON: Well, today Rogers does buy some services from Telecom Ottawa and it's our understanding that greater than a third of those 950 sites are into the schools for which they have a very, very large contract.
LISTNUM 1 \l 19751 So in some cases where there are facilities available we will buy them and they are exclusively Ethernet and dark fibre services.
LISTNUM 1 \l 19752 MR. ROGERS: Right. In fact, the answer provided by Telecom Ottawa on the second page confirms that you are currently a customer of Telecom Ottawa. They indicated that.
LISTNUM 1 \l 19753 MR. PATTINSON: Correct.
LISTNUM 1 \l 19754 I also understand on page 3 that they go on to say that they do not provide other types of CDNA‑like services and do not provide any services into collocation sites because of the restriction of use.
LISTNUM 1 \l 19755 I would like to be able to buy more facilities from them in collocation sites if it was not for that restriction of use restriction.
LISTNUM 1 \l 19756 MR. ROGERS: Their evidence is they have a fibre network that covers a large part of Ottawa into 950 buildings.
LISTNUM 1 \l 19757 You deal with companies like this. We can probably assume that they didn't ‑‑ Telecom Ottawa wouldn't build a fibre facility into a 7‑11 or barbershop, they are going to build it into larger buildings, aren't they?
LISTNUM 1 \l 19758 MR. PATTINSON: Well, I don't have detailed knowledge of their entire network as they did say here that they had filed those addresses in confidence, but we do know that a great proportion of them, as I mentioned, are running into schools, which would not be sites that we would be using them for.
LISTNUM 1 \l 19759 MR. ROGERS: I see. All right.
LISTNUM 1 \l 19760 MR. PATTINSON: The only other thing I would add is that the territory that they are providing these 600 sites is, you know, greater than just Ottawa of course, it's into Kingston and Cornwall. So those sites are spread across fairly large territories.
LISTNUM 1 \l 19761 Just to conclude on this ‑‑ and I am wrapping this up, Mr. Chairman, at this point ‑‑ a third of them apparently are school boards, but out of 950 buildings that's still, if my math is correct, we are looking at 600 locations around Ottawa where Telecom Ottawa has a fibre facility self‑supplied into the building and obviously they are willing to do business with people like you.
LISTNUM 1 \l 19762 If you look at a city like Ottawa, which is not the largest city in Canada, if you put fibre into 600 buildings you have covered an awful lot of the major buildings in Ottawa, wouldn't you guess?
LISTNUM 1 \l 19763 MR. PATTINSON: Well, it isn't 600 buildings in Ottawa, as I mentioned earlier on, it is across Kingston and Cornwall.
LISTNUM 1 \l 19764 And yes, we do do business with them today and I can say that in about 40 per cent of cases where we do request services from them they do not have facilities. That is even in these three direct areas where we thought there would be a high probability of service being available.
LISTNUM 1 \l 19765 Again, that would only be for Ethernet and dark fibre services. All of the other types of telecommunications services that we use CDNAs for we still cannot provide over these facilities.
LISTNUM 1 \l 19766 MR. ROGERS: Right. So if in 40 per cent of the cases it is not available, then it follows that in 60 per cent of the cases when you ask them it is available.
LISTNUM 1 \l 19767 MR. PATTINSON: Yes, for a small subset of products.
LISTNUM 1 \l 19768 MR. ROGERS: Fine.
LISTNUM 1 \l 19769 Mr. Chairman, that sort of reaches a natural break point if you would like to consider an adjournment for lunch.
LISTNUM 1 \l 19770 THE CHAIRPERSON: All right. Your timing is impeccable. Let's do that.
LISTNUM 1 \l 19771 We will resume at 1 o'clock.
LISTNUM 1 \l 19772 Thank you.
‑‑‑ Upon recessing at 1201 / Suspension à 1201
‑‑‑ Upon resuming at 1302 / Reprise à 1302