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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 29, 2007 Le 29 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
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Review of regulatory framework for 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 29, 2007 Le 29 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
RESUMED: BRENT MOONEY 2380 /14397
RESUMED: JOHN MACDONALD
RESUMED: TERESA GRIFFIN-MUIR
RESUMED: KELVIN SHEPPARD
RESUMED: RON ROUT
RESUMED: PAUL BRISBY
RESUMED: LEE SELWYN
Cross-examination by TELUS 2381 /14404
AFFIRMED: DR. DEBRA ARON 2466 /14962
AFFIRMED: DR. DENNIS WEISMAN
AFFIRMED: PROF. GLEN ROBINSON
AFFIRMED: DR. ROBERT CRANDALL
Examination-in-chief by TELUS 2466 /14966
Cross-examination by The Competition Bureau 2470 /15006
Cross-examination by MTS Allstream 2496 /15220
Cross-examination by Primus 2567 /15717
Cross-examination by PIAC 2593 /15914
Cross-examination by MTS Allstream 2614 /16049
Cross-examination by Cybersurf 2648 /16272
Cross-examination by Xittel 2684 /16484
SEQ CHAPTER \h \r 1AFFIRMED: DR. KEVIN HICKEY 2697 /16556
AFFIRMED: TED CHISLETT
AFFIRMED: JOE BOUTROS
RESUMED: DR. LEE SELWYN
Examination-in-chief by Primus 2697 /16560
Cross-examination by The Companies 2698 /16577
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
TELUS-5 Ofcom - Valuing copper access - 2382 /14418
Final Statement - Date of
publication: 18 August 2005
MTS-15 List re: (Facilities-Based) 2459 /14913
Parties' pre-hearing evidence on
the Impact of the CDN Decision
on Facilities Construction
Construction or Capital
CRTC-6A CRTC Undertaking register of 2459 /14913
CRTC version updated 29-10-2007
BUREAU‑6 Article by Robert W. Crandall 2496 /15210
entitled: Competition and Chaos,
U.S. Telecommunications since
the 1996 Telecom
BUREAU‑7 Topics in Economic Analysis & 2496 /15210
Policy, Volume 4, Issue 1, 2004,
Article 14 re: Do Unbundling
Policies Discourage CLEC
MTS‑16 Alternate Scenario 1 re: 2518 /15396
Significant Price Increase -
Modest Demand Increase due to
reduced ILEC incentives to
innovate & Alternate Scenario 2
re: Price Decrease - Demand
Increase due to increased
competition and innovation
CYBERSURF-7 Excerpt from the Communications 2638 /16204
Act of 1934
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Monday, October 29, 2007
at 0805 / L'audience reprendre le lundi
29 octobre 2007 à 0805
1LISTNUM 1 \l 1 \s 43964396 THE CHAIRPERSON: Madam Secretary, who do we have this morning?
1LISTNUM 1 \l 14397 THE SECRETARY: We have this morning the TELUS Panel cross‑examining MTS.
RESUMED: BRENT MOONEY
RESUMED: JOHN MACDONALD
RESUMED: TERESA GRIFFIN‑MUIR
RESUMED: KELVIN SHEPPARD
RESUMED: RON ROUT
RESUMED: PAUL BRISBY
RESUMED: LEE SELWYN
1LISTNUM 1 \l 14398 THE CHAIRPERSON: Go ahead.
1LISTNUM 1 \l 14399 MR. LOWE: Thank you, sir.
1LISTNUM 1 \l 14400 John Lowe on for TELUS. With me is Dr. Levine.
1LISTNUM 1 \l 14401 Mr. Chairman, I have no questions for Dr. Selwyn today. I would like to reserve the right to talk to him on the Primus Panel.
1LISTNUM 1 \l 14402 THE CHAIRPERSON: Okay.
1LISTNUM 1 \l 14403 MR. LOWE: We will move along a little quicker than I originally thought when I provided my time estimates.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 14404 MR. LOWE: Mr. Brisby, you assisted MTS Allstream in its telecom policy review submission, didn't you?
1LISTNUM 1 \l 14405 MR. BRISBY: That's correct, yes.
1LISTNUM 1 \l 14406 MR. LOWE: And that was on August 15, 2005, subject to check?
1LISTNUM 1 \l 14407 MR. BRISBY: That sounds correct, yes.
1LISTNUM 1 \l 14408 MR. LOWE: And that was right around the time of the Ofcom strategic review, wasn't it?
1LISTNUM 1 \l 14409 MR. BRISBY: The Ofcom review was ongoing at that time, yes.
1LISTNUM 1 \l 14410 MR. LOWE: Sorry, was what?
1LISTNUM 1 \l 14411 MR. BRISBY: The Ofcom review was ongoing at that time, yes.
1LISTNUM 1 \l 14412 MR. LOWE: Thank you.
1LISTNUM 1 \l 14413 Perhaps we could turn to Tab 11 of the book of documents, which you should have. This is a document from Ofcom, entitled "Valuing Copper Access". It is dated August 18, 2005.
1LISTNUM 1 \l 14414 Do you have that?
1LISTNUM 1 \l 14415 MR. BRISBY: I have that, yes.
1LISTNUM 1 \l 14416 MR. LOWE: I would like to turn to paragraph 1.3 of the Summary.
1LISTNUM 1 \l 14417 THE SECRETARY: Please record this document as Exhibit No. 5 for TELUS.
1LISTNUM 1 \l 14418 MR. LOWE: Thank you.
EXHIBIT TELUS‑5: Ofcom ‑ Valuing copper access ‑ Final Statement ‑ Date of publication: 18 August 2005
1LISTNUM 1 \l 14419 MR. LOWE: In the last part of paragraph 1.3 it says:
"Ofcom does not believe the cable companies will significantly increase their coverage in the near future. This means that for a large number of U.K. homes and businesses, BT is the only provider of local access to them and that this is unlikely to change in the near future. This lack of effective competition means that it is important to ensure that the price that other companies, and ultimately consumers, pay for using BT's network is not too high."
1LISTNUM 1 \l 14420 Was the cable coverage in the U.K. at the time this was written about 45 per cent?
1LISTNUM 1 \l 14421 MR. BRISBY: At this time digital broadband enabled cable was approximately 45 per cent and non‑digital solely TV enabled cable would have covered an extra 5 per cent.
1LISTNUM 1 \l 14422 So yes, 45 to 50 per cent sounds about right.
1LISTNUM 1 \l 14423 MR. LOWE: Thank you.
1LISTNUM 1 \l 14424 Then turning to Tab 14, sir ‑‑ and this is an Ofcom 2007 report. Do you have it?
1LISTNUM 1 \l 14425 MR. BRISBY: I have that.
1LISTNUM 1 \l 14426 MR. LOWE: We have extracted page 51 from this report. In the second paragraph under the heading "Digital Cable" it says ‑‑ and this is the second sentence:
"The cable platform has less extensive coverage than either satellite or terrestrial television; 45 per cent versus 98 per cent and 73 per cent."
1LISTNUM 1 \l 14427 Do you see that?
1LISTNUM 1 \l 14428 MR. BRISBY: Yes.
1LISTNUM 1 \l 14429 MR. LOWE: So we are still looking at about 45 per cent coverage in the U.K.?
1LISTNUM 1 \l 14430 MR. BRISBY: Yes, the data are pretty much unchanged. So Ofcom's view that further network build was unlikely has in fact transpired at this time, yes.
1LISTNUM 1 \l 14431 MR. LOWE: Thank you.
1LISTNUM 1 \l 14432 Then further in the paragraph it says:
"It was the first to pioneer dual play services which bundled fixed line telephony and television subscription services."
1LISTNUM 1 \l 14433 Do you see that?
1LISTNUM 1 \l 14434 MR. BRISBY: Yes, I see that.
1LISTNUM 1 \l 14435 MR. LOWE: Is it the case that some U.K. cable companies that pass homes only provide telephony service and don't also provide broadcasting service?
1LISTNUM 1 \l 14436 MR. BRISBY: Some customers will choose only to buy telephony services from the cable company. Some will choose to buy a bundle and indeed some will choose just to buy cable TV.
1LISTNUM 1 \l 14437 MR. LOWE: What are the rough percentages of people who would just buy telephony?
1LISTNUM 1 \l 14438 MR. BRISBY: I don't have those data, I'm afraid.
1LISTNUM 1 \l 14439 MR. LOWE: Picking up on your observation ‑‑ and I think you said it's trite that what works in one market might not work in another ‑‑ perhaps we could turn to Tab 10.
1LISTNUM 1 \l 14440 This is a press release entitled "EU Considers Telecom Super Regulator". I would like to turn you to the second page, if I could.
1LISTNUM 1 \l 14441 MR. BRISBY: I see the document. I'm not exactly sure what the source of the document is.
1LISTNUM 1 \l 14442 Is it a press release or a press article?
1LISTNUM 1 \l 14443 MR. LOWE: It's a press article.
1LISTNUM 1 \l 14444 MR. BRISBY: Okay. And I wasn't sure what it was a press article from.
1LISTNUM 1 \l 14445 MR. LOWE: The publication?
1LISTNUM 1 \l 14446 MR. BRISBY: Yes. I saw the exhibit and I read it, but I couldn't exactly see where it was sourced from.
1LISTNUM 1 \l 14447 I'm happy to answer questions about it. I was just interested.
1LISTNUM 1 \l 14448 MR. LOWE: No, that's fair enough. I just don't have that information handy, but we can probably get that and put it on the record as part of the exhibit list, if it's helpful.
1LISTNUM 1 \l 14449 On page 2 what I was interested in was this quote from the European Commissioner of Telecommunications, Viviane Reding. This is the fourth‑last paragraph and she is reported to say:
"Functional separation will be out of the question in companies where effective competition for infrastructure already exists."
1LISTNUM 1 \l 14450 Do you see that?
1LISTNUM 1 \l 14451 MR. BRISBY: I do see that, yes.
1LISTNUM 1 \l 14452 MR. LOWE: "But where effective
infrastructural competition has little prospect of taking root over the medium to long term, national regulators could, in close agreements with the Commission, make use of this new remedial measure."
1LISTNUM 1 \l 14453 Do you see that?
1LISTNUM 1 \l 14454 MR. BRISBY: I see that as well. I think it is an interesting quotation, isn't it.
1LISTNUM 1 \l 14455 MR. LOWE: Does that sound like something that the European Commissioner might say?
1LISTNUM 1 \l 14456 MR. BRISBY: I don't know. I'm seeing her on Wednesday. I'll ask her.
‑‑‑ Laughter / Rires
1LISTNUM 1 \l 14457 MR. BRISBY: I think the interesting piece here is what this phrase "effective competition for infrastructure" means.
1LISTNUM 1 \l 14458 In the countries that have looked at functional separation, it has obviously been looked at in the U.K. and it has been implemented in the U.K. The U.K. by European standards has fairly high levels of cable penetration, levels of homes passed by digitally enabled cable; other countries in Europe not so much.
1LISTNUM 1 \l 14459 A country like The Netherlands, for example, is unusual. It has more cable coverage than the U.K.
1LISTNUM 1 \l 14460 In The Netherlands they looked very hard at functional separation ‑‑ well, they looked at functional separation and ultimately decided not to go for it.
1LISTNUM 1 \l 14461 They have done it in New Zealand as well, which is a country without much cable coverage.
1LISTNUM 1 \l 14462 But the U.K. is kind of in the middle and, of course, it is important to note that functional separation and the Offcom measures applied equally in areas with cable coverage and in areas without.
1LISTNUM 1 \l 14463 MR. LOWE: Well, maybe we could flip to Tab 13, which is a press release of the European Commission, and it is entitled "Two‑speed broadband: Europe underlines regulatory problems to be addressed through reform."
1LISTNUM 1 \l 14464 Do you see that?
1LISTNUM 1 \l 14465 MR. BRISBY: I see that, yes.
1LISTNUM 1 \l 14466 MR. LOWE: And it starts out in the bolded headnote, second sentence:
"Lack of competition and regulatory weaknesses are cited as the main obstacles to broadband growth." (As read)
1LISTNUM 1 \l 14467 And then it goes down, I think, to your point in the third last paragraph, last sentence:
"In the best performing countries, Denmark (37.2 percent) and the Netherlands (31 percent), roughly one‑third or more of the population has broadband with a substantial proportion using an infrastructure other than the incumbents." (As read)
1LISTNUM 1 \l 14468 And that is your point, that the Netherlands has more cable coverage than the U.K. and they have that head‑to‑head infrastructure competition?
1LISTNUM 1 \l 14469 MR. BRISBY: Well, that is not my point exactly. The Netherlands, of course, has benefited from regulation of local loop unbundling as well. In fact, they have benefited from ‑‑ so they have therefore benefited from multi‑platform competition.
1LISTNUM 1 \l 14470 I think everyone thinks that lots and lots of competing access networks is a great idea. It is a question of how realistic it is to expect people to build them.
1LISTNUM 1 \l 14471 So the Netherlands, for example, which has pretty high population density, I think certainly substantially higher than Canada, probably quite a lot higher than the U.K., does have quite high cable coverage but it has benefited also from competition through local loop unbundling as well.
1LISTNUM 1 \l 14472 MR. LOWE: Well, in the U.K., has BT made any movements towards bringing fiber to the home yet?
1LISTNUM 1 \l 14473 MR. BRISBY: Yes, they have built out in Ebbsfleet and Kent, which will deliver fiber to the premises to something like ‑‑ I am talking off the top of my head but I think it is something like 20,000 premises there.
1LISTNUM 1 \l 14474 MR. LOWE: And those are new areas, not existing areas?
1LISTNUM 1 \l 14475 MR. BRISBY: That is a new development, yes.
1LISTNUM 1 \l 14476 MR. LOWE: Yes.
1LISTNUM 1 \l 14477 And then perhaps you could turn to Tab 12, which is Dr. Crandall's evidence.
1LISTNUM 1 \l 14478 MR. BRISBY: This is the TELUS supplementary material; is that right?
1LISTNUM 1 \l 14479 MR. LOWE: That is right and it is page 13 I was interested in.
1LISTNUM 1 \l 14480 MR. BRISBY: Just bear with me while I rearrange my papers slightly.
1LISTNUM 1 \l 14481 Page ‑‑ which one, sorry?
1LISTNUM 1 \l 14482 MR. LOWE: Thirteen.
1LISTNUM 1 \l 14483 MR. BRISBY: Yes, I have that.
1LISTNUM 1 \l 14484 MR. LOWE: And paragraph 28:
"Rather than increase its spending on its network significantly, BT has recently announced a $2.5 billion pound buyback of its stock over the next two years." (As read)
1LISTNUM 1 \l 14485 Do you see that?
1LISTNUM 1 \l 14486 MR. BRISBY: Yes, I see that.
1LISTNUM 1 \l 14487 MR. LOWE: And is that stock buyback program of BT still going on?
1LISTNUM 1 \l 14488 MR. BRISBY: I don't know about the stock buyback program, I am afraid.
1LISTNUM 1 \l 14489 MR. LOWE: All right. Well then, in your evidence on page 12, and this is your original evidence, and it is the second sentence, and I am just trying to clarify something. It says:
"We understand that in Canadian price‑setting exercises an allowance is made for a 'profit' at 15 percent." (As read)
1LISTNUM 1 \l 14490 I was wondering where you gained that understanding, that under the Canadian price‑setting exercise there is a profit at 15 percent.
1LISTNUM 1 \l 14491 MR. BRISBY: Well, I certainly don't claim to be an expert on Canadian regulation directly. I gained that knowledge through my discussions with MTS Allstream.
1LISTNUM 1 \l 14492 MR. LOWE: Oh! So the company would have provided you with that information?
1LISTNUM 1 \l 14493 MR. BRISBY: That is right.
1LISTNUM 1 \l 14494 MR. LOWE: Thank you.
1LISTNUM 1 \l 14495 Well, with that, perhaps I could turn to the company witnesses. Thank you, Mr. Brisby.
1LISTNUM 1 \l 14496 MR. BRISBY: Thank you.
1LISTNUM 1 \l 14497 MR. LOWE: Good morning, panel. We will start with some meet‑and‑greet questions.
1LISTNUM 1 \l 14498 I provided with you under Tab 15 some equity research on MTS.
1LISTNUM 1 \l 14499 Do you have that?
1LISTNUM 1 \l 14500 MR. MOONEY: Yes.
1LISTNUM 1 \l 14501 MR. LOWE: Just to kind of get a sense of who you are, MTS has a market cap of about $3.2 billion; is that right?
1LISTNUM 1 \l 14502 MR. MOONEY: Yes.
1LISTNUM 1 \l 14503 MR. LOWE: And then the enterprise business is about a quarter of that amount?
1LISTNUM 1 \l 14504 MR. MOONEY: In terms of value, that could be right. I am not sure.
1LISTNUM 1 \l 14505 MR. LOWE: Okay. Well, if we turn to page 22 of the document, Exhibit 17 ‑‑ this isn't a CRTC exhibit, it is just entitled Exhibit 17 in the document ‑‑ it has the consumer less wireless value at $1.7 billion, enterprise at $850 million and wireless at $1.239 billion.
1LISTNUM 1 \l 14506 Do you see that?
1LISTNUM 1 \l 14507 MR. MOONEY: Yes, but just to be clear, this is an analyst document, it is not a document that is put out by our company. It is based on whoever the author of the report's views are relative to our financial performance and what we do and what their prospects or their view of the prospects of the company going forward.
1LISTNUM 1 \l 14508 So I am not in a position to say that I agree or disagree with what this individual's views are on our valuation.
1LISTNUM 1 \l 14509 MR. LOWE: No, and I am not trying to get it down to the penny but just rough and ready about a quarter of the asset value of MTS Allstream is the enterprise business; is that reasonable?
1LISTNUM 1 \l 14510 MR. MOONEY: Well, I just said I am not sure I am prepared to say that. That is what this report is saying. I am prepared to say that that is what is on that page 22.
1LISTNUM 1 \l 14511 But in terms of the value, we look at it ‑‑ perhaps we look at it differently, that is all I am saying.
1LISTNUM 1 \l 14512 MR. LOWE: Perhaps we could turn to page 2 of the document then and this is under the heading "Investment Thesis."
1LISTNUM 1 \l 14513 The heading is "FCF..." ‑‑ that is free cash flow, I take it ‑‑ "...generation and a hefty dividend."
1LISTNUM 1 \l 14514 Do you see that?
1LISTNUM 1 \l 14515 MR. MOONEY: Sorry, just ‑‑ yes, on page ‑‑ sorry, which page?
1LISTNUM 1 \l 14516 MR. LOWE: Page 2.
1LISTNUM 1 \l 14517 MR. MOONEY: Page 2, yes.
1LISTNUM 1 \l 14518 MR. LOWE: Right at the top of the page.
1LISTNUM 1 \l 14519 MR. MOONEY: Yes.
1LISTNUM 1 \l 14520 MR. LOWE: And is that still essentially the investment story in MTS or are you saying this is just the view of the analyst?
1LISTNUM 1 \l 14521 MR. MOONEY: Yes. I don't use the word "hefty" whenever I talk about our company under any sense. That is this person's view of our dividend.
1LISTNUM 1 \l 14522 I would like to think that our dividend is reasonable and I would suggest if you want a good definition of our dividend you should talk to our shareholders.
1LISTNUM 1 \l 14523 MR. LOWE: Thank you.
1LISTNUM 1 \l 14524 MR. MOONEY: They would probably tell you it is very reasonable as well.
1LISTNUM 1 \l 14525 MR. LOWE: Thanks.
1LISTNUM 1 \l 14526 And then maybe we could turn to page 12 and that has a bit of an analysis of Allstream.
1LISTNUM 1 \l 14527 Under the heading "Allstream was acquired in 2004 for $1.6 billion," do you see that?
1LISTNUM 1 \l 14528 MR. MOONEY: Yes.
1LISTNUM 1 \l 14529 MR. LOWE: And then it says that:
"MTS amalgamated three operating divisions, MTS Communications, MTS Media and Allstream Corp., to form a new company under the name MTS Allstream Inc." (As read)
1LISTNUM 1 \l 14530 And then below that:
"The Enterprise Solution Division operates under the Allstream brands nationally and is a leader in business and wholesale markets." (As read)
1LISTNUM 1 \l 14531 Do you see that?
1LISTNUM 1 \l 14532 MR. MOONEY: Yes, I see that.
1LISTNUM 1 \l 14533 MR. LOWE: I would like to just focus in on the Enterprise Solutions Division for a moment.
1LISTNUM 1 \l 14534 I take it that is ‑‑ the space the Enterprise Solutions Business is in is wholesale and enterprise?
1LISTNUM 1 \l 14535 MR. MOONEY: Yes, wholesale, enterprise mid‑market.
1LISTNUM 1 \l 14536 MR. LOWE: Okay. And then it says in the paragraph above:
"Allstream continues to transition from legacy business issues." (As read)
1LISTNUM 1 \l 14537 It says:
"The company currently has a roughly 8‑10 percent market share across Canada but with a larger concentration of this in Toronto, roughly a 20 percent share." (As read)
1LISTNUM 1 \l 14538 Do you see that?
1LISTNUM 1 \l 14539 MR. MOONEY: Yes, I see that.
1LISTNUM 1 \l 14540 MR. LOWE: Does that sound about right or...?
1LISTNUM 1 \l 14541 MR. MOONEY: Yes, that sounds about right.
1LISTNUM 1 \l 14542 MR. LOWE: And the analysis probably would have gained that understanding through discussions with the company?
1LISTNUM 1 \l 14543 MR. MOONEY: Yes or on our quarterly investor call, something like that, sure.
1LISTNUM 1 \l 14544 MR. LOWE: Okay.
1LISTNUM 1 \l 14545 And then under this heading, the second last paragraph on the page:
"The strategy going forward..." (As read)
1LISTNUM 1 \l 14546 And again, this is the enterprise business, I take it.
"...is for a more market‑focused strategy that highlights Allstream's high capacity network..." (As read
1LISTNUM 1 \l 14547 And that is this 24,000‑kilometre network, I take it.
"...and also its superior customer focus." (As read)
1LISTNUM 1 \l 14548 Do you see that?
1LISTNUM 1 \l 14549 MR. MOONEY: Yes.
1LISTNUM 1 \l 14550 MR. LOWE: And so the value proposition that you have is your network and your customer focus, right?
1LISTNUM 1 \l 14551 MR. MacDONALD: It is much more than that. I mean, certainly we would say it is a mix that includes the fact that we have we believe a very competitive service offering. For example, we believe that we have got the best MPLS service offering in Canada which, in large measure, is due to the fact that we have been able to use CDN and other alternative access arrangements that actually support access to that network.
1LISTNUM 1 \l 14552 Along with that, we think we are more of a human scale company relative to the competition. So we think that we can move a little bit more quickly in terms of responding to the various needs in the marketplace. And at the end of the day, we like to use our people as probably the best measure in terms of differentiation. And we measure and we ask our customers about that, and they think that we do have people that actually listen to what their problems are and develop solutions for those problems.
1LISTNUM 1 \l 14553 MR. LOWE: Thank you. And then turning the page to page 13, and the third last paragraph from the bottom it says:
"On December 13, 2006 MTS announced the completion of a strategic review and related business plans. As part of this review, MTS announced a key priority going forward will be to increase cash distributions to shareholders. More specifically, MTS plans to distribute 70 to 80 per cent of its annual distributable cash flow." (As Read)
1LISTNUM 1 \l 14554 Do you see that?
1LISTNUM 1 \l 14555 MR. MOONEY: Yes.
1LISTNUM 1 \l 14556 MR. LOWE: Now, this is clearly the analyst's view, but is that still the company's strategic plan?
1LISTNUM 1 \l 14557 MR. MOONEY: As far as I know, it is, yes.
1LISTNUM 1 \l 14558 MR. LOWE: Thank you. And turning to page 14, this is the second paragraph from the bottom:
"Tax yields through to 2014 has a value in DCF."
And it says:
"With the acquisition of Allstream in June 2004 MTS has eliminated cash taxes on earnings as a result of utilizing tax losses from Allstream." (As Read)
1LISTNUM 1 \l 14559 And I take it that tax yield will be effective until 2014, is the current thinking in any event? Is that right?
1LISTNUM 1 \l 14560 MR. MOONEY: Well, I don't know if there is anything that has changed since recently on that. But to my knowledge, yes, it was somewhere in the 2013, 2014 timeframe.
1LISTNUM 1 \l 14561 MR. LOWE: Okay. And ‑‑
1LISTNUM 1 \l 14562 MR. MOONEY: I am sorry, what was that?
1LISTNUM 1 \l 14563 MR. LOWE: No, that is fine, I was just waiting for you.
1LISTNUM 1 \l 14564 And all other things being equal, if you are not taxable you are less sensitive to the incentives in the income tax system to invest, isn't that right?
1LISTNUM 1 \l 14565 MR. MOONEY: I wouldn't say that at all. In fact, we are very aware of what is available under the Income Tax Act and we take advantage of it. Specifically, if you are talking about R&D tax credits, we invest in a lot of things that are eligible for those tax credits, irrespective of our cash tax position.
1LISTNUM 1 \l 14566 MR. MacDONALD: The other thing too, is when you look at the return to shareholders, either via dividends or share buybacks. The share buybacks are actually funded through discreet transactions such as the sale of our directory business, et cetera.
1LISTNUM 1 \l 14567 It has no impact on our capital expenditures relative to ‑‑ so, for example, running the enterprise operating division, if anything, my Cap‑ex over the past few years has gone up. So there is nothing to do with saying that what we are doing is returning this money to the shareholders and starving for capital. I don't see that at all. As a matter of fact, we continue to invest in our core network in terms of new services.
1LISTNUM 1 \l 14568 And once again to reiterate, a large part of that investment is actually fuelled by virtue of the fact that we have cost effective access to our customers. And as far as dividend policy, the dividend policy is dictated, to a large measure, by exactly what our shareholders expect relative to the risk profile of our company compared to alternative investment opportunities that they might have.
1LISTNUM 1 \l 14569 But to suggest that we are not spending money on network is not the reality. And to suggest that we would take the money that was going to dividends or share buybacks and invest in network that was uneconomic, I mean, that does just doesn't hunt. I mean, to take money that is being generated by the business and investing it in uneconomic approaches is not going to work. I mean, we have tried that, we have invested $4 billion in our history in trying to do that and trying to replicate the incumbent networks and that doesn't happen.
1LISTNUM 1 \l 14570 MR. LOWE: All right. Well, you see the tax‑free status until 2014 as an advantage then, it gives you more cash flow and you have more spending money, is that what you are saying?
1LISTNUM 1 \l 14571 MR. MacDONALD: I wasn't commenting directly in terms of the tax status of the company. It is part of the overall investment profile of the company in terms of whether we are paying taxes or not. In terms of whether it constrains, we think it constrains our ability to invest in capital, absolutely not the case.
1LISTNUM 1 \l 14572 As a matter of fact, one of the things as we continue to invest in capital, we do generate the capital cost allowance and capital cost allowances, you know, we can actually use in terms of deferring taxes in the future as well, like everybody else does, like our competitors.
1LISTNUM 1 \l 14573 MR. LOWE: Oh sure, sure. And the depreciation, the CCA that you get from investing you can use it, but you can't use it until after 2014, right, so you ‑‑
1LISTNUM 1 \l 14574 MR. MacDONALD: Yes, but you can use it though.
1LISTNUM 1 \l 14575 MR. LOWE: You can use it eventually. So it is not as sharp as an incentive?
1LISTNUM 1 \l 14576 MR. MacDONALD: It is not as sharp. But it doesn't, in terms of our decision to deploy capital and investing in network, I can't recall any decision that we have taken in terms of putting together a profile in terms of capital investment that would take that directly into account.
1LISTNUM 1 \l 14577 MR. LOWE: So the tax tail doesn't wag the business in other words?
1LISTNUM 1 \l 14578 MR. MOONEY: No, not at all, because basically the metric that everybody looks at in the telecommunications industry is the EBITDA metric, which is your operating cash flow before tax. And it is out of that operating cash flow that you find your capital program. So tax doesn't even come into the calculation.
1LISTNUM 1 \l 14579 MR. LOWE: All right. And so these ‑‑
1LISTNUM 1 \l 14580 MR. MOONEY: Which is really one of the inconsistencies or one of the issues when you read a report like this. You know, as Mr. MacDonald pointed out previously, the buyback program that is referred to in here was the result of a business review that was conducted by ‑‑ MTS started a couple of years ago that lead to the disposal of some non‑core assets that the company no longer needed and the decision was made to return that money to shareholders.
1LISTNUM 1 \l 14581 To my knowledge, it has been done at Bell and it has been done at TELUS in the past as well. So I don't understand why it plays into this discussion at all.
1LISTNUM 1 \l 14582 MR. LOWE: Well, on page 21 of the document, in the second‑last paragraph or even the middle of the paragraph, it says:
"Second, we value the Allstream EBITDA.."
as you say, that is the major metric for telecom investors,
"..at five times, which is a slight premium to valuations in the enterprise telco space which appear to be closer to 4.5 times currently. However, we believe that MTS has some room on executing its strategy with Allstream to argue that a conservative multiple on 2008 EBITDA might not adequately reflect value." (As Read)
1LISTNUM 1 \l 14583 Do you see that?
1LISTNUM 1 \l 14584 MR. MacDONALD: One of the issues, of course, when I read this is, and this is this analyst's opinion, as Mr. Mooney has said, I don't know who else they are referring to to end up with a comparable, because there is very few of us actually in this space.
1LISTNUM 1 \l 14585 You know, when I look at the number of folks outside from Bell and TELUS that actually could justify this kind of multiple I don't know who it would be.
1LISTNUM 1 \l 14586 MR. LOWE: Well, first, does that multiple sound about right for this kind of business?
1LISTNUM 1 \l 14587 MR. MOONEY: I would say that this multiple is this person's opinion. I don't really want to comment on whether I agree with it or not, I don't know. It is his opinion, I would have to understand how this person came up with that multiple.
1LISTNUM 1 \l 14588 MR. LOWE: And then could you comment on whether it is a premium to others in the space or do you just say that you just don't know, you don't know what the comparables are ‑‑
1LISTNUM 1 \l 14589 MR. MOONEY: You know, I don't know the basis that this individual who wrote this report came up with this multiple. You know, perhaps if I sat and talked to the person then I could understand where they are coming from, but right now I don't.
1LISTNUM 1 \l 14590 MR. LOWE: All right, that is fair enough.
1LISTNUM 1 \l 14591 MR. MacDONALD: And it is somewhat speculative, because if you could find a pure play I suppose of the enterprise space you might have something that you could benchmark against. But once again, there is not many of us left in the enterprise space.
1LISTNUM 1 \l 14592 MR. SHEPPARD: I think I would suggest as well this is one analyst. There is probably a dozen analysts and they all have their own views and a range, I am not sure what the range on the enterprise valuation is, but you would have to look at the full range and then probably some are high and some are low and you would have to form your own conclusion as an investor.
1LISTNUM 1 \l 14593 MR. LOWE: All right. Now, turning to tab 16, and this is moving onto the discussion of that Newfoundland cable facility that has been raised a couple of times in the proceeding. And tab 16 is Decision 2005‑16, it is a CRTC decision issued back in March of 2005 before the TPR report came out, before the policy direction was issued. And one of the main issues in that case was whether Aliant's submarine fibre optics line from Halifax to St. John's was an essential facility under the 97‑8 test.
1LISTNUM 1 \l 14594 And if you look at paragraph 29 of the decision it says:
"Call‑Net argued that Aliant Telecom's IX digital transport facility between Halifax and St. John's met all the conditions of an essential facility.." (As Read)
and then it goes on and it cites the three requirements. Do you see that?
1LISTNUM 1 \l 14595 MR. MacDONALD: Yes, we do.
1LISTNUM 1 \l 14596 MR. LOWE: And that test set out by Call‑Net is essentially the test established by Commission in Decision 97‑8?
1LISTNUM 1 \l 14597 MS GRIFFIN‑MUIR: Yes, that is correct.
1LISTNUM 1 \l 14598 MR. LOWE: In paragraph 23 of the decision:
"MTS Allstream supported Call‑Net's position that competitors would be unable to economically duplicate the facility in question, given the significant costs of construction and limited demand." (As Read)
1LISTNUM 1 \l 14599 Do you see that?
1LISTNUM 1 \l 14600 MR. MacDONALD: Yes.
1LISTNUM 1 \l 14601 MR. LOWE: And then paragraphs 48 and 49, the CRTC denied the application, they looked at other submarine builds and took the view that a new IX line would be economically feasible and they said that it is not an essential facility. Do you see that?
1LISTNUM 1 \l 14602 MR. MacDONALD: Yes, we do. And, by the way, I still hold to the comments that we made in terms of it being not economic.
1LISTNUM 1 \l 14603 The circumstance under which the facility was built was unusual, insofar as you ended up with a situation where three companies actually came together along with a government subsidy that was quite significant to basically justify the expenditure.
1LISTNUM 1 \l 14604 MR. LOWE: All right. Well, let's flash forward then to 2007, today.
1LISTNUM 1 \l 14605 And I take it that a consortium of carriers and the Government of Newfoundland are going to pay some, what is it, $53‑million to build the line?
1LISTNUM 1 \l 14606 MR. MacDONALD: The actual total ‑‑ the total build I believe is on the ‑‑ just through public documents. Ron, maybe I can hand it over to you.
1LISTNUM 1 \l 14607 MR. ROUT: Yeah. The entire build, both the submarine cable and the terrestrial portions we understand is $82‑million of which 52‑, 53‑million was for the submarine portion alone.
1LISTNUM 1 \l 14608 MR. LOWE: And then the Government of Newfoundland is buying an indefeasible right of use for 15‑million; is that the way the deal works on the submarine part of it?
1LISTNUM 1 \l 14609 MR. MacDONALD: The government contributed to the tune of about $15‑million to that construction and in return for that, one of the benefits they get is I believe an IRU.
1LISTNUM 1 \l 14610 MR. ROUT: Yes, that's right.
1LISTNUM 1 \l 14611 MR. LOWE: All right. And then do you have that press release, it's Tab 17, the Government of Newfoundland press release?
1LISTNUM 1 \l 14612 MR. MacDONALD: Yes, we have it.
1LISTNUM 1 \l 14613 MR. LOWE: And let me ask you first, is this an economic project for MTS Allstream?
1LISTNUM 1 \l 14614 MR. MacDONALD: Relative to the prices we were paying to Aliant for leasing that facility, absolutely.
1LISTNUM 1 \l 14615 And, by the way, it gives you some indication of some of the difficulties that we're faced with in terms of looking at, you know, a more cost effective reach to 'The Rock', as we call it.
1LISTNUM 1 \l 14616 And I only wish, if you look at generalizing this kind of approach to the rest of the marketplace, that we would end up with a situation that in servicing the needs of our customers we coincidentally would have two other partners as well as government money to assist in the deployment of network.
1LISTNUM 1 \l 14617 MR. LOWE: Well, let's talk about the government money for a moment. And in the press release, this is a news release of the Government of Newfoundland dated August 27th, 2007, the third last paragraph:
"Based on an external independent assessment by EWA, it is conservatively estimated that the Province will recover its investment within five years through cost savings on current and future telecommunications contracts." (As read)
1LISTNUM 1 \l 14618 Do you see that?
1LISTNUM 1 \l 14619 MR. MacDONALD: Yeah.
1LISTNUM 1 \l 14620 MR. LOWE: And so I don't think the Government of Newfoundland would agree with you that this was a subsidy?
1LISTNUM 1 \l 14621 MR. MacDONALD: The government had a complex mix in terms of looking at their participation in this. One of the issues that they had was a survivability issue, like a diversity in terms of there was some incidents that had occurred, unfortunately, in terms of the existing networks that was driving this.
1LISTNUM 1 \l 14622 There was also a concern that, you know, perhaps the prices were too high relative to the cost of accessing Newfoundland and perhaps that was constraining economic development.
1LISTNUM 1 \l 14623 They were getting a fair bit of pressure in terms of various services and about how they were priced in Newfoundland versus other areas.
1LISTNUM 1 \l 14624 And from our standpoint, we looked at simply the costs that we were paying to Aliant versus the opportunity to participate.
1LISTNUM 1 \l 14625 Now, if we were doing this individually, or Persona was doing it individually ‑‑ now East Link ‑‑ or Rogers was doing it individually, this would not have happened.
1LISTNUM 1 \l 14626 But it just so happened that we had the unique alignment to the stars that allowed us to actually participate, all four parties, in terms of getting it constructed.
1LISTNUM 1 \l 14627 And the interesting thing is that it seems that since it was constructed, in our just some recent negotiations with Aliant that the price points magically seem to have dropped on what the cost to get to Newfoundland actually has been.
1LISTNUM 1 \l 14628 Ron, maybe you could talk to that.
1LISTNUM 1 \l 14629 MR. ROUT: Yeah, that's right.
1LISTNUM 1 \l 14630 You know, post ‑‑ even before the build is complete we've seen action that would suggest at least 20 per cent drop in the price for that route.
1LISTNUM 1 \l 14631 The other thing that's really important to us, I mean, the Newfoundland build for us was sort of, from our perspective, a bold and significant investment.
1LISTNUM 1 \l 14632 But I want to highlight another factor which is the importance for us going forward with this build for the people of Newfoundland and those, and the cities that we can now get much closer to is, again, the requirement for us to be able to get Ethernet and other accesses at the right cost point, because even with this investment we still need to be able to get access to Ethernet in order to provide service to these customers.
1LISTNUM 1 \l 14633 MR. LOWE: Okay. Well, just back to the Government of Newfoundland's perspective, Mr. MacDonald.
1LISTNUM 1 \l 14634 And I accept that there were these other considerations that they had about economic development, but still they looked at what the pay back was and they said, "Look, we're going to get a five‑year pay back over this, it's economic", didn't they?
1LISTNUM 1 \l 14635 MR. MacDONALD: They expect that the existence of a competing build, and as I mentioned earlier is actually turning out to be the case, will result in lower prices on that particular route.
1LISTNUM 1 \l 14636 MR. LOWE: All right.
1LISTNUM 1 \l 14637 MR. MacDONALD: Now, but at the end of the day, when you look at the total volume of traffic that is actually originating and terminating in Newfoundland, is that this basically was an uneconomic build. I mean I was involved, I worked at Aliant at the time when the link went in. I mean, there was no additional requirement for capacity to the Island.
1LISTNUM 1 \l 14638 So, of the 50‑million bucks on the submarine cable in particular and the $80‑million in total, as to whether that represented a good economic deployment of investment resources, I'm not so sure that would have been the case.
1LISTNUM 1 \l 14639 The government on the other hand has a different set of requirements. They anticipate that there is going to be lower pricing in terms of accessing Newfoundland and that will have all sorts of positive economic development benefits from their standpoint, perhaps more in terms of survivability, an alternative route to the Island.
1LISTNUM 1 \l 14640 All of those went into their decision, but I can't speak directly in terms of what their expectations are, I can only assume based on their particular quote.
1LISTNUM 1 \l 14641 MR. LOWE: All right. And, but what happened was a bunch of carriers got together and on the circumstances of the Aliant prices that were being charged, it was an economic investment with the Government of Newfoundland?
1LISTNUM 1 \l 14642 MR. MacDONALD: Only in the context of looking at what we were paying.
1LISTNUM 1 \l 14643 MR. LOWE: Yes, yes, yes. Agreed.
1LISTNUM 1 \l 14644 And then, of course, now that there are two lines there, it's easier for other folks to get over to 'The Rock' too; isn't it?
1LISTNUM 1 \l 14645 MR. MacDONALD: When you say easier, I'm not sure what you mean.
1LISTNUM 1 \l 14646 MR. LOWE: Less expensive perhaps.
1LISTNUM 1 \l 14647 MR. MacDONALD: Well, at the end of the day this is typically what happens, is that you end up with ‑‑ basically you price to the market. So, a lot depends on upon how this ‑‑ it's still early days, actually the service I don't believe, Ron, is actually in operation quite yet.
1LISTNUM 1 \l 14648 MR. LOWE: All right. Now, I don't know if I really want to get mired down in this particular question, I'm just going to put it to you that if the CRTC had applied your test for an essential facility back in 2005, they probably would have declared the Aliant line to be an essential facility; right?
1LISTNUM 1 \l 14649 MR. MacDONALD: Yeah, I think it was an essential facility and it is an essential facility. It's not going to when the second route goes in place, but that's an uneconomic deployment of resources.
1LISTNUM 1 \l 14650 I don't know what it's bringing, aside from the fact that we now have a competitive route there that can result in lower prices in terms of developing a different array of network services, et cetera.
1LISTNUM 1 \l 14651 And this is our point, is that when we're looking at innovation in the telecom market space, I don't think this is moving the ball forward.
1LISTNUM 1 \l 14652 MR. LOWE: Well, let's just go through the big picture, the steps here.
1LISTNUM 1 \l 14653 Step one, the CRTC is asked to declare the Aliant line an essential facility on the grounds that it's uneconomic to duplicate. Step two, the CRTC denies the application. Step three, the market comes forward with a build; right?
1LISTNUM 1 \l 14654 MR. MacDONALD: That is ‑‑ well, I'm not sure that it all follows that particular way, but at the end of the day this is an uneconomic build and you have the convergence of four parties, including public money, to subsidize the deployment of an uneconomic facility that's driven by high prices.
1LISTNUM 1 \l 14655 MR. LOWE: All right. Well, you say it's an uneconomic facility, but it's economic for all the investors; isn't it?
1LISTNUM 1 \l 14656 MR. MacDONALD: Only relative to the extremely high prices, exorbitant prices that were being charged by the incumbent.
1LISTNUM 1 \l 14657 MR. LOWE: All right. Well, I'm going to ‑‑
1LISTNUM 1 \l 14658 MR. MacDONALD: That I used to work for, by the way, but...
1LISTNUM 1 \l 14659 MR. LOWE: I'm going to end up doing it. Did you price it?
‑‑‑ Laughter / Rires
1LISTNUM 1 \l 14660 MR. LOWE: The CRTC holds true to the essential facilities test, the market finds a solution, plans get built, there's more opportunities for other folks to get in on the wholesale market.
1LISTNUM 1 \l 14661 Isn't the future friendly, Mr. MacDonald?
1LISTNUM 1 \l 14662 MR. MacDONALD: But I wish ‑‑ I kind of wish you could generalize this. I mean, if it turned out that for, you know, all of the various ‑‑ our access requirements across the country that there happened to be, you know, in going to, you know, whether it's retail outlets or bank branches, whether we happen to have, you know, multiple investors and government money that was supporting the deployment of last mile access into those facilities, I don't think I'd be sitting here.
1LISTNUM 1 \l 14663 MR. LOWE: All right. So, there's only so far we can take the parable of Newfoundland you say. That's fair enough.
1LISTNUM 1 \l 14664 THE CHAIRPERSON: If I understand you correctly, the Government of Newfoundland investment was incremental. Without that 50‑million the line would not have been built?
1LISTNUM 1 \l 14665 MR. MacDONALD: Well, the line was primed by Persona.
1LISTNUM 1 \l 14666 THE CHAIRPERSON: Yes.
1LISTNUM 1 \l 14667 MR. MacDONALD: And Rogers and ourselves were participants in this.
1LISTNUM 1 \l 14668 But, you know, thinking back to some of the deliberations ‑‑
1LISTNUM 1 \l 14669 THE CHAIRPERSON: No, but as a former government lawyer, you know, normally government doesn't put in money unless it determines to its own satisfaction that this will not go forward without the government contribution.
1LISTNUM 1 \l 14670 MR. MacDONALD: And I think that's a fair assessment.
1LISTNUM 1 \l 14671 THE CHAIRPERSON: On its own it's not economic, and that is what you are saying here, that is what happened here.
1LISTNUM 1 \l 14672 MR. MacDONALD: Yes, I think that's a fair assessment.
1LISTNUM 1 \l 14673 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 14674 MR. LOWE: Well, on that point, did you ask TELUS if they wanted to invest in the line?
1LISTNUM 1 \l 14675 MR. MacDONALD: It wasn't up to us to do the asking because Persona actually owns the facility, and so...
1LISTNUM 1 \l 14676 MR. LOWE: Because they're the operator?
1LISTNUM 1 \l 14677 MR. MacDONALD: Pardon me?
1LISTNUM 1 \l 14678 MR. LOWE: They're the operator?
1LISTNUM 1 \l 14679 MR. MacDONALD: That's correct.
1LISTNUM 1 \l 14680 MR. LOWE: And do you know if TELUS was asked?
1LISTNUM 1 \l 14681 MR. MacDONALD: I honestly don't know. I know that TELUS was in that cross‑section obviously, but I'm not sure whether TELUS specifically was asked.
1LISTNUM 1 \l 14682 MR. LOWE: All right. Now, I'd like to turn now ‑‑
1LISTNUM 1 \l 14683 MS GRIFFIN‑MUIR: But just in respect of that, the SFT referred to in this decision, that generates some million annually, TELUS actually got a different SFT because we did actually ask TELUS if they wanted to sublease on this SFT and Aliant offered them something better.
1LISTNUM 1 \l 14684 So, I think that had a lot to do with whether TELUS participated or not.
1LISTNUM 1 \l 14685 MR. LOWE: And, so, are you saying you saw this SFT that TELUS got and you got miffed and you didn't invite them at the table ‑‑
1LISTNUM 1 \l 14686 MS GRIFFIN‑MUIR: No, no, no, no.
1LISTNUM 1 \l 14687 MR. LOWE: ‑‑ and they were on the other side of the candy store looking in, is that ‑‑
1LISTNUM 1 \l 14688 MS GRIFFIN‑MUIR: No, actually what I'm saying is that when we ‑‑ because we are the company that was actually leasing the facilities under the SFT ‑‑ what we had decided to make it economic for us to lease was to sublease, which we did to Call‑Net, subsequently Rogers, but in the instance where we were actually negotiating with TELUS, Aliant approached them to make sure they did not sublease from us but leased from Aliant instead, so offered them something better.
1LISTNUM 1 \l 14689 MR. LOWE: This is before the line was built?
1LISTNUM 1 \l 14690 MS GRIFFIN‑MUIR: Absolutely, because it became less economic for us to continue if Aliant wasn't going to allow us to sublease as well.
1LISTNUM 1 \l 14691 MR. LOWE: Well, it's a different story now, and if TELUS comes and wants to get on your new line, you are not going to say no, are you? You are not going to hold it against TELUS, are you?
1LISTNUM 1 \l 14692 MR. MacDONALD: Oh, no, no, absolutely. I mean, one of the issues we have got is that TELUS buys precious little from us and we buy a huge amount from them. If they were only willing to buy something from us, we would be more than willing to sell it.
1LISTNUM 1 \l 14693 MR. LOWE: Well, you got something now.
1LISTNUM 1 \l 14694 So I would like to turn now to the direction, and it's Tabs 18, 19 and 20 of the binder, and also if you have handy your opening statement. And I don't know if we will get into it, but a copy of the direction might come in handy, as well, and there is one in PIAC Exhibit No. 2.
1LISTNUM 1 \l 14695 MR. LOWE: Now, MTS Allstream was a major participant in the Telecom Policy Review process, right?
1LISTNUM 1 \l 14696 MS GRIFFIN‑MUIR: Well, we were a participant, but it's nice to think we were major.
1LISTNUM 1 \l 14697 MR. LOWE: Well, you filed a comprehensive submission and reply and you had expert evidence from Towerhouse Consulting and you had, I think, a Washington D.C. Lawyer to provide views on U.S. regulation.
1LISTNUM 1 \l 14698 Does that sound about right?
1LISTNUM 1 \l 14699 MS GRIFFIN‑MUIR: Yes, that's correct.
1LISTNUM 1 \l 14700 MR. LOWE: Thanks. And that was May 15th, 2007 those submissions were filed...or I'm sorry, 2005 those submissions were filed.
1LISTNUM 1 \l 14701 MS GRIFFIN‑MUIR: Right, okay. Yes.
1LISTNUM 1 \l 14702 MR. LOWE: Now, turning to Tab 19...and this is page 81 of your August 15th, 2005 submission to the Telecom Policy Review Panel, do you have that?
1LISTNUM 1 \l 14703 MS GRIFFIN‑MUIR: Yes.
1LISTNUM 1 \l 14704 MR. LOWE: You set out three objectives, and the second objective (b) was:
"To create and maintain conditions under which market forces can govern the provision of telecommunication services by fostering all forms of competition." (As read)
1LISTNUM 1 \l 14705 Do you see that?
1LISTNUM 1 \l 14706 MS GRIFFIN‑MUIR: Yes.
1LISTNUM 1 \l 14707 MR. LOWE: And then at the bottom of the page, you say:
"In addition, the government should use its powers of direction to require the CRTC to adopt a policy that proactively and boldly implements these objectives without fear for what form competition will take as a result." (As read)
1LISTNUM 1 \l 14708 Do you see that?
1LISTNUM 1 \l 14709 MS GRIFFIN‑MUIR: Yes. I think that's in reference to the fact that "form" meaning not only facilities‑based or end‑to‑end facilities based, not to try predetermine the nature that choice has brought to customers and innovation has brought to the market.
1LISTNUM 1 \l 14710 MR. LOWE: And so you wanted the direction to say, "To create and maintain conditions under which market forces can govern by fostering all forms of competition", that's what you wanted to see in the direction?
1LISTNUM 1 \l 14711 MS GRIFFIN‑MUIR: Well, that's what we proposed, yes.
1LISTNUM 1 \l 14712 MR. LOWE: All right. And it's fair to say that's not what came out of the Telecom Policy Review recommendations?
1LISTNUM 1 \l 14713 MS GRIFFIN‑MUIR: Well, I'm not sure that's not what came out. That's a little bit of a generalization. There's a lot that came out. Some of it we agreed with and some of it we didn't.
1LISTNUM 1 \l 14714 Certainly, the government wants to encourage competition and innovation, and certainly that's what the policy direction also says. I guess the government also came out in the policy direction that was derived from the Telecom Panel Review they want a reliance on market forces, and I guess it's, in our opinion, a question of those market forces being competitive.
1LISTNUM 1 \l 14715 So it goes to the interpretation of what is meant by "market forces", and, in our view, that's competitive market forces. So I wouldn't say in its totality that the panel report didn't ‑‑ the government didn't adopt recommendations that don't agree with what we are saying here.
1LISTNUM 1 \l 14716 MR. LOWE: All right. We can talk about this tomorrow, but it's just this "create and maintain conditions" part, I didn't see that in the TPR's proposed direction and I don't see that in the direction that was actually issued.
1LISTNUM 1 \l 14717 MS GRIFFIN‑MUIR: The precise wording, no, but obviously the direction that was issued is meant to offer choice to consumers and promote competition.
1LISTNUM 1 \l 14718 In fact, if you read the wording in the analysis and if you read some of the press releases of the industry minister at the time, I mean that's precisely what he wanted to encourage: innovation, investment and choice for customers.
1LISTNUM 1 \l 14719 MR. LOWE: Well, maybe we could turn to Tab 20, which is an excerpt from the Telecom Policy Review final report.
1LISTNUM 1 \l 14720 MR. LOWE: On the first page, second‑last paragraph, there's discussion of the two objectives, "foster increased reliance on market force" and "to enhance the competitiveness and efficiency of Canadian telecommunications"; and then the last paragraph on the page, they talk about "conflicting interpretations are frequently presented in submissions to the CRTC"; and then I want to flip over to the next page, and it says:
"The two objectives have been used to justify both a laissez‑faire approach to economic regulation and an interventionist approach to support the increased regulation of essential facilities." (As read)
1LISTNUM 1 \l 14721 Do you see that?
1LISTNUM 1 \l 14722 MS GRIFFIN‑MUIR: Actually, no, I don't. Can you tell me exactly where you are on the page?
1LISTNUM 1 \l 14723 MR. LOWE: It's page 10‑7, at the top. Tab ‑‑
1LISTNUM 1 \l 14724 MS GRIFFIN‑MUIR: In item (f)?
1LISTNUM 1 \l 14725 MR. LOWE: Item (f) is the next page. It's the page before.
1LISTNUM 1 \l 14726 MS GRIFFIN‑MUIR: Oh, okay.
1LISTNUM 1 \l 14727 MR. LOWE: It's not the text of the direction, this is just the discussion as they introduced the direction.
1LISTNUM 1 \l 14728 Do you see it?
1LISTNUM 1 \l 14729 MS GRIFFIN‑MUIR: Yes.
1LISTNUM 1 \l 14730 MR. LOWE: And so the panel is saying, Well, look, there's these objectives in the act and people have used them to justify a laissez‑faire approach to economic regulation and an interventionist approach, which supports the increased regulation of essential facilities and the deregulation of them.
1LISTNUM 1 \l 14731 And then in the next paragraph it says:
"As discussed in Chapters 2 and 3, the panel is recommending a separation of the policy objectives from the consideration of the means that can be used to achieve them. A greater reliance on market forces is the means to achieving these policy objectives and reliance on regulation only when market forces are unlikely to achieve the telecommunications policy objective within a reasonable timeframe." (As read)
And then it says:
"The panel is also recommending a decreased reliance on mandated wholesale rates for essential facilities and a decreased use of ex ante regulation of retail telecommunications' market prices and service conditions." (As read)
1LISTNUM 1 \l 14732 Do you see that?
1LISTNUM 1 \l 14733 MS GRIFFIN‑MUIR: Yes, I see that, but I think between this and the final policy direction certain amendments were made.
1LISTNUM 1 \l 14734 First, at the behest of many competitors who intervened in the consultation process that led to the ultimate policy direction, the wording of the policy direction was changed for that particular part of it that dealt precisely with this proceeding to include other considerations, in particular to look at exactly what prompts innovation and investment and to make a determination on that basis.
1LISTNUM 1 \l 14735 So between the issuance of the panel's report and the actual ultimate policy direction, there was a lot of discussion and consultation that came about and, then, ultimately, ended up in a different recommendation.
1LISTNUM 1 \l 14736 MR. LOWE: Okay, okay. Well, that kind of takes me where I was trying to get to.
1LISTNUM 1 \l 14737 The TPR Report, and I'm going to put it to you ‑‑ and I'm just talking about the TPR report, we will get to the direction later ‑‑ but the TPR report looks at the two paths you could take, an interventionist approach with increased mandated unbundling or a more laissez‑faire free‑market approach, and they unequivocally took the right path, the way I'm sitting, in any event, and said, We are going to rely on market forces to the maximum extent feasible and we are going to see a phase‑out of mandated facilities.
1LISTNUM 1 \l 14738 I hear what you are saying about that's not how you read the direction, but at least that's what the TPR report found.
1LISTNUM 1 \l 14739 MR. MacDONALD: Yes, the TPR said other things in other areas that I'm not sure everybody agrees with either, in terms of wireless competition, et cetera, but to pick and choose specifically as an input to the formulation of government policy, the TPR says what the TPR says.
1LISTNUM 1 \l 14740 What's really relevant, though, is what the ultimate policy direction that came out through the Order‑in‑Council, in terms of going forward, which is the result of other inputs to the process, as well. Respecting, of course, that we had an esteemed panel that actually came up with these recommendations, it is just one input.
1LISTNUM 1 \l 14741 MR. LOWE: All right. And then turning to your opening statement, then...and I suspect through this line of cross we will disagree on the weight that should be given the TPR recommendations in interpreting the direction, but, in any event, in your opening statement, in the fourth line, you say:
"The government's goal is to create a competitive telecommunications market in Canada." (As read)
1LISTNUM 1 \l 14742 Do you see that?
1LISTNUM 1 \l 14743 MS GRIFFIN‑MUIR: Yes.
1LISTNUM 1 \l 14744 MR. LOWE: And this "creationism" business, this seems to harken back to the objective that you had in the Telecom Policy Review submission, isn't it? I mean, aren't you talking about the same thing?
1LISTNUM 1 \l 14745 MS GRIFFIN‑MUIR: Yes, and also the policy direction speaks of creating ‑‑ or increasing incentives for innovation and investment and increasing reliance on market forces, where "market forces" can only be interpreted as competitive market forces. So that, obviously, the overriding goal has to be to have competition.
1LISTNUM 1 \l 14746 MR. LOWE: Yes, okay. Then on your opening statement still, the next paragraph, the second sentence ‑‑ this is after the words "almost 15 years ago" ‑‑ it says:
"The government's recent policy direction affirms the desire to rely as much as possible on market forces to regulate a..."
1LISTNUM 1 \l 14747 And then I didn't know "a what"? Is it regulate an ILEC, a cable company?
1LISTNUM 1 \l 14748 MS GRIFFIN‑MUIR: Actually, that's a typo but thanks for pointing that out.
1LISTNUM 1 \l 14749 It should just say "in the least interventionist manner".
1LISTNUM 1 \l 14750 MR. LOWE: Okay.
1LISTNUM 1 \l 14751 MS GRIFFIN‑MUIR: And then when it is taking into account the consideration of what is the least interventionist manner, it has to take into consideration the principles of technological and competitive neutrality, the potential for incumbents to exercise market power in the wholesale and retail markets for the services in the absence of mandated access to wholesale services and the impediments faced by new and existing carriers seeking to develop competing network facilities.
1LISTNUM 1 \l 14752 MR. LOWE: Okay. Getting back to the sentence:
"The government's recent policy direction affirms the desire to rely as much as possible on market forces to regulate..."
1LISTNUM 1 \l 14753 I mean, really, isn't the direction saying that we want to rely on market forces to the maximum extent feasible? It is not relying on market forces to regulate, is it?
1LISTNUM 1 \l 14754 MS GRIFFIN‑MUIR: Well, I think actually they say the same thing. You are talking about regulating market power to the maximum extent feasible. So to the extent that we can rely on market forces, and in particular in the downstream or retail market, because there are competing alternatives for customers, then it would regulate the market power of the incumbent service providers.
1LISTNUM 1 \l 14755 MR. LOWE: So you interpret the direction to say rely on market forces to the maximum extent feasible to regulate, in order to achieve competition.
1LISTNUM 1 \l 14756 Is that right?
1LISTNUM 1 \l 14757 MS GRIFFIN‑MUIR: Yes ‑‑ well, to regulate market forces as opposed to having the Commission regulate in the downstream.
1LISTNUM 1 \l 14758 So what we are suggesting is that if you have a robust essential facilities or wholesale regime coming out of this proceeding, that regime will be able to discipline market forces to the extent possible, such that in the downstream or retail market customers will have choice. There will be the proper incentives for continuing investment from competitors.
1LISTNUM 1 \l 14759 THE CHAIRPERSON: You mentioned before that there was typo in the sentence.
1LISTNUM 1 \l 14760 I actually thought the sentence was supposed to read "to rely as much as possible on market forces and" ‑‑ the word "and" is missing ‑‑ "and to regulate in a least interventionist manner".
1LISTNUM 1 \l 14761 Isn't that what you meant to say?
1LISTNUM 1 \l 14762 MS GRIFFIN‑MUIR: Yes.
1LISTNUM 1 \l 14763 THE CHAIRPERSON: As counsel pointed out, market forces don't regulate. The sentence doesn't make sense then.
1LISTNUM 1 \l 14764 Therefore, I assumed there was an "and" missing between those two words.
1LISTNUM 1 \l 14765 MS GRIFFIN‑MUIR: Yes, you could read it that way.
1LISTNUM 1 \l 14766 MR. LOWE: Let's go back to the Telecommunications Policy Review Panel Final Report, Tab 20, page 3‑36.
1LISTNUM 1 \l 14767 This is this Recommendation 3‑19 made by the panel.
1LISTNUM 1 \l 14768 It says:
"The regulatory framework should continue to require owners of essential wholesale facilities to make them available to competitors at regulated wholesale rates. Regulatory requirements to provide non essential wholesale services or facilities should be phased out in order to provide increased incentives for innovation, investment and more widespread construction of competing network facilities."
1LISTNUM 1 \l 14769 Do you see that?
1LISTNUM 1 \l 14770 MS GRIFFIN‑MUIR: Yes.
1LISTNUM 1 \l 14771 MR. LOWE: In the context here, the TPR panel is talking about essential facilities as defined in Decision 97‑8.
1LISTNUM 1 \l 14772 Is that how you read that part?
1LISTNUM 1 \l 14773 MS GRIFFIN‑MUIR: Just beneath there, yes.
1LISTNUM 1 \l 14774 MR. LOWE: I would like to get your views on the top paragraph on page 3‑36. This is where they introduce this recommendation to phase out non essential facilities, phase out the mandated access to non essential facilities.
1LISTNUM 1 \l 14775 It says:
"The panel recognizes that a broader scope of mandated wholesale access may reduce barriers to entry in the market for services or applications. This may result in more innovation at the service and applications layer by allowing for more market participants and by creating pressure for the timely introduction of new technologies."
1LISTNUM 1 \l 14776 And then it goes on:
"However, these benefits may be outweighed by the dramatic reduction in competition at the physical and network layers. Further, in the long run, innovation at the service or application layers may depend on capabilities and innovations at the physical or network layers and continuation of significant market power at these levels may impede innovation at higher layers as well. A broad scope of mandated wholesale access may thus undermine long run opportunities and incentives for innovation at all levels."
1LISTNUM 1 \l 14777 Do you see that?
1LISTNUM 1 \l 14778 MR. MacDONALD: I see it but I disagree with it.
1LISTNUM 1 \l 14779 One of the issues that we are faced with is it's kind of a theoretical discussion. I think I understand the argument that is being used here, but the practical reality of the situation is to suggest that in many cases, particularly for not just the existing definition of essential services but for next generation essential services that are required to deploy services into the Enterprise space, that competing networks are going to be built or alternative sources of supply will exist is ludicrous.
1LISTNUM 1 \l 14780 The situation ‑‑ and I will use the example of last week where we had a financial institution with a thousand branches, and just the cost to deploy ‑‑
1LISTNUM 1 \l 14781 MR. LOWE: Was that CIBC, by the way?
1LISTNUM 1 \l 14782 MR. MacDONALD: Don't I wish. Don't I wish.
1LISTNUM 1 \l 14783 No. It's a much more enlightened financial institution that selected us as the service provider.
1LISTNUM 1 \l 14784 When we looked at the cost to actually deploy to all of those 1,050 branches, it was $2.3 billion in a 236‑year payback interval at the market based rates.
1LISTNUM 1 \l 14785 And do you know what I'm really concerned about? The next time that contract comes up for renewal, where the customer is going to be looking for higher and higher speed services, is that we are not going to be able to participate in that particular piece of business.
1LISTNUM 1 \l 14786 Now this academic argument that we are going to magically be able to justify the deployment of uneconomic facilities across the country, it ain't going to happen.
1LISTNUM 1 \l 14787 We tried that: at least $4 billion worth of assets in terms of trying to replicate the local access network that our company has spent, having gone through a CCAA and restructuring and managed to survive that and come out of it quite strong.
1LISTNUM 1 \l 14788 But what really fuels investment ‑‑ and the TPR report is talking about at the application and service level. Ultimately, that is going to be the real source of innovation for Enterprise customers. But it is a necessary condition that we have cost effective access to all of the various serving points within that network.
1LISTNUM 1 \l 14789 MR. LOWE: Well, I see you had a productive weekend.
1LISTNUM 1 \l 14790 Back to your opening statement, on page 2 you set out the facts. As I read through these facts, there is the 97‑8 experience, there is the dot.com bubble. All of these facts were before the Telecommunications Policy Review, weren't they?
1LISTNUM 1 \l 14791 Essentially, this is all history, isn't it?
1LISTNUM 1 \l 14792 And the Telecom Policy Review is saying no, we have to look forward. We have to take the long run view forward for Canada.
1LISTNUM 1 \l 14793 MS GRIFFIN‑MUIR: Again, I think you keep missing the actual purpose of this proceeding.
1LISTNUM 1 \l 14794 I mean, there was the Policy Review Panel and that was followed by a preliminary proposed Order in Council that had certain suggestions with respect to essential facilities, which was subsequently revised and finalized to take into consideration a wider array of factors, such as the dominance of the incumbents in the wholesale and retail markets, as well as other factors that would affect competitors in terms of how and when they can make investment.
1LISTNUM 1 \l 14795 So I'm not entirely sure what facts actually the TPRP considered at the time. It's not apparent from any of the panel report.
1LISTNUM 1 \l 14796 But even if they did take them into consideration, subsequently the government issued a policy direction that outlined precisely what we should be looking at in terms of this proceeding.
1LISTNUM 1 \l 14797 The fact is in making a decision as to what essential facilities or wholesale regime should prevail, it's a little naive to ignore what has gone on before and what we have learned from our experience of the last 15 years in trying to get competition into the market, particularly the business market.
1LISTNUM 1 \l 14798 MR. LOWE: So what you are saying is: Look, the TPR had this history before them and they made a determination that you disagree with. And you are saying but that's okay because it's the direction that we should look at. The TPR is an exercise that we kind of went through and we all made submissions, and the panel went and talked to other regulators and made some recommendations. But that's all in the past and now you just look at the direction in isolation.
1LISTNUM 1 \l 14799 Is that right?
1LISTNUM 1 \l 14800 MR. MacDONALD: It was an input to a process. There were other inputs to that particular process.
1LISTNUM 1 \l 14801 What is germane to this particular discussion is the final policy direction from the government, however.
1LISTNUM 1 \l 14802 MR. LOWE: You asked for a policy direction based on your recommendations in the TPR report, didn't you?
1LISTNUM 1 \l 14803 We have established that already. Right?
1LISTNUM 1 \l 14804 MS GRIFFIN‑MUIR: I can't recall if we asked for a policy direction. We asked that they recommend a revision, I guess, to the objectives.
1LISTNUM 1 \l 14805 MR. LOWE: Well, if you did ask for a policy direction in line with your directives, if you did say that in your submission, you meant to live with it, didn't you?
1LISTNUM 1 \l 14806 MS GRIFFIN‑MUIR: Well, we, I guess, have no alternative but to live even with this policy direction.
1LISTNUM 1 \l 14807 So again, I mean the policy direction has come down and the proceeding is under way, and as Mr. MacDonald was saying, there is one input ‑‑ I mean if you are suggesting we didn't get everything we wanted or the government didn't do everything we wanted or say everything we wanted, that is entirely true. They also didn't say everything other parties wanted either, including TELUS.
1LISTNUM 1 \l 14808 MR. LOWE: No, I think that is probably true, nobody got everything they wanted and it is one of these processes where the review panel looks at everything and comes out with something that they think is the best move for Canada going forward and then that is implemented into a policy direction and then in turn, the Commission is called upon to implement that policy set by the Government of Canada and, in fact, I think you say at page 4 of your opening statement that the CRTC should be implementing an essential facilities regime which you say should be robust.
1LISTNUM 1 \l 14809 So my question to you is: Is the CRTC's role to implement government policy as set out in the Policy Direction and in the context of the Telecom Policy Review or rather are we on to a free ranging review here to see what is the right path for Canada?
1LISTNUM 1 \l 14810 MR. MacDONALD: I don't know why you keep on going back to the TPR as an input to the process, a valuable input that I think ultimately led to the Policy Direction but the Policy Direction is what the Policy Direction is, regardless of the TPR.
1LISTNUM 1 \l 14811 MR. LOWE: Don't you think that it is wrong to ignore the Policy Direction when you are trying to interpret ‑‑ or wrong to ignore the Telecom Policy Review Report recommendations when you are trying to interpret the direction?
1LISTNUM 1 \l 14812 And I am just asking. If you say it is totally irrelevant and we put it aside ‑‑
1LISTNUM 1 \l 14813 MR. MacDONALD: I didn't say it was totally irrelevant, I said it was an input amongst other inputs to it that ultimately led to the Policy Direction. That is what is relevant, is the Policy Direction.
1LISTNUM 1 \l 14814 MR. LOWE: And inputs can be ignored, can't they?
1LISTNUM 1 \l 14815 MR. MacDONALD: I am not suggesting it should be ignored, I am saying it is an input, it is what it is.
1LISTNUM 1 \l 14816 MR. LOWE: All right. An input that should be given significant weight?
‑‑‑ Laughter / Rires
1LISTNUM 1 \l 14817 MR. LOWE: Perhaps we are getting into argument. Those are my questions, Mr. Chairman, and thank you, panel.
1LISTNUM 1 \l 14818 THE CHAIRPERSON: Thank you very much.
1LISTNUM 1 \l 14819 Who is next, Madam Secretary?
1LISTNUM 1 \l 14820 THE SECRETARY: It is supposed to be PIAC but I haven't seen Mr. Janigan yet.
1LISTNUM 1 \l 14821 MR. LOWE: They are up.
1LISTNUM 1 \l 14822 THE SECRETARY: They are up? Okay, so it will be PIAC.
1LISTNUM 1 \l 14823 THE CHAIRPERSON: Okay, Mr. Janigan.
1LISTNUM 1 \l 14824 COMMISSIONER CRAM: I have a question.
1LISTNUM 1 \l 14825 THE CHAIRPERSON: Yes, sure. Okay. So go ahead, Commissioner Cram.
1LISTNUM 1 \l 14826 MR. SCHMIDT: No, PIAC is not examining. I spoke to them this morning. They are not examining this panel.
1LISTNUM 1 \l 14827 THE SECRETARY: Therefore, we will change panel. I believe this finishes the MTS cross‑examination.
1LISTNUM 1 \l 14828 THE CHAIRPERSON: Hang on. Before we change panel, Commissioner ‑‑ if this was the last one to cross‑examine, I have some questions for the panel and so does Commissioner Cram. So go ahead.
1LISTNUM 1 \l 14829 COMMISSIONER CRAM: Thank you. Yes, you are not going to get away with ‑‑
1LISTNUM 1 \l 14830 Mr. MacDonald, you were talking a while ago about real innovation being at the application level but in order to do that you need access and I think you said at effective rates.
1LISTNUM 1 \l 14831 MR. MacDONALD: Excuse me, at cost‑effective rates.
1LISTNUM 1 \l 14832 COMMISSIONER CRAM: Cost‑effective rates. And would you say cost‑effective rates could be Phase II plus 25 percent?
1LISTNUM 1 \l 14833 MR. MacDONALD: Oh! My God. I would say that the lower the mark‑up the better. Obviously, you have to ensure that the service provider is going to realize a reasonable rate of return on that but as to whether it is what the actual figure is, you would ask me as a business person, I would say the lower the mark‑up the better.
1LISTNUM 1 \l 14834 Cost plus 15, obviously, would be preferable to cost plus 25 but certainly cost plus 800 percent or cost plus 1000 percent is a bit of a problem.
1LISTNUM 1 \l 14835 COMMISSIONER CRAM: Okay. So if the essential services were costed at Phase II plus 25 percent, would we lose Allstream from the business market?
1LISTNUM 1 \l 14836 MR. MacDONALD: We would have to ‑‑ you see, we intend to be around for a long period of time. I get very concerned that if we end up narrowing the definition of essential facilities ‑‑ because the way I look at it, I have a very simple engineering view of how networks get built.
1LISTNUM 1 \l 14837 Access is access, and to the extent that we are now at the mercy of incumbent players to actually negotiate forms of access that are not overseen by the CRTC, then I get very concerned about the degree of competition, particularly in the enterprise space.
1LISTNUM 1 \l 14838 I think it is quite a bit different perhaps in the consumer space where we have an alternative facility that can be used for providing access.
1LISTNUM 1 \l 14839 But I think a diminishment of competition from an enterprise perspective is a distinct possibility unless we continue with a regime that recognizes the fact that having ‑‑ a regime where we have cost‑effective access to reach our customers.
1LISTNUM 1 \l 14840 And to suggest that we are going to be able to duplicate all of this in any sort of reasonable time frame ‑‑ and I want to reiterate something we said last Friday, is that it is in our best interest to actually find alternative sources of supply and we continuously try and do just that.
1LISTNUM 1 \l 14841 We are not shy about investing and deploying the capital where there is an economic case to do so but we think that there is a big advantage that our competitors have in terms of the infrastructure that they have deployed, access that can be used not just for providing traditional dial tone and voice services but can be leveraged to provide Ethernet services and MPLS services.
1LISTNUM 1 \l 14842 I think at the end of the day this is a very, very complex system that we have and I worry that looking for very simple approaches and making a bunch of decisions that on the surface may seem reasonable and there is reliance on market forces and whatever, which I am a strong proponent of, but this is a complex system and making a few decisions can lead to unanticipated results.
1LISTNUM 1 \l 14843 I think we have seen some examples of that with what has happened in the United States and other areas as well. So just a caution.
1LISTNUM 1 \l 14844 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 14845 Now ‑‑ and I don't know your name, I am sorry, and I am too short ‑‑ Mr. Brisby, you were asked at the time of the Offcom Review about cable digital penetration but in the business market there wouldn't have been that ‑‑ in the business market in the U.K. cable wouldn't be available to business; would it?
1LISTNUM 1 \l 14846 MR. BRISBY: Cable does serve some small businesses but it is predominantly targeted at some residential markets. Where the cable company serves businesses, it will do that sometimes on its own network but it will also buy regulated inputs from British Telecom as well.
1LISTNUM 1 \l 14847 COMMISSIONER CRAM: Mm‑hmm. So the business market would be similar to Canada?
1LISTNUM 1 \l 14848 MR. BRISBY: In business markets there has been alternative fiber network rollout, particularly in business centres like the City of London, like London Docklands and in other city centres, in some cases, fairly extensive network rollout. So as you would expect, the City of London has multiple competing fiber networks.
1LISTNUM 1 \l 14849 COMMISSIONER CRAM: Yes.
1LISTNUM 1 \l 14850 MR. BRISBY: Does that answer your question?
1LISTNUM 1 \l 14851 COMMISSIONER CRAM: Yes, thank you.
1LISTNUM 1 \l 14852 Thank you, that's all my questions.
1LISTNUM 1 \l 14853 MR. BRISBY: Sorry, Commissioner ‑‑
1LISTNUM 1 \l 14854 THE CHAIRPERSON: Commissioner del Val.
1LISTNUM 1 \l 14855 COMMISSIONER CRAM: Oh! Wait.
1LISTNUM 1 \l 14856 MR. BRISBY: Sorry, Commissioner, I have been advised it would be sensible to clarify what I mean by the City of London because it may not be apparent to everyone necessarily.
1LISTNUM 1 \l 14857 The City of London is the financial centre in London and it is an area ‑‑
1LISTNUM 1 \l 14858 THE CHAIRPERSON: I think you can assume the panel knows this. Thank you.
1LISTNUM 1 \l 14859 MR. BRISBY: Okay. I apologize, Mr. Chair.
1LISTNUM 1 \l 14860 THE CHAIRPERSON: Commissioner del Val.
1LISTNUM 1 \l 14861 COMMISSIONER del VAL: Dr. Selwyn, this is a question for you.
1LISTNUM 1 \l 14862 I don't think you would need to refer to your paper, that is, Appendix A to the March 15th evidence of MTS.
1LISTNUM 1 \l 14863 You said in your paper that:
"The implosion of competitive telecommunications in the U.S. demonstrates that failure to ensure cost‑based wholesale access to components of the ILECs' local exchange networks undermines the ability of competing carriers to build their customer base and over time to make new investments in network infrastructure." (As read)
1LISTNUM 1 \l 14864 I think if I look back on the Commission decisions, back 10 years, say, back to '97, there has been talk of encouraging facilities‑based competition.
1LISTNUM 1 \l 14865 So I was just wondering when you referred to "over time," how much time do you think we should expect to give the competitors? Ten years have passed and how much more time do you think would be reasonable?
1LISTNUM 1 \l 14866 DR. SELWYN: Commissioner, I think that, first of all, there is no condition that in my view would lead to a total replication.
1LISTNUM 1 \l 14867 We first began to see the construction of competitive fiber in the business market in the U.S. actually in the mid‑1980s when Teleport began to wire up the New York financial district with fiber.
1LISTNUM 1 \l 14868 And yet ‑‑
1LISTNUM 1 \l 14869 COMMISSIONER del VAL: Dr. Selwyn, I think you need to take the other mike, please. I don't think your mike is working.
1LISTNUM 1 \l 14870 DR. SELWYN: Sorry.
1LISTNUM 1 \l 14871 And yet, at its height just prior to its merger with SBC, AT&T was serving approximately 186,000 enterprise customers at the DS‑1 level or higher and only about 6,000 of those locations were on net.
1LISTNUM 1 \l 14872 In other words, AT&T was still reliant primarily on the ILECs for something close to 175,000 to 180,000 locations and it is simply unrealistic to ever expect anything close to the kind of overbuild that would eliminate that dependence.
1LISTNUM 1 \l 14873 I would note also that Mr. MacDonald mentioned mark‑ups of 800 or 1000 percent over incremental cost. If there were any realistic prospect of competitive overbuilds, given those kinds of economic pricing, of uneconomic pricing or excessive pricing, you would expect that competitors would be able to respond.
1LISTNUM 1 \l 14874 The very fact that incumbent LECs are able to sustain prices of that magnitude for an extended period of time, apparently indefinitely, certainly suggests that it is just unrealistic to ever expect this process to somehow transition to a full overbuild.
1LISTNUM 1 \l 14875 COMMISSIONER del VAL: So, Dr. Selwyn, you are saying this is as good as it will ever get?
1LISTNUM 1 \l 14876 DR. SELWYN: Well, you know, there is always some small degree of construction as new demands come up. A few hundred, perhaps even, you know, around a thousand buildings might conceivably be connected to competitor networks by competitor facilities on an annual basis. But we are talking about a process that simply has no realistic expectation of ever happening.
1LISTNUM 1 \l 14877 And if the policy of the Canadian Government is to rely on that as an outcome, as suggested in the passage from the TPR report that we were just looking at, I think there is an immense risk that would limit innovation, limit competition at the application and service levels simply because of the potential for uneconomic pricing on the underlying service.
1LISTNUM 1 \l 14878 COMMISSIONER del VAL: So time isn't going to do the trick, is it?
1LISTNUM 1 \l 14879 DR. SELWYN: No.
1LISTNUM 1 \l 14880 COMMISSIONER del VAL: Okay, thank you.
1LISTNUM 1 \l 14881 DR. SELWYN: You have to look for triggers in the market are not time dependant. Just simply the passage of time ‑‑ the disease is not going to be cured simply if you wait long enough ‑‑
1LISTNUM 1 \l 14882 COMMISSIONER del VAL: Thank you.
1LISTNUM 1 \l 14883 DR. SELWYN: ‑‑ and that is really the essence of it.
1LISTNUM 1 \l 14884 THE CHAIRPERSON: Mr. MacDonald, I would like to take you back to your testimony on Friday.
1LISTNUM 1 \l 14885 The transcript from Friday, I don't know whether you have it or not, but at line 13,157 you say, "retail trumps wholesale," that is the result of your 30‑year experience. That means that we talk about all sorts of alternative sources of supply and what I believe to be a very simple‑minded approach that in the instance of one can be generalized in to an instance of many in terms of this notion of duplicability, which I find completely ludicrous in terms of practical implementation of networks.
1LISTNUM 1 \l 14886 What is your non‑ludicrous suggestion? I mean, you know, we are here to look at these various services to determine whether they are essential or not. And one of the notions that everybody brings forward, all the academics, et cetera, is you have to look at whether it is duplicable, both technical and economically. Now, how do it, not being ludicrous, but using a MacDonald approach?
1LISTNUM 1 \l 14887 MR. MacDONALD: Well, my very simple MacDonald approach is access is access, right. And, you know, I believe that a lot of the benefits that the incumbents have realized in terms of, you know, the number of customers that they serve on a particular access route, the ability of those customers to support incremental investment into the next generation technologies, be they either Ethernet or DSL, et cetera, to me leads to a conclusion that, you know, it is somewhat independent of whether it is going to be an access used for voice or an access that is used for Ethernet or an access used for DSL. It is the access itself that becomes critical.
1LISTNUM 1 \l 14888 I think that, you know, left to our own devices we will try our best to ensure that where we have economic business cases to support it we will deploy capital in the access network. And we have a significant concentration of customers, we will do that.
1LISTNUM 1 \l 14889 But at the end of the day, what I was alluding to there, is that the value of the network is the total number of connections that actually are attached to that network. As Kelvin pointed out to me, it is actually a forum they call Metcalfe's law where the value of the network is in direct proportion of the square of the number of access points.
1LISTNUM 1 \l 14890 And so when we talk about an end‑to‑end network or we talk about a fibre that is going through the streets of Ottawa and it seems, you know, on its face to be obvious that just to have a lateral from that fibre into a building is not such a big thing. But, in effect, it is a very big thing. When you multiply that across a network on a wide‑area basis, it becomes a very big thing.
1LISTNUM 1 \l 14891 THE CHAIRPERSON: I understand that, but operationalize that for me in terms of what we are about here, looking at specific services that have been mandated, now having been told by the government, look at all of those services and see whether they still have to be mandated or not.
1LISTNUM 1 \l 14892 MR. MacDONALD: See my argument, Mr. Chairman, would be is that you actually should be expanding. And I know that is swimming upstream relative to some of the conventional wisdom that you are hearing. But when we look at the full policy direction and all of the various attributes that the government has asked the Commission to consider, we think at the end of the day what is important, not just at a point in time to evaluate what is essential versus what has been essential, but actually to take a forward look.
1LISTNUM 1 \l 14893 Because increasingly, to have buggy whips ‑‑ I think is a term that was used recently ‑‑ to be classified as essential is neither here nor there ultimately.
1LISTNUM 1 \l 14894 THE CHAIRPERSON: And in that same testimony on Friday you said the other thing is that, and I've heard it in many cases during this proceeding, one of the intentions is to encourage investment, that is by establishing high wholesale prices we will be encouraging investment, which I think does not apply as well. Encouraging I think is probably the wrong word. I mean, the idea is it always give negative incentives that, because prices are going up, you will invest and.. You don't think that works I gather?
1LISTNUM 1 \l 14895 MR. MacDONALD: No, I don't think it works, because right now if there is an economic case to invest and there is a variety of reasons why, you know, if the case is there and my CFO will let me do it, is that if I can put a case together then the money will be there.
1LISTNUM 1 \l 14896 The issue of course is that the case does not exist. And I keep on coming back to that example where we looked at the deployment to that financial institution, in a 206‑year payback it will be considered to be market price, the price that the customer has actually paid.
1LISTNUM 1 \l 14897 We actually took it one step forward, because when the engineer showed me the figures I said, that can't be. And so we said, well, we will only build in those situations less than 160 kms. If the branch is greater than 160 kms from an access point, then we will lease. That cut it in half, that brought it down from $2 billion to, I believe, about $1 billion. But the payback interval was still about 200 years.
1LISTNUM 1 \l 14898 THE CHAIRPERSON: This concept here which has been mentioned by many parties is really tied into the phase out. I think TELUS suggested there should be a five‑year pace or phase out for everybody and there should be sort of payout by price increases so as to sort of lend a sense of urgency, you had better cut a deal or you build. Because it is going to be out and it is becoming more expensive each year. And I gather you don't buy this theory either?
1LISTNUM 1 \l 14899 MR. MacDONALD: I don't really buy it, Mr. Chairman, because I don't think we have any leverage in that negotiation. Because I think that the incumbents know is that the case to actually build and the amount of money that is going to be required to build and duplicate the network were our customers are, you know, it is not as if there is, you know, you have this building where you have a concentration of customers and you serve the majority of customers in that building.
1LISTNUM 1 \l 14900 We have to go where our customers are located, whether it is a bank branch or it is a retail outlet, and they are right across the country by definition, where people are. And for us to actually go and invest the capital to actually duplicate that network, I mean, the incumbents know that that is not a viable alternative. And therefore, we have no leverage in any sort of negotiation and that concerns me. And the point that I raised last week as well, is that you have to look within the context in the enterprise space of longer‑term contracts.
1LISTNUM 1 \l 14901 THE CHAIRPERSON: I guess where we are stuck, you are sort of the lone outsider, everybody else before us, all the economists, everybody has ‑‑
1LISTNUM 1 \l 14902 MR. MacDONALD: Yes, I understand.
1LISTNUM 1 \l 14903 THE CHAIRPERSON: ‑‑ put forward quite a different theory, as you know.
1LISTNUM 1 \l 14904 MR. MacDONALD: Yes.
1LISTNUM 1 \l 14905 THE CHAIRPERSON: And I'm asking you, because you describe yourself as a grizzled veteran of the industry. I have known you for many years in many different companies and in different positions, so obviously I pay so me heed to what you are saying. And I find it strange that the TPR representative's point of view, it has been echoed by the various academics and economists and yet you believe this is just misguided.
1LISTNUM 1 \l 14906 MR. MacDONALD: Well, I don't believe that they are misguided. I understand it is very well intended, I just disagree with the result. But I have a track record of doing that from my days back east at NBTel.
1LISTNUM 1 \l 14907 But my concern, as I mentioned earlier, Mr. Chairman, is that we end up with a set of decisions that on the face seem perfectly reasonable and, you know, follows conventional wisdom. But at the end of the day it is not going t be a good day in terms of competitive alternatives in the enterprise space specifically. That is my big concern.
1LISTNUM 1 \l 14908 THE CHAIRPERSON: Professor Selwyn, we will deal with you after you have been cross‑examined by ‑‑
1LISTNUM 1 \l 14909 DR. SELWYN: (off microphone)
1LISTNUM 1 \l 14910 THE CHAIRPERSON: I really think I should give counsel a chance to cross‑examine you before we do it, okay. Thank you.
1LISTNUM 1 \l 14911 So we will now take a five‑minute break while we set‑up the next panel.
1LISTNUM 1 \l 14912 THE SECRETARY: I do have a little something to say please. I need to present two exhibits that were brought to my attention just recently.
1LISTNUM 1 \l 14913 That will be MTS Exhibit 15, it is a table related to parties' pre‑hearing evidence on the impact of the CDN decision. At the same time we will distribute CRTC Exhibit 6A, which is the undertaking register, updated version.
EXHIBIT MTS‑15: List re: (Facilities‑Based) Parties' pre‑hearing evidence on the Impact of the CDN Decision on Facilities Construction Construction or Capital Expenditure Programs
EXHIBIT CRTC‑6A: CRTC Undertaking register of CRTC version updated 29‑10‑2007
1LISTNUM 1 \l 14914 Furthermore, Mr. Chair, if you can allow us a little bit more than five minutes, because it is a big ‑‑
1LISTNUM 1 \l 14915 THE CHAIRPERSON: However long you take, you let us know when you are ready. Okay?
1LISTNUM 1 \l 14916 THE SECRETARY: Thank you.
1LISTNUM 1 \l 14917 MS SONG: Mr. Chairman.
1LISTNUM 1 \l 14918 THE CHAIRPERSON: Ms Song.
1LISTNUM 1 \l 14919 MS SONG: I do apologize, Mr. Chairman. I believe that counsel for Bell would like to address Exhibit 15. It has to do with a matter that was dealt with on Friday's cross‑examination by counsel for Bell et al. And I believe that he would like to speak briefly to it, as would I. It should take no more than a few minutes.
1LISTNUM 1 \l 14920 THE CHAIRPERSON: Okay, by all means go ahead. Mr. Hofley or Mr. Daniels?
1LISTNUM 1 \l 14921 MR. DANIELS: It is Mr. Daniels, yes.
1LISTNUM 1 \l 14922 It has been brought to my attention, I am looking at reference of something that I had said during my cross‑examination of MTS Allstream at page 2,220 of Friday's transcript where I had made the statement.
"Now, Bell's put forward in this proceeding the proposition that the creation of CDN and lowering of rates for CDN access in 2005 undermined other parties' incentive to invest, at least in the access facilities."
1LISTNUM 1 \l 14923 And skipping down I said that there were:
"... at least seven parties including Atria, NMAX, Hydro One, QMI, SCBN, Telecom Ottawa and TELUS, not to mention The Companies, state that they spent less on access as a result of CDN decisions."
1LISTNUM 1 \l 14924 And skipping down to line 13,314:
"But throughout the interrogatory process, MTS is the only party to claim the contrary who's actually building facilities."
1LISTNUM 1 \l 14925 Now, it has been brought to my attention by counsel of MTS Allstream that the term "contrary" could suggest, and I think this is right ‑‑ it's a possible way to read it, a fair reading ‑‑ that I was suggesting that other parties ‑‑ that no other party had said it had ‑‑ CDN had no impact on their ability.
1LISTNUM 1 \l 14926 There are some parties who have said, a number of the Telcos have said, some other parties have said that the introduction of CDN had no impact one way or another.
1LISTNUM 1 \l 14927 That wasn't the intention of my statement. The intention of my statement was to say that MTS is the only party who was building access facilities who claimed that CDN helped them build access facilities.
1LISTNUM 1 \l 14928 And that's what I meant when I said contrary to that statement.
1LISTNUM 1 \l 14929 So, I think there's two ways to read the term contrary. It's been brought to my attention that MTS counsel, I think rightly, says that there's two ways and I wish to clarify that statement.
1LISTNUM 1 \l 14930 Having made that clarification, I hope that satisfies my colleagues.
1LISTNUM 1 \l 14931 THE CHAIRPERSON: Ms Song.
1LISTNUM 1 \l 14932 MS SONG: Yes. Mr. Chairman, thank you. And thank you, Mr. Daniels for that retraction.
I will simply say that that retraction is acceptable to MTS Allstream.
1LISTNUM 1 \l 14933 The table which we prepared over the weekend provides an actual summary of the parties' pre‑hearing evidence on the issue of the impact of the CDN decision.
1LISTNUM 1 \l 14934 Counsel for Bell have asked that they be provided ‑‑ that they will come forward and indicate whether there is any information on this table that they disagree with, but the table is self explanatory and contains all relevant references to the record that are provided.
1LISTNUM 1 \l 14935 MTS Allstream notes that certain major cable companies such as East Link, Persona, Rogers and Shaw were not asked by Bell, et al what the impact of the CDN decision was on them whereas, as the table shows, certain other cable companies and municipal and electrical utilities were asked those types of questions.
1LISTNUM 1 \l 14936 So, in the interest of time we will not walk the Commission through the table.
1LISTNUM 1 \l 14937 However, contrary to Mr. Daniels' assertions on Friday, a review of the parties' evidence and the interrogatory responses shows that apart from Bell and TELUS, only Atria, SCBN and Hydro One provided unequivocal evidence that they had identified a direct causal negative impact from the CDN decision.
1LISTNUM 1 \l 14938 Thank you.
1LISTNUM 1 \l 14939 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 14940 We will take a break now.
‑‑‑ Recessed at 0938 / Suspension à 0938
‑‑‑ Resumed at 0952 / Reprise à 0952
1LISTNUM 1 \l 14941 THE SECRETARY: Please be seated.
1LISTNUM 1 \l 14942 THE CHAIRPERSON: Madam Secretary, who is next?
1LISTNUM 1 \l 14943 THE SECRETARY: Counsel Rogers will introduce the new panel for TELUS, the expert witnesses.
1LISTNUM 1 \l 14944 MR. ROGERS: Good morning, Mr. Chairman, Phil Rogers for TELUS. Again, I'm assisted by Mr. Steven Schmidt.
1LISTNUM 1 \l 14945 It's my pleasure to introduce to you the TELUS expert panel. I will introduce them from my left to right.
1LISTNUM 1 \l 14946 Sitting in the front row closest to me is Dr. Debra Aron. Dr. Aron is a Director of the Economics and Competition consulting firm, LECG, LLC and adjunct Professor of Communications Studies, Northwestern University.
1LISTNUM 1 \l 14947 Dr. Aron has extensive experience in telecommunications pricing and appears regularly before state regulators and the FCC regarding pricing, costing, competition issues and ILEC mergers.
1LISTNUM 1 \l 14948 Dr. Aron has developed pricing principles and recommendations for TELUS.
1LISTNUM 1 \l 14949 Sitting next to Dr. Aron is Mr. Willie Grieve, TELUS Vice‑President, Telecom Policy and Regulatory Affairs who has already appeared in this proceeding.
1LISTNUM 1 \l 14950 Next is Dr. Dennis Weisman who is Professor of Economics at Kansas State University. Dr. Weisman is an expert in the economics of telecommunications regulation and deregulation.
1LISTNUM 1 \l 14951 Dr. Weisman was asked to identify the economic principles that should guide the Commission in its policy regarding mandatory unbundling of essential facilities.
1LISTNUM 1 \l 14952 And sitting next to Dr. Weisman is Professor Glen Robinson. Professor Robinson is the David A. and Mary Harrison Professor of Law at the University of Virginia Law School. Professor Robinson is one of the leading authorities on the law of the essential facilities doctrine and the application of that doctrine.
1LISTNUM 1 \l 14953 I would note that Professor Robinson and Dr. Weisman have overlapping expertise in law and economics in respect of the definition of essential facilities.
1LISTNUM 1 \l 14954 Next is Dr. Robert Crandall. Dr. Crandall is a Senior Fellow at the Brookings Institution in Washington, D.C. and a founder of criterion economics.
1LISTNUM 1 \l 14955 Dr. Crandall has conducted extensive empirical research on the effects of unbundling and other regulatory policies on incentives and investment.
1LISTNUM 1 \l 14956 Next to Dr. Crandall is Mr. John Fleiger, Vice‑President Global Sourcing Solutions for TELUS Partner Solutions Business Unit. Mr. Fleiger leads the TELUS team responsible for managing supplier relationships and carrier matters. Mr. Fleiger has previously appeared in this proceeding.
1LISTNUM 1 \l 14957 Finally, in the second row, and continuing to assist the panel is Mr. Mark Morikami, a TELUS Director in Partner Solutions and Mr. Eric Adora, Senior Regulatory Advisor.
1LISTNUM 1 \l 14958 The CVs of the witnesses have already been filed on the record.
1LISTNUM 1 \l 14959 At this point I would ask that the TELUS expert witnesses be affirmed. Mr. Grieve and Mr. Fleiger are already under oath.
1LISTNUM 1 \l 14960 THE SECRETARY: Thank you very much.
1LISTNUM 1 \l 14961 I'm asking the new witnesses that are not under oath yet to please stand up.
1LISTNUM 1 \l 14962 Thank you.
AFFIRMED: DR. DEBRA ARON
AFFIRMED: DR. DENNIS WEISMAN
AFFIRMED: PROF. GLEN ROBINSON
AFFIRMED: DR. ROBERT CRANDALL
1LISTNUM 1 \l 14963 THE SECRETARY: Thank you very much.
1LISTNUM 1 \l 14964 You wish to examine your witnesses.
1LISTNUM 1 \l 14965 MR. ROGERS: Yes, very briefly.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 14966 MR. ROGERS: I would now like to ask each of the expert panel members to confirm individually that your qualifications are correctly set out in the TELUS letter filed with your qualifications dated October 2nd, 2007.
1LISTNUM 1 \l 14967 DR. ARON: They are.
1LISTNUM 1 \l 14968 DR. WEISMAN: They are.
1LISTNUM 1 \l 14969 PROF. ROBINSON: Yes, they are.
1LISTNUM 1 \l 14970 MR. CRANDALL: Yes, they are.
1LISTNUM 1 \l 14971 MR. ROGERS: Thank you.
1LISTNUM 1 \l 14972 Turning now to Dr. Aron. Dr. Aron, did you prepare your statement entitled: Pricing Principles for Wholesale Services in the Canadian Telecommunications Industry, Appendix "C" to TELUS evidence?
1LISTNUM 1 \l 14973 DR. ARON: I did.
1LISTNUM 1 \l 14974 MR. ROGERS: Are there any corrections you wish to make?
1LISTNUM 1 \l 14975 DR. ARON: No, there are not.
1LISTNUM 1 \l 14976 MR. ROGERS: Is this statement true to the best of your knowledge and belief?
1LISTNUM 1 \l 14977 DR. ARON: Yes, it is.
1LISTNUM 1 \l 14978 MR. ROGERS: Dr. Weisman, did you prepare your statement: Economic Principles Underlying the Essential Facilities Doctrine in Canadian Telecommunications, and a second statement: Regulatory Rate‑Making Versus Competition Enabling Policies in Canada Telecommunications, Appendix "B" to the supplementary evidence?
1LISTNUM 1 \l 14979 DR. WEISMAN: Yes, I did.
1LISTNUM 1 \l 14980 MR. ROGERS: Are there any corrections you wish to make?
1LISTNUM 1 \l 14981 DR. WEISMAN: No, there are not.
1LISTNUM 1 \l 14982 MR. ROGERS: Are these statements true to the best of your knowledge and belief?
1LISTNUM 1 \l 14983 DR. WEISMAN: They are.
1LISTNUM 1 \l 14984 MR. ROGERS: Professor Robinson, did you prepare your statement: The Role of Essential Facilities Doctrine in Competition and Regulatory Policy, and a second statement: Consistency and Clarity in Competition and Regulatory Policy, attachments to the TELUS evidence?
1LISTNUM 1 \l 14985 PROF. ROBINSON: Yes.
1LISTNUM 1 \l 14986 MR. ROGERS: Are there any corrections you wish to make?
1LISTNUM 1 \l 14987 PROF. ROBINSON: No.
1LISTNUM 1 \l 14988 MR. ROGERS: Are these statements true to the best of your knowledge and belief?
1LISTNUM 1 \l 14989 PROF. ROBINSON: Yes.
1LISTNUM 1 \l 14990 MR. ROGERS: Dr. Crandall, did you prepare your statement: Response to Lee Selwyn, Appendix "C" to TELUS supplementary evidence, and a statement prepared with Dr. Alan Ingraham, The Relevance of Recent United Kingdom Telecommunications Policy to the Policy Choices in Canada?
1LISTNUM 1 \l 14991 MR. CRANDALL: I did.
1LISTNUM 1 \l 14992 MR. ROGERS: Are there any corrections you wish to make to either of those statements?
1LISTNUM 1 \l 14993 MR. CRANDALL: None, except for the correction that was submitted in regard to one table, one chart in the testimony which resulted in a very minor change in that chart.
1LISTNUM 1 \l 14994 MR. ROGERS: And that was previously filed ‑‑
1LISTNUM 1 \l 14995 MR. CRANDALL: Yes.
1LISTNUM 1 \l 14996 MR. ROGERS: ‑‑ with the Commission? Are these statements true to the best of your knowledge and belief?
1LISTNUM 1 \l 14997 MR. CRANDALL: Yes.
1LISTNUM 1 \l 14998 MR. ROGERS: Mr. Chairman, the witnesses are now available for cross‑examination.
1LISTNUM 1 \l 14999 THE CHAIRPERSON: Thank you very much.
1LISTNUM 1 \l 15000 I guess we are starting with the Competition Bureau.
1LISTNUM 1 \l 15001 MS PALUMBO: Yes, that's right.
1LISTNUM 1 \l 15002 THE CHAIRPERSON: Go ahead.
1LISTNUM 1 \l 15003 MS PALUMBO: Good morning, Mr. Chairman, Commissioners and members of the TELUS panel.
1LISTNUM 1 \l 15004 Josephine Palumbo here for the Competition Bureau with the assistance of Mr. George Hariton to my right. I will be seeking to obtain information on the impact of mandatory unbundling on investments by ILECs and CLECs in network facilities.
1LISTNUM 1 \l 15005 This is an area, Members of the Commission, that TELUS experts and, in particular, Dr. Crandall have addressed in their evidence.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 15006 MS PALUMBO: And, so, I'll begin with you, Dr. Crandall.
1LISTNUM 1 \l 15007 Dr. Crandall, you're here as an expert on regulation of telecommunications; isn't that correct?
1LISTNUM 1 \l 15008 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15009 MS PALUMBO: And you have examined the empirical impact of various forms of regulation on the industry; isn't that right?
1LISTNUM 1 \l 15010 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15011 MS PALUMBO: And in fact you've published a number of books on the subject.
1LISTNUM 1 \l 15012 MR. CRANDALL: Yes, over the years I have.
1LISTNUM 1 \l 15013 MS PALUMBO: Okay. And in July of 2005 you published a book entitled: Competition and Chaos, U.S. Telecommunications Since the 1996 Telecom Act. That's a 2005 publication.
1LISTNUM 1 \l 15014 You're familiar with that text book?
1LISTNUM 1 \l 15015 MR. CRANDALL: Yes, of course.
1LISTNUM 1 \l 15016 MS PALUMBO: And that book has been the subject of some discussion at this hearing, Dr. Crandall, and I'll be asking you a few questions in relation thereto just so that we can assist the Commission in getting a good understanding of what your conclusions were in that text book.
1LISTNUM 1 \l 15017 MR. CRANDALL: Mm‑hmm.
1LISTNUM 1 \l 15018 MS PALUMBO: Now, in this publication you discuss the U.S. experience with mandated access to various unbundled network elements, including local loops; isn't that correct?
1LISTNUM 1 \l 15019 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15020 MS PALUMBO: Thank you. And that discussion included the link between unbundled network elements and investment by incumbent telephone companies; correct?
1LISTNUM 1 \l 15021 MR. CRANDALL: Yes, yes.
1LISTNUM 1 \l 15022 MS PALUMBO: And would you say you are an expert therefore on this topic?
1LISTNUM 1 \l 15023 MR. CRANDALL: Well, I've studied it. I don't know ‑‑ this is an evolving literature and an evolving phenomenon, so I certainly have studied it.
1LISTNUM 1 \l 15024 MS PALUMBO: You've dabbled in it quite a bit?
1LISTNUM 1 \l 15025 MR. CRANDALL: Well, yes, quite a bit, yes.
1LISTNUM 1 \l 15026 MS PALUMBO: Okay, thank you. And could you assist the Commission, sir, by summarizing the conclusions in your book on the impact of mandatory unbundling on investments by CLECs in their networks and the basis for those conclusions?
1LISTNUM 1 \l 15027 MR. CRANDALL: Well, the conclusions in the book, of course, were completed by late 2004, early 2005 and what I concluded there was that the sharp decline in ILEC spending was due in part, not entirely, but in part to the uncertainty and the continuing expansion of the unbundling regime in the United States.
1LISTNUM 1 \l 15028 Since that time though that unbundling regime, of course, has been changed and a substantial amount of investment has occurred among the U.S. ILECs, particularly Verizon.
1LISTNUM 1 \l 15029 MS PALUMBO: Perhaps, Madam Secretary, we could have copies of the text book circulated.
1LISTNUM 1 \l 15030 MR. CRANDALL: I've got a copy ‑‑ oh, I see.
1LISTNUM 1 \l 15031 MS PALUMBO: But for the other members of the Panel.
1LISTNUM 1 \l 15032 This would be the text book entitled: Competition and Chaos, U.S. Telecommunications Since the 1996 Telecom Act.
1LISTNUM 1 \l 15033 MR. TACIT: Mr. Chairman, while this is happening ‑‑ it's Chris Tacit from Cybersurf ‑‑ I don't want to interrupt my colleague prematurely, but I know that the subject matter of what she's cross‑examining on I'm not disputing is relevant, but it appears, at least on its face, that it's more in the nature of an examination‑in‑chief than a cross‑examination.
1LISTNUM 1 \l 15034 I will let it go for the time being, but, you know, it strikes me that this may not be pure cross‑examination going on at the moment.
1LISTNUM 1 \l 15035 THE CHAIRPERSON: Well, when you feel she has crossed the line, make your objection.
1LISTNUM 1 \l 15036 MR. TACIT: Thank you.
1LISTNUM 1 \l 15037 MS PALUMBO: Mr. Chair, actually, there will be a tie‑in, a link‑in here as to why we are asking Dr. Crandall these questions. We have some evidence on the record ‑‑
1LISTNUM 1 \l 15038 THE CHAIRPERSON: Ms Palumbo, I didn't call you to task, so you don't have to defend yourself.
1LISTNUM 1 \l 15039 MS PALUMBO: Thank you, I won't.
1LISTNUM 1 \l 15040 Do we have copies now of the textbook?
1LISTNUM 1 \l 15041 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15042 MS PALUMBO: And I would like you, in particular, to turn to page 37 specifically. You present evidence that is inconsistent with the stepping‑stone hypothesis at page 37.
1LISTNUM 1 \l 15043 You note that, and I'm quoting here your words:
"Since 2000, the facilities‑based lines of non‑cable company entrants remain constant. Thus, it appears that non‑cable entrants stopped the investing in their own facilities." (As read)
1LISTNUM 1 \l 15044 Those are your words. Do you see that?
1LISTNUM 1 \l 15045 MR. CRANDALL: Now, where are you reading, I'm sorry?
1LISTNUM 1 \l 15046 MS PALUMBO: I'm at page 37.
1LISTNUM 1 \l 15047 MR. CRANDALL: Yes. Oh, yes. Okay, fine, I got it.
1LISTNUM 1 \l 15048 MS PALUMBO: Do you see that?
1LISTNUM 1 \l 15049 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15050 MS PALUMBO: And you note that this may have been because of the adverse outcomes for those who did so before the 2000 collapse on LECG's stock values, but, you say:
"Also, because the environment created by regulators provided passive resellers of incumbent services, for example CLECs that use UNE‑P, more attractive returns that did investing in their own switches or even their own complete networks." (As read)
1LISTNUM 1 \l 15051 Do you see that?
1LISTNUM 1 \l 15052 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15053 MS PALUMBO: And then you also say, at page 37:
"There is no evidence that the entrants who use the entire UNE‑P, such as MCI, AT&T, TalkAmerica and Z‑Tel, were doing so to obtain a toehold before launching facilities‑based entries." (As read)
1LISTNUM 1 \l 15054 So your prediction was that with the withdrawal of UNE‑P, they would be more likely to withdraw from local service than to invest. Isn't that right?
1LISTNUM 1 \l 15055 MR. CRANDALL: I think that's a logical deduction, yes.
1LISTNUM 1 \l 15056 MS PALUMBO: Okay.
1LISTNUM 1 \l 15057 Now, I understand that you also coauthored a separate paper in 2004 entitled, "Do Unbundling Policies Discourage CLEC Facilities‑Based Investment?".
1LISTNUM 1 \l 15058 This, Mr. Chair, members of the Commission, is already on the record. It was cited in the Bureau's evidence, March 15th, at footnotes 15 and 43.
1LISTNUM 1 \l 15059 So Dr. Crandall, back to you, you did coauthor this ‑‑
1LISTNUM 1 \l 15060 MR. CRANDALL: That was the Crandall, Ingraham, Singer paper you are talking about, I believe?
1LISTNUM 1 \l 15061 MS PALUMBO: That is correct.
1LISTNUM 1 \l 15062 MR. CRANDALL: Okay. Because the dates, I don't remember the dates, I'm sorry.
1LISTNUM 1 \l 15063 MS PALUMBO: Yes, that's correct.
1LISTNUM 1 \l 15064 Again, the results of that study found:
"The share of CLEC lines that are facilities‑based is lower in states where unbundled network elements (UNE) rental rates are lower." (As read)
which suggests that unbundling decreases facilities‑based competition in the short term.
1LISTNUM 1 \l 15065 Do you remember ‑‑
1LISTNUM 1 \l 15066 MR. CRANDALL: Yes, specifically, the driving force was the ratio of the unbundled loop rate to the cost of building in that state, as measured by two separate estimates we had of the cost of building, and we found that ratio was very significant in the choice of whether to build or not.
1LISTNUM 1 \l 15067 MS PALUMBO: Okay. Could you summarize your results in this paper and comment specifically on the implications for the stepping‑stone hypothesis?
1LISTNUM 1 \l 15068 MR. CRANDALL: Well, what that paper does is to look across the states for which there are data in the United States for a two‑year period and to look at what drove the share of UNE lines to actual facility‑based lines from the competitive local carriers at that time, and it showed that the lower the unbundled loop rate the more they would rely upon unbundled facilities and not build their own facilities.
1LISTNUM 1 \l 15069 This does not go dispositively to the question, however, that whether they would eventually have built facilities, that's the stepping‑stone hypothesis, but I would observe that few of them ever did.
1LISTNUM 1 \l 15070 MS PALUMBO: I believe Madam Secretary has distributed the second document, if I'm not mistaken, and this is, again, going back to the 2004, this 2004 article ‑‑ or paper, I should say.
1LISTNUM 1 \l 15071 In fact, if you turn to page 20 ‑‑
1LISTNUM 1 \l 15072 MR. CRANDALL: Twenty of...?
1LISTNUM 1 \l 15073 MS PALUMBO: Of this second article ‑‑ or paper.
1LISTNUM 1 \l 15074 MR. CRANDALL: Oh, the article.
1LISTNUM 1 \l 15075 MS PALUMBO: Yes.
1LISTNUM 1 \l 15076 MR. CRANDALL: I don't it.
1LISTNUM 1 \l 15077 MS PALUMBO: "Do Unbundling Policies Discourage CLEC..." ‑‑
1LISTNUM 1 \l 15078 MR. CRANDALL: I don't have it in front of me. Oh, here we are. Okay, yes.
1LISTNUM 1 \l 15079 MS PALUMBO: Do you have that?
1LISTNUM 1 \l 15080 MR. CRANDALL: Yes. Yes, I do.
1LISTNUM 1 \l 15081 MS PALUMBO: At page 20.
1LISTNUM 1 \l 15082 You say at page 20:
"But that notion, that is the notion that low UNE rates stimulate future facilities‑based investment..."
‑‑ you concluded ‑‑
"...appears to be undermined by other results." (As read)
1LISTNUM 1 \l 15083 MR. CRANDALL: Oh, I see, yes. Yes, I got you.
1LISTNUM 1 \l 15084 MS PALUMBO: And you say there, and in particular you suggested:
"A regression of the change in facilities‑based investment over time indicates that facilities‑based lines' growth relative to UNE growth was faster in states where the cost of UNEs was higher relative to the cost of facilities‑based investments." (As read)
1LISTNUM 1 \l 15085 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15086 MS PALUMBO: And based on that initial evidence, you and your coauthors concluded that you believe:
"The burden or proof should now shift to the competitive local exchange carriers. If there is no evidence that low UNE rates stimulate facilities‑based CLEC investments in future periods, then the entire unbundling experiment should be reconsidered." (As read)
were your conclusions.
1LISTNUM 1 \l 15087 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15088 MS PALUMBO: Right?
1LISTNUM 1 \l 15089 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15090 MS PALUMBO: Have you reviewed the literature since 2005, since your book was published, on the impact of unbundling in CLEC investments?
1LISTNUM 1 \l 15091 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15092 MS PALUMBO: You have?
1LISTNUM 1 \l 15093 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15094 MS PALUMBO: Yes. Thank you.
1LISTNUM 1 \l 15095 MR. TACIT: Mr. Chairman, I think now counsel for the Bureau is now really eliciting new evidence out of the witness, as opposed to testing his evidence.
1LISTNUM 1 \l 15096 THE CHAIRPERSON: I assume she's leading up to something, Ms Palumbo.
1LISTNUM 1 \l 15097 MR. CRANDALL: That is correct.
1LISTNUM 1 \l 15098 THE CHAIRPERSON: Well, how about asking the question, because we now know enough of the background. Let's ask him something rather than walking him through his past studies.
1LISTNUM 1 \l 15099 MS PALUMBO: Well, we know that he has reviewed recent literature.
1LISTNUM 1 \l 15100 Can you tell me whether you are familiar with Dr. Waverman's publication entitled, "Access Regulation and Infrastructure Investment in the Telecommunications Sector"?
1LISTNUM 1 \l 15101 MR. CRANDALL: Yes. I believe it's Waverman and about three coauthors. A report published by LECG. Correct?
1LISTNUM 1 \l 15102 MS PALUMBO: Right.
1LISTNUM 1 \l 15103 MR. CRANDALL: Yes, I guess I am.
1LISTNUM 1 \l 15104 MS PALUMBO: Okay.
1LISTNUM 1 \l 15105 And, in fact, that is, Mr. Chair, an exhibit that has been entered by the Bureau at Exhibit 1.
1LISTNUM 1 \l 15106 Would you agree with me that the results of that 2007 Waverman study on the impact of access regulation on facilities investments are generally consistent with the results of your own 2004 study on the same topic?
1LISTNUM 1 \l 15107 MR. CRANDALL: They are generally consistent, but they are in a completely different environment.
1LISTNUM 1 \l 15108 Ingraham, Singer and I were looking at the choice between using a local loop and building your own facility to deliver, basically, voice services.
1LISTNUM 1 \l 15109 The Waverman study, as I recall, looks at Europe and the choice ‑‑ the effect of unbundled loop rates on the growth of alternative platforms to deliver broadband and finds that the lower the local loop rate, the less construction of alternative facilities and the fewer subscribers on alternative platforms.
1LISTNUM 1 \l 15110 So it's slightly different, but it's in the same spirit.
1LISTNUM 1 \l 15111 MS PALUMBO: But both documents found the impact on investment to be negative, isn't that correct?
1LISTNUM 1 \l 15112 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15113 MS PALUMBO: Okay. Therefore, can we conclude that, based on your writings and based on your literature, the impact of mandatory unbundling on CLEC investment is negative?
1LISTNUM 1 \l 15114 MR. CRANDALL: I think that's what the literature shows to this point. Those of us who have engaged in these studies find that. Obviously, this is an evolving literature, but I think that is certainly a reasonable conclusion to draw from it at that this point.
1LISTNUM 1 \l 15115 MS PALUMBO: Thank you, Dr. Crandall. I will move on now to another area.
1LISTNUM 1 \l 15116 You are also familiar with Dr. Willig's publication entitled, "Stimulating Investment in the Telecommunications Act of 1996"?
1LISTNUM 1 \l 15117 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15118 MS PALUMBO: And in fact, you do cite this paper in your textbook 2005, "Competition and Chaos"?
1LISTNUM 1 \l 15119 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15120 MS PALUMBO: And, in essence, would you agree with me that Dr. Willig concluded that the ILEC investment increased with decreasing access prices to mandated facilities? That was his conclusion.
1LISTNUM 1 \l 15121 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15122 MS PALUMBO: And you were critical of those findings. Is that correct?
1LISTNUM 1 \l 15123 MR. CRANDALL: Correct.
1LISTNUM 1 \l 15124 MS PALUMBO: Could you explain to us why you were critical, Dr. Crandall?
1LISTNUM 1 \l 15125 MR. CRANDALL: Well, the basic reason on a priori grounds, to be critical, is that Willig and associates ‑‑ again, this was a multi‑author study ‑‑looked at investment in the ILECs cumulated over, as I recall, without going back to the actual document, '96, '97, '98, '99, 2000, 2001, 2002, as a function of a number of variables that all of us would put in such an equation, but then the UNE‑P rate in 2001.
1LISTNUM 1 \l 15126 Since the UNE‑P didn't even get started until 1999, it would have taken incredible foresight, on the part of the ILECs, to know that there would be a UNE‑P, and what the UNE‑P rates would be across states, to drive their '96, '97, '98, '99, 2000 investment. So on a priori grounds, it turns out, I think, you have to be sceptical.
1LISTNUM 1 \l 15127 I then went and re‑estimated his results, breaking down the periods, looking at the earlier period and the late period, and I found that the result is strongest in the earlier period, that is '96, '97, '98 and '99, which would suggest something else is going on here.
1LISTNUM 1 \l 15128 And my conclusion, ultimately was ‑‑ or tentative conclusion, I wouldn't say that I would claim that it couldn't be rebutted, but my tentative conclusion was that what was happening was that in those states in which the ILECs invested most, they obtained, subsequently, the lowest UNE‑P rates, perhaps because their networks are most efficient in the arbitration process that weighed on them and got them a lower UNE‑P rate, so that the causation may have been running from investment to UNE‑P rate, not from UNE‑P rate back to investment in some historical period.
1LISTNUM 1 \l 15129 MS PALUMBO: Thank you for that.
1LISTNUM 1 \l 15130 Are you aware of any other studies, other than Willig's report, which you have just refuted, that have found a positive relationship between ILEC investment and decreasing access prices?
1LISTNUM 1 \l 15131 MR. CRANDALL: Well, there were a couple of things done by a place called the Phoenix Centre, but I don't think they were very well done either.
1LISTNUM 1 \l 15132 MS PALUMBO: You don't think they were very well done?
1LISTNUM 1 \l 15133 MR. CRANDALL: No, no, no.
1LISTNUM 1 \l 15134 MS SONG: Mr. Chairman, I think it's MTS's turn to interject at this point.
1LISTNUM 1 \l 15135 I listened very carefully to the first series of questions addressed by counsel for the Bureau. It did not lead to any question in relation to Dr. Crandall's actual evidence in this proceeding, nor did it test any of the conclusions or statements made by Dr. Crandall.
1LISTNUM 1 \l 15136 She is now taking Dr. Crandall through yet new and further evidence not filed by himself in this proceeding, and we really question whether or not this is a true cross‑examination in the spirit of what a true cross should be.
1LISTNUM 1 \l 15137 MS PALUMBO: I'm sorry, Mr. Chairman, I thought cross‑examination was an exercise to elicit information to assist the Commission in coming to a complete and thorough understanding of the issues.
1LISTNUM 1 \l 15138 We have heard some evidence from other parties in relation to Dr. Crandall's textbooks and publications, and I think it is only correct that the Commission have a full understanding of what Dr. Crandall meant.
1LISTNUM 1 \l 15139 In fact, I believe one of my colleagues from Bell initiated a cross‑examination exercise of Dr. Ware particularly on Dr. Crandall's findings.
1LISTNUM 1 \l 15140 Dr. Crandall is here and is able to now clarify those findings.
1LISTNUM 1 \l 15141 MS SONG: I think that counsel has aptly actually stated what the problem is. She said that her first line of questioning had to do with the impact of mandated access on decisions to invest. I note that the Bureau did not choose to actually examine the parties to this proceeding on that very issue and is now leading this panel through something akin to examination in‑chief.
1LISTNUM 1 \l 15142 THE CHAIRPERSON: Mr. Rogers?
1LISTNUM 1 \l 15143 MR. ROGERS: Mr. Chairman, very briefly.
1LISTNUM 1 \l 15144 A fair reading of the record of this proceeding, going back to the beginning, the original statements, would lead anyone to conclude that there are some fundamental differences between the approach recommended by the Bureau and that recommended by TELUS.
1LISTNUM 1 \l 15145 If you look at the definitions of the central facility, and so on, the two parties have not started in the same place at all and that was explored through the record.
1LISTNUM 1 \l 15146 Through the examination being conducted by the Bureau, in my view it is perfectly reasonable to test the boundaries and find out where there are limits, where there is commonality and where the parties cannot agree. All of that will go into the recommendations that will be made into final argument.
1LISTNUM 1 \l 15147 It seems to me it is perfectly appropriate for the Bureau to explore that.
1LISTNUM 1 \l 15148 THE CHAIRPERSON: I tend to agree with you. This is cross‑examination and obviously you can ask leading questions.
1LISTNUM 1 \l 15149 On the other hand, Ms Palumbo, maybe what you can do is tie it into what your own experts brought out. Rather than asking him what he stands for, you can say, "Our witness Dr. Ware said so‑and‑so. Do you agree with it or not?" And find out the relevance rather than doing something which sounds, I must say, very akin to direct examination.
1LISTNUM 1 \l 15150 So try to tie it back to your expert evidence.
1LISTNUM 1 \l 15151 MS PALUMBO: Dr. Crandall, the Bureau has taken the position that the impact on investment in facilities is a consideration that must go to cost‑benefit analysis when the Commission is determining whether or not to mandate access to particular facilities.
1LISTNUM 1 \l 15152 Do you agree with that?
1LISTNUM 1 \l 15153 MR. CRANDALL: I certainly agree that in telecommunications it is very important to stimulate investment in new technologies and new competitive platforms in order to provide consumer benefits. Investment is very important, yes.
1LISTNUM 1 \l 15154 MS PALUMBO: One final question for you.
1LISTNUM 1 \l 15155 Dr. Ware summarizes your view that you expressed in your textbook entitled "Competition in Chaos", and this is what he says in regard to your book.
1LISTNUM 1 \l 15156 He says:
"Crandall 2005 reviewed all of 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."
1LISTNUM 1 \l 15157 Do you agree with that characterization?
1LISTNUM 1 \l 15158 MR. CRANDALL: I do agree with that, yes.
1LISTNUM 1 \l 15159 MS PALUMBO: Thank you very much, Dr. Crandall.
1LISTNUM 1 \l 15160 Those are my questions, Mr. Chairman.
1LISTNUM 1 \l 15161 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 15162 Commissioner Cram, you had some questions?
1LISTNUM 1 \l 15163 COMMISSIONER CRAM: Dr. Crandall, how then would you explain the Canadian experience?
1LISTNUM 1 \l 15164 We have had local loop rates, initially I think at Phase 2 plus 25 per cent, and then we reduced it in 2005 to Phase 2 plus 15 per cent.
1LISTNUM 1 \l 15165 Our monitoring report shows in 2006 that the ‑‑ it is the 2006 monitoring report, which I believe is an exhibit here.
1LISTNUM 1 \l 15166 Maybe somebody can get a copy of that; and 2007.
1LISTNUM 1 \l 15167 In the 2006 it is Figure 4.2.5 and in 2007 it is Figure 4.2.2.
1LISTNUM 1 \l 15168 In the 2007 it is at page 46. And I don't have a page because this is out of the Web for the 2006.
1LISTNUM 1 \l 15169 COMMISSIONER CRAM: Do you have it?
1LISTNUM 1 \l 15170 In the very times that we reduced the margin, in the 2006 report for 2005 we had 27 per cent owned facilities by alternate telecom service providers. And in the next year it increased from 27 per cent to 41 per cent.
1LISTNUM 1 \l 15171 Now can you tell me how I should interpret that?
1LISTNUM 1 \l 15172 MR. CRANDALL: I don't know because I haven't tried ‑‑ first of all, I understand there is some dispute about the numbers. But presuming the numbers are right, I don't know where that is coming from. I don't know to what extent that is coming from perhaps cable extending into small businesses at the time when they are obviously offering a lot of VoIP telephony. There has been a huge increase in cable telephony.
1LISTNUM 1 \l 15173 So I simply don't know where that is coming from.
1LISTNUM 1 \l 15174 I don't think anything in that comparison, though, refutes the notion that providing very low cost access to incumbents' facilities at the margin reduces the incentive to invest.
1LISTNUM 1 \l 15175 There is investment going on. There is no doubt about it. It has been a prosperous time.
1LISTNUM 1 \l 15176 In your model explaining investment, you want to take into account the degree of prosperity, yes.
1LISTNUM 1 \l 15177 COMMISSIONER CRAM: You do agree with me that it is, I guess, the exact opposite of the American experience then.
1LISTNUM 1 \l 15178 MR. CRANDALL: No, I'm not sure it is the exact opposite of the American experience.
1LISTNUM 1 \l 15179 First of all, we have no evidence at this point from our Federal Communications Commission about what has happened in the last year or so to local access lines. They haven't published the data for some reason or another.
1LISTNUM 1 \l 15180 What I was referring to earlier was mostly to the mass market. Here I think you are looking entirely at the business market.
1LISTNUM 1 \l 15181 COMMISSIONER CRAM: I am, yes.
1LISTNUM 1 \l 15182 MR. CRANDALL: Yes. So it does not run counter to the United States. The United States has had a huge amount of building of alternative facilities to reach Enterprise customers and business customers as well. Whether we have had that kind of an increase in a year, as I say, I simply don't know because we don't have the numbers.
1LISTNUM 1 \l 15183 COMMISSIONER CRAM: So notwithstanding price then you have had increases, you think?
1LISTNUM 1 \l 15184 MR. CRANDALL: I don't know what has happened recently. We had enormous building of alternative facilities back in the bubble period obviously seeking to connect customers on the basis that there was going to be enormous growth in Internet traffic.
1LISTNUM 1 \l 15185 So there are other things that drive investment besides unbundled loop rates.
1LISTNUM 1 \l 15186 At this juncture I think unbundled loop rates would be very important.
1LISTNUM 1 \l 15187 COMMISSIONER CRAM: You said that ILEC Capex was down in 04‑05 because of the regulatory uncertainty.
1LISTNUM 1 \l 15188 I think it's CRTC Exhibit 1 that shows the ILEC Capex as reported by the FCC.
1LISTNUM 1 \l 15189 Can that document be given to Dr. Crandall? I have it.
1LISTNUM 1 \l 15190 It's the one from the FCC. Or do you in fact have that?
1LISTNUM 1 \l 15191 MR. CRANDALL: I don't have it with me now, sorry.
1LISTNUM 1 \l 15192 COMMISSIONER CRAM: Here, I can give you this one. I can just read off it.
1LISTNUM 1 \l 15193 You said it went up after 2004‑2005. From what I'm looking, it went up marginally.
1LISTNUM 1 \l 15194 Would you agree with that?
1LISTNUM 1 \l 15195 MR. CRANDALL: Over what period are you talking?
1LISTNUM 1 \l 15196 COMMISSIONER CRAM: You said at the end of 2004‑2005 Capex was down because of regulatory uncertainty. But Capex, really from 2005 on, has not sky‑rocketed at all. In fact, it looks to me like there is ‑‑ is that $2 billion increase in both plant ‑‑ well, plant additions?
1LISTNUM 1 \l 15197 It's not a big number.
1LISTNUM 1 \l 15198 MR. CRANDALL: Okay. You are looking at the column "Total Plant Additions" as opposed to "Telephone Plant Additions".
1LISTNUM 1 \l 15199 COMMISSIONER CRAM: Yes.
1LISTNUM 1 \l 15200 MR. CRANDALL: Well, both of them show a decline until 2003 ‑‑ 2004, I'm sorry, and then a recovery. The one shows about a 40 per cent increase 2004 to 2006, and the other one shows about a 22 per cent or so increase.
1LISTNUM 1 \l 15201 I think that is a rather substantial increase.
1LISTNUM 1 \l 15202 By the way, if you extend this now out to 2007, I think you will see it is continuing to grow because of the enormous amount being spent by Verizon and its fibre rollout.
1LISTNUM 1 \l 15203 COMMISSIONER CRAM: Yes, fibre to the home.
1LISTNUM 1 \l 15204 So you think this increase is significant.
1LISTNUM 1 \l 15205 MR. CRANDALL: Yes, I think the turnaround is significant and I think that it is driven very much by investment in new technology, namely, fiber to the home. Yes.
1LISTNUM 1 \l 15206 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 15207 THE CHAIRPERSON: Okay, thank you.
1LISTNUM 1 \l 15208 MR. McCALLUM: Mr. Chair?
1LISTNUM 1 \l 15209 THE CHAIRPERSON: Yes.
1LISTNUM 1 \l 15210 MR. McCALLUM: Miss Palumbo can correct me if I am wrong but I believe the two documents that she distributed have only been referred to in footnotes and so I would propose to make the "Competition and Chaos" document Bureau Exhibit 6 and the second one, "Do Unbundling Policies Discourage CLEC Facilities‑Based Investment?" as Bureau Exhibit 7.
EXHIBIT BUREAU‑6: Article by Robert W. Crandall entitled: Competition and Chaos, U.S. Telecommunications since the 1996 Telecom
EXHIBIT BUREAU‑7: Topics in Economic Analysis & Policy, Volume 4, Issue 1, 2004, Article 14 re: Do Unbundling Policies Discourage CLEC Facilities‑Based Investment
1LISTNUM 1 \l 15211 MS PALUMBO: That is fine.
1LISTNUM 1 \l 15212 THE CHAIRPERSON: Okay. Thank you, Miss Palumbo.
1LISTNUM 1 \l 15213 THE SECRETARY: Thank you very much.
1LISTNUM 1 \l 15214 I am calling on the Shaw panel, counsel Milton.
‑‑‑ No response / Aucune réponse
1LISTNUM 1 \l 15215 THE SECRETARY: We have been notified that she withdrew her intention to cross‑examine.
1LISTNUM 1 \l 15216 Therefore, we can move perhaps to the next panel.
1LISTNUM 1 \l 15217 THE CHAIRPERSON: Okay.
1LISTNUM 1 \l 15218 THE SECRETARY: MTS Allstream, please Mr. Koch.
1LISTNUM 1 \l 15219 THE CHAIRPERSON: Okay, Mr. Koch.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 15220 MR. KOCH: Good morning, Mr. Chairman, commissioners. Good morning, panel.
1LISTNUM 1 \l 15221 Dr. Crandall, perhaps I could just start with a couple of questions on the exhibits that were just entered.
1LISTNUM 1 \l 15222 The first exhibit was the excerpt from your book. Now, as I understand it, this book deals with the effect of the wholesale unbundling regime on incumbent spending; correct?
1LISTNUM 1 \l 15223 MR. CRANDALL: The book deals with the effect of the '96 Act on U.S. telecommunications. The effect on incumbents is part of it.
1LISTNUM 1 \l 15224 MR. KOCH: Okay. These excerpts though that have been introduced deal with incumbents?
1LISTNUM 1 \l 15225 MR. CRANDALL: Yes. Yes. I believe so, yes.
1LISTNUM 1 \l 15226 MR. KOCH: And you fairly ‑‑
1LISTNUM 1 \l 15227 MR. CRANDALL: No ‑‑ wait a minute, let me look at this. The last set of questions in that appendix dealt with incumbents. Other aspects of this deal with the entrants.
1LISTNUM 1 \l 15228 MR. KOCH: Okay. But the portions that Miss Palumbo read to you, for example, at 37 and 69 ‑‑ well actually at 69, the heading is, at the top of the page, "Effect of the 1996 Act on Incumbent Local Companies"; correct?
1LISTNUM 1 \l 15229 MR. CRANDALL: I think ‑‑ let me just check one thing.
1LISTNUM 1 \l 15230 MR. CRANDALL: Page 69 is an excerpt from a chapter entitled "Effect on the Local Incumbent Companies," yes.
1LISTNUM 1 \l 15231 MR. KOCH: Okay. And the second paragraph under the heading "Capital Expenditures" says:
"How far the wholesale unbundling regime affected Bell Companies' incentives to invest is the subject of lively debate." (As read)
1LISTNUM 1 \l 15232 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15233 MR. KOCH: And it continues to be, does it not? I mean, in fairness, you indicated that the literature is evolving in this area.
1LISTNUM 1 \l 15234 MR. CRANDALL: It does not continue to be much of a source of debate in the United States. Now, it has turned to sort of the international arena and the effect of unbundling and line sharing arrangements on capital spending to deliver broadband.
1LISTNUM 1 \l 15235 MR. KOCH: Okay. Now, you said that there was a ‑‑ my note says that you indicated there was a sharp decline in ILEC spending due in part to expansion of the unbundling regime.
1LISTNUM 1 \l 15236 What period of time were you speaking of there?
1LISTNUM 1 \l 15237 MR. CRANDALL: The decline begins around 2000. The expansion of the unbundling regime in late '99 to the UNE‑P, I think, could arguably be said to have had some impact on that.
1LISTNUM 1 \l 15238 MR. KOCH: Arguably said to have some impact?
1LISTNUM 1 \l 15239 MR. CRANDALL: Yes. Yes. Yes.
1LISTNUM 1 \l 15240 MR. KOCH: Okay. And there are other factors at play, correct?
1LISTNUM 1 \l 15241 MR. CRANDALL: Oh! Certainly. The bursting of the telecom bubble in the stock market certainly had an effect.
1LISTNUM 1 \l 15242 MR. KOCH: Okay, thank you.
1LISTNUM 1 \l 15243 The other article that Miss Palumbo referred you to, Topics in Economic Analysis and Policy, this dates it around the same time as your book, is that correct, 2004?
1LISTNUM 1 \l 15244 MR. CRANDALL: Yes, it is published a little earlier than the book.
1LISTNUM 1 \l 15245 MR. KOCH: Okay. And the analysis that you do in this paper is really based on a regression analysis; is that correct?
1LISTNUM 1 \l 15246 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15247 MR. KOCH: So you take a number of factors and you try and draw inferences or correlations between those factors?
1LISTNUM 1 \l 15248 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15249 MR. KOCH: And from that you draw whatever conclusions you do or do not draw in your paper; correct?
1LISTNUM 1 \l 15250 MR. CRANDALL: Correct.
1LISTNUM 1 \l 15251 MR. KOCH: Okay. Now, if I could ask you to turn to page 1 under the introduction, you indicate here ‑‑ there is a long paragraph. It is the second paragraph under the heading "Introduction."
1LISTNUM 1 \l 15252 You indicate, about seven or eight lines from the bottom:
"Proponents of mandatory unbundling argued that unbundled loops by themselves could generate facilities‑based investments in the future but we are unaware of any data that supports the stepping stone hypothesis. In particular, they argue that unbundled network elements would in some situations serve as a transitional arrangement until fledgling competitors could develop a customer base and complete construction of their own networks." (As read)
1LISTNUM 1 \l 15253 As I understood ‑‑ and you will have to appreciate I only have those excerpts, those parts of the article that Miss Palumbo produced today.
1LISTNUM 1 \l 15254 But as I understand it from the brief description of your regression analysis, you did a regression analysis that compares the loops that are leased under the various unbundling arrangements and the loops that are built by competitors; correct?
1LISTNUM 1 \l 15255 MR. CRANDALL: Right.
1LISTNUM 1 \l 15256 MR. KOCH: Okay.
1LISTNUM 1 \l 15257 MR. CRANDALL: It is the ratio of the two, yes.
1LISTNUM 1 \l 15258 MR. KOCH: Right. So you do not deal then ‑‑ that regression analysis does not deal then with the argument that my client, among others, are making that by making the physical layer available, there will be investment and innovation at other layers in the network; correct?
1LISTNUM 1 \l 15259 MR. CRANDALL: We do ‑‑ as Miss Palumbo indicated, we do a little analysis of what has happened to the change in facilities‑based investment over time but it is for a limited period and I would agree with you that we do not have dispositive results of whether after our period those people using unbundled loops might have built their own facilities.
1LISTNUM 1 \l 15260 I think the evidence coming out of the United States is that they did not though.
1LISTNUM 1 \l 15261 MR. KOCH: Doctor ‑‑ is it Professor Robinson or Dr. Robinson?
1LISTNUM 1 \l 15262 PROF. ROBINSON: It is professor.
1LISTNUM 1 \l 15263 MR. KOCH: Professor Robinson, welcome. Welcome to Canada.
1LISTNUM 1 \l 15264 THE CHAIRPERSON: Excuse me.
1LISTNUM 1 \l 15265 Could you just repeat what you just said, Mr. Crandall, your last statement?
1LISTNUM 1 \l 15266 MR. CRANDALL: I am sorry?
1LISTNUM 1 \l 15267 THE CHAIRPERSON: Could you repeat your last statement?
1LISTNUM 1 \l 15268 MR. CRANDALL: My very last statement was that I do not believe the evidence coming from the United States would show that those people who used either the UNE‑P, the total unbundled network platform, or loops have moved into providing their own facilities.
1LISTNUM 1 \l 15269 I mean there may be some exceptions to this among small regional players in the business market and maybe even one or two national players but I don't think ‑‑ unfortunately, we don't have the data past June 2006 but I think it is going to show that most of the facilities‑based competition in the United States for telephony is coming from the cable companies, not from people building loops who were once using the UNE‑P or UNE loops.
1LISTNUM 1 \l 15270 THE CHAIRPERSON: But doesn't that undermine the central premise of your thesis that you should not mandate these services in order to encourage investment?
1LISTNUM 1 \l 15271 MR. CRANDALL: I am not saying you should not. What we were doing is looking at the effects of unbundled loop rates on investment. I am not concluding you shouldn't do it at all.
1LISTNUM 1 \l 15272 I think you should continue to look at the effects on investment. If you find the effects on investment are sufficiently negative, it ought to cause you to be very cautious in requiring any such unbundling.
1LISTNUM 1 \l 15273 THE CHAIRPERSON: When I said you, I guess I meant your client. I mean your client TELUS, for whom you are the expert witness, is in this proceeding suggesting to us that we should not mandate anything, that essentially there are no essential services and we should only take an ex post facto approach if there is a problem somewhere and part of the reason being advanced is that mandating discourages investment.
1LISTNUM 1 \l 15274 MR. CRANDALL: Yes. Yes, and that is what I am here to testify about. I am not here to ‑‑ I haven't really spent much time with their specific proposal.
1LISTNUM 1 \l 15275 Over time, that which is an essential facility certainly must be declining and I am certainly sympathetic with the notion that one would have a contracting number of essential facilities over time but I haven't looked at it in the context of Canada.
1LISTNUM 1 \l 15276 THE CHAIRPERSON: Okay, thank you.
1LISTNUM 1 \l 15277 MR. KOCH: Professor Robinson, in your report you discuss the essential facilities doctrine that emerges from the U.S. anti‑trust jurisprudence; correct?
1LISTNUM 1 \l 15278 PROF. ROBINSON: Yes, that is correct.
1LISTNUM 1 \l 15279 MR. KOCH: Okay. And one of the things, is it fair to say, that you take from that jurisprudence is that the obligation to share a facility with a competitor is an exceptional or rare obligation under that jurisprudence?
1LISTNUM 1 \l 15280 PROF. ROBINSON: It is exceptional.
1LISTNUM 1 \l 15281 MR. KOCH: Okay. In fact, you say ‑‑ and I don't know whether it is necessary to turn up the page because I want to try and move efficiently through the cross‑examination.
1LISTNUM 1 \l 15282 You say at page 2, paragraph 5(a) of your report:
"The essential facilities doctrine is an unusual exception to the general principle that firms do not have a duty to deal with other firms and particularly not with their competitors." (As read)
1LISTNUM 1 \l 15283 Now, just so we can all understand, this jurisprudence that you are referring to, this arises out of private anti‑trust enforcement in the United States; correct?
1LISTNUM 1 \l 15284 PROF. ROBINSON: Well, the cases are private. I mean the jurisprudence is general.
1LISTNUM 1 \l 15285 MR. KOCH: Right.
1LISTNUM 1 \l 15286 PROF. ROBINSON: It is the same jurisprudence for public and private. It just happens that there are virtually no government cases.
1LISTNUM 1 \l 15287 MR. KOCH: Okay. So the cases that you are citing are about private litigants bringing private actions?
1LISTNUM 1 \l 15288 PROF. ROBINSON: That is correct.
1LISTNUM 1 \l 15289 MR. KOCH: And the cases you cite arise in a variety of industries; correct?
1LISTNUM 1 \l 15290 PROF. ROBINSON: That is correct.
1LISTNUM 1 \l 15291 MR. KOCH: Okay. Indeed, one of the seminal cases, Associated Press, is about access to the AP news pool; correct?
1LISTNUM 1 \l 15292 PROF. ROBINSON: I am sorry, I didn't hear that.
1LISTNUM 1 \l 15293 MR. KOCH: One of the seminal cases you cite, the Associated Press case, is about non‑discriminatory access to the AP News pool, correct?
1LISTNUM 1 \l 15294 PROF. ROBINSON: This is correct.
1LISTNUM 1 \l 15295 MR. KOCH: And one of the other cases, Aspen Skiing, that is the leading case you say on unilateral refusal to deal, that arose in the ski industry, correct?
1LISTNUM 1 \l 15296 PROF. ROBINSON: Yes, that was not an essential facilities doctrine case.
1LISTNUM 1 \l 15297 MR. KOCH: Okay. But it is one of the body of jurisprudence that you cite in your report?
1LISTNUM 1 \l 15298 PROF. ROBINSON: I don't cite it as an essential facilities doctrine case.
1LISTNUM 1 \l 15299 MR. KOCH: I am not saying you are.
1LISTNUM 1 \l 15300 PROF. ROBINSON: Oh, yes I do.
1LISTNUM 1 \l 15301 MR. KOCH: Professor Robinson, thank you.
1LISTNUM 1 \l 15302 Now, in this general context of the general economy would you have been surprised if the court had held there was a general duty to share?
1LISTNUM 1 \l 15303 PROF. ROBINSON: Yes, I would be very surprised.
1LISTNUM 1 \l 15304 MR. KOCH: Okay. In your report at page 19 you cite the U.S. Supreme Court's 2004 decision in Verizon and Trinko, you go from page 19 over to 20. Just so we can move through it quickly, Professor Robinson, you will agree with me that was a case regarding the alleged failure of Verizon, a U.S. ILEC, to provide adequate access to unbundled elements of its local exchange network, correct?
1LISTNUM 1 \l 15305 PROF. ROBINSON: That is correct.
1LISTNUM 1 \l 15306 MR. KOCH: And you say in your report, the Supreme Court did not accept or reject the essential facilities doctrine in that case, but simply held that it served no purpose where regulatory remedies were available, correct?
1LISTNUM 1 \l 15307 PROF. ROBINSON: That is correct.
1LISTNUM 1 \l 15308 MR. KOCH: Okay. So that case, is it not fair to say, stands to the proposition that there is no role for private antitrust enforcement in the context of an industry subject to a specific regulatory scheme such as the U.S. Telecom Act of 1996, correct?
1LISTNUM 1 \l 15309 PROF. ROBINSON: As a matter of antitrust law, yes, that is the way I interpret it.
1LISTNUM 1 \l 15310 MR. KOCH: In other words, the point of Trinko is that antitrust laws were not the proper route where a statutory scheme existed that was directly applicable to the telecommunications industry?
1LISTNUM 1 \l 15311 PROF. ROBINSON: At least as a matter of private enforcement, yes.
1LISTNUM 1 \l 15312 MR. KOCH: Now, is the statutory regime for unbundling of network elements in the U.S. 1996 Act based on U.S. antitrust doctrine of essential facilities?
1LISTNUM 1 \l 15313 PROF. ROBINSON: No, it is not.
1LISTNUM 1 \l 15314 MR. KOCH: No. Are you familiar with the statutory regime set out in the Telecommunications Act in Canada?
1LISTNUM 1 \l 15315 PROF. ROBINSON: Am I familiar with the statutory regime?
1LISTNUM 1 \l 15316 MR. KOCH: Yes.
1LISTNUM 1 \l 15317 PROF. ROBINSON: Only in a very general way.
1LISTNUM 1 \l 15318 MR. KOCH: Okay. Are you aware that the Act gives the federal cabinet the power to bury CRTC decisions and also to issue general policy directions to the CRTC?
1LISTNUM 1 \l 15319 PROF. ROBINSON: Yes.
1LISTNUM 1 \l 15320 MR. KOCH: Okay. Are you aware that the federal cabinet in Canada has in fact articulated a policy in favour of facilities‑based competition?
1LISTNUM 1 \l 15321 PROF. ROBINSON: Yes.
1LISTNUM 1 \l 15322 MR. KOCH: In this context, are you aware that the federal cabinet has defined facilities‑based competition or competitors as including those who compete, using a combination of their own facilities and facilities leased from incumbents, in other words shared facilities?
1LISTNUM 1 \l 15323 PROF. ROBINSON: Are you referring to the forbearance variation order?
1LISTNUM 1 \l 15324 MR. KOCH: Yes, I am.
1LISTNUM 1 \l 15325 PROF. ROBINSON: Yes, I am familiar.
1LISTNUM 1 \l 15326 MR. KOCH: Okay. We talked about what would be surprising in a private antitrust context in the United States. I think you agreed that it would have been surprising to find that there was a general obligation to share. But would you not agree with me that in the context of a specific statutory regime such as the Telecom Act and, specifically, the government's recognition that it was promoting facilities‑based competition and including in its definition of facilities‑based competitors those that use both their own facilities and leased facilities that it would be far less surprising if the Commission were to treat the obligation to share essential facilities not as an exceptional obligation but rather as a necessary part of its mandate?
1LISTNUM 1 \l 15327 That's a long question, sorry.
1LISTNUM 1 \l 15328 PROF. ROBINSON: Mr. Koch, I think you lost me there. I don't whether we are talking about the U.S. or we are talking about Canada at this point.
1LISTNUM 1 \l 15329 MR. KOCH: Okay, we are talking about Canada.
1LISTNUM 1 \l 15330 PROF. ROBINSON: When you asked me before about would I be surprised, it was in reference to would I be surprised about the U.S. experience.
1LISTNUM 1 \l 15331 MR. KOCH: Correct, and the private antitrust litigation experience.
1LISTNUM 1 \l 15332 PROF. ROBINSON: Yes.
1LISTNUM 1 \l 15333 MR. KOCH: That was the context.
1LISTNUM 1 \l 15334 PROF. ROBINSON: Yes. I don't ‑‑ yes.
1LISTNUM 1 \l 15335 MR. KOCH: The point I am making is it would be a lot less surprising, I am suggesting to you, in the context of a commission like this one with a statutory mandate and with a government that has told it that it favours facilities‑based competition including, from competitors sharing facilities, to find that the obligation to share essential facilities is not such an exceptional obligation.
1LISTNUM 1 \l 15336 PROF. ROBINSON: Well, the premise of your question seems to rest on the forbearance order and I don't know why that would be pertinent here. I mean, we are not talking about forbearance, we are talking about mandatory access.
1LISTNUM 1 \l 15337 MR. KOCH: But you understand that the Commission has to make its decision in the context of the overall regulatory scheme in Canada?
1LISTNUM 1 \l 15338 PROF. ROBINSON: Well yes, of course.
1LISTNUM 1 \l 15339 MR. KOCH: Okay. And that would include the retail forbearance?
1LISTNUM 1 \l 15340 PROF. ROBINSON: Well, I don't know what you are getting at. It doesn't follow that it would have to include the definition of facilities‑based competition used in the forbearance variation order if that is what you mean. I don't see the connection.
1LISTNUM 1 \l 15341 MR. KOCH: Well, I won't take you into interpreting Canadian law. Perhaps I'll go to the next area of my cross‑examination.
1LISTNUM 1 \l 15342 Is it Dr. Crandall or Professor Crandall with you?
1LISTNUM 1 \l 15343 MR. CRANDALL: Well, I'm a PhD and I don't teach at this time, so call me Mr. Crandall, I don't care.
‑‑‑ Laughter / Rires
1LISTNUM 1 \l 15344 MR. KOCH: Once I had a case where someone went from being Dr. to Mr. to witness, I will try not to take you down that path, Dr. Crandall.
1LISTNUM 1 \l 15345 As I understand it, you filed two pieces. You filed one in respect of the U.S. ‑‑
1LISTNUM 1 \l 15346 MR. CRANDALL: Experience, yes.
1LISTNUM 1 \l 15347 MR. KOCH: ‑‑ experience and one in respect of the UK experience, correct?
1LISTNUM 1 \l 15348 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15349 MR. KOCH: Okay. The one on the U.S. was intended as a response to Dr. Selwyn, correct?
1LISTNUM 1 \l 15350 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15351 MR. KOCH: Now, if I could ask you to turn up that piece perhaps.
1LISTNUM 1 \l 15352 Do you have that, Dr. Crandall?
1LISTNUM 1 \l 15353 MR. CRANDALL: Yes, I do.
1LISTNUM 1 \l 15354 MR. KOCH: At page 7 of that piece, Dr. Crandall, at paragraph 17 you say:
"If competition has been damaged by the change in U.S. unbundling policy one should begin to see evidence of this damage in the price of U.S. telephone service, however, no such evidence exists." (As Read)
1LISTNUM 1 \l 15355 Figure 1 shows no reversal in the downward trend in real wireline telephone prices since 2004.
1LISTNUM 1 \l 15356 Local wireline telephone rates rose during the period in which SILECs were expanding, largely because of regulatory decisions to shift per‑minute switched access charges to fixed‑line charges. Since 2003, however, both local and long‑distance prices have been declining because of aggressive competition from wireless cable and the SILECs that remain.
1LISTNUM 1 \l 15357 Now if, we go over to the next page you have a Figure 1 which speaks to the real consumer price indexes for telephone service that you cite to the U.S. Bureau of Labour, the statistics.
1LISTNUM 1 \l 15358 MR. CRANDALL: Yes.
1LISTNUM 1 \l 15359 MR. KOCH: What type of telephone services are included in this?
1LISTNUM 1 \l 15360 MR. CRANDALL: There is two; one is wireline and the other is wireless cellular.
1LISTNUM 1 \l 15361 MR. KOCH: Okay. Because this does not include the enterprise market?
1LISTNUM 1 \l 15362 MR. CRANDALL: No, this does not include business rates, that is right, yes.
1LISTNUM 1 \l 15363 MR. KOCH: Okay. And would you agree with me the situation, whatever it is for the residential market where there has been significant cable entry, is different for the enterprise market?
1LISTNUM 1 \l 15364 MR. CRANDALL: It could be different, I don't know how different it really is. I was not addressing that, because what I was addressing here was what was the effect of the change in U.S. unbundling policy, namely the dropping of the UNEP, and that was entirely in the residential mass market, or preponderantly in the mass market, so I was looking at consumer rates.
1LISTNUM 1 \l 15365 MR. KOCH: Okay. So your evidence doesn't speak to what has happened in the enterprise market in the United States?
1LISTNUM 1 \l 15366 MR. CRANDALL: No, it does not.
1LISTNUM 1 \l 15367 MR. KOCH: Okay, thank you.
1LISTNUM 1 \l 15368 THE CHAIRPERSON: On that figure the short graph, which has the square boxes, is called all telephone services. Does that include internet access?
1LISTNUM 1 \l 15369 MR. CRANDALL: Does that include ‑‑ I am sorry?
1LISTNUM 1 \l 15370 THE CHAIRPERSON: Internet access.
1LISTNUM 1 \l 15371 MR. CRANDALL: No. I am saying that on recollection, I don't believe it does. We could look it up, but I'm pretty sure it does not.
1LISTNUM 1 \l 15372 MR. KOCH: Now, Dr. Weisman, if I could go to you next please.
1LISTNUM 1 \l 15373 And with you, Dr. Weisman, I would like to ‑‑ now, you are doctor and professor, right?
1LISTNUM 1 \l 15374 DR. WEISMAN: Whatever you would like, Mr. Koch.
1LISTNUM 1 \l 15375 MR. KOCH: I rarely have a witness that is that agreeable with me, Dr. Weisman.
1LISTNUM 1 \l 15376 Dr. Weisman, the concept I want to discuss with you, you filed a lot of pages here, but the one that is interesting to me is the concept of consumer welfare over the long run, which you address in your second report, correct?
1LISTNUM 1 \l 15377 DR. WEISMAN: Yes.
1LISTNUM 1 \l 15378 MR. KOCH: And so this is dealing with you supplementary evidence starting at page 17. And I will be taking Dr. Weisman to that evidence, Mr. Chairman, so it might be useful to turn it up.
1LISTNUM 1 \l 15379 In your report, your supplemental report, you speak to tradeoffs between static and dynamic efficiency, you recall that?
1LISTNUM 1 \l 15380 DR. WEISMAN: I do.
1LISTNUM 1 \l 15381 MR. KOCH: Okay. And you observe ‑‑ and this discussion starts, in fact, at page ‑‑ well, the discussion of the standard of consumer welfare over the long‑run starts at page 17 and you observe virtually every party to this proceeding has paid homage to the promotion of consumer welfare as the objective of telecommunications policy. And yet, there is precious little agreement as to the precise avenue, the scope of forced sharing obligations through which this objective would be realized.
1LISTNUM 1 \l 15382 Now, you attempt in your report to explain the difference of opinion as a trade off between static and dynamic efficiency. Do you recall that?
1LISTNUM 1 \l 15383 DR. WEISMAN: I talk about the differences between static and dynamic efficiency and its bearing on this case with regard to the scope of unbundling, that's true.
1LISTNUM 1 \l 15384 MR. KOCH: Okay. You suggest that a policy of broader unbundling may introduce a larger number of competitors and lower prices, but you characterize that as static efficiency; correct?
1LISTNUM 1 \l 15385 DR. WEISMAN: It might be one measure of static efficiency, competition in the short run perhaps moving prices closer to a more incremental cost.
1LISTNUM 1 \l 15386 MR. KOCH: And you characterize as dynamic efficiency, or dynamically efficient, I should say, those policies that incent greater investment and innovation; correct?
1LISTNUM 1 \l 15387 DR. WEISMAN: Yes, it would be the flow of the innovation over time, including new products and services and new production processes.
1LISTNUM 1 \l 15388 MR. KOCH: Okay. Now, so new products and services, new production processes, those would be examples of dynamic efficient ‑‑ considerations of dynamic efficiency; correct?
1LISTNUM 1 \l 15389 DR. WEISMAN: They would generally, yes.
1LISTNUM 1 \l 15390 MR. KOCH: Okay, thank you.
1LISTNUM 1 \l 15391 Now, I'd like you ‑‑ and, Mr. Chairman, I'm violating all my sense of better judgment to cross‑examine an economist on graphs, but I'm going to try anyways.
1LISTNUM 1 \l 15392 If you could turn to Figure 1 on page 22 of your report, please.
1LISTNUM 1 \l 15393 DR. WEISMAN: I have it.
1LISTNUM 1 \l 15394 MR. KOCH: Perhaps this might be a good time, Madam Secretary, to hand out my one‑pager with two alternate scenarios.
1LISTNUM 1 \l 15395 Sure. One of them I may not be using, so it could ‑‑ yeah.
1LISTNUM 1 \l 15396 THE SECRETARY: Your graph, counsel, will be Exhibit No. 16.
EXHIBIT MTS‑16: Alternate Scenario 1 re: Significant Price Increase ‑ Modest Demand Increase due to reduced ILEC incentives to innovate & Alternate Scenario 2 re: Price Decrease ‑ Demand Increase due to increased competition and innovation
1LISTNUM 1 \l 15397 MR. KOCH: Here goes. This Figure 1, can you just explain for the Commissioners what you intended to demonstrate through this figure?
1LISTNUM 1 \l 15398 DR. WEISMAN: Yes. The basic idea here is to capture the notion that by expanding the scope of unbundling you may get ‑‑ in the short run you may get downward pressure on price and that benefits consumers because they pay less for the goods and services that they consume; on the other hand, it may come with the cost of foregone innovation and investment over time.
1LISTNUM 1 \l 15399 For example, it's widely accepted in the economics literature that if you want to encourage investment you have to have strong property rights and strong appropriability, and that's a fancy way simply of saying that when firms invest their capital they will only invest when they expect to capture the return or appropriate the returns on that investment.
1LISTNUM 1 \l 15400 Unbundling represents a form ‑‑ excuse me, mandatory unbundling represents a form of appropriating the returns that a firm might normally expect from the investments that it makes.
1LISTNUM 1 \l 15401 So, if it doesn't expect to appropriate the full returns, it may cut back on its investment. And my understanding of the literature is that that is what has happened with unduly broad unbundling.
1LISTNUM 1 \l 15402 MR. KOCH: Now, we've discussed the literature with Dr. Crandall a little bit, so we won't get there ‑‑ we won't go there.
1LISTNUM 1 \l 15403 You say under the ‑‑ in paragraph 47 under the figure you explain that:
"In light of the empirical evidence that suggests that unbundling has had only a marginal effect on price competition (a) is small." (As read)
1LISTNUM 1 \l 15404 Now, you acknowledge that there is literature that demonstrates then that the effect of unbundling has been to lower prices?
1LISTNUM 1 \l 15405 DR. WEISMAN: No, I was actually referencing there, intentionally so, the Competition Bureau's assessment that the effects on competitive intensity of unbundling in Canada have been small or modest.
1LISTNUM 1 \l 15406 I don't remember the exact adjective they used.
1LISTNUM 1 \l 15407 MR. KOCH: So, you're just making a reference over to their characterization of the benefits as being small?
1LISTNUM 1 \l 15408 DR. WEISMAN: In this particular case, yes, for this particular example.
1LISTNUM 1 \l 15409 MR. KOCH: So, you have no particular number when you move the line for the price with ‑‑ let's just go through the graph.
1LISTNUM 1 \l 15410 P0 is the price before the mandated unbundling is expanded; correct?
1LISTNUM 1 \l 15411 DR. WEISMAN: P0 would be the price ‑‑
1LISTNUM 1 \l 15412 MR. KOCH: I'm sorry, before it's restricted.
1LISTNUM 1 \l 15413 DR. WEISMAN: P0 is the price that you might expect in this example with regard to a broad unbundling policy.
1LISTNUM 1 \l 15414 MR. KOCH: Okay. And P1 is the price with a narrower unbundling policy; correct?
1LISTNUM 1 \l 15415 DR. WEISMAN: With a scaled back unbundling policy you might get, might get some increase in price, but also would be expected to stimulate some investment because the ability‑‑
1LISTNUM 1 \l 15416 MR. KOCH: I'm just asking about P0 and P1. We'll get to D0 and D1 in a moment.
1LISTNUM 1 \l 15417 DR. WEISMAN: P1 would be the price when you scaled back in this example ‑‑
1LISTNUM 1 \l 15418 MR. KOCH: Okay.
1LISTNUM 1 \l 15419 DR. WEISMAN: ‑‑ the scope of unbundling.
1LISTNUM 1 \l 15420 MR. KOCH: So, this graph assumes a higher price with less mandated unbundling; correct?
1LISTNUM 1 \l 15421 DR. WEISMAN: Yeah, underscoring assumes.
1LISTNUM 1 \l 15422 MR. KOCH: Yes. Well, that's exactly what I'm going to underscore. And it also assumes that by narrowing the mandated unbundling, or narrowing unbundling generally you will, in fact, increase investment and innovation; correct?
1LISTNUM 1 \l 15423 DR. WEISMAN: Well, again, I ‑‑ following the Bureau and the evidence that they cite regarding the effect of broad unbundling on investment, that is brought into this graph in the sense that it shifts the demand curve D0 out to D1 when the unbundling regime is scaled back.
1LISTNUM 1 \l 15424 MR. KOCH: Okay. So, you're just referencing the Bureau evidence; correct?
1LISTNUM 1 \l 15425 DR. WEISMAN: Well, the Bureau evidence cites a number of studies, including studies of Dr. Crandall, Professor Hazelet that attest to this fact.
1LISTNUM 1 \l 15426 MR. KOCH: Right. And they don't cite other studies; correct? They don't cite the studies that Dr. Ware cited, for example; correct?
1LISTNUM 1 \l 15427 DR. WEISMAN: My recollection is that Dr. Ware cited an article in Telecom Policy which, to be quite honest, is not a journal that you would look to to ‑‑ as necessarily a reference for this type of analysis.
1LISTNUM 1 \l 15428 MR. KOCH: So, the answer is they did not cite what Dr. Ware cited; correct?
1LISTNUM 1 \l 15429 DR. WEISMAN: That's correct.
1LISTNUM 1 \l 15430 MR. KOCH: Okay. They also didn't acknowledge what another witness, Dr. Hatfield ‑‑ or Mr. Hatfield with experience on the technology side at the FCC acknowledged, which was that if you expand unbundling at the physical layer you can incent innovation at higher levels ‑‑ higher layers within the protocol stack; correct?
1LISTNUM 1 \l 15431 DR. WEISMAN: Well, I heard Mr. Hatfield say that, but that is not the view of the FCC regarding their reasons for scaling back unbundling. They viewed it as having an adverse effect, broad unbundling having an adverse effect on investment.
1LISTNUM 1 \l 15432 MR. KOCH: The lines that you draw here though, what determined how far you drew the D1 line from the D0 line? It's illustrative only; is it not?
1LISTNUM 1 \l 15433 DR. WEISMAN: It is illustrative but informed by the facts. For example, the Competition Bureau's conclusion that the effects of unbundling in Canada in terms of competitive intensity have been modest, so given that they believe it was modest, it moved modestly up from P0 to P1.
1LISTNUM 1 \l 15434 And given that they believe that, as did the TPR, that broad unbundling in Canada had served to significantly curtail investment, that shift out of the demand curve from D0 to D1 would be reflective of the foregone innovation and investment associated with that which would not take place under a broad unbundling regime.
1LISTNUM 1 \l 15435 MR. KOCH: But there's no mathematical ‑‑ other than those broad descriptors, there's no mathematical formula that's determining how far you're moving D1 over from D0?
1LISTNUM 1 \l 15436 DR. WEISMAN: Well, we could do that but it wouldn't add to the analysis. I told you, it was based on the fact that it was modest price intensity associated with foregone innovation of significant magnitude.
1LISTNUM 1 \l 15437 So, I think the graph is informed by those facts.
1LISTNUM 1 \l 15438 MR. KOCH: Well, informed by the Bureau's characterization of the record; correct?
1LISTNUM 1 \l 15439 DR. WEISMAN: Which cites the broader literature in general.
1LISTNUM 1 \l 15440 MR. KOCH: Okay. Now, if you look at my alternate scenarios 1 and 2, please. If you could look first ‑‑ which I provided to your counsel last night ‑‑ alternate scenario 1, here I've assumed directionally the same movements, in other words, that within a limited or limitations on unbundling there will be a price increase and I've also assumed, for purposes of argument and illustration only, the Bureau's position that the demand ‑‑ that innovation and investment will expand as a result of restricting unbundling, but I've drawn the lines differently so that the increase is large in price; correct, and the increase in demand is small. Do you see that?
1LISTNUM 1 \l 15441 DR. WEISMAN: Yes, I do.
1LISTNUM 1 \l 15442 MR. KOCH: Okay. And under those assumptions ‑‑ that set of assumptions, you'll agree with me that the consumer surplus goes from A+B, that triangle; correct?
1LISTNUM 1 \l 15443 DR. WEISMAN: Correct.
1LISTNUM 1 \l 15444 MR. KOCH: I'm sorry, the consumer surplus that was first at B+C ‑‑ now, I'm getting confused. This is exactly why I said I shouldn't do this.
1LISTNUM 1 \l 15445 If you would just give me a moment, please.
1LISTNUM 1 \l 15446 MR. KOCH: Yes, it goes from A+B to B+C; correct? So, on this set of assumptions, in fact, the consumer surplus shrinks; correct, under a more restrictive unbundling?
1LISTNUM 1 \l 15447 DR. WEISMAN: If you change the assumptions that are not consistent with the facts you will get a different outcome as you have done here.
1LISTNUM 1 \l 15448 MR. KOCH: Well, not consistent with one version of the facts; correct? There's been a different version of the facts here; has there not, at this hearing?
1LISTNUM 1 \l 15449 DR. WEISMAN: Well, let's separate out the empirical from the theoretical. It is widely accepted in the economics literature, I've quoted some of that here, that the gains ‑‑ the consumer welfare gains from dynamic efficiency, new products and services over time, dominate the short‑run gains from static deficiency.
1LISTNUM 1 \l 15450 MR. KOCH: But how we get ‑‑
1LISTNUM 1 \l 15451 DR. WEISMAN: That's a theoretical proposition.
1LISTNUM 1 \l 15452 MR. KOCH: But how we get to the dynamic efficiency, there are different theories as to how we can accomplish those dynamic efficiency gains; correct?
1LISTNUM 1 \l 15453 DR. WEISMAN: There may be different views on that, yes.
1LISTNUM 1 \l 15454 MR. KOCH: Thank you.
1LISTNUM 1 \l 15455 Alternate scenario 2, if I could ask you to flip the page and look at that. Here, rather than under scenario 1, where I stuck with your theory that we were moving from broader unbundling to narrow unbundling, under scenario 2 we have a scenario that we move from narrower unbundling to broader unbundling, and we have two effects: the price goes down, which is broadly consistent with your Figure 1, where the price had gone up in the other scenario, and in this case the increase in unbundling has a positive effect, does it not, on this set of assumptions, on incentives to invest and innovate. Correct?
1LISTNUM 1 \l 15456 DR. WEISMAN: Yes, the way you constructed this graph, you do get that effect.
1LISTNUM 1 \l 15457 The way you have constructed the graph is diametrically at odds with the conclusions of the TPR regarding ‑‑ one of the adverse effects of broad‑scale unbundling is this uniformity of networks, where you don't get this innovation.
1LISTNUM 1 \l 15458 So I don't deny the fact that you have created a graph that comes to the conclusion you have suggested. What I am suggesting is it doesn't agree with the facts.
1LISTNUM 1 \l 15459 Furthermore, if your policy is ‑‑
1LISTNUM 1 \l 15460 MR. KOCH: Are you aware of what ‑‑
1LISTNUM 1 \l 15461 DR. WEISMAN: Excuse me, Mr. Koch, let me finish.
1LISTNUM 1 \l 15462 MR. KOCH: Go ahead.
1LISTNUM 1 \l 15463 DR. WEISMAN: If you policy is correct, on a broad national scale we ought to equip the Competition Bureau with a fleet of cars and send them out across the country, and any time they identify market power they slap a sharing mandate on that firm. Okay?
1LISTNUM 1 \l 15464 And if you think that's a good public policy, I would ask you why we don't observe that? We don't observe that because sharing is very exceptional and we recognize that the costs of sharing, mandated sharing, are very high. We don't do that as a matter of public policy.
1LISTNUM 1 \l 15465 MR. KOCH: We don't have many industries, do we, where we have had 125 ‑‑ or 110‑year monopoly?
1LISTNUM 1 \l 15466 The point of this illustration is that the effect on consumer welfare really depends on the assumptions that you make regarding price and innovation as a result of different policies. Correct?
1LISTNUM 1 \l 15467 DR. WEISMAN: Well, that's the whole point, Mr. Koch. The graph is informed by the facts. You have set up a series of other graphs that are not informed by the facts and come to diametrically opposite conclusions. So you have assumed facts not in evidence here.
1LISTNUM 1 \l 15468 MR. KOCH: Okay. The other facts that are in evidence here, and have to be weighed by the CRTC, you would agree with me, would you not, that if the CRTC, after weighing those facts, determines that they can incent greater innovation by expanding unbundling, then the consumer welfare calculation would look like my scenario 2. Correct?
1LISTNUM 1 \l 15469 The CRTC is the determiner of the facts not you, Dr. Weisman. Correct?
1LISTNUM 1 \l 15470 DR. WEISMAN: No, but you asked me about the facts that informed my graph, and I told you what they were. Certainly, the ‑‑
1LISTNUM 1 \l 15471 MR. KOCH: And those were not cited ‑‑
1LISTNUM 1 \l 15472 DR. WEISMAN: ‑‑ Commission can weigh the evidence that it wants.
1LISTNUM 1 \l 15473 MR. KOCH: Okay, but those were not cited in your report, correct, it's the facts that you are telling me...?
1LISTNUM 1 \l 15474 DR. WEISMAN: Yes, they were.
1LISTNUM 1 \l 15475 I talked about the Bureau's conclusions regarding the modest effects of competitive intensity and the fact that they had come to the conclusion that there is absolutely no empirical support in the academic literature for the stepping‑stone hypothesis. Both of those are cited in my report.
1LISTNUM 1 \l 15476 MR. KOCH: Both of those are cited in your report, although not here in connection with this graph. Is that correct?
1LISTNUM 1 \l 15477 DR. WEISMAN: Not in this immediate vicinity, but in this second round of testimony it is.
1LISTNUM 1 \l 15478 MR. KOCH: Now, Dr. Aron, perhaps I could move to you, and you are both a professor and a doctor, as well, correct?
1LISTNUM 1 \l 15479 DR. ARON: Yes, I am.
1LISTNUM 1 \l 15480 MR. KOCH: Great.
1LISTNUM 1 \l 15481 Now, your piece deals with the pricing of essential facilities. Correct?
1LISTNUM 1 \l 15482 DR. ARON: Pricing principles, yes.
1LISTNUM 1 \l 15483 MR. KOCH: Pricing principles. And, in fact, at the end of the day, your recommendations are restricted to principles to be applied. Correct?
1LISTNUM 1 \l 15484 DR. ARON: Yes. And not just to essential facilities, but for non‑essential facilities during the transition to competition.
1LISTNUM 1 \l 15485 MR. KOCH: Okay. But you don't have any specific recommendations as to how the Commission should go about its job of pricing these facilities. Correct?
1LISTNUM 1 \l 15486 DR. ARON: Well, I do have specific recommendations with respect to the principles ‑‑
1LISTNUM 1 \l 15487 MR. KOCH: Correct.
1LISTNUM 1 \l 15488 DR. ARON: ‑‑ that should be applied, but this proceeding is not, as I understand it, about establishing prices, but rather the Commission asked for evidence on pricing principles. So that's what I have provided.
1LISTNUM 1 \l 15489 MR. KOCH: So you stop at the level of principle. Correct?
1LISTNUM 1 \l 15490 DR. ARON: Yes.
1LISTNUM 1 \l 15491 MR. KOCH: That's all my question is meant to establish. Thank you, Dr. Aron.
1LISTNUM 1 \l 15492 Now, at page 14 of your report, you state, I think, with admirable candour:
"As will become clear throughout my statement, the fundamental reality demonstrated in the economics literature is that although each principle is important, there is no single solution that satisfies all of the above principles simultaneously. Any real‑world solution is necessarily a compromise among conflicting objectives." (As read)
1LISTNUM 1 \l 15493 You will agree with me that's the challenge the Commission faces in this area. Correct?
1LISTNUM 1 \l 15494 DR. ARON: It is, yes.