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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:
Expedited procedure for resolving a competitive issue - Telecom application /
Procédure accélérée de règlement des questions de concurrence - Demande de télécom
HELD AT: TENUE À:
Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
January 22, 2009 Le 22 janvier 2009
In order to meet the requirements of the Official Languages Act, transcripts of proceedings before the Commission will be bilingual as to their covers, the listing of the CRTC members and staff attending the public hearings, and the Table of Contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is taped and transcribed in either of the official languages, depending on the language spoken by the participant at the public hearing.
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
Transcript / Transcription
Expedited procedure for resolving
a competitive issue - Telecom application /
Procédure accélérée de règlement des questions de concurrence - Demande de télécom
BEFORE / DEVANT:
Konrad von Finckenstein
Chairperson / Président
Leonard Katz Commissioner / Conseiller
Rita Cugini Commissioner / Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
Secretary / Secretaire
Anthony McIntyre Legal Counsel /
Crystan Hulley Conseillers juridiques
Christine Bailey Regional Administrative Officer / Agente
Kathleen Taylor Manager, Consumer Affairs /
Gerald Lylyk Director, Consumer Affairs/
HELD AT: TENUE À:
Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
Opening remarks on behalf of PWGSC 5 / 34
Opening remarks on behalf of Bell Canada 15 / 95
Closing remarks on behalf of PWGSC 60 / 383
Closing remarks on behalf of Bell Canada 64 / 412
Gatineau , Québec / Gatineau (Québec)
--- Upon commencing on Thursday, January 22, 2009
at 0908 / L'audience débute le jeudi
22 janvier 2009 à 0908
1 THE CHAIRPERSON: Good morning, everybody.
2 As you know, this is an expedited hearing under the Telecom Act. This is a very complicated issue, it involves both jurisdiction and quantum. The Panel has decided that we are going to do it in two parts.
3 We will do the first part exclusively on jurisdiction. I would like to hear arguments from both sides as to why we have jurisdiction or we do not have jurisdiction. That's a point of contention.
4 After which we will go in camera because of my binder here. As you can see, 90 per cent is pink, which is confidential, so I cannot ask sufficient questions if I have to think "Is this on the public record or is it not", et cetera. So the part on quantum will be done in camera.
5 I trust the parties are in agreement with it or have no problem. What I expect is for you to decide who from your team you want for the in camera or not. If anybody has a problem with the team from the opposing side, we will deal with that at the beginning of the in camera session.
6 Okay? Is that understood?
7 Are you in agreement with that?
8 MS MILTON: Just a question of clarification.
9 We have prepared opening statements which do combine the issues. Are you expecting us to bifurcate the opening statements or can we --
10 THE CHAIRPERSON: Yes, I expect you to. As I say, I appreciate this is new and you have to do a bit on the fly, but I'm sure it's not the end of the world.
11 As I said, we will have a break after we hear the jurisdictional argument and if then there is some problem as to the composition of each opposing team let's raise it then before we start the part dealing with quantum.
12 I'm sorry, Ms -- my eyes aren't good enough, I can't read your -- Milton . I can't read your sign there.
13 If you would prefer to do the entire you can do it, but it just unnecessarily, in my view, clutters the issue. I would like to be able to --
14 And you, Mr. Bibic, if you can I would prefer to separate them.
15 Do you have any problem with it?
16 MS MILTON: No. What I would propose to do is in my initial opening I will do some background information and then go directly to jurisdiction.
17 THE CHAIRPERSON: Yes.
18 MS MILTON: So it will be a bit longer than the second opening, but I'm comfortable with whatever Mirko wants to do.
19 MR. BIBIC: While Ms Milton gives her opening statement I will start drafting something.
--- Laughter / Rires
20 THE CHAIRPERSON: Good. Okay. Let's do it on that basis then.
21 Ms Milton, the floor is yours, but before we go, Madam Secretary, you have some procedural announcements to make.
22 THE SECRETARY: Good morning and welcome to all. My name is Sheila Perron and I will be your Hearing Secretary for this hearing. The Panel this morning consists of Konrad von Finckenstein, Chairman of the CRTC, who will preside over this hearing; Len Katz, Vice-Chairman, Telecommunications; and Rita Cugini, Commissioner for the Ontario Region.
23 Before we begin, I would like to say a few words about the administration of this hearing.
24 The parties will be asked to introduce the members of their respective teams. The applicant, Public Works and Government Services Canada, followed by the respondent, Bell Canada , will each have 10 minutes for opening remarks.
25 Following these remarks, the parties will be questioned, first by the Commission, then the applicant and the respondent will each have 20 minutes to question each other and the Commission will end with its final questions.
26 The Commission will not entertain written final argument; rather, parties will have 10 minutes at the end of the hearing to make final oral submissions.
27 There is a verbatim transcript of this hearing being taken by the court reporter. In order to ensure that the court reporter is able to produce an accurate transcript, please make sure to turn on your microphone when speaking. If you have any questions on how to obtain all or part of the transcript, please approach the court reporter at the end of the hearing.
28 We ask you to ensure that all cell phones and pagers are turned off at all times while you are in the hearing room.
29 We will begin with opening remarks by the applicant, Public Works and Government Services, which will have 10 minutes to make their presentation.
30 Before beginning your remarks, please I would ask that the applicant introduce the members of their team.
31 Thank you.
32 Please go ahead.
33 THE CHAIRPERSON: Ms Milton, the floor is yours.
OPENING REMARKS ON BEHALF OF PWGSC /
REMARQUES D'OUVERTURE AU NOM DE TPSGC
34 MS MILTON: Good morning, Mr. Chairman, Vice-Chairman Katz, Commissioner Cugini, I am Leslie Milton, counsel to Public Works in this matter.
35 To my immediate right is Brenda Wyber, Manager Telecom Services Procurement Section Public Works. Mrs. Wyber has been involved in the procurement process for the telecom services in issue in this proceeding and the various negotiations and steps taken by the parties.
36 To the right of Mrs. Wyber is Winston Sorfleet, Director Information Management Services Department of National Defence and he is Deputy Project Director at DND for the telecom services project in issue.
37 To the right of Mr. Sorfleet is Katherine Hamill, counsel to Public Works. And to the right of Mrs. Hamill is Anne Ko, also counsel to Public Works.
38 Also in attendance today to assist the Public Works witnesses if necessary -- and they are in the corner at the chairs behind -- Lieutenant-Colonel François Viens of Department of National Defence and Project Manager for the Global Defence National Services Contract; and Irma-Lee Dostaler and Peter Kwok of Public Works.
39 Before I start my opening just two quick housekeeping remarks.
40 First of all, Public Works discovered last night that there was an error in one of the tables they filed in response to an interrogatory yesterday. We have provided the revised version to Bell this morning and copies to the Hearing Secretary.
41 The second housekeeping matter is that we have come with copies of our opening statement. We came with a confidential version and an abridged version. The Hearing Secretary has those and I believe the confidential version has been provided to the Commissioners and to Bell .
42 As I make my opening remarks, I would ask you to try to follow the opening statement, because we believe that the confidential numbers are important, but I won't be stating them for the public record.
43 I am going to be leaping around in that opening statement on the fly, but hopefully this works.
44 THE CHAIRPERSON: Your statement is confidential. We kept it confidential, but, of course, everything you say right now will be webcast and will be public.
45 MS MILTON: Yes. Thank you.
46 Mr. Chairman and Commissioners, this proceeding was intiated by a Part VII application brought by Public Works seeking the continued provision of telecom services by Bell Canada at just and reasonable rates.
47 The services in question -- and I will refer to them as the TSRP services -- have been provided by Bell as an integrated bundle, pursuant to an approved CSA, since 2004.
48 The essence of Public Works' position is simple: Public Works agrees that just and reasonable rates should recover all costs legitimately incurred by Bell to continue to provide the TSRP services.
49 Public Works does not believe that Bell should be permitted to charge rates to recover costs incurred for the provision of services for two, three, and possibly four years after Public Works has ceased to require the services and Bell has ceased to provide them.
50 The TSRP services are an integrated bundle of services that Bell contracted to provide in 2000.
51 The bundle is a mix of regulated and forborne services that, together, comprise a managed, private network that links many Canadian military installations, including bases, command centres, and radar installations, and provides connectivity to other networks in the North American Defence Alliance, as well as networks communicating with Armed Forces ships and aircraft on Canadian bases in Afghanistan.
52 Needless to say, the network is vital to Canada 's national security and defence, which makes it somewhat unique.
53 Bell Nexxia originally represented that the services could be provided on an unregulated basis. However, two years into the contract the Commission determined that the services must be provided pursuant to an approved tariff.
54 The approved rates were substantially -- and the numbers are provided in confidence -- higher than the rates at which Bell had originally bid and contracted to provide the services.
55 In January 2007, the CSA was amended to provide for the continued provision of the services, on a month-to-month basis, for a period of up to 18 months.
56 Public Works secured this month-to-month arrangement in order to ensure the continued availability of its network during the transition to the successful bidder for the new contract.
57 TELUS was subsequently selected as the successful bidder, following a competitive bidding process in 2006 and 2007.
58 Pursuant to the terms of that RFP, the successful bidder was given a period of one year to implement the network transition, commencing in June 2007.
59 Public Works secured a six-month cushion to protect itself against any delay in implementation.
60 The amended CSA rates, as contained in the new tariff that Bell sought and obtained approval for, were substantially higher than the rates charged under the initial CSA, in order to compensate Bell for the lack of a long-term contractual commitment.
61 In July of 2007, and without notice to Public Works, Bell sought a further amendment to this tariff to include a minimum revenue guarantee.
62 The current dispute arose as a result of delays in the implementation of the transition to TELUS' network. When Public Works first realized that TELUS would not finish the transition by June 2008, it met with TELUS to establish new dates for completing the implementation.
63 New dates were established for completion well before December 15, 2008 , and the revised date was provided in confidence.64 When it became apparent to Public Works that TELUS would not meet the revised completion date, Public Works sought an extension of the month-to-month arrangement with Bell , to cover off the interim period.
65 While Bell was willing to provide the services requested, it initially indicated that it could only do so at the terms in the approved CSA, including, in particular, for a fixed contract period of five years, with a minimum revenue guarantee totalling $94 million over the term of the contract.
66 These are the terms that are available to a new customer that subscribes to the CSA, and the rates reflect the cost of building a new network from scratch.
67 Bell subsequently revised its offer to a two-year term, but with a substantially higher minimum revenue guarantee. The result was a marginal reduction in the minimum fees payable by Public Works over the term of the contract, and the total was provided in confidence.68 What Bell has proposed in its most recent offer is really two offers: one in respect of regulated services, and one in respect of forborne services. Both offers are for two years, and neither permits a reduction in services during that period. The total amount payable by Public Works over the fixed two-year term is marginally higher than Bell 's two-year offer last November.
69 THE CHAIRPERSON: In this paragraph you say, "What Bell has proposed in its most recent offer," so that is over and above the previous two?
70 There are three offers from Bell altogether?
71 MS MILTON: That is the proposal that they put on the record commencing December 11th, when they filed a new CSA which would cover off the regulated services, in connection with any services that could be obtained under the National Services Tariff.
72 THE CHAIRPERSON: So there are three Bell offers, one for five years, one for two years, and the amended two-year one.
73 MS MILTON: That is my understanding.
74 THE CHAIRPERSON: Okay.
75 MS MILTON: Although Public Works is willing to enter into a fixed two-year term for the DVAC services that form part of the CSA, it does not require the other services, consisting of private lines, digital network access, and high-speed digital services for this length of time.76 For those other services, Public Works would like an extension of the current month-to-month arrangement with Bell to the end of the year.
77 I am now going to skip to the jurisdictional arguments, which begin on the next page.
78 MR. BIBIC: Excuse me, before you continue, do you have a copy of those --
79 MS MILTON: I'm sorry, I thought they were circulated.
80 MR. BIBIC: Thank you.
81 MS MILTON: Let me turn now to Bell 's arguments regarding Commission jurisdiction.
82 As I have already stated, the contract started out as an unregulated contract. It was the Commission that decided it had to be filed as a CSA and be subject to the Commission's jurisdiction. This resulted in the contract price being significantly increased.
83 This assertion of jurisdiction by the Commission resulted in a confidential windfall revenue to Bell , and confidential extra costs to Public Works
84 As I have already said, in 2007 Bell applied for the approval of a large -- which is presented in confidence -- increase in the rates payable by Public Works to accommodate month-to-month extensions of the existing contract. No attempt was made by Bell or the Commission at that time to split the contract in two to account for regulated and unregulated services.
85 It is only now, when Bell has Public Works in a corner, that it is trying to split the treatment of the services and add term commitments to what should be a month-to-month contract for a diminishing collection of services.
86 The nature of the services provided over this period has not changed. The Commission has consistently treated the services as a regulated CSA, as has Bell , since the Bell Nexxia proceedings, at least until December of last year.
87 No one disputes that the DVAC services are regulated. At present there is no tariff for the customized DVAC services.
88 The other services which Public Works has asked Bell to continue to provide on a month-to-month basis are an integrated bundle of services which the Commission has consistently treated as regulated.
89 If the Commission has the jurisdiction to approve and increase the rates set out in the approved CSA, then Public Works submits that the Commission must have jurisdiction to amend those terms where it determines that they are not compliant with section 27 of the Telecommunications Act.
90 Furthermore, while Bell Canada refers to the ability of numerous carriers to provide this network, the fact is that only two carriers, Bell and TELUS, bid on the 2006 RFP, and one of the two has failed to implement in the stipulated timeframe.
91 In other words, there was no carrier, other than Bell , that could have provided these services throughout the period.
92 Also, although it is undoubtedly true that other carriers can provide bits and pieces of this network, and that some routes are forborne, it is totally impracticable to run an integrated network in this manner, especially a secure network that forms an important part of Canada 's national defence system.
93 I will close there my comments on jurisdiction.
94 THE CHAIRPERSON: Mr. Bibic?
OPENING REMARKS ON BEHALF OF BELL CANADA
REMARQUES D'OUVERTURE AU NOM DE BELL CANADA
95 MR. BIBIC: Thank you, Mr. Chairman. Good morning, Commissioners.
96 THE CHAIRPERSON: Do you have a written introduction?97 Okay, go ahead.
98 MR. BIBIC: First, I will introduce my panel. To my right is Louis Savoie, the Regional Vice-President of Enterprise Accounts at Bell Canada .
99 To my left is Pierre-Luc Hébert, senior counsel, who works with me in the Regulatory Department.
100 To Pierre-Luc's left is Murray Mason, an account consultant.
101 To Murray 's left is Pierre Moody, who is the Director of Sales and Support for our wholesale business unit.
102 In the back we have a few folks from the Regulatory Department, as well, in case we need some assistance throughout the hearing.
103 Again, before I continue, I would like to lay out some of the materials and explain how we have structured them.
104 Commissioners, we have provided to you a binder that says "CRTC" on the front. It contains, at Tab 1, our opening statement, and then there are some documents on which we will ask questions later, in Part 2 of this hearing.105 We have given a substantially similar version -- or we are about to give a substantially similar version to PWGSC.
106 There is one mere difference in the two versions. There is one confidential number related to our cost that is blanked out of Public Works' version, which you have.
107 Then, there is a third version, which is for the public. We have eliminated materials that would be confidential to PWGSC.
108 That is how the materials are laid out.
109 I have managed to scribble a few notes on jurisdiction. I had planned to come here this morning and actually let --
110 THE CHAIRPERSON: Excuse me, I would like a clarification. The number that is in my binder that is not public for PWGSC, can you tell me where it is, so I don't accidentally disclose it?
111 MR. BIBIC: Absolutely.
112 At paragraph 18 of our opening statement, page 5, this is the section that deals with DVACs, their specialized alarm circuits, and the imputation test that we filed with the Commission demonstrates that our cost for those would be -- and you see the number there.113 THE CHAIRPERSON: Okay.
114 MR. BIBIC: That is confidential, and then we say, "Well above 39.90," which is the price that has been offered by Public Works.
115 That is the only number that is confidential that we blanked out.
116 MR. HÉBERT: Mr. Chairman, if I may clarify, also in the confidential version there are a number of dollar figures that refer to amounts that are payable by PWGSC. These numbers are provided in the copy that PWGSC has, but they were removed from the general public version.
117 THE CHAIRPERSON: That's fine, I just wanted to know what I cannot even mention to PWGSC.
118 Thank you.
119 MR. BIBIC: Mr. Chairman, I will bifurcate my opening statement. I had planned to simply let our written submissions in this proceeding speak for themselves on the question of jurisdiction, and I had planned to come here to convince the panel that our offers on the facts are just and reasonable, and not unjustly discriminatory.120 Given the structure adopted by Ms Milton in her opening statement, what I think I will do is, I will set out the context, as we see it, and from there jump into jurisdiction, and then we can break and I can continue with the remainder of my opening statement.
121 In its application, Commissioners, it is quite clear that Public Works has asked a very specific question, and that is: Are any of Bell 's proposals to DND in compliance with section 27 of the Act?
122 That is the question. Quite apart from the legal jurisdiction issue, that is the question.
123 Before going on, I think it is worthwhile to say a few words on the Commission's role in this matter -- and this ties directly into the question of jurisdiction.
124 In our view, we clearly had a role in making sure that DND was not left stranded after December 15th, 2008 . I am not saying that that point gives the Commission legal jurisdiction but as an overseer of how the market unfolds, and, frankly, that has been accomplished, because Bell , for a while, has committed to Public Works and to DND that we would provide service.125 The Commission also had a role to play to encourage a resolution. As a result of your efforts, Bell budged significantly.
126 I have a quarrel with Ms Milton's characterization of our offers because, from our point of view, we budged significantly, albeit reluctantly, but significantly, from a five-year offer to a two-year offer, at a significantly lower contract value.
127 So having succeeded there in doing those two things, the Commission must consider carefully what its role should be going forward. And it's not the Commission's role -- and I say this respectfully -- to impose a compromise solution which DND or its current network supplier, TELUS, may consider to be more fair; more just or more reasonable.
128 Just and reasonable is a rather broad concept and a myriad number of offers could be structured that would be considered just and reasonable and fall within that range and our offers clearly do fall within that range.
129 I'm going to stop there. That touched a bit on jurisdiction. I'm going to set out the context and then I will finish on jurisdiction as well.130 So Ms Milton set it out. It's pretty obvious to everybody that Bell had been a network supplier to DND and that went to RFP and TELUS subsequently won the business. And at paragraph four we list the kinds of services that we were providing. I'm not going to go through them.
131 TELUS had one year to migrate the network until June 2008; didn't do it. Only 1 percent of the network had been migrated then. Failed to meet a subsequent commitment of October 23rd and then on November -- on December 15th of 2008, which was the date our contract expired, more than 88 percent -- that's more than 90 percent of Bell's network remained in operation and remains in operation today.
132 Now, on November 18th, a mere month before that, Public Works wrote into the Commission of this proceeding and said that they would need less than half of Bell's services and the rest for a very short time. Well, a short month later it turned out to be over 90 percent.
133 Now, I would like to talk a little bit about Bell 's activities throughout this.134 In October 2006, so well before the TELUS contract was awarded -- the contract was awarded to TELUS, so October 2006 we did agree with Public Works to 18 one-month extensions of the contract we had. That would take us up to December 15th, which is a key day, obviously. That allowed for a one-year migration and a six-month buffer. I think it's important to highlight why we accepted this.
135 We accepted it because, first, the monthly price had increased. And it's common in the industry, and I don't think it will surprise anybody in this room, that monthly rates tend to be higher than long term rates.
136 Secondly, we knew this was going to be a complex migration and we knew that it would take a year and likely more for this to be done and that was important because that allowed for operational and business planning certainty, which is key now and is going to be a focus of our position throughout this hearing.
137 Third, the network at the time didn't require any capital investments in order to maintain the stringent service levels that DND requires from us.
138 And fourth, at that time we actually had a full operational staff in place to handle this.
139 But much has changed since then. In February 2008, so well before the deadline of December 15th, well before we advised DND that we would not accept further short-term extensions of the contract. And there is reasons for this.140 Pardon? Yeah, in February 2008.
141 And I think that date is important because Public Works has even stated today that there is no option now. Well, there is no -- and there is the notion of temporary market power that TELUS has floated around in their submissions and so has Public Works. And I think at some point we have to look at how this was planned.
142 So February 28, 2008 we advised that no further short term extensions would be acceptable to us, and there were reasons for that.
143 First, unlike in '07 the network now requires capital investments to make sure that the stringent service level agreements are maintained or are met; rather, the requirements, and there is a risk management issue there that's quite significant.
144 Two, some of the operational personnel have been reemployed or had been reemployed to pursue more profitable, longer term business opportunities for Bell . It's well within our right to do that. After all, we are a profit-making enterprise. And frankly, we indicated that we would need a fixed term arrangement to provide operational and business planning certainty. And this is a key issue for us and we will explore that during the questions should the Commission decide at the end of this first part that it does have jurisdiction.145 So that's what TELUS did.
146 Now, the government: It was clear in the summer of 2008 that TELUS wasn't meeting its commitments. Now, rather than terminating the contract with TELUS for breach, as I suspect was likely its right, DND used the market forces then at play to negotiate with TELUS a number of contractual concessions including a stronger indemnity.
147 Now, despite the fact that it could have done that, despite the fact that in February of '08 DND knew our position, it took Public Works until October 16th to ask us to negotiate an alternative arrangement. And then on October 16th they only requested service continuity for DVACs, those specialized alarm circuits which form only one part of the network. It's only later that they came to us asking for the full suite of services they now seek.148 And I would also point out, and this is at paragraph 12, page 4 of the opening statement, DND's stated needs have continually shifted. I'm not going to go through the numbers because they are confidential but you can see by date and by service how the requirements have grown in a very short period of time, from October 16th to now. And the bottom box shows how the migration forecast keeps shifting.
149 So I'm at paragraph 13 now. DND clearly recognized the risk of continued network migration failures by TELUS and it chose a path. It chose to insure itself through a revised contract and despite the insurance it obtained, DND now seeks to have Bell shoulder the burden of continued service delivery and in that process this application, in our view, seeks to protect TELUS from its own contractual promises.
150 Now, I was going to go on, and I will do this later -- I was going to go on and describe our offers with a view of explaining why our offers are just and reasonable. I will leave that for the second part and I will just close for a moment on the legal jurisdiction issue.151 And when we do I don't think we can really divorce the legal jurisdiction from the policy considerations.
152 But the point is this -- and I think looking at Ms Milton's opening statement on the jurisdiction issue I think it frankly misses the point entirely. The point of the opening statement which I just heard is that these services have always been regulated. When the CRTC assume jurisdiction after it makes a decision -- and people in the industry love to mention Nexxia but it's a red herring. It's irrelevant. But when the CRTC assume jurisdiction clearly we have the tariff in place and the CRTC has a role there. But that's not the point.
153 We readily admit that if service will continue to be provided some of those services are regulated and if they are regulated we will have to file a tariff, and you will have to approve it. Peace on that; absolutely clear.
154 The point on jurisdiction is that there is no obligation to serve. We had a contract. It expired on December 15th. Sure, we chose to continue to backstop the network and now we have to resolve the terms and conditions. That's for us to resolve, not for the Commission to tinker with the offers. Had we decided to walk away -- had we decided to walk away, which we could have done but we chose not to, the contract would have ended and the Commission couldn't have made us come back and provide service other than -- other than the fact that on the books today we have a valid, existing five-year CSA which anybody in the world who wants to meet its terms and conditions can buy from us.155 So the real issue on jurisdiction is that there is no binding obligation or regulatory rule that would require us to offer any arrangement we do not want to offer other than a five-year CSA.
156 So if there is a meeting of the minds, then fine. We will file a tariff. The Commission will approve it, hopefully, and then there will be jurisdiction.
157 Now, let's go back to the RFP. Most of these, by the way -- well, not most. A lot of these services are forborne. That's another point. DND or Public Works went out to tender. There was a contract award. There were two bids. I would hazard a guess, by the way, that there would have been a third bid had it not been for the fact that there was a requirement for a one-year migration.
158 And as I said, I made the point about you know it's not for the Commission to tinker with forborne rates. The Commission never tinkers with forborne rates. When there is a dispute between Bell and a retailer for a national telecom service, if the customer is not happy with the terms and conditions and the rates offered those customers don't run to the Commission to have something imposed unless the services are offered on a general tariff.
159 I suppose one could argue that there is technical legal jurisdiction because today right now, as we speak, service is being offered and services are being paid for and there is a valid contract in place. The only reason there is a contract in place today is that the Commission imposed an interim arrangement until such time as this was resolved.
160 I do not believe that that interim jurisdiction asserted by the Commission was for the purposes of waiting and determining for a one-year period, two-year periods or whatever, what the exact terms and conditions of prices are going to be for this service.
161 I will leave it at that, Mr. Chairman. Again, I don't think we can divorce the law from the policy. I don't want to go on and on about the policy but I would say that if the application were granted it would set a rather unfortunate precedent and would send the wrong signals to customers in the future as well as suppliers in the future.
162 THE CHAIRPERSON: Thank you.
163 I think you have done both a masterful job in confusing the issue here, and let's cut down to the -- this is a contract for DND. It involves regulated and unregulated services. We are all three, I think, in agreement that one thing that can't happen is there is an interruption of service to DND and national security is threatened.
164 I think I heard you say that, Mr. Bibic. That's why you were continuing service. You offered in writing to continue to do the service. The question is how much is your -- you get paid for doing those services until TELUS can take over 100 percent. Is that correct?
165 MR. BIBIC: It is correct that we have agreed not to shutdown service because that was a choice that Bell made for a number of reasons. I don't think that that, in and of itself means --
166 THE CHAIRPERSON: I'm just trying to get at the facts if ever we --
167 MR. BIBIC: The facts, yes.
168 THE CHAIRPERSON: And this is not an issue. I mean I think we all want to make sure that that service continues to be rendered by somebody so that DND is not left without and we don't have a national security problem.
169 MR. BIBIC: We have indicated we will not shutdown service.
170 THE CHAIRPERSON: Fine, perfect, okay.
171 Now, then there is -- also, I think there is no question that DVACs is a regulated service.
172 MR. BIBIC: No question of that.
173 THE CHAIRPERSON: Right. And if we have any -- you know when we forbear we always reserve the right under section 27(2) even when there is forbearance to such jurisdiction should there be an undue preference. And I guess the issue here is; number one, are we talking about one service, the DVACs, or is the whole bundle a service because Ms Milton suggests that these two are inextricably linked and that really that the whole bundle constitutes the service? I think the wording here -- I underlined it. Just let me find it. It says an "integrated bundle of services" you know.
174 And I also believe she said in her opening statement there is no way that somebody else can deliver these services other than Bell. Do you agree with this?
175 First of all, can anybody else deliver those? She says it is impractical and presumably impractical and having anybody else deliver it might jeopardize national security.
176 MR. BIBIC: Yes, others can deliver it. Absolutely others can deliver it.177 THE CHAIRPERSON: Now, today?
178 MR. BIBIC: In a short period of time, well, no, but I think we can explore that. I would love to explore that because I think the reason Public Works is in the position it's in is because it adopted a particular contract and that is --
179 THE CHAIRPERSON: It is totally impractical to run an integrated network in this manner, especially a secure network that forms an important part of Canada 's national defence system. That was Ms Milton's statement.
180 Do you disagree with that?
181 MR. BIBIC: Well, it's an accurate statement but taken out of context. And if you put it in context then I do disagree with it. The point is this -- and I'm taking a slightly outrageous example.
182 But if you have a five-year contract and it's going to expire and the day before you start thinking about trying to get an alternative supplier and then you say there is no way that an alternative supplier can come to my assistance in one day, I mean, sure one can make that argument but I'm not sure it's a particularly helpful argument.
183 THE CHAIRPERSON: Ms Milton?184 MS MILTON: Well, I stand by my initial statement and I don't think what Mr. Bibic is saying makes sense.
185 I mean, the facts are that even if they had gone out 18 months ago it's highly unlikely they could have migrated to another service provider. There was no other service provider that could have provided the integrated bundle of services. So DND and Public Works would have had to work with a piecemeal approach which does not satisfy their security requirements and would have resulted in an even more complex and legally impossible migration.
186 So it's very much Public Works' position this is an integrated bundle and only Bell can provide it now and could only provide it when this initial contract went to tender for this interim period.
187 THE CHAIRPERSON: And if I understand the facts as summarized by Bell , you had a choice to make. You found out that Bell and TELUS could not deliver on time and even the 18 months was not enough. And the way Mr. Bibic puts it, that in August of 2008 you could have either cancelled the contract or you could improve the contract by getting better penalties, and you chose the latter.188 Clearly, at that point in time you did something. Was the option open at that point in time of you getting another supplier?
189 MS MILTON: I'm not at liberty, and I will ask Katharine Hamill to leap in. But I am not at liberty to speak to the confidential decisions that were taken in terms of whether or not --
190 THE CHAIRPERSON: I'm not interested in your confidential -- that's not my question. My question was very implicit because you know I wanted to find out. You say it's an integrated bundle. It's impractical to get somebody today. I appreciate that. I think Mr. Bibic doesn't dispute that either but he says you got there by deliberate choice. You had the choice essentially in August of going another route. Did you?
191 MS MILTON: I don't think we had a choice because we would have had to re-tender. Public Works is subject to very complex tendering requirements. They take a very long time, frankly, which is something I'm sure you don't want to hear about.192 And the facts were there was nobody else to tender to and they have to have a national solution and an integrated network for security reasons.
193 THE CHAIRPERSON: That's what I understood your point to be, that even when you realized you were in a mess because TELUS could not live up to the timetable with the 18-month provision, six-month cushion, therefore your choice was none. The only person who can deliver it was Bell . That's what you're saying.
194 I want to hear from Bell what they have to say on that.
195 MR. BIBIC: Okay. I think that answer needs to be clarified. Ms Milton might not be aware of all the facts even, but we are. We were involved throughout.
196 At the time -- you heard my statement -- in June or in the summer of 2008 the government did have a choice and they chose a particular path.197 At that time, we still had a -- Bell still had a valid offer open to the government pursuant to the tender that had come previously and we had been asked by the government to keep that offer valid and open and therefore extend it. That would have avoided the need to go back to tender.
198 There was a choice. We were asked by Public Works to keep that option alive. It turns out that I think we were asked to keep that option alive so they could use it as a -- use the market forces then in play, as I said in my opening statement, to leverage the existence of our open offer against TELUS and secure better terms.
199 MS MILTON: The only other party that could provide the service was Bell . I don't think there is anything wrong with that statement.
200 THE CHAIRPERSON: Yes. What Mr. Bibic says yes, that's true, but we could have provided this by you cancelling the old tender and giving us a new tender or else contracting with us.
201 MS MILTON: And Bell wouldn't have completed the migration by December 15th and they would have had to extend on a month-to-month basis.
202 MR. BIBIC: First of all, we were the incumbent supplier. Ninety per cent of our network is still up and running. That's the first point.
203 Secondly, there were never any discussions with us as to what the migration schedule could be and what we could meet.
204 THE CHAIRPERSON: What about the whole issue of the integration?
205 Ms Milton treats this as one service, one bundle there. She says you have to treat it as one, you have a jurisdiction under section 27 to deal with it, et cetera, and so therefore exercise.206 We will talk about the quantum later on.
207 You are saying no, these are separate, these are two distinct ones. You don't dispute the fact that DVACs is regulated, but most of the rest is unregulated.
209 MR. BIBIC: Actually, we fully agree that the network is completely integrated from an engineering perspective.
210 But I think the answer on the bundling point is we have to divorce or separate bundling from an engineering point of view and bundling from a regulatory mechanism contracting point of view.
211 So on the engineering side -- I will explain it.212 On the engineering side yes, these services are integrated with each other.
213 Now, nothing prevents -- and if we were to offer that integrated and engineered bundle as one contract, yes, the whole piece, the whole contract is subject -- CSA, as it were, is subject to CRTC jurisdiction. It's open to us, however, to offer, from a regulatory contracting point of view, the services under two contracts, that part for the regulated services and another contract for the forborne services and treat that separately from the Commission jurisdiction.
214 In fact, you had a little bit of a discussion during Ms Milton's opening statement about our various offers. We had one offer on the table, which was the five-year deal. DND, clearly that wasn't acceptable to them; we budged. We budged after Mr. Traversy got involved. We went to a two-year offer. In fact, we have two variations of that.
215 We have one offer which is for one contract for the entire piece, if we reached an agreement we would come to the Commission for approval.
216 And then we made a subsequent revision to that offer, in the sense that we have one contract for the DVACs and the specialized service levels that go with the DVACs and for other services and then we were offering a separate contract for the forborne services where the Commission wouldn't be involved we would sit down and we would negotiate it.217 THE CHAIRPERSON: Haven't you hoisted yourself with your own petard just now?
218 The whole reason why we deregulate and forbear is because there is competition. You just told me that from an engineering point of view these are integrated and have to be treated as one, but for contracting purposes we can do differently, we can have one part pursuant to a tariff and the other part pursuant to negotiation.
219 But in that negotiation you are the monopoly supplier. You are the only one who can provide it because engineeringly they are integrated.
220 The reason why we forbear is to provide competition. There can't be a competition if you are telling me from a reality from the engineering point of view these things are integrated and have to be provided by the same person.
221 MR. BIBIC: I disagree with that.
222 I think those forborne services could be provided in piece parts.
223 I mean this really becomes a question of the time to do it.
224 THE CHAIRPERSON: You just told me a moment ago that engineeringly they are integrated. We are the only one who can provide them. We can provide one part under one regime and one part under another.
225 MR. BIBIC: Mr. Chairman, let's say there were time, what Public Works could do is buy the regulated standard version of the DVACs from Bell under general tariff --
226 THE CHAIRPERSON: Yes.227 MR. BIBIC: -- boom, you get that.
228 And then the other supplier could provide private lines and DNA, et cetera, and the engineers can integrate them together.
229 There is a difference again between an engineer being at a site and putting -- integrating the services together and the various components that one can buy in the open competitive marketplace under the general tariff.
230 THE CHAIRPERSON: But you are making an assumption at the beginning, assuming there was time. There isn't.
231 If I understand it, you know, this has to be up operationally throughout because of the national security background and we don't want to have a breakdown in the service and we can't allow that. Public Works can't allow that. You don't want to be the one that gets fingered for a breakdown in national security and we certainly don't want to be fingered of having authorized something that allows it.232 So I take that off the table. There is no time.
233 So in the situation that we face right now, something that you tell me from an engineering point has to be integrated, has to be supplied by you, but you want to supply it under two different regimes and under the forborne regime you are effectively the monopoly supplier because of this engineering integrity.
234 MR. BIBIC: Mr. Chairman, we are only the monopoly supplier -- we are not the monopoly supplier.
235 We are only in this position -- I really have a hard time accepting that because a customer chose a deliberate path and one of those paths -- you know, a deliberate path at a particular point in time when it had options, that because it chose the wrong path now we are deemed to be a monopoly supplier for services which in fact is a -- for which there is competitive supply, had the customer either planned their affairs appropriately or chosen the correct path.236 THE CHAIRPERSON: You know, if we were talking about your commercial enterprise I would have a lot of sympathy with your argument, but we are talking about a national security situation and that's -- surely that has to attenuate your thinking on this.
237 MR. BIBIC: Well, it only attenuates the thinking to the extent that we have agreed not to shut down service, but I don't think that that decision that we made gives the CRTC jurisdiction to step in and tinker with the rates that we have offered. It doesn't.
238 I mean, I don't think there is a crisis. There isn't one. Service is being provided.
239 THE CHAIRPERSON: Ms Milton...?
240 MS MILTON: Well, I think Mr. Bibic is talking out of both sides of his mouth. On one hand he says: Well, if we had stopped service you could have weighed in and told us to continue providing it; but, on the other hand, back out now.
241 I don't think you jurisdiction is half way, either you have jurisdiction over the services or you don't.
242 And I go back to my initial point. As Mr. Bibic has admitted, there is an approved CSA for this entire bundle on Bell 's books. Mr. Bibic said that. Surely if you had jurisdiction to approve that tariff, you have jurisdiction to amend the terms.243 Now, with respect to this approach now that Bell comes in and tries to reverse engineer the package, there is still a regulated component of this service which requires tariff approval.
244 As I read the 2007-74 decision, this would not be a qualifying bundle that wouldn't be subject to approval because there are regulated elements of that bundle for which there is no tariff, so they have to come in with a new CSA for approval. And that's a fundamental element of this integrated package so I believe that there is complete jurisdiction of the Commission.
245 THE CHAIRPERSON: To come in with, according to you, has to cover both regulated and unregulated services?
246 MS MILTON: Yes, we believe it's an integrated bundle.
247 THE CHAIRPERSON: Okay.
248 Which is the outstanding CSA that you mentioned that is on their books?
249 MS MILTON: That's the CSA that was amended to have the month-to-month extensions.
250 I can give you the number. It's National Services Tariff 722.11.
251 THE CHAIRPERSON: Yes.
252 MS MILTON: That is the tariff under which these services have been providing up to the current date.
253 THE CHAIRPERSON: What is your position, Mr. Bibic?254 Does that still apply?
255 MR. BIBIC: Yes, that CSA is still on the books and is open to be purchased by DND.
256 In fact, that was our position with DND until such time as the application was filed and Mr. Traversy got involved.
257 THE CHAIRPERSON: But that tariff, you purported to amend that on July 26, 2007 .
258 Are you talking about the amended one or the original one?
259 MR. BIBIC: I'm talking about the amended one. It's the amended one that's the approved tariff that's currently on the books.
260 THE CHAIRPERSON: How would it apply?261 Because in your letter to Mr. Katz of July 26 you state the proposed changes will apply:
"The company will note that the contract amendment reflecting the proposed situation is not being provided at this time as proposed change would not impact on any existing contractual obligation held by the company or its customers. Rather, the proposed changes will apply to customers that subscribe to the suite of service under this arrangement in the future." (As read)
262 Surely Public Works is not a future customer.
263 MR. BIBIC: Right.
264 THE CHAIRPERSON: Public Works was a customer at the time that you applied for the amendment, so therefore what you have to apply to Public Works is the original contract, not the amended one.
265 MR. BIBIC: And the original contract expired on December 15, 2008 . Until that time --
266 THE CHAIRPERSON: So a customer who signs up is a new customer to you? Somebody who renews his -- I mean --
267 MR. BIBIC: There were no further renewals, Mr. Chairman.268 THE CHAIRPERSON: You held out to us that these amendments were sought with respect to new customers. You specifically give us assurance that it would not impact on any existing obligation held by the company or its customers, the implication being clearly it doesn't apply to existing customers, well, which you had one, namely Public Works.
269 MR. BIBIC: Mr. Chairman, it didn't apply to existing customers under the terms of their arrangements. Under that CSA it expired on December 15th and there were no further extension rights available under that contract.
270 THE CHAIRPERSON: Aren't you trying to have your cake and eat it, too, here?
271 MR. BIBIC: No, sir. The contract as constructed was a five-year term, two one-year extensions, which the customer invoked, and then in October 2006 we negotiated 18 one-month extensions and those were invoked. The contract -- that contract expired on December 15, 2008 . But I mean we are now getting beyond issues of jurisdiction and we are getting to the factual issues.
272 THE CHAIRPERSON: Well, I'm trying to find what tariffs applied. I would have thought that's part of jurisdiction.273 MR. BIBIC: Well, then we can -- you are putting it -- you are asking me if I'm trying to have my cake and eat it, too, and you are asking it to me in a factual vacuum because there is a whole series --
274 THE CHAIRPERSON: I'm just trying to understand what this means, because when I read your letter signed by David Palmer --
275 MR. BIBIC: What it meant is we weren't amending the terms of the arrangement with Public Works. We had a commitment to Public Works to provide service for five years, plus two one-year extensions if they chose to accept them under the then existing terms, plus 18 one-month extensions.
276 We honoured every single one of those commitments. Those commitments all expired on December 15, 2008 .
277 THE CHAIRPERSON: Yes. Okay. I understand that. That was a very clear statement. I thank you for that.
278 But then, therefore, here and now we are in a situation which neither you nor Public Works wanted to find themselves, which means there has to be a forced extension effectively because of the factual situation.279 Your position is: Well, that in effect is a new contract. That is not an extension of the existing arrangement.
280 MR. BIBIC: Yes. And there is a number of -- I don't know if you want to get into it now, but there is a number of factual reasons why we feel the terms of continued service delivery must be different from the terms which existed during the past 18 months. There are a number of very valid, reasonable reasons for that.
281 THE CHAIRPERSON: We will go into that in a second, but I just --
282 MR. BIBIC: Yes.
283 THE CHAIRPERSON: I'm trying to -- Ms Milton, do you have anything to say on that point?
284 MS MILTON: No. I just come back to the fact that there is an approved tariff here for the services and what is being sought is an amendment to this tariff if there is a jurisdictional question.285 The tariff is there, it was approved. If the Commission has jurisdiction to approve it, and it didn't several times not that long ago at the request of Bell , then surely it must have jurisdiction to amend it.
286 THE CHAIRPERSON: My question specifically was what does apply if there is a further contract -- there clearly will be -- contractual arrangements between Public Works and are they governed by the original 722.11 or as amended in July of 2007. He says July of 2007 because the original 722.11 applied to the existing arrangement that had been terminated and anything that Public Works wants now is in effect de facto a new contract and therefore the amended tariff applies.
287 MS MILTON: Well, that's not quite how I understand it. I mean this is the complete tariff.
288 THE CHAIRPERSON: I'm sorry, Mr. Bibic, did I miss characterize your position? If so, please --
289 MR. BIBIC: No. My position is that service delivery going forward is under a new arrangement. It could be the new revised CSA or under any of the other offers we have made, but it's a new offer, a new contract, new terms and conditions.
290 THE CHAIRPERSON: Therefore, if there is a -- for the DVACs, which have to be subject to a regulated tariff, right, it would be pursuant to the 722.11 as amended.
291 That's your position?
292 MR. BIBIC: Or pursuant to the tariff application we filed with the Commission as a result of this proceeding.293 THE CHAIRPERSON: Right. Okay.
294 MS MILTON: My point was 722.11 has governed the relationship since 2004, since the tariff was required to file, and we are operating under different terms.
295 Currently it's not clear what we are operating under because we have a month-to-month extension, but that extension under the approved tariff terminated on December 15th. But we continue, in effect, to operate under this approved tariff, with effectively now instead of 18 months of month-to-month extension now a 19 month extension.
296 THE CHAIRPERSON: Yes, but the amendments of 722.11 effectively introduce a guarantee which wasn't there before, and that's what I'm trying to get at, which -- under which CSA any future extension will be governed. Because if I agree with Mr. Bibic we say, "Well, you have to offer a guarantee." If I say "No, it doesn't apply because of the representations made in that letter of July 26th, then it's without a guarantee."
297 MS MILTON: And my position on that would be that goes to the just and reasonableness of the rates, it doesn't go to jurisdiction.298 I think that is the core, the essence of the dispute between the parties.
299 THE CHAIRPERSON: I know, but I am talking about the jurisdiction and in order to apply a tariff I have to know which tariff and there is an original one, there is an amendment. The amendment was accompanied by a letter from Bell that said it only applies to existing customers not new customers.
300 My question in terms of jurisdiction therefore, for the purpose of this, are you a new customer or are you an existing customer? Because I have the letter here, you have seen it yourself, so that's why I'm harking on this point.
301 MS MILTON: Public Works does not believe it is a new customer because the network is in place.
302 THE CHAIRPERSON: Okay.
303 Len, do you have any questions?
304 COMMISSIONER KATZ: I do, Mr. Chairman. Thank you.
305 I want to start by going back to, I guess, the initial application by Public Works dated November 10, 2008 and I just want to get some clarification.
306 So if you can turn to it.
307 THE CHAIRPERSON: What tab are you in?308 COMMISSIONER KATZ: Tab 1 in our book.
309 So it's a filing dated November 10, 2008 and it's the application itself, paragraph 14.
310 I will just read out the two sentences that I'm interested in, if you all have it.
"On June 22, 2007, following the evaluation of all proposals received, PWGSC awarded a contract to TELUS. While the proposals submitted by all the bidders were compliant, the proposal submitted by TELUS offered the best value to the Government of Canada." (As read)
311 I thought I heard Mr. Bibic say that there were only two bidders and yet the word here says "submitted by all bidders".
312 Can you clarify for us how many "all" is or was?
313 MS WYBER: There were only two bidders; there were three bid packages.
314 Okay. So Bell submitted two separate bids, TELUS submitted a single bid, so we had three bids, but there were only two bidders.315 COMMISSIONER KATZ: Okay.
316 I guess I should ask Mr. Bibic, when you submitted two bids, were there two different applicants that were being submitted for?
317 MR. SAVOIE: It was two different pricing arrangements that we were proposing to the Government of Canada.
318 COMMISSIONER KATZ: All being offered --
319 MR. SAVOIE: Same solution, same services, meeting the requirements of National Defence, but different pricing arrangements.
320 COMMISSIONER KATZ: All being offered by Bell Canada ?
321 MR. SAVOIE: All being offered by Bell Canada .
322 THE CHAIRPERSON: So you have two bidders.
323 MR. SAVOIE: Yes.
324 COMMISSIONER KATZ: Further to that question, Ms Milton, when the decision was made that TELUS offered the best value, how was value determined? Was it based on price? Was based on deliverables?325 How were the risks associated with the various applicants measured?
326 MS WYBER: It was based on a combination of price and technical merit. And so we evaluated -- the price was weighted against the technical merit scores. Technical merit scores for both participants were relatively close and price ended up being the deciding factor.
327 COMMISSIONER KATZ: Was there consideration taken of the fact that Bell was the incumbent and therefore the likelihood of performing would have been perhaps higher, or were they considered equal applicants in terms of ability to --
328 MS WYBER: They were considered equal applicants.
329 COMMISSIONER KATZ: So there was no consideration taken for the risk associated --
330 MS WYBER: No, there wasn't.
331 COMMISSIONER KATZ: -- with a new entrant command?
332 MS WYBER: No.
333 COMMISSIONER KATZ: Okay.334 MS WYBER: I should say that we built in the migration time and also in the RFP we had two things which we believe enhanced the ability or encouraged bidders to perform.
335 So there was an opportunity for a bonus to be paid for early completion of migration and then the RFP also spelled out implementation credits due to the government for late implementation.
336 So late implementation service credits, but there was also a bonus available had they completed implementation early.
337 COMMISSIONER KATZ: Okay. But the fact that this was a complicated contract, a very detailed, complicated contract linking national security networks across Canada , you did not take into consideration that a transition had a higher risk presumably than retaining the existing provider?
338 MS WYBER: We believed that both bidders are complex, you know, intelligent bidders in this area and therefore we had, as an initial requirement to be able to bid you had to be a Canadian telecom provider, you had to have the national security clearances and, in addition to that, they were required to provide references that they had done similar migrations and implementations.
339 COMMISSIONER KATZ: Thank you.340 I believe, Mr. Bibic, you mentioned earlier that the CSA that was filed -- the amended CSA that was filed was for all the services together, notwithstanding the fact that some of them were already forborne.
341 Are there situations today where Bell Canada, to your knowledge, has any agreements with large providers that have got a separation between the forborne services in one contract and the non-forborne services in another contract that have got an integrated network?
342 MR. BIBIC: Yes. There are situations where we provide solutions to large enterprise customers under two separate contracts, a regulated contract and a deregulated -- or contracts with forborne services.
343 COMMISSIONER KATZ: Do you also have contracts where it's all in one?
344 MR. BIBIC: Yes.
345 COMMISSIONER KATZ: How do you distinguish or differentiate them? How do you make the decision as to whether it's going to be one contract bundled together or separate individual contracts?
346 MR. BIBIC: It's a matter of negotiation and contracting arrangements with the customer.347 COMMISSIONER KATZ: To what extent do you take into consideration regulatory implications, or do you just assume that you can go either way at your discretion?
348 MR. BIBIC: Well, it depends on -- there are regulatory considerations and we take them into account every single time, being regulatory compliance. I think there is a rule requires that if the purchases of the services are dependent on one another then it becomes a completely regulated bundle from a contracting point of view. So we respect those rules, but we do make the arrangements this way.
349 THE CHAIRPERSON: Why wouldn't that apply here? The services are dependent on each other.
350 Didn't you just tell me at great length how they are integrated and they depend on each other?
351 MR. BIBIC: Well, it's a question of what is being purchased.352 In this arrangement that we have offered, the third offer where we have a regulated contract and an unregulated contract, the regulated contract, if it were to be accepted by DND, DND would be acquiring the DVACs plus specialized service levels for the DVACs and the DNA services and then they would separately contract for the forborne services.
353 The price they would be receiving for one of those under the regulated contract wouldn't be dependent on the price -- or acquiring any volumes on the forborne side and therefore there is no regulatory non-compliance.
354 COMMISSIONER KATZ: When you negotiate these, presumably -- and let's say it's a bank or something, is it the bank that asks that these contracts be bifurcated or is it Bell who decides that they should bifurcate these?
355 MR. BIBIC: It's typically Bell . I think that -- I mean that type of activity has significantly been curtailed as a result of a lot of the deregulation that has transpired in the last couple of years, policy directive decisions, including the Type 2 CSA bundling rule. So now that we have more flexibility we don't have to do this is much, but as a standard contracting practice beforehand.
356 But it's Bell that would do it and if the customer is fine with it then we proceed.357 COMMISSIONER KATZ: When you say you don't have to do it as much, the "it" is having one CSA for both bundled and unbundled services?
358 MR. BIBIC: No, doing it as much -- what I say that we do less of is having two separate contracts, one for regulated and one for deregulated. And the reason we do that less is now we have more pricing -- well, more contracting flexibility as a result of the Type 2 CSA decision from 2007 I believe, where we are forborne for CSA contracts that include regulated component so long as the regulated components that we actually are providing are pursuant to the standard tariff terms.
359 COMMISSIONER KATZ: And when you do file a bundled tariff or CSA, there is an obligation to file an imputation test as well and can you explain what the purpose of the imputation test is?
360 MR. BIBIC: The purpose of the -- well, this strikes to the heart of just and reasonable pricing, but in my view just and reasonable pricing, when I said there was a range, the Commission wants to make sure when services are regulated or when a bundled is regulated that the prices being offered are above cost and that there is no gouging on the high end.
361 So that determines your range and the imputation test is to make sure that the services are being provided above cost, phase 2 costing.
362 THE CHAIRPERSON: So that is supposed to prevent gouging and prevent cross-subsidization?
363 MR. BIBIC: The just and reasonable?
364 Well, you have a range. The cost is one bookend and --365 THE CHAIRPERSON: No, but I mean the two bookends are gouging or cross-subsidization.
366 MR. BIBIC: Right.
367 THE CHAIRPERSON: Thank you.
368 MR. BIBIC: Or I suppose, on the low end, it could also be fear of predatory pricing.
369 COMMISSIONER KATZ: I don't know where this question fits in so I'm going to ask it now and if it's the phase 2 part of it we will deal with it. And it's to Ms Milton or to PWGSC.
370 Did Bell ever impede the activities of PWGSC in allowing for the cut-over of services during the term of this transition?
371 MS WYBER: I will ask Mr. Sorfleet to answer that, as he is with DND.
372 MR. SORFLEET: No, Bell did not take any action that would have been intended or had any significant effect in impeding the migration from TSRP to GDMS.
373 COMMISSIONER KATZ: Okay.
374 MR. SORFLEET: That is to say from the old contract to the new.
375 COMMISSIONER KATZ: Okay.
376 Those are my questions, Mr. Chairman.
377 THE CHAIRPERSON: Rita...? Okay.378 Well, let's take a five-minute break and then we will go into the confidential section.
379 You decide who you want from each of your teams to be in the confidential section. Anybody who does not belong to CRTC or either of your teams we would ask to leave the room.
380 Thank you.
--- Upon recessing at 1013 / Suspension à 1013
--- Upon resuming at 1402 / Reprise à 1402
381 THE CHAIRPERSON: Okay. We are continuing the public part of this proceeding, having heard evidence in confidential on the costing.
382 Public Works, I think you go first with your final closing remarks.
CLOSING REMARKS ON BEHALF OF PWGSC /
REMARQUES DE FERMETURE AU NOM DE TPSGC
383 MS MILTON: Thank you, Mr. Chairman.
384 My reply comments are broken into two parts to reflect the structure of the hearing today. In the first part I will talk about jurisdiction and in the second part I will talk about terms.385 On jurisdiction I just have four quick points.
386 First, it's my understanding that Bell has agreed to provide the services in issue. So while I disagree that the Commission has no jurisdiction to mandate the provision of the services, I think in any event that that issue is off the table.
387 Second, the Commission, in my view, unquestionably has jurisdiction to interpret and to amend the existing CSA. By that I am referring to Bell National Service Tariff 722.11.
388 Third, the Commission unquestionably has jurisdiction to regulate the customized DVAC services.
389 Fourth, and finally, this is an integrated package of services that cannot realistically be unbundled at a very minimum over the term over which they are required.
390 So with those brief points on jurisdiction I'm going to turn now to terms. I'm going to start with the issue of migration because there was considerable discussion of migration this morning.
391 Bell says it continues to operate the bulk of its network. That is correct, because out orders have not been issued.
392 But I want to make it clear that the rates that are being paid by Public Works reflect the fact that very little of Bell 's network has been decommissioned to date.393 So my point is, Bell is being compensated for providing the services.
394 The second point on migration is that a huge proportion of the services have in fact been migrated to TELUS. The number has been provided in confidence. This traffic is being carried by TELUS, not by Bell . What remains is the acceptance and disconnect process.
395 In my view, the large number of migrated services supports the disconnect schedule that Public Works filed in response to CRTC interrogatory of January 16th No. 1 and that the disconnection of the other services will be complete by December 2009.
396 Turning now to prices.397 As I stated in my opening remarks, Public Works is prepared and believes it's appropriate to compensate Bell for costs that it will legitimately incur to continue to provide TSRP services for the period required. Public Works does not believe that these costs can justify a minimum revenue guarantee that is based on the cost of serving a new customer for five years.
398 Public Works is not a new customer and the TSRP network is in place, it does not need to be rebuilt from scratch. While some equipment such as backup power may need to be replaced, much of the equipment can continue to be used, and equipment like UPS is fungible.
399 I also want to underscore that going forward the network will be supporting significantly reduced traffic volumes.
400 There has been a suggestion in some of the comments this morning that because of the uncertainty of migration prices should be higher.
401 As I have already said, if the migration takes longer than anticipated, Bell will reap the benefits in terms of higher monthly service fees under the current CSA monthly rate. So it will be compensated if the migration takes longer than expected. There was also discussion of the effect of a spike in disconnect and the possible impact of that on price.
402 Now, the month-to-month rate increase that Bell sought and obtained approval for presumably included the cost to process all of the disconnects.403 I think it is important to note that the DVACs will now not be disconnected within the next 12 months. So those disconnects, which are quite substantial, will not occur.
404 I do not believe that the costs of processing the spike in the balance of disconnects over the next three months comes anywhere close to a minimum revenue guarantee equal to the rate Public Works is currently paying for a fixed term of two years.
405 Finally, I want to come back to the DVACs issue.
406 It was Public Works' understanding that the DVACs services could be broken out relatively easily. I want to underscore that if the DVACs are not broken out there will be included in the existing CSA monthly rate a substantial premium over what a DVACs-only service would cost.
407 We see no basis for a further minimum revenue guarantee that assumes provision of all the current services for two years.
408 Thank you.
409 Those are my comments.
410 THE CHAIRPERSON: Thank you very much.
411 Mr. Bibic...?
CLOSING REMARKS ON BEHALF OF BELL CANADA /
REMARQUES DE FERMETURE AU NOM DE BELL CANADA
412 MR. BIBIC: Thank you, Mr. Chairman.413 So what have we learned in this proceeding?
414 We know that the migration and disconnection process continues at a very slow pace. The forecast assumed a March-April completion.
415 Well, in the opening remarks of DND -- and I won't say the number -- states that a percentage of the migration is currently done.
416 Our own estimates, based on information provided to us by DND, show it's 15 per cent less than the number.
417 Ms Wyber indicated that they will be done by April-March 100 per cent. We say that based on their own forecasts that we received two days ago it's less than that. I don't want to say the number, but I did mention it during the questioning part of this hearing.
418 In any event, whether or not it's that number or 15 per cent less, et cetera, the forecasts are aggressive. It assumes 100 per cent performance on the forecast and the track record to date falls considerably short of that.419 It took 18 months to do the easiest part of the migration. You saw at Tab 3 of our book that really the part that has been done relates to the PBX. That's the easiest part of the transition.
420 The heavy lifting has yet to come end this migration has been back-end loaded from a migration perspective and from a disconnection perspective. We did not expect back-end loading back in 2007 and nor did DND, as Mr. Sorfleet ultimately indicated when I questioned him.
421 Now, once the migration is done Ms Wyber said they need three months to issue disconnection orders. That three-month assessment is also aggressive. It assumes full staff, that everything goes well.
422 But there isn't even a disconnection schedule.
423 Ms Milton mentioned that there is some kind of disconnection schedule provided in response to the interrogatory from January 21st, 1A and 1B. There really isn't in there at all a disconnection schedule. We just took a look at it during her closing remarks.
424 So where does that leave us?
425 Well, the migration will take longer than forecast, so will the issuance of disconnection orders by Bell . So ultimately Bell will be saddled with the risk and we all will be dealing with this in 2010.426 Now I would like to revisit the offers.
427 Bell moved from its first offer, which is the five-year CSA to a second offer and the anticipated savings to DND as a result of that move is in the order of $16 million to $20 million. Again I don't want to say the number.
428 Now, what has DND done? They have moved as well, but they have gone backwards. They have cut their offer by half.
429 The closing remarks of Ms Milton talked about, you know, pricing as being, you know, current -- the pricing comments that she made in her opening remarks were based on the existing arrangement, but that's not even DND's offer today. DND's offer is half of that, as you explored, Mr. Chairman, in the in camera session of this hearing.
430 So what I would like to do now for the remainder of our remarks is break down the offers into the issues in dispute, which is term and price.431 Let's start with the DVACs.
432 Now, in the DVACs, in response to questions from Vice-Chairman Katz, Ms Wyber indicated that it was always contemplated from the very beginning in 2007 that TELUS would provision IP DVACs and they knew in March 2007 that there would be challenges. I'm not sure if it was March 2007 or 2008 -- March 2008 that there would be challenges with those IP DVACs, yet we were only approached to continue to provision our customized DVACs in October of 2008.
433 That being said, in any event, for the DVACs, as we have established, DND wants two years and we have offered two years. So as far as I'm concerned I think that's settled. So the issue remains the pricing.
434 As we explored, DND's proposed price, whether or not it's the price from a month ago or two weeks ago or the price offered yesterday in the interrog is below our phase 2 costs.
435 Now I would like to discuss the other services.436 Everyone in the room knows our position, that we doubt that migration will be completed in one year for the reasons I have already mentioned, but let's assume this does happen and let's consider the impacts on Bell .
437 The back-end loading will have a number of important cost implications for us for which we should be compensated. An incredible number of disconnection orders will have to be processed each month of 2009 for the Bell network to be completely disconnected by mid-2009, yet under DND's request it would stop paying for service a mere 30 days after issuing a disconnection order.
438 It's not a risk Bell is prepared to take nor should we be forced to take that risk. When we accepted the month-to-month arrangement back in 2006 to extend from 2007 until December 15, 2008 , this is not a risk that we had anticipated and neither did DND.
439 Recall as well that Bell has cost of operation until the last service at a DND site is shut down.
440 Ms Milton, during the in camera portion during the questioning, said that: Well, we at Bell always took that risk in the sense that SDA's -- which are in essence sites -- can be phased out when they cease being used. But it was never contemplated that DVACs would be carved out of that arrangement and that's a key point.441 This has cost implications for Bell which I don't believe until today DND appreciated. The fact that the DVACs will be kept operational for a minimum of two years means that a portion of the entire network will have to be kept live, whether or not DND claims to need that portion of the network. Yet DND does not want to pay for any of those additional costs while the DVACs remain operational.
442 For these reasons, Commissioners, Bell 's offer to keep providing the other services for two years at basically the same price DND has willingly paid for the last 19 months is just and reasonable.
443 Now, DND has mentioned a couple of times during this hearing that we increased the price by 58 per cent when we went to a month-to-month arrangement. That's true. But that number, that increase, was willingly accepted by DND at the time.
444 All we want is for DND to make a commitment to us for the commitment we have been asked to make to them. That commitment would allow for an orderly migration, an orderly migration for DND and TELUS as they would be given the proper amount of time to migrate circuits, test them and accept them, while having the benefit of network redundancy.445 Yes, we are asking for a fixed two-year period and there is nothing that would stop the DND from managing the migration differently to accommodate the fact that they would have network redundancy for two years.
446 And it would also allow for an orderly migration for Bell , as it would allow for more reasonable and staged flow disconnection orders rather than a potential avalanche. And it will not saddle Bell with the additional cost consequences of keeping the DVACs in operation for two years or three.
447 A two-year contract will also provide a reasonable amount of time to recover the required incremental capital investments in the network and it will avoid having to come back at the end of this year.
448 So where does that leave us?
449 Well, DND is protected.
450 First the government obtained a contractual indemnity from TELUS and TELUS is not disputing that liability.
451 Second, from a network perspective Bell has indicated that it's prepared to provide service on just and reasonable terms even though we are no longer the supplier of choice.452 The government is a sophisticated, knowledgeable buyer of telecom services. Contractually they knew what they were doing from the moment they issued their RFP and throughout. Ms Wyber and her staff in particular are very experienced, that's quite clear.
453 First, they prepared a very thorough RFP anticipating the challenges and risks to protect the government's interest. They also negotiated an 18 month arrangement with Bell to provide network redundancy during the migration period. They then awarded the RFP to the lowest cost compliant better.
454 Then, when things went wrong with the migration, they could have cancelled the TELUS contract as per contract terms and conditions. Instead they chose a different path. That path saw them leverage the market forces then in play, the possibility of contract cancellation and the use of alternative suppliers such as Bell to secure better terms from TELUS. In fact, DND or PWGSC asked Bell to keep our own offer alive until September 2008. That's 15 months after TELUS was awarded the contract.
455 This decision or these decisions from PWGSC were made with the full knowledge of the tariffs available from Bell and Bell 's position.
456 Several months later, in October 2008, recognizing that significant migration difficulties still remained and that TELUS failed yet again to meet its subsequent commitments, PWGSC again could have chosen to cancel the contract. This it didn't do and only engaged us with less than two months left on our arrangement. In fact, they could cancel today.457 But now the government is arguing that there is an absence of market forces so as to convince the Commission to impose terms on Bell .
458 In the process, PWGSC seeks to shift the burden from itself and TELUS to Bell . This isn't appropriate, especially given our reasonable offers and TELUS' indemnity. This would signal to customers that if they do not like their negotiated outcomes they can simply apply to the Commission.
459 In short, Bell should not shoulder the responsibility for TELUS' migration and performance failures and PWGSC's contracting strategies.
460 The application must be dismissed.
461 Commissioners, this really is an important matter to Bell and so I want to thank the Commissioners and the staff in particular for agreeing to hear this matter on an expedited basis.
462 Thank you.
463 THE CHAIRPERSON: Thank you very much.
464 It seems to me this is a pretty straightforward issue. We will take about 15 minutes to consider it and then we will be back.
465 Thank you.
--- Upon recessing at 1420 / Suspension à 1420--- Upon resuming at 1433 / Reprise à 1433
466 THE CHAIRPERSON: First of all, I would like to thank both sides. I think it was a very good hearing, very civil and very to the point. All the questions that we had, all the facts that we need to make a decision were put forward and I appreciate the way this was conducted.
467 Now, obviously this is a very unique situation. What is hanging over the whole thing is the national security issue, the fact that both sides want to make sure that the Forces have a communication system that works and they are not put in jeopardy.
468 I appreciate the effort of both sides to work towards that, and Bell of continuing service even though there was no contract.
469 You both made some very good points.470 Bell, you made the point quite clear that you have to make unplanned investment because you need to keep the thing operational far more than what you had actually planned, that there is far more back-end loading of the terminations and acceptance than you expected, and also that there is a new risk factor because the appellant's performance here was quite different than what you originally -- and you now how some actual performance which shows you what TELUS can or can't deliver as the case may be.
471 Public Works, on the other hand, you quite rightly pointed out that the numbers as they were offered by Bell is the same way as if you had picked the CSA with a five-year guarantee and the numbers are of minuscule differences. So in effect you are being treated as if you are a new customer while you are an existing not a new customer.
472 Secondly, you also raise the point quite clearly that yes, Bell will have to do 24 months of additional work, but it's hard to accept that the cost for those 24 months is the same in month one as in month 24. There has to be a decline. The grade of that decline may be an argument, but to suggest that the costs are the same at both the beginning and the end of the 24 months is hard to accept.473 In addition, we now found out that Bell has graciously agreed to provide an option here on the DVACs and we know what the price for that DVAC option is here. So it's up to Public Works to exercise that or not.
474 Before we broke for lunch, at the end of the confidential hearing I explained to you quite clearly and I hope plainly what I consider the two bookends between the two. Since the figures are confidential I can't mention them, but I think clearly the number between them is considerable, but it strikes all three of us that this is an eminently settleable case having had the benefit of today's hearing, having all the facts on both sides.
475 I think you both elicited very, very pertinent facts on each side, and having us set you the bookends you should try to settle it.
476 If you do not settle it one of you is going to lose everything because the effect of our judgment will be that it will be one or the other bookend. You know what they are, I don't have to mention the figures publicly because it would be betraying confidential, but you know them full well down to the dollar.
477 If we render a decision the effects will be that one of the bookends will be guiding for both of you and one of them will basically lose a lot and one of them will gain everything.
478 So what I suggest, we will adjourn until Tuesday at 4 o'clock in this room at which time I expect you to tell me you have reached a settlement. If not, I will render a judgment at that point in time.
479 Thank you.
--- Whereupon the hearing adjourned at 1440, to resume
on Tuesday, January 27, 2009 at 1600 / L'audience
est ajournée à 1440, pour reprendre le mardi27 janvier 2009 à 1600
REPORTERS / STÉNOGRAPHES
Johanne Morin Jean Desaulniers
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