ARCHIVÉ - Transcription, Audience du 29 septembre 2014

Volume 1, 29 septembre 2014

TRANSCRIPTION DES AUDIENCES DEVANT LE CONSEIL DE LA RADIODIFFUSION ET DES TÉLÉCOMMUNICATIONS CANADIENNES

SUJET:

Examen des services sans fil mobiles de gros

TENUE À:

Salon Outaouais
Centre des conférences
140, Promenade du Portage
Gatineau (Québec)
29 septembre 2014

Transcription

Afin de rencontrer les exigences de la Loi sur les langues officielles, les procès-verbaux pour le Conseil seront bilingues en ce qui a trait à la page couverture, la liste des membres et du personnel du CRTC participant à l'audience publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu textuel des délibérations et, en tant que tel, est enregistrée et transcrite dans l'une ou l'autre des deux langues officielles, compte tenu de la langue utilisée par le participant à l'audience publique.

Conseil de la radiodiffusion et des télécommunications canadiennes

Transcription

Examen des services sans fil mobiles de gros

DEVANT:

AUSSI PRÉSENTS:

TENUE À:

Salon Outaouais
Centre des conférences
140, Promenade du Portage
Gatineau (Québec)
29 septembre 2014

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TABLE DES MATIÈRES

PAGE / PARA

PRÉSENTATION PAR:

- v -

ENGAGEMENTS

PAGE / PARA

Gatineau (Québec)

--- L'audience débute le lundi 29 septembre 2014 à 0900

1   LE PRÉSIDENT : À l'ordre, s'il vous plaît.

2   Alors, bonjour, mesdames et messieurs. Bienvenue à cette audience publique.

3   Cette semaine, le Conseil examinera le marché des services sans fil mobiles de gros au Canada. Il s'agit de la deuxième de trois audiences importantes que tient le Conseil cet automne. Plus tôt ce mois-ci, nous avons tenu une audience sur l'avenir de la télévision au Canada.

4   In November, we will review the regulatory framework for wireline wholesale telecommunications services. This will include an examination of whether to allow competitors access to the incumbent companies' fibre-to-the-home facilities.

5   The thread that runs through these three proceedings is choice and sustainable competition.

6   The Commission is reviewing its frameworks with its eyes firmly fixed on the future. We are seeking to ensure that Canadians are able to benefit from a world-class communication system for years to come, one in which they have access to compelling content as well as the choice of innovative wireless services and Internet services wherever they live in Canada.

7   Last week, we released the section of our Communications Monitoring Report that provides data on the telecommunications sector. According to the latest figures, there are now more than 28 million wireless subscribers in the country. In 2013, mobile wireless services generated total revenues of $21.2 billion.

8   Mobile wireless services make up nearly half of all telecommunications revenues, which is an indication of their importance to the marketplace and the Canadian economy.

9   How Canadians use mobile devices is another indication. With access to broadband wireless services, they can search for information, watch pre-recorded and live programs, listen to music, share content, conduct business, apply for government services, track their child's immunization schedule and even pay for coffee -- all thanks to their mobile devices.

10   The retail market offers Canadians a variety of wireless devices, plans and packages, and the CRTC's wireless code ensures that consumers can make informed choices about the services and companies that best meet their needs. It also protects Canadians from undue roaming and data bills and excessive cancellation fees.

11   L'audience qui s'amorce aujourd'hui a pour objectif d'examiner plus attentivement le marché de gros des services sans fil mobiles. Par ce marché, nous entendons les ententes entre les fournisseurs de services sans fil pour leur permettre d'offrir ces services, notamment pour l'itinérance et le partage des tours de communication.

12   En 2013, nous avons commencé à amasser de l'information sur les tarifs et les modalités associés aux ententes d'itinérance sur les services sans fil de gros. Un groupe de travail a été mis sur pied au sein du Conseil afin d'examiner ces données, ce qui nous a ensuite menés à lancer une consultation publique. Cette première consultation avait pour but de voir si certaines entreprises de services sans fil imposaient à leurs plus petits concurrents canadiens des tarifs et des modalités discriminatoires pour les services d'itinérance.

13   In addition to finding clear instances of unjust discrimination, we prohibited exclusivity clauses from being included in roaming arrangements. These clauses prevented smaller companies from using the networks of any other service provider and were an impediment to fair and sustainable competition.

14   In February 2014, we launched a much broader consultation. We are examining the wholesale services that wireless companies rely on to provide services to their retail customers. Our goal is to determine whether the framework for the wholesale mobile wireless services market is sufficiently competitive -- both now and in the years to come.

15   As I mentioned a moment ago, competition in the wireless industry benefits Canadian society in many ways, including by providing access to high-quality networks, innovative services and reasonable prices.

16   At this hearing, the panel will therefore want to hear views on three areas.

17   (1) The state of the wholesale mobile wireless services market, which includes roaming arrangements and tower sharing.

18   We are examining this issue given that, to provide retail services to their customers, certain wireless companies must rely on the services of other wireless companies.

19   For example, roaming arrangements enable wireless companies to make their networks available to one another so that Canadians can continue using their wireless devices to make calls, send text messages and use data when they travel outside their own network coverage area.

20   Tower and site-sharing arrangements enable wireless companies to install their own equipment on another entity's structures. These entities could be wireless carriers, broadcasters, utilities, government agencies or municipal agencies. The structures in question could be towers, as well as buildings, water towers, billboards and lamp posts.

21   These agreements enable wireless companies to deploy their wireless networks in a cost-effective and efficient manner and minimize the number of towers in communities.

22   We will also examine whether companies that do not have their own network infrastructure or spectrum -- known as mobile virtual network operators (MVNOs) -- should have access to certain wholesale wireless services at rates, terms and conditions set by the Commission.

23   (2) En second lieu, nous examinerons l'incidence des services sans fil mobiles de gros sur le marché de détail.

24   Nous évaluerons le lien entre les ententes au chapitre des services de gros et la compétitivité du marché de détail afin de nous assurer que les intérêts des consommateurs sont protégés.

25   (3) We will look at whether greater regulatory oversight would be appropriate if we were to find that the wholesale market is not sufficiently competitive.

26   The Commission does not have a predetermined outcome or outcomes in mind. It is possible that we will find that the wholesale mobile wireless services market is sufficiently competitive and that no further action is required on our part.

27   However, in the event that we do find that the wholesale market is not sufficiently competitive, we will consider whether additional regulatory intervention is needed. The Commission would need to determine whether its existing powers are sufficient or whether there is a need to reassert its jurisdiction in certain areas such as rate regulation.

28   In addition, Parliament recently amended the Telecommunications Act to limit wholesale wireless roaming rates in Canada, pending the outcome of the Commission's work in this proceeding. The Act sets out an interim formula to calculate the maximum wholesale rate for domestic wireless voice, data and text services that a wireless company can charge its competitors.

29   Au cours de la prochaine semaine, il sera important de se rappeler du rôle du Conseil en tant que tribunal administratif.

30   Nous avons un devoir d'être juste, ouvert et transparent. Comme je viens tout juste de le mentionner, nous ne préjugeons pas du résultat. Cette audience a pour but de vérifier l'information qui a été soumise. Pour cette raison, le comité d'audition concentrera ses questions sur les secteurs qui doivent être explorés plus à fond afin de préparer un dossier solide auquel il pourra se référer pour prendre une décision éventuelle.

31   Our decision will be based on the record before us, and nothing else, and will be made in a manner consistent with the mandate Parliament has conferred to the Commission in the Telecommunications Act.

32   Before we begin, I would, however, like to thank everyone who has participated in this process, either by submitting comments or by appearing before us. We would not be able to fulfill our legislative responsibilities without your views and full participation.

33   All comments will be taken into consideration as we make our decision.

34   Finally, I would like to provide a few introductions.

35   The panel for this hearing consists of:

36   - Peter Menzies, Vice-Chairman of Telecommunications;

37   - Tom Pentefountas, Vice-Chairman of Broadcasting;

38   - Candice Molnar, Regional Commissioner for Manitoba and Saskatchewan;

39   Yves Dupras, Regional Commissioner for Quebec; and

40   - myself, Jean-Pierre Blais, Chairman of the CRTC, and I will be presiding over this hearing.

41   The Commission team assisting us includes:

42   - John Macri and Kim Wardle, Hearing Co-Managers;

43   - Crystal Hulley and Alastair Stewart, our Legal Counsel; and

44   - Lynda Roy, Hearing Secretary.

45   I would now invite the Hearing Secretary to explain the procedures we will be following.

46   Madame la Secrétaire.

47   LA SECRÉTAIRE : Merci, Monsieur le Président.

48   Good morning, everyone. Bienvenue à tous.

49   Before we start I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing.

50   When you are in the hearing room we would ask that you please turn off your smartphones as they cause interference on the internal communication system used by our translators.

51   We would like to remind participants that during their oral presentation they should provide for a reasonable delay for translation within their allocated presentation time.

52   Nous désirons rappeler aux participants d'allouer un délai raisonnable pour la traduction simultanée lors de leur présentation à vive voix, tout en respectant le temps alloué pour leur présentation.

53   Veuillez noter que les documents seront disponibles sur Tweeter sur le compte du Conseil à @CRTCAUDIENCES en utilisant le mot-clic #CRTC.

54   Please note that the Commission will also be tweeting the documents during the hearing at @CRTCHEARINGS using the hashtag #CRTC.

55   Just a reminder that pursuant to section 41 of the Rules of Practice and Procedures, only previously submitted evidence may be referred to at the hearing. If you wish to introduce new evidence as an exception to this rule, you must ask permission of the Panel before you do so.

56   As set out in the Commission's Organization and Conduct Letter dated 29 August 2014, if parties undertake to file information with the Commission in response to questioning by the Panel, these undertakings must be filed by 9 October 2014, unless otherwise determined by the Panel at the time the undertaking is made.

57   Please note that the content of undertakings will not be confirmed on the record through the transcript of the hearing. If necessary, parties may speak with Commission legal counsel at a break following their presentation to confirm such content.

58   Please note the following changes to the Agenda.

59   For the record, the Commission has been advised that Orange Horizons, Raven Wireless, Union des consommateurs and Lynx Mobility will not be appearing in the hearing.

60   In order to assist parties and to avoid confusion, the Commission has produced an exhibit which sets out the definitions of "tower sharing services", "site sharing services" and "tower and site sharing services" on which Commission questions will be based. The Exhibit will be tweeted and will be available in the examination room and on the Commission's website.

61   Now, Mr. Chairman, we will begin with the presentation by the Competition Bureau, le Bureau de la concurrence.

62   Madame Dagenais, je vous demanderais, s'il vous plaît, de présenter vos collègues. Vous avez ensuite 20 minutes pour votre présentation orale.

PRÉSENTATION

63   MS DAGENAIS : Merci.

64   Bonjour. Merci, Monsieur le Président et tous les commissaires, d'avoir invité le Bureau de la concurrence à faire une présentation dans le cadre de la présente audience. Je m'appelle Martine Dagenais et je suis la sous-commissaire à la Direction générale des politiques économiques et de la mise en application au Bureau de la concurrence.

65   Je suis accompagnée par M. Patrick Hughes, économiste principal du Bureau de la concurrence; par le Dr James Reitzes, un expert en économie du Groupe Brattle; ainsi que par Maître Derek Leschinsky, notre conseiller juridique des Services juridiques du Bureau de la concurrence.

66   Le Bureau de la concurrence, en tant qu'organisme d'application de la loi indépendant, veille à ce que les entreprises et les consommateurs canadiens prospèrent dans un marché concurrentiel et innovateur. Dirigé par le commissaire de la concurrence, M. John Pecman, le Bureau est responsable de l'administration et de l'application de la Loi sur la concurrence dans pratiquement tous les secteurs de l'économie canadienne, y compris les télécommunications. La Loi sur la concurrence a pour objet de préserver et de favoriser la concurrence au Canada dans le but notamment de promouvoir l'efficacité et l'adaptabilité de l'économie canadienne et d'assurer aux consommateurs des prix concurrentiels et des choix en matière de produits.

67   Nous sommes heureux de participer à cette audience dans le cadre du travail de promotion du Bureau. Les articles 125 et 126 de la Loi sur la concurrence permettent au commissaire de la concurrence de témoigner devant les organismes fédéraux et provinciaux qui supervisent les industries réglementées afin de faire la promotion d'une concurrence accrue dans divers secteurs de marchés.

68   Dans le cadre de ses efforts soutenus de promotion des avantages de la concurrence, le Bureau milite pour que les organismes de réglementation et les décideurs ne réglementent que les secteurs où il est nécessaire de le faire et qu'ils s'appuient sur les forces du marché autant que possible pour obtenir les avantages de la concurrence. Lorsque les forces du marché sont insuffisantes pour l'atteinte de certains objectifs stratégiques, le Bureau dispense des conseils aux responsables de la réglementation afin de les aider à mettre en oeuvre des politiques qui permettent d'atteindre ces buts de la façon la moins intrusive possible.

69   Je vais maintenant céder la parole à M. Hughes, qui exposera les détails de la présentation du Bureau.

70   MR. HUGHES: Thank you, Ms Dagenais.

71   The Commission's objective in this proceeding is to assess whether market forces are sufficient to promote competitive prices in wholesale mobile wireless service markets and to determine whether greater regulatory oversight is required.

72   In order to make this assessment, the Commission must examine whether incumbent wireless companies supplying wholesale services possess market power. Market power is the ability of a firm or group of firms to profitably maintain prices above a competitive level or maintain other elements of competition, such as quality, choice, service or innovation, below a competitive level for a significant period of time.

73   Incumbent wireless companies such as Rogers, Bell and TELUS are vertically integrated in the provision of wireless services and derive revenue from both their wholesale and retail operations. As such, incumbents have an economic incentive to make decisions about the terms on which they will supply wholesale services to new entrants based on the overall revenue they generate from their wholesale and retail operations.

74   The Commissioner of Competition's position is that incumbents may have the ability and incentive to profitably raise the rates they charge new entrants for wholesale services. When they are prohibited from doing so, such as by the recently introduced section 27.1 of the Telecommunications Act, they may degrade the quality of their offerings. In other words, incumbents may have an economic incentive to raise their rivals' costs. These practices harm the Canadian economy.

75   The Commission has set the stage for this important proceeding with Telecom Decision 2014-398. In its decision in that proceeding, the Commission found that Rogers Communications Partnership had unjustly discriminated against new entrants or granted undue preferences to the detriment of new entrants. The Commission found clear instances of unjust discrimination and undue preference by Rogers with respect to both price and non-price aspects of its wholesale mobile wireless roaming agreements with new entrants.

76   The Commission's finding in Telecom Decision 2014-398 are entirely consistent with the Commissioner of Competition's assessment, which is that incumbent service providers have retail market power, and therefore have an incentive to enact strategies to protect their market power by ensuring that entrants are not, and do not become, fully effective competitors. In the Commissioner of Competition's view, Telecom Decision 2014-398 is an important step forward.

77   The Commissioner of Competition's assessment that incumbent wireless companies have market power is supported not only by this Commission's decision in Telecom Decision 2014-398, but by the robust expert reports prepared by James Reitzes, Kevin Hearle, Giulia McHenry, Jeremy Verlinda and Coleman Bazelon of the Brattle Group. Dr. Reitzes is here today to answer any questions the Commission may have about the Brattle Reports.

78   The Brattle Reports demonstrate that incumbent mobile wireless carriers are making above normal returns on their investments, consistent with the exercise of market power. In such circumstances, vertically integrated incumbents have an incentive to raise their rivals' costs and engage in exactly the type of behaviour that Rogers was found to have engaged in by the Commission.

79   This incentive appears to have contributed substantially to the difficulties that new mobile wireless entrants have experienced. The Brattle Reports quantify the amount by which incumbents could increase entrants' marginal costs, given the structure of the industry and the magnitude of incumbents' retail margins. As a result of this analysis, we would expect entrants' costs could be increased by approximately 29 percent as a result of incumbents' incentives to raise wholesale service rates.

80   The Brattle Reports predict that an additional nationwide carrier, not inhibited by incumbents' raising rivals' cost strategies, would increase consumer surplus in Canada by approximately $1 billion annually, which represents 5 percent of industry revenues in 2012. The Brattle Reports also estimate that an additional nationwide carrier would increase choice, expand mobile wireless penetration in Canada from 78 percent to 81 percent, and drive down the incumbents' average retail prices by about 2 percent.

81   In the Commissioner of Competition's view, the Commission should consider measures to address the incumbents' incentive to raise the rates they charge new entrants for roaming services. Implementing price caps alone does not remove the incentive and ability of large vertically integrated Canadian wireless carriers to employ non-price foreclosure mechanisms. Thus, the Commission should consider remedies that would limit the incentive and ability of incumbents to engage in non-price mechanisms that increase downstream rivals' costs or skew such rivals' offerings in ways that protect the incumbents' own market positions.

82   The Brattle Reports demonstrate that competition among two or more vertically integrated upstream suppliers to offer wholesale wireless services to a downstream rival provides no guarantee that input prices and service quality will be offered on competitive terms. The incentives for vertically integrated wholesale suppliers to foreclose downstream rivals will remain regardless of the number of upstream suppliers. Moreover, the Brattle Reports show that only under certain circumstances will the presence of multiple vertically integrated upstream suppliers limit the ability to raise rivals' costs or sabotage quality, conditions that are not present in a Canadian mobile wireless markets.

83   As the Commissioner of Competition has already submitted, this conduct is not in the public interest. Some customers will depart from carriers that depend on wholesale arrangements and drop service altogether due to affordability. In the medium-term, as retail customers depart that carrier that depends on wholesale arrangements, this competitor may retrench or disappear, depriving retail consumers of both a competitive alternative and, potentially, increased product choice and quality.

84   This represents a market failure. The ultimate purpose of raising rivals' cost strategies is to allow incumbents to raise retail prices toward monopoly levels and minimize the ability of new entrants to garner market share, be it by offering lower prices or new wireless plans and different service options.

85   While profitable for incumbents and their shareholders, this does not maximize the total value of the mobile wireless networks for the Canadian economy. This is because incumbents do not take fully into account the fact that when they raise rivals' wholesale costs retail consumers have less product choice and may consume less output as a result.

86   When retail prices are above competitive levels, consumers may cut back on the quantity of mobile wireless services they consume or, in the extreme, choose not to subscribe at all. In other words, the incentive for incumbents to raise rivals' costs can distort and ultimately impair the performance of the market.

87   As mentioned earlier, the Brattle Reports indicate that the Canadian wireless sector may support efficient entry by an additional nationwide carrier and that such entry would entail significant gains in consumer surplus. The Brattle Reports conclude that Canadian financial markets predicted that entry by Verizon would have a substantial effect on the variable profits of all three incumbents. Prices charged by the incumbents would fall by almost 2 percent after entry by an additional nationwide carrier and mobile penetration would increase to 81 percent and entry by an additional nationwide carrier could increase consumer surplus by approximately $1 billion annually.

88   Given these findings, regulatory measures may be efficient and may yield sizable benefits to the Canadian economy. Such measures should be designed to enhance affordability and increase the variety of retail services and choices available to consumers.

89   An additional nationwide competitor not inhibited by incumbents' raising rivals' costs strategies will introduce downward pressure on retail prices, which will encourage existing subscribers to increase their mobile wireless usage toward efficient levels, and will encourage Canadians who have found mobile wireless services an unaffordable luxury to subscribe.

90   As indicated in the Brattle Reports, relative to the United States, proportionally fewer Canadians subscribe to wireless service. Those Canadians who do subscribe talk less, and per-unit pricing of mobile wireless voice in Canada is nearly three times higher. An additional nationwide competitor may also be able to offer new wireless plans and different service options.

91   Facilities-based competition is the most direct way to remove the vertical foreclosure incentive. However, given that it will take several years to achieve increased nationwide facilities-based competition, in the interim, the Commission should consider regulatory measures to enhance the competitiveness of wholesale tower sharing services.

92   Additionally, the Commission could consider implementing vertical separation between incumbents' wholesale and retail operations. For example, the Commission could consider prohibiting the communication of confidential information between the wholesale and retail operations of the incumbents' businesses, as it has in other CRTC proceedings.

93   From an economic perspective, any remedy involves both benefits and costs, and the information on the public record of this proceeding is not sufficient for the Commissioner of Competition to offer a view on the overall merits of a remedy of this nature. While the Commission should ensure that regulatory measures do not go further than necessary, if in deciding upon an appropriate remedy the Commission is faced with a choice between a remedy that goes farther than is strictly necessary to effectively address the vertical foreclosure incentive and a remedy that does not go far enough, the Commissioner of Competition would prefer the former remedy.

94   In conclusion, the Commissioner of Competition supports the introduction of regulatory measures to address the incentives for vertically- integrated incumbents to raise rivals' costs. Such measures are needed to promote efficient retail mobile wireless markets in Canada.

95   The potential benefits for the economy are substantial. The Brattle Reports predict that an additional nationwide competitor, not inhibited by incumbents' raising rivals' costs strategies, would increase consumer surplus by approximately $1 billion annually, which appears to exceed the investment and other costs resulting from the emergence of an additional nationwide competitor.

96   The Commission's findings in Telecom Decision 2014-398 are entirely consistent with the Commissioner of Competition's assessment, which is that incumbent service providers have retail market power, and therefore have an incentive to enact strategies to protect their market power by ensuring that entrants are not, and do not become, fully effective competitors.

97   The Commissioner of Competition's position is that incumbents may have the ability and incentive to profitably raise the rates they charge new entrants for wholesale services and when they are prohibited from doing some such as by the recently introduced section 27.1 of the Telecommunications Act, they may degrade the quality of their offerings. Thus, further regulatory measures are, in the Commissioner of Competition's view, efficient and may yield substantial benefits to consumers and the Canadian economy.

98   We would be more than pleased to answer any questions you may have. Thank you very much for your time and consideration.

99   THE CHAIRPERSON: So thank you very much for those opening remarks. So I'll start off the questioning this morning for you.

100   So this is a proceeding to examine the wholesale wireless markets -- the wholesale market. Yet, a lot of your submissions spend a considerable time examining and analysing and commenting on the retail market. Perhaps you could provide a little bit more depth why, in your view, the retail market is so important to the central issue in this proceeding?

101   MR. HUGHES: In the Commissioner's view, and what we're really looking at and what we are focusing our attention on, is the concern about raising rivals' cost strategies. We ask why incumbents are doing this. What's the incentive?

102   And the incentive to us is the margins in the retail market. If there were no margins in the retail market the incentive would not be the same at all and they would not have the incentives to do the kinds of things that is the focus of our analysis.

103   Does that -- I hope that answers the question.

104   THE CHAIRPERSON: So it's the vertical integration aspects --

105   MR. HUGHES: Yes.

106   THE CHAIRPERSON: -- of it that drives that. But for that you don't think you would come to the same analytical results? Is that correct?

107   MR. HUGHES: You would certainly not come to the conclusion that the wholesale rates are high because of raising rivals' costs and vertical integration strategies.

108   THE CHAIRPERSON: Right. So as you know, there is a lot of flanker brands out there such as Fido, Virgin, Koodo being operated by the incumbents. I'd like to know your views or the Bureau's views:

109   What if anything should be concluded by the presence of those brands in terms of the retail market and its incident on the wholesale market?

110   Is it an indicia of sufficient or insufficient competition?

111   Is it evidence of behaviour that attempts to lessen competition or is there nothing to be drawn from that?

112   MR. HUGHES: I think we really look at the -- we're going to look at market power. At the end of the day, that's going to be our lens to look through everything.

113   And the flanker brands are an aspect of that. It gives us some indication of where the incumbents have placed themselves in product space and also where the entrants are located in product space and how incumbents -- we mentioned how entrants' offerings may have been skewed by some of the raising rivals' cost strategies. So those are all factors here.

114   But really, it's going to come down to market power for us. We have made our conclusions on that. We talk about -- we have the Brattle Report which has done the analytics and the empirics on that.

115   So really, I guess the answer is --

116   THE CHAIRPERSON: But I'm asking you about flanker brands, if you have a view about the impact of flanker brands?

117   MR. HUGHES: I guess in a long-winded way I'm saying -- I apologize for the length -- I guess we don't have a view on that in this context.

118   THE CHAIRPERSON: Okay, thank you.

119   And in your evidence you also lump together Bell, TELUS and Rogers as a group. So I take it you advance that together they have retail market power. Is that correct?

120   MR. HUGHES: There is market power and there are three firms.

121   THE CHAIRPERSON: You're not suggesting that individually any one of those firms has market power, are you?

122   MR. HUGHES: We're not concluding that in this context. It is possible. That's not been the focus of our analysis.

123   THE CHAIRPERSON: So you focus strictly to the group of firms acting together?

124   MR. HUGHES: Well, I'm not sure acting -- we're looking at whether there's market power and the three firms are acting with regard to other firms' conduct in the market.

125   Acting together is -- I don't think we really have a view on the degree to which they are -- we believe there is some -- we believe that coordinated conduct is a factor in this market. Maybe that's -- maybe that will answer your question. But it's only one of our -- one criteria we're looking at, the one factor.

126   THE CHAIRPERSON: Right.

127   MR. HUGHES: Again, for the whole market power thing.

128   THE CHAIRPERSON: So do I take it that you have no views or you just haven't looked at whether any single firm is able to maintain retail prices above competitor prices?

129   MR. HUGHES: Well, first, just to go back to this, so we do have a view on coordinated conduct.

130   We do not have a view on whether the market power requires the firms to act together. That's sort of a loaded term, I guess. That's where I'm trying to get to. I hope I --

131   THE CHAIRPERSON: Right. So we should take your position as the group of firms together. Is that correct?

132   MR. HUGHES: The group of firms in the market.

133   THE CHAIRPERSON: Yes.

134   MR. HUGHES: Not necessarily acting together.

135   THE CHAIRPERSON: Acting together, but the coordinated aspect of it.

136   MR. HUGHES: There is a coordinated aspect. There is coordinated conduct --

137   THE CHAIRPERSON: Okay.

138   MR. HUGHES: -- as a factor. Excuse me.

139   THE CHAIRPERSON: Sorry?

140   MR. HUGHES: As a factor. Sorry, I apologize.

141   THE CHAIRPERSON: So your August intervention at page 12 you observe that there is a slight disconnect or a major disconnect -- I don't want to put words in your mouth -- between the incumbent's assertions because the incumbents are saying that retail mobile wireless services market is competitive.

142   And then -- but you point out the Charles River Associates' report merely says that the market is workably competitive. Is "workably competitive" an appropriate test the Commission should be applying in this proceeding?

143   MR. HUGHES: In our view, no.

144   THE CHAIRPERSON: So what is the right appropriate test? Is it actually competitive, sufficiently competitive? Any other adjective you want to provide?

145   MR. HUGHES: We like market power. It's our tests. It's been used internationally. It's got a lot -- it's been used often. It's well defined.

146   That's the test we would use.

147   THE CHAIRPERSON: So we should stay away from any terms such as "sufficiently competitive".

148   MR. HUGHES: Agreed.

149   THE CHAIRPERSON: Well, I'm asking you the question.

150   MR. HUGHES: I -- that's what I would do. That's what we're recommending.

151   THE CHAIRPERSON: Right. Now, the Sanderson report criticizes the Bureau's position that incumbents may have the ability and incentive to behave anti-competitively because you really present no evidence of such behaviour.

152   And let me quote from that Sanderson report, and I quote:

"Any hypothetical coordinated exercise of significant market power is likely to be difficult to implement and sustained in this market for a number of reasons. Every wireless carrier has a strong incentive to steal [that's the words in this quote] customers from its rivals. Substantial term rates and volatility in quarterly shares of industry net new subscriber are evidence of substantial rivalry between wireless carriers in Canada.
In addition, wireless carriers compete aggressively through advertising, marketing, capital expenditures and investment to 'better' each other to convince subscribers to switch providers."

153   So what's your response to that criticism?

154   MR. HUGHES: I think our -- first of all, our response is going to be that -- and again, this is going to be something we've already exchanged on. We're looking at market power in the whole, and this is one factor.

155   We take some difference, perhaps, in the interpretation of the facts that's presented the Sanderson report. I don't have specifics at my fingertips.

156   But really, it's something that we're testing as the overall market power test. And when we ask -- when we -- through our lens of market power, when we're looking at whether it's unilateral conduct or coordinated conduct, we're going to ask one question, can -- is it profitable to raise prices above competitive levels for a significant period of time.

157   And that's the test we're using, and we're confident that that has occurred and can occur. And we've tested it with our empirics, and that's the position we take on that.

158   Whether it's 90 percent unilateral and 10 percent coordinated or some mix in between, we really don't have that -- that's not our position.

159   THE CHAIRPERSON: And when you apply market power analysis, you don't think that advertising, marketing, capital expenditures and investments are relevant to that analysis?

160   MR. HUGHES: Well, they're certainly relevant, but --

161   THE CHAIRPERSON: So what kind of weight do you put to those?

162   MR. HUGHES: We're going to -- we're going to put ourselves in the shoes of a player, an incumbent with the -- hypothetically setting the competitive price. Can they raise prices five percent?

163   They're going to take into account what investments have been made, what position various players are, what kind of advertising is out there, how the other players are going to respond, are they going to have an advertisement that says, "Come to us because they just raised their price".

164   They're going to look at how sticky consumers are. Are consumers going to say, well, I don't like the higher price, but I can't move or the other way around.

165   There are going to be a lot of factors in this -- in this analysis, but it's just going to -- there are going to be factors.

166   And really, the core question is, can they raise price above competitive levels profitably.

167   THE CHAIRPERSON: Right. Isn't that what Sanderson is saying, that -- that in their view, there is evidence to the contrary, that there is substantial rivalry?

168   MR. HUGHES: Her position, as you said earlier, is that it's not workably competitive.

169   And that's really her -- I view that as her lens of all that other discussion. She's going to have to look at this as well with, okay, so what. So there's advertising. So there's rivalry. What's the lens you look at that through?

170   She's looking through a workably competitive. We're looking at it as terms of competitive.

171   THE CHAIRPERSON: In your intervention of the 15th of May at paragraph 21, you state that, in your view, that the appropriate framework for assessing market power is set out in the Bureau's abuse of dominance guidelines and merger enforcement guidelines.

172   That's correct?

173   MR. HUGHES: Correct.

174   THE CHAIRPERSON: And the merger enforcement guidelines state that:

"Firms are less likely to coordinate when relevant markets are characterized by frequent and innovative and rapid growth."

175   Is that correct?

176   MR. HUGHES: Yes, that's correct.

177   THE CHAIRPERSON: So why, in your view, doesn't the mobile wireless market satisfy those conditions? It seems to, one could argue a lot of innovative and rapid growth in that market.

178   MR. HUGHES: Well, my recollection is that penetration growth has been slowing and that it's -- it is becoming -- it's becoming less of a growing market than it was a few years ago.

179   That said, yes, it's -- that's a factor.

180   THE CHAIRPERSON: A casual observer would notice, you know, new devices coming on the market regularly, new applications being available, all kinds of functionalities being rolled out. One would think that that would clearly indicate innovative -- innovation in that particular sub-market. Not?

181   MR. HUGHES: Well, what about prices? What about penetration rates?

182   THE CHAIRPERSON: I'm asking the questions.

183   MR. HUGHES: Okay. Well, I guess my answer is that I see other factors that it's more than just whiz-bang devices and what's new out there.

184   There are other factors to consider here.

185   In a -- if we're going to do yardstick of who's got the best devices and who's got the fastest network as a litmus test, well, that's one thing, but again, that's not the metric we're using.

186   It's a factor. It's more -- it's more likely to be competitive in those circumstances than otherwise, but it's not --

187   THE CHAIRPERSON: But you discount that factor in your analysis. Is that correct?

188   MR. HUGHES: We have other factors that we put more weight on.

189   THE CHAIRPERSON: More weight on.

190   So what weight would you put on this? I don't want to corner you into putting a percentage, but I mean, is -- maybe with words. Is it minor, insignificant, less than substantial?

191   MR. HUGHES: Ultimately, I don't -- it's -- I keep going back to the same metric I went to before and the same lens. It's not enough to reverse our decision -- our conclusions on market power.

192   And if that's -- whatever modifier we want to put on that.

193   THE CHAIRPERSON: In your intervention of 15 May at paragraph 28, you state that:

"There's a risk of coordinated conduct in these markets..."

194   That is the retail mobile services market. I think that -- you've repeated that today.

"...and the risk is higher combined with higher concentration of ownership and higher barriers to entry and expansion."

195   That is your view?

196   MR. HUGHES: Yes.

197   THE CHAIRPERSON: So beyond mere risks, do you have any evidence that coordinated conduct is occurring in the retail mobile wireless marketplace?

198   MR. HUGHES: Our best evidence, certainly, that we have before you is our evidence on market power that Brattle has provided for us.

199   THE CHAIRPERSON: So you have no actual evidence of that. It's more the threat of, the risk of that you're advancing.

200   MR. HUGHES: Well, we've had actions involving wireless and other telecom activities and transactions over the years, and we have -- we have our views, but it's nothing specific that I can -- I could put my finger on.

201   THE CHAIRPERSON: You also intervened in Telecom Notice of Consultation 2013-551. That's the wholesale services and associated policy review, the hearing I mentioned earlier in my opening remarks that we're going to have in November.

202   And in that -- in the comments you made in that, you state that residential wire line services, when speaking of that, the development of competition in the markets for residential services has been, in your words, "successful", and that most residential consumers now have the choice of two facilities-based networks in most regions of the country.

203   So now, for mobile wireless markets, when we have three facilities-based incumbents that operate nationally, you state, and this is at paragraph 25 of your May submission, that:

"Incumbents possess market power in retail mobile wireless services in Canada."

204   Help me understand why two facilities-based networks is sufficient in the wire line services, but not in the wireless market.

205   MR. HUGHES: Short answer, the facts are different, and every market power assessment is going to be based on the facts. And let me go into a little more detail what --

206   THE CHAIRPERSON: Yes, please.

207   MR. HUGHES: -- I mean by that.

208   THE CHAIRPERSON: Yeah. What are the factual differences?

209   MR. HUGHES: The first one is that we have evidence -- the Commission has evidence that wholesale mobile wireless roaming services have been priced well above competitive levels.

210   We don't have -- that evidence isn't there in wire line. I mean, there's a regime in place.

211   There's no regime in place in wireless, so we can see that there is this difference in the evidence that's available to us. We see this as an important fact that leads us to our conclusions here.

212   We haven't seen the full record, but we put -- we understand from your findings that that's the case, and we take that as an important fact in our analysis here that we don't have in wire line.

213   Wireless, similarly, is a prospective analysis. Wireless -- excuse me. I hope I get these right.

214   Wire line was a retrospective analysis. There was a regime in place. And what you -- what was being looked at there is -- and what is being looked at there, I should say, is whether or not that regime should remain in place, be scaled down or, in the case of fibre to the home, could be -- the regime could be expanded or there could be further regulatory measures on that side.

215   And what we're talking about there, by the way, is the existing regime. We're talking about the wire line, the traditional wire line system that has the access regime towards it whereas, in wireless, you've got a choice before you in terms of what you do and what sort of remedies you're going to put in place.

216   It's not like you have an existing regime that you're assessing. You're wondering and you're considering whether you should have a new regime here.

217   And that means there's more remedies available.

218   One of the remedies available here that's not available in wire line and, indeed, not even -- from the facts, not even necessary is a regulatory -- excuse me, regulatory measure to deal with raising rivals' cost due to vertical foreclosure.

219   That's a specific problem, and we've -- we're arguing for specific remedy here. That's not what we're talking about here in wire line.

220   THE CHAIRPERSON: So it's not a numerical test.

221   MR. HUGHES: No. And in fact, historic -- if I could just --

222   THE CHAIRPERSON: Yes.

223   MR. HUGHES: Excuse me for jumping on that. And that's one of the things which I probably should have mentioned in my answer a moment ago.

224   Yeah. So I mean, our analysis is not going to be a numerical exercise of concentration is bigger, it's 68 here and 64 there, 68's bad, 64 good or 34, whatever you like.

225   THE CHAIRPERSON: But even in terms of the number of --

226   MR. HUGHES: And not even the number of competitors. It's going to be a fact-based analysis. And one of the things, if you look in our merger guidelines, which also looks at market power, we're going to distinguish between whether it's more like a bidding market, whether there's product differentiation, whether it's homogenous products and capacity is an important element that differentiates here.

227   And those factors are different in wire line than they are in wireless.

228   THE CHAIRPERSON: So one could have rigorous and healthy competition with just two players.

229   MR. HUGHES: Indeed.

230   THE CHAIRPERSON: So it's always fact driven.

231   MR. HUGHES: It's always factual. You have two players who can -- who are basically, if you like, competing for an RFP. And they say to the buyer who's asking for the bids, "I can supply the whole market. You can go entirely to me" and the other -- firm B says, "You can go entirely to me. I can do all your needs".

232   It's a bidding market, relatively the same size.

233   An RFP process with two bidders might be able to get you very close to where you're trying to get to.

234   THE CHAIRPERSON: And your view is that three facilities-based incumbents in the wireless sector is not sufficient.

235   MR. HUGHES: That's exactly right.

236   THE CHAIRPERSON: Not because there's three, but because your analysis leads you to that conclusion.

237   MR. HUGHES: Because of the -- because of the nature of the industry, the evidence we've got before us that it's not a numbers game and whatever else I said.

238   THE CHAIRPERSON: Right. So by the same extrapolation, four might not be sufficient as well.

239   MR. HUGHES: Indeed.

240   THE CHAIRPERSON: So what -- it's more than four. What -- it's not just the number of players. What else would we need?

241   MR. HUGHES: Well, it's going to be a question of how much entry costs and what kind of efficiencies might be given up as whether it's done by a regulatory measure or it happens through the market forces. There's going to be a certain amount of duplications.

242   Five -- in a particular industry, in a particular fact situation, blah, blah, blah, as we've already discussed, yeah, five might be better than four. I suspect that four, if you get four --

243   THE CHAIRPERSON: But not necessarily so.

244   MR. HUGHES: Pardon me?

245   THE CHAIRPERSON: But not necessarily so.

246   It's not the numbers that matter.

247   MR. HUGHES: Oh, no. Indeed. Indeed.

248   THE CHAIRPERSON: Right.

249   MR. HUGHES: It's maybe so close with four. I mean, you would expect -- you'd expect more is better, but it's -- it could be so marginal it's not even important.

250   THE CHAIRPERSON: Right. So beyond the telecommunications sector, do you -- think about other areas of the Canadian economy. Are you aware of any healthy, rigorously competitive areas of the economy where you might have just two players or even just three players?

251   MR. HUGHES: I think -- I wasn't really prepared for that one.

252   I do believe that we have had --

253   THE CHAIRPERSON: You're the Bureau of Competition. I take it you look at the entire --

254   MR. HUGHES: Indeed.

255   THE CHAIRPERSON: -- landscape.

256   MR. HUGHES: Indeed. I'm not the entire Bureau. I don't have all of the knowledge exactly in my head at the moment.

257   I think we have concluded that two is enough in some cases. I really can't --

258   THE CHAIRPERSON: Would you like to take that under an undertaking, so -- to give us examples where the numerical number of players might indicate even at two or three that you can still have, in other sectors -- not in telecommunication sectors -- vigorous competition?

259   MR. LESCHINSKI: Sure. Subject to any confidentiality protections or other measures in place around the Competition Act, we would undertake to do that.

Engagement

260   THE CHAIRPERSON: Sure. And you know we have rules as well.

261   All right. Let's move on.

262   In Bell Mobility's submissions, they reference the Church and Wilkins report entitled "Wireless competition in Canada. Damn the torpedoes. The triumph of politics over economics".

263   You're familiar with that report.

264   MR. HUGHES: I am.

265   THE CHAIRPERSON: That report provides a rather critical view of your expert evidence, namely, the Brattle Group report. So let's take these -- some of these criticisms one at a time and see how you would respond to them.

266   So the first one is the expert evidence does not address whether entry in the retail wireless market is efficient.

267   What would you respond to that criticism?

268   DR. REITZES: Good morning.

269   THE CHAIRPERSON: Good morning.

270   DR. REITZES: Our response to that would be that although the Brattle report didn't specifically analyze whether entry would be profitable into the market, we analyzed what the impact of having a fourth additional nation-wide competitor in the market would be.

271   THE CHAIRPERSON: I'd ask you to maybe approach yourself to the mic because I'm having difficulty, and others probably, too, as well.

272   DR. REITZES: No problem.

273   The Brattle report did not assess whether it would be profitable for an additional nation-wide entrant to enter the market.

274   We did examine what the impact of having an additional nation-wide entrant would be on consumers on prices on choice, and obviously found substantial benefits from that.

275   As part of the analysis, we did look at the variable profits of a potential entrant, and the analysis we did showed that those profits were on variable profits, does not include fixed costs, does not include the cost of building a network on the approximately $800 million per year. So it's possible, quite possible, that with that sort of variable profits that that might make entry by an additional competitor profitable.

276   THE CHAIRPERSON: So I take it you do agree that you did not address whether entry in the retail wireless market is efficient.

277   DR. REITZES: We did not address whether it was profitable. We addressed whether entry would have value to consumers and what the impacts would be on other competitor in the market and we found that, on net, that was beneficial.

278   THE CHAIRPERSON: So why wouldn't one conclude, based on that criticism, though, that somehow the conclusions of your report are somewhat inconclusive because you haven't looked at that issue?

279   DR. REITZES: We haven't looked specifically at whether it would be profitable to enter the market. What our report is finding is that if the regulatory environment in some level makes it more hospitable to enter the market that that may produce great benefits to the Canadian economy.

280   THE CHAIRPERSON: Okay. So one of the other criticisms is that it only -- speaking of your report, it only estimates competitive benefits of a fourth national player, but not its costs.

281   What do you respond to that?

282   DR. REITZES: I think we've taken into account some aspects of the costs.

283   There's a section of our report that looks at how having an additional competitor in the market, if the net result of that is having less spectrum available for existing players to use, what the impact is on their costs as a result of that.

284   So I do think we -- our report takes that into account, you know, some of the cost elements of entry.

285   THE CHAIRPERSON: The other criticism is that there is no assessment of the financial viability of a fourth player. Do you agree with that criticism?

286   DR. REITZES: I think, subject to the remarks I made earlier, that, you know, we do find that there's $800 million of revenue potentially available to an entrant.

287   We haven't costed out what the cost is of building a network and comparing that in assessing whether --

288   THE CHAIRPERSON: But isn't that the point?

289   DR. REITZES: -- it would be viable.

290   THE CHAIRPERSON: You can't just theoretically say there's room because there's dollars in the market that somebody would get to if you require a huge amount of investment to enter the market. There may be barriers otherwise. So the cost is -- goes to it in the viability of that enterprise going forward, does it not?

291   DR. REITZES: Yeah, the cost of entry certainly is a factor. And we're not denying that. We just didn't specifically have the information in front of us in order to assess whether, you know, entry itself would be profitable.

292   THE CHAIRPERSON: Another criticism is -- that's okay? I saw notes being passed around. We're okay?

293   Okay. The other criticism is the competitive benefits analysis is unreliable to the methodology used.

294   How would you respond to that?

295   DR. REITZES: I think we've gotten certain criticisms from economists working for some of the parties regarding our use of a logit model, which is -- and we stand by the use of that model. That is a model that's been used by the U.S. anti-trust agencies, the anti-trust division of the U.S. Department of Justice and the Federal Trade Commission to look at the impact of mergers and their competitive effects.

296   The article that actually introduced this model to sort of the economic academic community used it to actually analyze telecommunications mergers where it was looking at the impact of the merger of long distance carriers in the U.S., so we think it's an appropriate model to use.

297   It assumes that firms compete over prices, that they offer products with different attributes that appeal to some consumers and not others, and we feel, you know, for all those reasons that it's a reasonable model to use here to assess the impact of entry.

298   THE CHAIRPERSON: Is it -- why is it the most appropriate model, in your view?

299   Were there other models available? You've referred to the fact that you had looked at telecommunications areas.

300   DR. REITZES: Well, I think partly because it had been used to look at telecommunications mergers and the features I mentioned, that it assumes that firms are competing over price, that they're -- that consumers have different preferences for the services offered by different firms so they may prefer, you know, one telecom carrier to another service offerings, all else equal, that all those features are -- make a -- you know, a better model to use here than alternatives that are out there.

301   THE CHAIRPERSON: Another criticism that comes from the Bell Mobility submission is that -- it states that you, the Bureau, acknowledge that firms should not undertake investments where the expected IRs -- that's the internal rate of returns -- is less than its WACCs, the weighted average cost of capital, since doing so would reduce the firm's market value. Do they correctly summarize your position?

302   DR. REITZES: Yes. We, I think consistent with the rest of the economic community, believe that firms don't purposely take unprofitable investments.

303   THE CHAIRPERSON: Right. So then they go on and say:

"It's illogical to conclude that when a firm's IRR is higher than its WACC it must be earning above normal profits."

304   DR. REITZES: Yes. Typically the belief is that firms will keep entering the market until the existing firms in the market are earning an IRR that equals their weighted average cost of capital.

305   THE CHAIRPERSON: In fact, Professor Church goes on to warn the dangers of the sort of analysis you had done because it's ex post. So you are comparing apples and oranges in a sense, right, ante and post, and it has the risk of being very deceptive and:

"... must be interpreted very carefully because significant returns are required ex post if the investment is successful in order to compensate for the risk of failure at the time of the investment."

306   So what do you respond to that?

307   DR. REITZES: Our profitability analysis looks at the cash flows that are generated by Rogers and TELUS from their inception. These companies have been up and running for a long period of time, so we think that the probability of failure is not impacting our analysis very much given that what we are really analyzing is the track record of these companies over a long period of time.

308   THE CHAIRPERSON: So your view is you did analyze these factors? Notwithstanding the risk you mentioned earlier, you did analyze it in a very careful way?

309   DR. REITZES: I think what we are saying is that we can't do -- this is going back sort to to your previous question, we can't really do an ex ante analysis, we don't know what the anticipated profits were of Rogers and TELUS at the time.

310   THE CHAIRPERSON: Right.

311   DR. REITZES: So looking ex post, if you find that a firm is earning an internal rate of return much above its weighted average cost of capital, that would suggest that as the market is currently functioning that firm is doing really well and is consistent potentially with evidence that there is market power being exercised. Consistent with other explanations as well, but it's also consistent with there being market power.

312   THE CHAIRPERSON: Right. If you had had access to some of that confidential information you would have been able to analyze this ex ante aspect; is that correct?

313   DR. REITZES: I'm not sure we would have been able to do that, but we --

314   THE CHAIRPERSON: You would have been in a better position than not?

315   DR. REITZES: We would have been in a better position to do that, yes.

316   THE CHAIRPERSON: Professor Church and Wilkins also are very critical of your events study, namely the change in each company's stock prices in response to the news in late summer 2013 that Verizon was not going to enter the Canadian market. And they go on to quote Professor Winston, Michael Winston, as saying:

"Any suggestion that an anti-trust authority should primarily rely on events study analysis presumes that stock market participants are able to forecast competitive effects of mergers more accurately and faster than is the Agency, perhaps a questionable assumption."

317   What do you respond to that criticism?

318   DR. REITZES: Well, I think in this context we were trying to come up with a reliable way of examining what the impact of an additional nationwide entrant would be on the Canadian wireless market. To do that, since this is a prospective, a predictive analysis, you try to use information that allows you to assess that and there isn't much information out there in the Canadian market to say what is going to be the impact of a fourth wireless carrier, or an additional nationwide carrier.

319   In this case, the information that was out there was there was information regarding Verizon's plan to potentially enter the Canadian market, which it turned out it did not, at least at this point in time, and that's the information out there that we had to rely upon in terms of doing some sort of assessment. We think it's reasonable.

320   We think the financial markets, there are plenty of analysts in the markets whose business it is to try to figure out what certain pieces of information -- what effect they are going to have on the profitability of companies. So we think that gives you a reliable gauge potentially of what the impact might be on competitors if Verizon decided to enter the market or, in the case that we examined, when it made announcements pertaining to its decision not to enter the market. So we think that this is useful information to base analysis on.

321   THE CHAIRPERSON: So an event study analysis of stock market participants, is there a distinction to be made between stock market participants that are sophisticated as opposed to maybe a widely held company?

322   DR. REITZES: I think the general view is that with widely held companies that there are quite a bit of economists who practice finance who believe the markets are efficient and therefore that the stock prices capture the relevant information that's out there and its likely impact on profits and our analysis is subscribed on the same assumption, that the stock market impacts are a good indicator of what is likely to happen in terms of profits.

323   THE CHAIRPERSON: Right. But Professor Winston is saying that maybe you are in a better -- rather than doing event study and second-guessing what stock market participants may be thinking that particular morning when they make an investment decision, might be a better indicia of what would occur.

324   Do you disagree with that?

325   DR. REITZES: I'm sorry, could you repeat the question?

326   THE CHAIRPERSON: Well, I think the point that Professor Church, citing Professor Winston, is making is that events study analysis based on what stock market participants might do is perhaps not as probative as other types of evidence, because you don't know what other things people are thinking about when making investment decisions. Perhaps other competitive activity occurring in the marketplace, perhaps, I don't know, news reports that exaggerate the event and not necessarily sound analysis of the actual events.

327   DR. REITZES: Well, the purpose of the statistical exercise when we do an event study is to isolate the impact of the news -- and the particular news that we were focusing on were two pieces of news, one related to Verizon announcing that it was delaying its potential purchase of WIND and Mobilicity, that was one event. The other event was announcement effectively by Verizon that it was not going to enter the Canadian market. Those occurred in August and September 2013.

328   The statistical analysis we use is meant to isolate the impact of those effects from other news and other information that is affecting stock price. This was a technique that we use that is commonly used in securities litigation involving disclosures of information. This is a pretty commonly used technique to get at that issue.

329   THE CHAIRPERSON: We are not in that case. That's not what we're dealing with here; right? It's not that sort of litigation you referred to, is it?

330   DR. REITZES: No, that was pointed out to just say it's considered a reliable way of analyzing what the impact of a piece of news is on the market.

331   THE CHAIRPERSON: Okay. Let's move on to another area.

332   In your report, the hypothetical entrant firm you envisage is a rival facilities-based carrier. In other words, you considered an MNO, but why did you not consider the potential entrant as being a full MVNO?

333   DR. REITZES: We were considering the entry of a facilities-based carrier, not a virtual one --

334   THE CHAIRPERSON: Yes.

335   DR. REITZES: -- not one without -- well, we think the characteristics --

336   THE CHAIRPERSON: Why did you make that assumption? Could a full MVNO not provide a potential -- could not be a potential hypothetical entrant firm that would have the positive effects that you were trying to analyze?

337   DR. REITZES: I don't think we analyzed that question specifically, no. And there may be a difference between another facilities-based carrier as opposed to one that is dependent on the current facilities-based carriers for buying roaming services and obtaining other sorts of wholesale services.

338   THE CHAIRPERSON: Right. So the Brattle part of the evidence, you did not consider the possibility of that entrant being an MVNO, virtual network operator?

339   DR. REITZES: No, we did not consider that specific question.

340   THE CHAIRPERSON: Okay.

341   Let me now, therefore, turn to the Bureau, because at page 36 of your 20th August intervention you state that:

"Facilities-based competition is the most direct way to remove vertical foreclosure incentives."

342   So why wouldn't you think that mandated access for MVNOs would also be an appropriate measure to constrain incumbents' retail market power?

343   MR. HUGHES: Just excuse me for a half second. You are talking about out --

344   THE CHAIRPERSON: The 20th August intervention at paragraph 36.

345   MR. HUGHES: Just a sec. I just want to be specific while I'm addressing your question.

346   THE CHAIRPERSON: Perhaps the answer is in the use of the word "direct", because you say that:

"Facilities-based competition is the most direct way to remove vertical foreclosure..."

347   MR. HUGHES: I think that's probably part of the equation.

348   But what I was looking for and didn't want to misspeak -- that's why I apologize for the delay -- what we are talking about is at the wholesale level. So at the wholesale level we have this problem of these raising rivals cost strategies. And we have a conclusion that even if you have two vertically integrated competitors, that's not going to guarantee that we are going to get the prices down to competitive levels.

349   THE CHAIRPERSON: Right.

350   MR. HUGHES: So the best solution to that kind of an issue is to get increased competition for example that a fourth player can get its own towers and is now immunized -- if I have picked the correct pronunciation of the word -- from the sort of raising rivals cost strategies. They don't have to worry about the fact that the incumbent is going to have this incentive.

351   THE CHAIRPERSON: But implicit in that -- and I think your evidence suggests that, or your argument suggests that, that you know that you can't build a network overnight --

352   MR. HUGHES: Yes.

353   THE CHAIRPERSON: -- so you have to somehow roll it out over time.

354   MR. HUGHES: Yes.

355   THE CHAIRPERSON: And that's why I'm asking why isn't a full MVNO not also a strategy? It's not so much rolling out over time towers, but rolling out a business based on other access

356   MR. HUGHES: I think we would say -- and this is just thinking on my feet a little -- I think that the issue here is that in the long run we think the most efficient situation is where there is enough competition that we don't have to have any other regulatory measures to deal with vertical foreclosure, be they a cap or something else, and that's where we are trying to go.

357   If an MVNO gets us there, then so be it.

358   THE CHAIRPERSON: Right.

359   MR. HUGHES: But I guess our view is that an MVNO may not get us there.

360   THE CHAIRPERSON: Perhaps I'm reading too much between the lines, but there seems to be a skewed preference for a facilities-based competitor as opposed to a non-facilities-based competitor.

361   MR. HUGHES: Yes.

362   THE CHAIRPERSON> Is that as a matter of telecommunication policy or as a matter of competition policy, understanding that telecommunication policy does include a bit of competition. But what's the major driver here?

363   MR. HUGHES: The latter. It's a structural solution instead of a behavioural one.

364   THE CHAIRPERSON: Right, okay. Okay.

365   So I will follow up now with the tower sharing. So you indeed argue in favour of regulatory measures to enhance competitiveness by allowing more tower sharing services and you argue it's to make switching between wholesale roaming suppliers a more realistic alternative for new entrants.

366   MR. HUGHES: Yes.

367   THE CHAIRPERSON: Could you explain how enhancing the competitiveness of wholesale tower sharing services would make switching between roaming suppliers more realistic for a new entrant?

368   MR. HUGHES: What we have in mind here is that if we can get a player supplying services who is not vertically integrated, then we have a situation where one of the people offering these services does not have the incentive to engage in vertical foreclosure and that's what we're looking for.

369   THE CHAIRPERSON: So somebody who supplies towers?

370   MR. HUGHES: Perhaps self-supply I would think is the most sensible option.

371   THE CHAIRPERSON: I see. So a new entrant that would self-supply

372   MR. HUGHES: Right. Getting back to the same discussion.

373   THE CHAIRPERSON: So they are not really switching, they are just using their own?

374   MR. HUGHES: In a sense, yes.

375   THE CHAIRPERSON: Right. Okay.

376   MR. HUGHES: The option is available for someone other than the players that we have seen the problem with.

377   THE CHAIRPERSON: And you are advocating that there should be a regulatory measure to enhance that; is that correct?

378   MR. HUGHES: Yes.

379   THE CHAIRPERSON: And do you have views whether that regulatory measure should be adopted by the CRTC or Industry Canada or both?

380   MR. HUGHES: I don't think we have a view very much on that. It's more at this stage we are just giving some forward-looking thoughts on where we could take this --

381   THE CHAIRPERSON: Right.

382   MR. HUGHES: -- but we really don't have the information.

383   THE CHAIRPERSON: So if I were to ask you exactly what measures you were thinking about, you couldn't help me necessarily?

384   MR. HUGHES: No, I couldn't.

385   THE CHAIRPERSON: See, we have to go beyond the theory sometimes in these hearings and actually look at practical solutions. Not that the theory is wrong, but we do have to have that extra step.

386   MR. HUGHES: M'hmm.

387   THE CHAIRPERSON: Which again brings me to the subject of remedies you have raised. Here it's paragraph 34 of your August intervention. You state that:

"The CRTC should consider regulatory measures to address the incumbents' incentive to raise rates that they charge to new entrants."

388   I would like to know, first of all, why, in your view, the mere existence of an incentive to raise rates without actual evidence of such behaviour is sufficient to justify regulatory action.

389   MR. HUGHES: Well, first of all, the incentive does raise the issue and put it on the table, but we have seen it. We have seen it. That's the 398 decision.

390   THE CHAIRPERSON: So you are relying entirely on that particular decision?

391   MR. HUGHES: Not entirely.

392   THE CHAIRPERSON: Okay.

393   MR. HUGHES: We are certainly most -- we are going to be guided by these incentives. That's how we do our analysis, we are looking -- we see this incentive and the structure we see a problem and the fact that we have seen this behaviour, both your decision, both the evidence we have seen, we have heard the entrants talk about the impact that rates have had on their business, so we see a response, a market response to this action. So the weight of that evidence leads us there.

394   THE CHAIRPERSON: In your opening remarks -- it's in the French bit, but it says the Bureau advocates always action that is:

"... de la façon la moins intrusive possible."

395   So in the least intrusive manner.

396   MR. HUGHES: Yes.

397   THE CHAIRPERSON: And you think that even with the existence of mere incentive that still meets the test that it's as less intrusive as possible to still take a regulatory measure in these instances without actual evidence of actual behaviour?

398   MR. HUGHES: I think we have evidence of actual behaviour.

399   THE CHAIRPERSON: In the same light, not so much your test, but you think us, based on this mere incentive, it's enough for us to take a regulatory action and that is consistent with the policy direction which states that the CRTC should rely on market forces to the maximum extent possible.

400   MR. HUGHES: If the incentive is acted on, and we think that their evidence suggests that it has been, not dealing with it is inconsistent with relying on market forces. Market forces are competitive forces. Competitive prices are what market forces are going to drive us toward and that's what we're trying to get and if we allow conduct that's moving the ship towards something else, that is inconsistent with relying on market forces.

401   THE CHAIRPERSON: You also, in terms of potential remedies, both in your opening statements today and as well in your August intervention at paragraph 37, you are suggesting that we should consider implementing vertical separation between the incumbents wholesale and retail operations.

402   I take note that you are saying that you may not have enough information on the public record about the cost and benefits to come to a firm conclusion on that because there is a cost-benefit analysis to be done, but what sort of factors should the CRTC analyze when doing that cost-benefit analysis, because it seems to me that that sort of separation is actually quite intrusive, isn't it?

403   MR. HUGHES: I think it potentially could be, but you would have to look at the facts.

404   THE CHAIRPERSON: So what kind of facts would we be looking at?

405   MR. HUGHES: So analytically your vertical separation is breaking the link between the wholesale and retail decision-making and on the one hand that means that it may be a very efficient way to deal with the vertical foreclosure issue, the downside is that those kind of co-ordinations could involve scope economies, co-ordination of decisions, co-ordination of investments, what economists just call the theory of the firm, the way that you operate within a firm, a way that's the most efficient possible.

406   So you have a theoretical possibility of economies of scope and economies of co-ordination being lost and if I had all the information available to me I would look at the company documents, I would try to find examples of situations where they needed that information to make a co-ordinated decision, they needed an investment that the wholesale and the retail people had to co-ordinate, that there had to be some communication, there had to be a decision based on another decision and some synergies between the wholesale making an investment and the retail making an investment, and if we had examples of ways in which this really happens, and then you are going to have to quantify them of course, but that's the road I would take.

407   It's altogether possible that in some instances that a lot of these decisions are not being dictated by this kind of co-ordination. Maybe the investments are just being made in any case. We know from the Brattle analysis that these investments are making returns, so it's altogether possible that these costs are overrated.

408   It's really a factual question. I don't have enough to say one way or the other.

409   THE CHAIRPERSON: Right. And the sort of analysis you would be making is within a single firm.

410   MR. HUGHES: Yes, I think. I would say yes. My answer is yes.

411   THE CHAIRPERSON: Okay. Because in your opening remarks you said we should:

"... could consider prohibiting the communication of confidential information between the wholesale and retail operations of the incumbents' businesses, as it has in other CRTC proceedings."

412   What are you referring to exactly? Which other CRTC proceedings are you thinking about?

413   MR. HUGHES: Can we have a moment?

414   MR. LESCHINSKI: I don't have the reference with me, but I believe a proceeding where there was information restriction requirements. It was referred to in our August 20 submission. I can perhaps find the footnote in a minute.

415   THE CHAIRPERSON: Because you repeat it in today's. Just before you get to your conclusion you are referring to as in other CRTC proceedings. I didn't see that when I read your interventions, but perhaps I missed part of the record.

416   Perhaps you can take that as an undertaking, since you are suggesting that we have done this in the past, to actually point out when we have?

417   MR. LESCHINSKI: Yes. We will undertake to do that.

Engagement

418   THE CHAIRPERSON: Thank you.

419   You also, at paragraph 38 of your August intervention, refer to the consent agreement between Canadian banks, Interact and the Commissioner of Competition as a potential model to consider on the subject of vertical separation.

420   Could you explain what the facts around that consent agreement were and why they are similar, relevant or otherwise pertinent to what we are looking at here?

421   MR. HUGHES: So at a high level the amended consent agreement between the Commissioner of Competition, major banks and Interac was filed with the Competition Tribunal Bureau and contains various safeguards to discourage vertical foreclosure.

422   In addition to caps on the rates an upstream entity can charge downstream rivals of its shareholders. The additional safeguards include a specified independents requirement for decision makers in the imposition of a legal requirement on those decision makers to prohibit acts in furtherance of foreclosure.

423   THE CHAIRPERSON: Right. I read that. I'm just wondering why that is relevant --

424   MR. HUGHES: Okay.

425   THE CHAIRPERSON: -- to what we are looking at here.

426   MR. HUGHES: Okay.

427   THE CHAIRPERSON: How similar are the two situations?

428   MR. HUGHES: Well, if I could just go into a little more detail here.

429   THE CHAIRPERSON: Sure.

430   MR. HUGHES: And then I'll fall, come back to that to the degree possible and maybe -- we'll see how far we go down that road.

431   So they have an independent board. They have a monitoring function and an obligation and there is a way the information is passed from one to another. And there is an explicit duty to do this on the nature of this independent board and ultimately to try to maximize wholesale revenue -- excuse me -- profit; profit.

432   Applicability? We think it's the same economic incentive. It worked well, as I understand it, and it may provide some lessons learned in terms of how it worked and how it didn't, how you would structure the monitoring, how you would get the independent board. And there is a lot of detail around that.

433   Applicability to telecom is -- this is really just an example, I think, to --

434   THE CHAIRPERSON: So this is an example of how you could frame it, but you're not suggesting the facts in that case --

435   MR. HUGHES: Absolutely not.

436   THE CHAIRPERSON: -- were relevant to this? It's just --

437   MR. HUGHES: Absolutely right.

438   That's right.

439   THE CHAIRPERSON: Okay. So --

440   MR. HUGHES: That's what I'm trying to say in so many words.

441   THE CHAIRPERSON: -- I don't need, on top of everything else, to learn about the facts that led to that particular consent decree; is that correct, that you're only suggesting that this is an operational meaning?

442   MR. HUGHES: Yes. Yes, absolutely.

443   THE CHAIRPERSON: I don't need to be an expert in banking as well.

444   MR. HUGHES: Absolutely.

445   THE CHAIRPERSON: Okay, good.

446   And you think this sort of vertical separation is -- could be still within the test of minimally intrusive based on the evidence which you don't --

447   MR. HUGHES: That's where the box is.

448   THE CHAIRPERSON: -- you may not have access.

449   MR. HUGHES: So we'd really want -- if you are going to ask me that question I'd really like to see those documents, find out those decisions, understand the facilities.

450   THE CHAIRPERSON: Right.

451   MR. HUGHES: And then I could be -- I could do a better job of it.

452   THE CHAIRPERSON: Okay, well, I have one final question and we'll see what my colleagues have.

453   In your August intervention you refer to paragraph 13. You criticize the expert evidence of the incumbents, specifically Bell, TELUS and Rogers, because they were prepared -- that evidence, the expert evidence was used using public information rather than internal or company-specific or confidential information that was specific to those companies. I take it that's your argument?

454   MR. HUGHES: It is.

455   THE CHAIRPERSON: And that you say, therefore, that expert evidence is suspect and the conclusions unreliable. Is that correct?

456   MR. HUGHES: That's correct.

457   THE CHAIRPERSON: Could you explain to me why you think it's suspect?

458   MR. HUGHES: Well, look at the discussion -- excuse me -- the discussion we've had about the costs and benefits of some remedies and a lot of discussion about the risks involved in having regulatory measures and what they are going to do to investments and all that kind of material.

459   The companies have this information. It's in their -- it's in their portfolio. And one would think that if they were trying to make their case as effectively as possible they would provide that evidence to their experts, and the experts, instead of making fairly broad statements about there may be some risks to regulatory intervention and there may be some risks to investment that may cause us to take -- to go down another road, that they could as independent experts look at this and say a lot of those facts or things we're talking about even in these remedies is it true or not?

460   And they're not doing that. They are choosing to rely on experts who are just looking at the public record. We think that tells you something.

461   THE CHAIRPERSON: And you think that the most probative evidence would have been that evidence --

462   MR. HUGHES: Indeed.

463   THE CHAIRPERSON: -- confidential?

464   MR. HUGHES: If they would have been able to look at the evidence and say as an expert -- if they would have -- if they could say even without revealing it -- they could say, "I've looked at this. I'm an expert. I'm an independent person and I think there are real risks to the economy by doing x, y and z and without getting into details, I think the risks are a, b and c, so you can understand them" that's a pretty incredible analysis. If I got something from a tree tops level it's less effective.

465   THE CHAIRPERSON: Okay. So that goes to why you conclude its suspect. Why do you conclude it might be unreliable, because it's based on publicly-available information?

466   MR. HUGHES: I don't know that we mean two different things by those words.

467   Do you want to talk to that, Derek?

468   MR. LESCHINSKI: Sure.

469   I think our point is a simple one which is that if they have closed their minds to the most reliable evidence, we should infer from that that evidence wasn't helpful to them.

470   THE CHAIRPERSON: Okay, because if I'm not mistaken, the Bureau's position has been based on publicly-available information.

471   MR. HUGHES: All of the information we have.

472   THE CHAIRPERSON: And so you wouldn't want us to conclude that your position is unreliable?

473   MR. HUGHES: It's as reliable as the information we have. If we have -- if we could have gotten more information we would have used it and we would have -- I think that would have helped maybe just to confirm.

474   THE CHAIRPERSON: Okay.

475   MR. LESCHINSKI: To add to this point, I think the point is that we have put forward the best position we have been able to put forward, based on the available evidence. So no inference should be made with respect to the Bureau's position.

476   However, where a party has information that is uniquely available to them but does not put it forward in a proceeding, the inference may be made in respect of that party but not the Bureau.

477   THE CHAIRPERSON: Indeed, thank you.

478   Okay, the Vice Chair of Telecom, first. Thanks.

479   COMMISSIONER MENZIES: Thank you.

480   In the Brattle Report -- the sort of reference I'm going to is in your executive summary on paragraph 19 when you talk about the Verizon entry and you talked about the analysis of what would have happened with the Verizon entry -- it suggests that it would have been an 8 percent drop in profits for the big three. And that you go on to make the argument that overall, you know, a new entry into this sector is good for the Canadian economy overall with a billion dollar consumer surplus.

481   But to narrow it down to the telecom sector, assuming a similarly-financed new entrant were to come into the Verizon, I'm trying to get my head around how an 8 percent drop in profitability in 90 percent of the telecom sector is a good thing for inspiring the investment that's needed to have a healthy telecom ecosystem overall. Can you help me with that a bit?

482   DR. REITZES: We do find that based on the analysis that we did that Verizon entering the telecom industry would have negative impacts on the profits of Rogers and TELUS and Bell. However, our other analysis profitability is indicating that those companies are earning above-normal returns.

483   So you know, we didn't look at what the impact that our analysis would have on their investments going forward but, as I mentioned, our analysis of profitability seems to indicate that there are still profitable opportunities even with potentially a haircut in the profits as predicted by our analysis.

484   COMMISSIONER MENZIES: Wouldn't money move from the marketplace, though? If it is above normal profits, shareholders would be pleased with that, I assume, and if the profits were less going forward they would be displeased and want to move their money where they've got a better return into maybe a completely other sector.

485   I'm concerned about -- what I'm trying to get to is the analysis of the investment framework that this would leave behind.

486   DR. REITZES: Yeah, we haven't studied that issue specifically.

487   COMMISSIONER MENZIES: Okay.

488   DR. REITZES: We will just note that we, you know, are of the belief that Rogers and TELUS and Bell have access to the capital markets and you know are -- we have a pretty robust capitalization.

489   COMMISSIONER MENZIES: Right. Because even a new entrant would need to have good access to capital markets and be able to show that the sector was one worth investing in.

490   My next question is regarding the overall framework within which you looked at this. This is a fairly narrow framework that we're looking at. It's sort of one tree in the forest here in terms of the wholesale connectivity.

491   But in the overall telecommunications market, I'm wondering about the opportunity that exists for a single platform entrant into the market. It could be just the mobile market, the cellular phone market in other words.

492   But all the other competitors are heavily vertically-integrated. And they're not just selling mobile access. They're selling internet access and cable and landlines, right?

493   What chance, really, even with the wholesale regulation, does a new single platform entrant have of being able to compete in that market and do you have any sense of what would be the maximum likely market penetration that they could forecast as a single platform entry?

494   MR. HUGHES: Just one -- I'll just offer one comment and maybe, Jim, if you have some further comments.

495   One thing I would say about this question is that this is going to be a -- this is going to depend on what happens here. We're -- at least I am. I'm looking at it with a view of what's going on today and what the metrics look like today.

496   If an entrant has a robust wholesale market maybe they do have a chance. There's a degree to which looking at them now when they're facing raising rivals' costs and some players are -- we do have some market participants. We had some -- an entry and Verizon ultimately decided against it.

497   But even in a situation where we, at least in our view, had vertical foreclosure going on, there were people sort of thinking about it. If we fix that that's one factor that I would say we'd be optimistic about entry.

498   But you may have a -- do you have any thoughts, Jim?

499   DR. REITZES: No, I think that's right.

500   And I think, given the reaction that we saw in the financial markets to Verizon's announcement of potential entry, that a well-funded entrant who is purely in the wireless business, at least there's some view in the market that that may be viable.

501   COMMISSIONER MENZIES: Okay, thank you.

502   In the discussion of the market power we discussed it a bit but it comes down to the existence of three national networks. Some make the argument that it's in fact just two in terms of that. The addition of a fourth national carrier, the fourth competitor, wouldn't it only break that down once it had actually built out a full national network?

503   MR. HUGHES: Unless roaming worked very well. I mean, if they've got facilities for a fair amount of area and there's some area that they are in the process of building out, if we have an appropriate regime in place it's going to act as if it had a national network.

504   COMMISSIONER MENZIES: Right, okay.

505   But then what incentive would there be for that fourth national carrier to actually be essentially a fourth retail competitor? What would their incentive be to build out into underserved areas? Would there be any incentive left for them at all in that framework?

506   MR. HUGHES: It depends on how the framework is developed. If it's too -- if it's too attractive that's a danger. If it's just the difference between an extremely high rate set for another purpose for vertical foreclosure to a rate that's more of a competitive rate, then done right I think that the incentives would continue.

507   COMMISSIONER MENZIES: But then --

508   MR. HUGHES: But just don't go too far.

509   COMMISSIONER MENZIES: -- then what we might be doing is settling for two or three, depending on how you define them -- national networks and then just access agreements all throughout that and find different mechanisms to try to incent investment and build out.

510   MR. HUGHES: I think that if -- again, I think if the -- I think the task here is to try to go from a rate that had -- that was too high. It had vertical foreclosure in it which was above the level necessary to get people to want to -- to want to invest. So I guess we're concluding that the entrants now faces a really high rate and aren't really making -- aren't being able to compete with that -- aren't being able to invest.

511   You know, the hope is that by setting the rate at some more intermediate rate a kind of Goldilocks level if you like, where you still preserve the incentives to build a new network, to build your own facilities, but you've -- you've got rid of this exclusionary premium. I guess that's what I'm suggesting.

512   COMMISSIONER MENZIES: Okay, do you see the issue is as being in terms of how you sought competition? You mentioned that you didn't like the words "efficient" and that we should stay away from that. But you also mentioned that the system as it exists might be workably competitive. What you were talking about was whether or not it was truly competitive, right?

513   MR. HUGHES: Yes.

514   COMMISSIONER MENZIES: If we were to look at the system itself as being workably competitive and focus on -- what you seem to be saying is that the real issue is at the entry level, is providing a beachhead, that there is no beachhead upon which a new competitor can land and establish itself rather than because you were -- have suggested that there is workable competition inside the system but the system is such that it is -- it bars new entry.

515   MR. HUGHES: I'm not sure we have a view on workable competition but I think the beachhead -- I think that's fair. I think that's a fair characterization, I think.

516   I'm looking to the others because that's something I thought about and he's got some views as well.

517   COMMISSIONER MENZIES: I'll wait till you have consensus.

--- Pause

518   MR. HUGHES: Yes, we agree.

519   COMMISSIONER MENZIES: Okay, thank you. Those are my questions.

520   THE CHAIRPERSON: Thank you.

521   Monsieur le vice président, s'il vous plaît.

522   COMMISSIONER PENTEFOUNTAS: Merci, Monsieur le président.

523   Just briefly, I know the Chair in his extensive examination addressed the issue of IRR versus WACC and you're espousing or advocating the need for a fourth national player, a facilities-based player.

524   Have we looked at the viability, the potential viability of that fourth player? Have you looked at that and are you in a position to speak to that?

525   DR. REITZES: I think as I mentioned previously, we did not specifically enter -- enter -- we did not specifically analyze whether an additional nationwide carrier, whether it would be profitable.

526   We did find in our report, as I mentioned, that based on the analysis we did that the variable profits of an additional nationwide carrier would be on the level of $800 million per year. We did not assess whether that was enough to offset the other fixed costs of running a wireless carrier -- facilities-based wireless carrier and the network build out costs.

527   COMMISSIONER PENTEFOUNTAS: You don't think that would be of import? I don't see what a non-viable fourth player, how that would benefit the Canadian economy. And you made a considerable case as to the benefits to the Canadian economy.

528   DR. REITZES: I think it's certainly worth analyzing. We didn't feel like we have the information on what it would cost to build out the network sufficiently and other fixed costs of operations.

529   The information we had wasn't sufficiently refined to say yay or nay whether entry would be profitable.

530   COMMISSIONER PENTEFOUNTAS: You also mentioned that obviously facilities would take a certain time to build out. Would you happen to have an estimate as to how long that would take?

531   DR. REITZES: We didn't look at that issue. That's why we were just talking about the beachhead effect.

532   I think there's a general view in doing this analysis that you know the reason why we're concerned about, you know, roaming agreements and the pricing and the service quality is that it will take a while to build out network. And while you're building out a nationwide network that you're going to need these agreements in order to be sustaining for them.

533   COMMISSIONER PENTEFOUNTAS: Would an m/V in no regime be necessary in the meantime while the fourth carrier is building out?

534   DR. REITZES: Well, I think the fourth carrier would have some physical facility but be effectually virtual in other parts of the country through roaming agreements.

535   COMMISSIONER PENTEFOUNTAS: And the question there is that the roaming agreements not be too sweet to not entice or incite one to build out, to the Vice Chair of Telecom's point.

536   DR. REITZES: I think I'll defer to my colleague here, but I --

537   COMMISSIONER PENTEFOUNTAS: Okay.

538   DR. REITZES: -- agree with his point that I think it's neither too sweet nor too sour.

539   You know, you want to promote the build out but you don't want to kill off the competitor through an owner's agreement in the meantime.

540   MR. HUGHES: Yes.

541   COMMISSIONER PENTEFOUNTAS: You also made the point that wireless services are somewhat of an unaffordable luxury in Canada in your document of the day. Is there a price point at which point you've discovered it's affordable or not affordable?

542   MR. HUGHES: Nothing so precise. The penetration numbers are low in Canada and Brattle has done that analysis. And as an economist that's -- we're basically concluding that the reason must be affordability. We really haven't done -- we don't have -- we don't have anything beyond that.

543   COMMISSIONER PENTEFOUNTAS: Nothing beyond that to state with any surety that that's the reason?

544   MR. HUGHES: Correct.

545   COMMISSIONER PENTEFOUNTAS: Okay. Because there are some low entry points into the wireless market in this country. You'll agree with me on that?

546   MR. HUGHES: I do. And everything has its advantages and disadvantages and consumers -- there are some available options, yes.

547   COMMISSIONER PENTEFOUNTAS: Right.

548   You didn't have an opinion on flanker brands. You don't see flankers as an attempt to occupy space that could otherwise be occupied by new entrants?

549   MR. HUGHES: Certainly, I point in the product spectrum. We're just not stating a view that we think it's good or bad.

550   COMMISSIONER PENTEFOUNTAS: Thank you, Mr. Chairman.

551   THE CHAIRPERSON: Commissioner Molnar...?

552   COMMISSIONER MOLNAR: Thank you.

553   Two questions. One, I think very simple. When you're talking about the vertical foreclosure incentive and the need for remedies, is that additional remedies over and above what has quite recently been put in place related to the roaming caps and prohibition on exclusivity?

554   Have you -- is your request for additional remedies or do you think it may be possible that those are sufficient?

555   MR. HUGHES: Our position here is that when you -- when the cap comes into place and we do think it's responding to the right problem and we're -- it's consistent with our views -- that it could induce and probably will induce carriers to take other non-price actions.

556   COMMISSIONER MOLNAR: Okay.

557   MR. HUGHES: Right now, they can conclude with a price mechanism but to an entrant what matters is the whole package, the price and the non-price. If you can't get it one way the incentive exists to try to get it in the other way.

558   Exclusivity, the Commission has dealt with, but there could be other mechanisms that are going to start coming into play that maybe already are there or may arise.

559   COMMISSIONER MOLNAR: No, I understand.

560   MR. HUGHES: Thank you. Sorry.

561   COMMISSIONER MOLNAR: Price alone is not sufficient.

562   MR. HUGHES: That's our position.

563   COMMISSIONER MOLNAR: You need to look at all the incentives.

564   MR. HUGHES: Yes.

565   COMMISSIONER MOLNAR: Okay.

566   My other question relates to your assessment of the market. And if I understand correctly, you have assessed the market as all of Canada in looking at the three nationwide carriers and their market powers and looking at the emergence of an additional nationwide alternative carrier.

567   Why is it that you consider the marketplace to be all of Canada, to be the appropriate means of assessing the market? And let me just put this in context.

568   You may know I'm the Commissioner for Saskatchewan and Manitoba. So you have not assessed the -- as I understand the conditions within those markets or the excess profit, if you will, that you have assumed created this condition of market power. Tell me whether or not that includes the provinces of Saskatchewan and Manitoba.

569   MR. HUGHES: Okay. I think if it's --we'd prefer, if it's okay with you, to first move to the nationwide carrier and why we looked at it that way and if there are some loose ends at the end I'll try to deal with that.

570   COMMISSIONER MOLNAR: If you could first -- you know, your solution is an additional nation-wide carrier, but, first, just explain to me why you thought it appropriate to examine market power on a nation-wide basis: the market as the nation.

571   MR. HUGHES: So I think -- do you want to start?

572   DR. REITZES: Yeah, let me talk to the additional nation-wide carrier analysis.

573   We did assume that there was additional facilities-based carrier operating throughout Canada. We did our analysis province by province based on the conditions in each of the provinces, in terms of who had what market share and, you know, the general conditions in each of the provinces.

574   We lacked certain information on costs of service by province, where we had to do some extrapolation. But the analysis itself was done on a province-by-province basis.

575   MR. HUGHES: And just to add --

576   COMMISSIONER MOLNAR: But just to be --

577   MR. HUGHES: Okay, sorry. Please.

578   COMMISSIONER MOLNAR: I want to make sure I'm understanding your analysis.

579   I understood your analysis was to be looking at whether or not there was excess profits overall within the industry, but I'm not aware that you would have had information related to the provinces of Manitoba and Saskatchewan.

580   DR. REITZES: Yeah. In terms of the profitability analysis, that was just done in terms of the profitability of the companies overall, not on a province-by-province basis.

581   In terms of our analysis, the potential effects on prices, profits and consumer surplus of having additional nation-wide carrier in the market, that was done on a province-by province basis based on certain information we had at the province level. But in other cases we only have national-level information and, you know, we had to extrapolate a bit.

582   But the analysis was intended to be on a province-by-province basis, and then we added them up to come up with a nation-wide total.

583   COMMISSIONER MOLNAR: So you've come to the conclusion -- and this is where I'm trying to understand this. Our test of competition is explained in 94-14, Decision 94-19, and I expect you're familiar with that. The first thing is you define the product market and the geographic market -- I think quite similar to your type of tests -- the smallest market within which you can maintain a sustainable price increase.

584   MR. HUGHES: Yes.

585   COMMISSIONER MOLNAR: So why is it that it doesn't appear, from your analysis, in your conclusions and recommendations? So explain to me if I'm wrong.

586   What market were you assessing to achieve your outcomes or your conclusions?

587   MR. HUGHES: So the answer to that, on an analytical basis, the market is less than national certainly.

588   COMMISSIONER MOLNAR: What do you think is the appropriate market to assess?

589   MR. HUGHES: It's the relevant geographic market. I'll give you the standard disclaimer. It depends on the facts, and we'd need a lot of things. I think we're looking at less than national, probably less than provincial, depending on the province. I think we've had more experience in central and eastern Canada, and so -- like the Torontos of this -- broadly defined.

590   So in terms of the relative geographic market, when we're doing our analysis analytically and we're tracing through our arguments and viewing the evidence, we are using that geographic market definition. When Brattle's looking at profitability analysis -- Jim can speak to this -- but I think we're looking at the data we have.

591   DR. REITZES: Yeah.

592   MR. HUGHES: I think that if we had the profitability data for your carriers in Saskatchewan, SaskTel, for example, I think we would have -- if we thought we had good data, and we could have got some useful results, we would have run that for sure.

593   Right?

--- Rires

594   COMMISSIONER MOLNAR: Well --

595   DR. REITZES: Yes.

596   COMMISSIONER MOLNAR: --let me -- what I'm trying to understand, you know, the conditions are different within those two provinces. The incumbents are different. There are four wireless carriers that exist in those provinces. The prices are different in those provinces than in other areas. Potentially more evidence of rivalry in the churn, in the pricing, in the advertising.

597   Where we're saying here that we want to reach a conclusion that there is the vertical foreclosure incentive because there is dominance and there is coordinated actions, has any of your analysis said that those characteristics exist within Saskatchewan or Manitoba?

598   MR. HUGHES: We have not looked specifically at Saskatchewan and Manitoba, so...

599   COMMISSIONER MOLNAR: So what would be the impact, therefore, if we were to assume that those conditions existed in Saskatchewan and Manitoba, with no evidence that they do?

600   MR. HUGHES: I think that you'd be better -- the extent we could have better information on those provinces, and make a more informed view, that would be the preferred option.

601   COMMISSIONER MOLNAR: Is there a risk, however, that we would be imposing regulatory actions on what are already competitive markets?

602   MR. HUGHES: Because we have less information, we can be less confident there's a competitive problem, in which case that would make it less -- make it less sure --

603   COMMISSIONER MOLNAR: Well, the characteristics that you have laid out as the competitive problem, on the face of it, it doesn't appear that your analysis considered...

604   MR. HUGHES: Please.

605   DR. REITZES: Yeah, in the Brattle Supplemental Report, we did some analysis of what the possible incentive is to raise roaming rates based on this incentive to raise rivals' costs because of lost profits that a company, like Rogers, TELUS, Bell and others, would have on their retail operations by entering into roaming arrangements with their competitors. We did that analysis on a provincial level, including Saskatchewan and Manitoba, and that's in table 2 and table 3 of the Brattle Supplemental Report.

606   COMMISSIONER MOLNAR: So that analysis indicated that the vertical foreclosure incentive exists in those provinces despite the fact that there is evidence of greater competition within the markets that exist in those provinces?

607   DR. REITZES: That analysis tends to indicate that there are incentives to raise rivals' costs through roaming agreements -- through markups and roaming agreements. Compared to certain other provinces, in Saskatchewan those numbers are relatively lower, and the same is true for Manitoba, except for Rogers.

608   You know, we specifically looked at MTS, and SaskTel as well, and the evidence we have in the report seems to indicate that there potentially are incentives for those carriers to do the same thing in those provinces.

609   COMMISSIONER MOLNAR: Yeah. Okay.

610   I mean I hear what you say. You said "there are potentially incentives."

611   MR. HUGHES: M'hmm.

612   COMMISSIONER MOLNAR: There's...I'm going to let that go, but it is something I would say that I am struggling with in this. A lot of the evidence coming before us is nation-wide, speaking of competitive as if Canada is the market. And I think you would agree -- well, and you've already said that --

613   MR. HUGHES: I have agreed.

614   COMMISSIONER MOLNAR: -- that is not the market --

615   MR. HUGHES: It's really a data issue.

616   COMMISSIONER MOLNAR: -- that we should be assessing.

617   If you're looking what is the relevant market for purposes of determining whether it's competitive or not, it is something far less than all of Canada. I mean we've already had that conversation.

618   MR. HUGHES: Right, as long -- yeah.

619   COMMISSIONER MOLNAR: Yeah.

620   MR. HUGHES: For those purposes, yes.

621   COMMISSIONER MOLNAR: Right. Okay.

622   Okay, I think those are my questions right now. Thanks.

623   THE CHAIRPERSON: Commissioner Dupras.

624   COMMISSIONER DUPRAS: Just one question.

625   Videotron submitted that mandated MVNO access would severely undermine the business case for a facilities-based new entry.

626   Do you have any views on this?

627   MR. HUGHES: I guess my view would be that -- when I hear those kind of submissions, I'm -- I need more evidence to really assess it, and more than just a "Well, it's a possibility." So I guess that's the only real response I have. I hope it -- unless you have another question, I don't know really know where to go with this.

628   COMMISSIONER DUPRAS: Well, in the space you think there is for a new facilities-based entrant --

629   MR. HUGHES: Yes.

630   COMMISSIONER DUPRAS: -- if it's too diluted by the presence of MVNOs --

631   MR. HUGHES: Oh, I see.

632   COMMISSIONER DUPRAS: -- does that leave less chances to a company that wants to invest?

633   MR. HUGHES: I see.

634   Perhaps -- do you want to -- I don't have -- I now understand your point. I don't think that, from the Bureau's perspective, we've look at it at that level of granularity.

635   I don't know if Jim has any other comment on that? No?

636   DR. REITZES: No, not really. I think --

637   MR. HUGHES: We have a analysis of a fourth national carrier, and it's developed in the model the way it's developed. We haven't tweaked it and we haven't really looked at the level of granularity of whether there's another player around or anything of that nature. Logically, it's possible.

638   COMMISSIONER DUPRAS: Thank you.

639   THE CHAIRPERSON: Thank you.

640   Legal counsel.

641   MR. STEWART: Merci, monsieur le président.

642   To assist the Commission in its assessment of this matter, and in particular the retail -- your assessment of the retail market and the market power, did you consider the possibility that the Commission should consider, for instance, rate regulation in the retail market as a means of addressing the market power issue that you have identified?

643   MR. HUGHES: We haven't looked at it explicitly. We really didn't see that as part of -- a key part of where we were going here. I guess our position on that would be that the issue that we have seen and we're raising here for your consideration is the vertical foreclosure issue.

644   As we've discussed much earlier in the discussion about the interplay between retail and wholesale, a possible way to get rid of -- hypothetically and logically to get rid of vertical foreclosure would be to get rid of the retail market power rate regulation, for example. I think our position would be that that's more intrusive than necessary to deal with the problem. We think that there are better solutions, less intrusive, more likely to be beneficial on balance than that solution.

645   MR. STEWART: Thank you.

646   With respect to the price mechanism -- and you may have already answered this question -- but the section 27.1 of the Telecom Act, the caps issue, is that the only price mechanism that you would consider to be appropriate, or have you considered others that the Commission might want to consider with respect to price mechanisms?

647   MR. HUGHES: I'm looking around because that's not something I have thought about. I guess if I haven't thought it, I guess the answer is that it's the mechanism that we've thought about the most.

648   I mean there could be other -- we're not -- we do think cost-based regulation is also more intrusive than would address the problem we've identified. I suppose there are other possibilities, but that's the one that we focused on.

649   MR. STEWART: So if I understand you correctly, you would not necessarily be in favour of, say, rate regulation of roaming of rates, that would be too intrusive, in your view?

650   MR. HUGHES: That goes beyond the problem that we've identified here, which is the vertical foreclosure issue. Based on that criteria and that's the criteria, the lens I'm looking through to answer your questions: whether the evidence we have and the approach we've taken, given that, what the least intrusive way of dealing with that is, yes, the rate regulation would be, in our view, more intrusive than necessary.

651   MR. STEWART: Thank you.

652   What non-price mechanisms would you suggest to the Commission that it could consider to address the incentive, as you have said, that the incumbents -- to address the vertical foreclosure issue on the non-price side?

653   MR. HUGHES: Analytically anything that -- anything that is being used, or could be used in the future, to get through non-price means, what we see and we're concerned about in price means, which is -- just sort of giving the analytics in my head before I move to specifics, part of the problem we face here is that we can speculate a bit of what we've seen in the market while the price mechanism was available. There's been some discussion of things like seamless roaming. Exclusivity, which you've dealt with. There could be some other restrictions, in terms of the availability and the delay involve. There is some evidence on the record of all those kinds of things.

654   In an environment where we have the price -- where we don't have a price cap, when we lose the price -- when the price cap is imposed and that mechanism is no longer available, it's really a question -- it's hard to say what's going to pop up, what's going to be the problem.

655   I think the only real solution, outside of some of the ones that people have already discussed in this hearing, I think, really, is you just got to wait and see what happens. You're going to face that as long as you're relying -- unless you directly address it, for example by a vertical separation, you get the towers -- the competition you need at the wholesale level, until that time we predict that you are going to have these non-price mechanisms occur, and, really, it's going -- we're going to have to wait and see.

656   MR. STEWART: So you can't really be too specific beyond, for instance, seamless roaming or what the parties themselves have identified in this proceeding. Correct?

657   MR. HUGHES: Right. And even seamless roaming, I think there are a lot of tech -- we haven't gone into a lot of -- we don't have a view on a lot of technicalities of that. We've read the evidence with interest, and sort of see as a subject that could potentially be an issue, but we don't have a view on the to and fro on how complicated that is.

658   But, yes, until it actually happens, and the price cap is in effect, it's an open question what the mechanism's going to be.

659   M. STEWART: Merci, monsieur le président. Ce sont mes questions.

660   LE PRÉSIDENT: Merci beaucoup.

661   I think those are our questions. Thank you very much.

662   We'll adjourn for 15 minutes or so, till 11:25, thank you, and we'll continue with the next intervenor.

663   Thank you.

--- Suspension à 1106

--- Reprise à 1125

664   LE PRÉSIDENT : À l'ordre, s'il vous plaît. Order, please. Please take your seats. When I call breaks for 11:25, I expect people to be in their seats at 11:25, in the room. Thank you.

665   Madame la Secrétaire.

666   LA SECRÉTAIRE : Merci, Monsieur le Président.

667   Nous entendrons maintenant la présentation de Cogeco Câble. We will hear now the presentation from Cogeco Cable Inc.

668   Please introduce yourselves for the record. You have 20 minutes.

PRÉSENTATION

669   MME DORVAL : Monsieur le Président, Madame et Messieurs les Conseillers, merci de nous donner l'occasion de vous présenter le point de vue de Cogeco Câble à l'occasion de cette audience publique portant sur l'examen des services sans fil mobiles de gros.

670   Mon nom est Nathalie Dorval, Vice-présidente, Affaires réglementaires et droit d'auteur, Cogeco Câble.

671   À ma droite, Philippe Jetté, Premier vice-président, Chef de la Direction Technologique et de la Stratégie, Cogeco Câble, et à sa droite, Johanne Lemay, Co-présidente, Lemay-Yates Associés.

672   À ma gauche, Michel Messier, Directeur principal, Affaires réglementaires, Télécommunications, Cogeco Câble, et à sa gauche, Kirsten Embree, Associée chez Dentons Canada.

673   Notre présentation traitera essentiellement de la pertinence d'adopter un cadre réglementaire favorisant l'émergence au Canada d'opérateurs de réseaux mobiles virtuels, mieux connus sous le nom de Mobile Virtual Network Operators ou MVNOs.

674   Nous remercions le Conseil d'avoir délibérément inclus l'examen de la situation relative aux ententes et services de gros accessibles aux MVNOs dans le cadre de cette instance. En effet, malgré l'absence de ces opérateurs au Canada, bien que nombreux dans plusieurs autres pays, cette réalité fait partie intégrante du marché des services sans-fil mobiles de gros.

675   Let me briefly explain why Cogeco Cable is keenly interested in the outcome of this proceeding. Cogeco firmly believes that Industry Canada must continue to use its spectrum licensing powers, including auction design mechanism, to support market entry and expansion by facilities-based new entrants.

676   However, we cannot expect the Department to solve all of the problems in Canada's mobile wireless market through these measures alone. The Commission also has a key role to play in ensuring that these markets, which represent 50 percent of telecom service revenues, are vibrant and competitive and that they reflect the full range of market participants, both large and small, and a variety of different market entry models characterizing a truly competitive market.

677   We have provided evidence in this proceeding, prepared by Lemay-Yates, that shows an anaemic and declining presence of MVNOs in Canada's mobile wireless market, which stands in stark contrast to the experience in other countries where MVNOs play an important role in stimulating competition and enhancing consumer choice.

678   Mr. Chairman and Members, the purpose of this proceeding is to determine whether the market for wholesale mobile wireless services is sufficiently competitive, and if not, what regulatory measures are required.

679   In our view, Canada's mobile wireless market is missing a key driver of competition, investment and customer choice from new entrant MVNOs. Despite the significant demand for wholesale wireless access services, which is apparent from the record of this very proceeding, the Canadian wholesale market remains virtually nonexistent for market entry and expansion by MVNOs and there is very little reason to believe that this situation will change any time soon in the absence of the Commission's intervention. We are therefore asking the Commission to exercise its powers to correct this market failure.

680   Philippe.

681   MR. JETTÉ: Before we go further in our presentation, it might be helpful to provide a brief description of what we mean when we use the term "MVNO." As you may have seen from some of the other submissions in this proceeding, there are, in fact, many different types of MVNOs that make use of a variety of operational models.

682   For example, on one end of the spectrum, we find "Branded Reseller" MVNOs, which basically purchase fully provisioned mobile wireless services from a mobile network operator and then rebill those services to end customers. These MVNOs are sometimes called "light" or "thin" MVNOs.

683   On the other end of the spectrum, we find "full MVNOs," which, as you will see in Figure 1 above, provision almost every single component of a retail mobile wireless service, including the core network components, operational support systems, backhaul and interconnection, billing and customer care, services and applications platforms, and retail distribution channels.

684   The only portion of a retail mobile wireless service that the full MVNO does not provision is the radio access network or "RAN" component. This portion of the service is provisioned by the "host MNO" because only these entities hold the spectrum licences that are needed to operate radio antenna equipment on mobile frequencies.

685   There are a few other important facts that should be mentioned about how MVNOs operate, particularly full MVNOs, in order to dispel several myths promoted by the large MNOs.

686   First, it is often asserted that MVNOs don't add any value to the mobile wireless market because they merely rebill the mobile wireless services of their host MNOs. This is incorrect.

687   A full MVNO invests in its own network infrastructure as well as in its own service platforms and applications, all of which support the MVNO's own uniquely designed products and services. In fact, just like an MNO, a full MVNO operates using its own mobile network code, or MNC, it issues its own SIM cards, and the devices that it offers to its subscribers come with the MVNO's own IMSI codes.

688   Which leads me to my second point. Because full MVNOs control so much of their own network infrastructure, they have the ability to significantly differentiate themselves from their host MNOs, not only in terms of how they price their services but also in terms of the products, devices and services that they offer. For example, when we look at the activities of MVNOs in other countries, we certainly see them offering the standard suite of voice, text and data services, but they also offer innovative pricing models, such as the model that Tucows/Ting uses in the United States, as well as customized service offerings that are designed for specific market segments and subscriber communities. And let's not forget the success of cablecos as MVNOs in the European market.

689   Third, contrary to the claims of some parties in this proceeding, Canada does not have a proliferation of independent MVNOs. For example, many parties might think that Koodo, Virgin, Chatr and Fido are independent wireless providers, but in reality they are just "flanker" brands and merely operate as divisions within the large MNOs.

690   The same holds true for other commercial brands that operate under names such as Cityfone, good2GO, PC Mobile and Sears Connect. Once again, each of these entities is actually either fully owned by one of the large MNOs or have simply licensed their retail brand to the large MNOs which provision the actual mobile service. They are not independent at all.

691   This leaves a very small number of resellers remaining in the market, but a closer examination reveals that most of these entities restrict their service offerings to the machine-to-machine market and appear to act as mere rebillers of large MNO services. No innovation is allowed.

692   The Commission itself has commented on the anaemic presence of MVNOs in Canada's mobile wireless market. For example, in its 2010 Navigating Convergence report the Commission noted that while a handful of MVNOs do operate in Canada, "their ability to pose a competitive threat to the largest three [carriers] is limited by reseller agreements that constrain their flexibility to offer attractively priced services."

693   This is a problem that has been repeatedly mentioned in the submissions of other interested parties in this proceeding. In fact, a number of parties have stated in their interventions that they tried to negotiate MVNO arrangements with the large MNOs only to be refused service outright or offered terms and conditions that were so restrictive as to make market entry infeasible.

694   Mr. Chairman and Commissioners, we acknowledge that there are other important issues being considered in this proceeding, including the appropriate rates for roaming and tower sharing services, but we were struck by the sheer number of parties that have asked the Commission to establish rules that will promote MVNO entry in the market.

695   In one way or another, each of these parties has identified a longstanding and intractable problem in Canada's mobile wireless market, namely the exercise of market power by the large MNOs in the upstream wholesale market to effectively foreclose market entry by MVNOs in downstream retail markets.

696   You have just heard representatives for the Competition Bureau explain why they believe that the large MNOs have both the incentive and opportunity to exercise market power in the wholesale wireless market and we don't intend to revisit that testimony today.

697   However, we do agree with the Competition Bureau's findings in this proceeding, namely that the large MNOs can -- and do -- exercise market power in the wholesale wireless market which they derive from several sources which, when combined, create formidable barriers to entry by new entrants, including the following:

698   - first, subsidized market entry. Much of the mobile spectrum that was first licensed to incumbents was not obtained through an auction. Instead, this spectrum was licensed through comparative selection and review processes that did not require any upfront payments for spectrum;

699   - second, high concentrations of mobile wireless spectrum in the hands of the large MNOs;

700   - third, very high capital barriers to market entry and expansion. As explained by the Competition Bureau, it is extremely difficult to duplicate the national RANs of the large MNOs. In fact, even the large MNOs have found network duplication at the transnational level difficult and have therefore opted to complete their network coverage by entering into network sharing and even RAN access arrangements with each other, such as those between Bell and TELUS. We question what is the difference between such arrangements and full MVNO arrangements; and

701   - fourth, vertical integration of the large MNOs' wireless operations with their wireline networks which are used for the joint delivery of voice, data, video services and bundles.

702   On top of these barriers to entry, of course, is the fact that radio spectrum constitutes a scarce technical resource which is not handed out to just anyone. Radio spectrum is licensed on an infrequent basis and only made available under certain carefully designed conditions.

703   For example, many people ask why Cogeco has not purchased spectrum in Industry Canada's spectrum auctions. There is a very simple answer. Cogeco has been very interested in participating in Industry Canada's spectrum auctions but these auctions usually involve spectrum licences that cover very large geographic areas. For a regional provider like Cogeco, these licensing regions don't make economic sense because they force us to purchase spectrum in downtown Toronto just so we can serve our customers who are outside of Toronto.

704   In addition, if you look at the rules that are being proposed by Industry Canada for the licensing of AWS-3 and AWS-4 spectrum, Cogeco would not even be eligible for this spectrum because Industry Canada is proposing to set aside most of this spectrum for existing new entrants.

705   I should hasten to add here that Cogeco is not opposed to the Government of Canada's efforts to promote facilities-based market entry by a strong fourth carrier. We fully support those efforts because we believe that they are important to the long-term sustainability of competition in Canada's mobile wireless market and the growing broadband market.

706   At the same time, Industry Canada cannot solve all of the problems in Canada's mobile wireless markets through its auction rules. The Commission has an important role to play here as well. Beginning as far back as 1979, the Commission established market opening rules for data multiple services.

707   Given the failures that have been experienced in both the wholesale and retail segments of the wireless market, we believe that there is more than adequate evidence to support the immediate creation of rules that will facilitate full MVNO entry into Canada's mobile wireless market.

708   M. MESSIER : Avant de décrire les règles que Cogeco estime nécessaires pour faciliter l'entrée des MVNOs sur le marché, il est important de souligner deux principes fondamentaux qui sous-tendent notre proposition :

709   - tout d'abord, Cogeco ne demande pas l'accès aux RANs des nouveaux fournisseurs. Ces transporteurs ne sont pas dominants sur le marché et, par conséquent, il n'y a pas de raisons de rendre obligatoire l'accès à leurs réseaux. Cogeco demande seulement l'accès aux RANs des grands opérateurs de réseaux mobiles -- à savoir, Bell, Rogers et TELUS -- puisque se sont eux qui exercent un pouvoir commercial dans le marché;

710   - deuxièmement, Cogeco ne cherche pas une forme de subvention afin d'accéder aux RANs des grands opérateurs de réseaux mobiles. Les grands opérateurs de réseaux mobiles feront valoir que l'accès obligatoire à leurs RANs constitue une subvention. Rien ne pourrait être plus éloigné de la vérité. Cogeco paiera des taux entièrement compensatoires pour l'accès aux RANs, en fonction des règles relatives à l'établissement des coûts et prix appliquées par le Conseil.

711   Prenant en compte ces principes, voici ce que nous demandons.

712   Les grands opérateurs de réseaux mobiles doivent être requis de se conformer aux directives suivantes :

713   - fournir des services RANs de gros, sur la base d'un tarif réglementé, permettant aux full MVNOs d'offrir des services sans fil mobiles de voix, texte et données large bande;

714   - adhérer à toutes les procédures et délais établis par le Conseil pour la négociation des détails techniques liés à l'accès aux RANs ainsi qu'à l'interconnexion; et

715   - s'abstenir d'inclure des dispositions anticoncurrentielles dans leurs accords avec les tierces parties qui pourraient limiter l'innovation et restreindre la flexibilité des full MVNOs de concurrencer dans le marché.

716   Enfin, Cogeco demande au Conseil d'ordonner au Comité directeur canadien sur la numérotation de modifier le Canadian International Mobile Subscriber Identity Assignment Guideline de manière à permettre aux demandeurs MVNOs d'être considérés comme des demandeurs MNC. Cette mesure est essentielle à l'innovation car elle permet aux MVNOs d'attribuer leurs propres numéros IMSI aux cartes SIM qu'ils fournissent à leurs abonnés, leur permettant ainsi de garder le plein contrôle sur leurs services sans avoir à compter sur leurs opérateurs de réseaux mobiles hôtes.

717   MS DORVAL: We recognize that there are other interveners that will appear before you today. Therefore, in the few short minutes remaining we wanted to leave you with some thoughts on what we see as the key benefits that will flow from a regulatory framework that promotes competitive market entry by full MVNOs.

718   Evidence on the record of this proceeding demonstrates that MVNO entry in the market has led to:

719   - lower prices for consumers;

720   - higher levels of product and service innovation;

721   - increased customer choice and supplier responsiveness;

722   - higher mobile penetration rates;

723   - specialized service offerings for niche markets; and

724   - increased capital expenditures and investments in networks, technologies and people.

725   In addition, the Lemay-Yates studies demonstrate that:

726   - MVNOs can coexist in Canada with new entrant MNOs as they have done in other countries;

727   - cablecos can be successful participants in the mobile market as full MVNOs to provide enhanced broadband benefits to consumers; and

728   - entry by full MVNOs such as Cogeco is an essential tool to bring more competition to the 38 percent of Canadians currently served by three or fewer mobile networks.

729   Finally, it is important to point out that MVNO entry in the market also benefits competitors in the market, including facilities-based providers. For example, MVNO entry represents a new source of wholesale revenue for host MNOs, and for new entrant MNOs wholesale RAN services offer these service providers the ability to expand their service footprint, to add capacity and launch new services such as mobile broadband or establish a critical mass of customers before building their own RAN facilities.

730   It is apparent from the record of this proceeding that there is strong interest here in Canada for wholesale RAN services from service providers that wish to enter the market as competitive MVNOs. Unfortunately, there is no interest on the part of the large MNOs to address this demand, and the reason why is because of the dominant position that they occupy in the market.

731   To remedy this problem, we have recommended that the Commission establish rules that promote market entry by both facilities-based carriers as well as MVNOs. In particular, we believe that the Commission should adopt regulatory measures that apply to the entire range of wholesale wireless services, including roaming and tower sharing services for facilities-based entrants as well as RAN access services for full MVNOs.

732   To only adopt one set of rules would be to artificially favour one type of competitor, namely facilities-based MNOs, to the detriment of others, namely MVNOs. It would also be contrary to the Governor in Council's Policy Direction to the Commission, which states that when establishing rules for network interconnection and regimes for access networks the Commission should ensure the technological and competitive neutrality of those arrangements or regimes and "not artificially favour either Canadian carriers or resellers."

733   Cogeco is excited about the prospect of providing mobile wireless services to its customers and truly believes that all stakeholders, from consumers to new entrants to the large MNOs, will benefit from MVNO entry in the market.

734   Competition is not a one-dimensional concept. A truly competitive market is one that embraces competition in all of its varied forms, from facilities-based carriers to hybrid carriers to full MVNOs and resellers.

735   We firmly believe that this proceeding creates a unique opportunity for the Commission to secure long lasting competition in Canada's mobile wireless sector by establishing rules that promote market entry by MVNOs, Cogeco's preferred market entry model. We urge the Commission to seize this opportunity.

736   Nous vous remercions de nous avoir permis d'exprimer le point de vue de Cogeco en cette matière. Il nous fera maintenant plaisir de répondre à vos questions.

737   LE PRÉSIDENT : Merci beaucoup, Mesdames et Messieurs. Je donne la parole à madame Molnar, s'il vous plaît.

738   COMMISSIONER MOLNAR: Good morning. And can I address my question to you, Miss Dorval?

739   MS DORVAL: Yes, please.

740   COMMISSIONER MOLNAR: Okay. Thank you.

741   Just to ensure I am understanding what all you're asking for here, in paragraph 39 of your comments you say that:

"In particular, we believe that [they] should adopt regulatory measures that apply to the entire range of wholesale wireless services, including roaming and tower sharing services for facilities-based entrants as well as RAN access services for Full MVNOs."

742   And you have used MVNOs and I appreciate you gave us a description of all the varied types of MVNOs. Are you requesting in this proceeding that all MVNO access arrangements be supported or are you looking and requesting just access for full MVNO?

743   MS DORVAL: I guess what we're proposing today really is a means for MVNOs to be able to emerge in the market and provide more customers differentiation in products, and for that, what's really the important element is to have RAN access that becomes available in the market as currently there is absolutely no wholesale market for RAN.

744   And by saying that we support other means, our proposal is that we really encourage various means of competition in the market and we heard evidence on this file by other parties that they request other measures to be able to enter the market, such as roaming and tower sharing. So we support these measures as well for other models that are in the market.

745   COMMISSIONER MOLNAR: Okay. Well, I'm going to ask my question again because I am not sure I understood the answer.

746   You said "RAN" access, but as you have identified yourself on your list more than just "RAN" access is required for a number of the different MVNO arrangements, so, what is it you are proposing?

747   MS DORVAL: Phillip will walk you through the diagram here.

748   COMMISSIONER MOLNAR: But I don't really need to be walked through the diagram. I just want to know what is it you are proposing? Are you proposing all elements that enable MVNOs of all types or are you focused solely on the "RAN"?

749   MS DORVAL: All, all of that.

750   COMMISSIONER MOLNAR: So, in your evidence, when you talk about the benefits of "MVNOs", you're talking about the benefits of all "MVNO" arrangements and not just those of a full "MVNO"?

751   MR. JETTÉ: But more so, the full "MVNO" because they have the ability to actually differentiate, they can innovate, they control a lot more components of the supply chain, if you want. So, they can be innovative, they can address market and sub-segment of the market in a very different way.

752   COMMISSIONER MOLNAR: Right. So, when you are speaking of the benefits of "MVNOs" then you are speaking of the benefits of a full MVNO who has the ability to innovate and control elements?

753   MR. JETTÉ: As you move closer to the full MVNO set-up you actually increase the value as that you bring to the market. You increase your ability to actually innovate and differentiate.

754   COMMISSIONER MOLNAR: Uh-huh.

755   MR. JETTÉ: So, if companies can actually come to market with retailers model that's fine. We, at COGECO, we believe that we can actually build a lot more and differentiate, innovate and actually provide service to unserved segments of the market.

756   COMMISSIONER MOLNAR: Yes. I understand that. Thanks. And just before we get into some of the questions relating to the MVNO and so on, I wanted to understand better your experience to date in trying to achieve that outcome.

757   You've mentioned that spectrum today has not been available in the -- maybe at a price that can be just deserving your entry points or your markets. Besides seeking to acquire spectrum, what else have you done to try and achieve your outcome?

758   MR. JETTÉ: Well, spectrum is actually a complex equation, so there is the design auction, there is also the rules around the spectrum and we, as I have mentioned, with the current rules and the current design of auctioned, we can't secure spectrum the way we need it for our business.

759   Our business is actually scattered in different geographies, so it's not adjacent everywhere. The way spectrum is auctioned today does not really align well to our business.

760   COMMISSIONER MOLNAR: Right.

761   MR. JETTÉ: So, failing a spectrum just behind a spectrum and installing networks, we have tried to negotiate arrangement with the large MNOs. Every time we've received a refusal and they have no interest and no obligation and no interest to negotiate. So, we are wasting our time every time, all the time.

762   COMMISSIONER MOLNAR: Have you tried to arrange spectrum, access to spectrum through MVNO or spectrum sharing or anything to that effect with any of the new entrants?

763   MR. JETTÉ: With any of the new entrants? Well, the answer is "yes", but again it's a very complex spectrum, is a technical resource. It needs -- not all spectrum is equal so you have different bands.

764   Some bands are more appropriate for coverage, others are more appropriate for capacity. So, the number of pieces to that puzzle on the table is huge.

765   We have not found a model to date where we can, with other smaller players in the market, cover our segments, our markets and our customers properly.

766   COMMISSIONER MOLNAR: Okay. And just to be clear on that, you cannot do that technically or you cannot do that with a viable business case?

767   MR. JETTÉ: It's actually a combination of both. So, technically, there could be a solution that fails all economic rules, so even if we could do it, it's not economic to do so.

768   And if you want some partnerships to be able to do it at a least expensive way, for example RAN sharing, those that can share those RANS don't want to listen to you and negotiate. So, they need to be mandated to do that.

769   COMMISSIONER MOLNAR: Okay. Getting back to the evidence in your comments in here, as you know, a lot of the evidence that has been put on the record of this proceeding relates to competition at the retail market level and you say, stating your own comments, large MNOs -- just a minute -- "that there is no interest on the part of the large MNOs to address the demand for MNO and the reason why is because of the dominant position they occupy in the market."

770   So, is that, in your view, the link we need to make, that their dominant position in the retail market is the reason why wholesale services such as MVNOs should be mandated?

771   MR. JETTÉ: It's actually, if you go back to the four items I actually went through, when they combine -- it's actually the idea that to combine those barriers to entry are unsurmountable for an organization like us. So, they have a long history in the market where they started with subsidized spectrum.

772   So, they are established, they have very high concentration of spectrum in the hands of those three MNOs.

773   The high capital barriers as well is something even themselves found difficult and that's why Telus and Bell partner at the transnational level, to actually share their RANs.

774   And fourthly, they are vertically integrated, so they use their wire line, video, text, voice, all the services in a vertical integration manner to help delivering their service.

775   So, it's on several fronts that the barriers actually exist.

776   COMMISSIONER MOLNAR: Okay. I understand these are the barriers to entry of new entrants?

777   MR. JETTÉ: And full MVNOs.

778   COMMISSIONER MOLNAR: Right, okay, fair enough. My question was more: How do we -- there has been as I have said a lot of information on the record as to the state of competition in the retail market and many parties are arguing if there is sufficient competition at the retail level, no further action is required of the wholesaler.

779   MS DORVAL: Well, I guess, yes, there is definitely yelling because, you know, we have not commissioned any independent economic study, so we have been relying on the evidence that has been filed in this hearing as well as fact and findings of the Commission, that there are dominant carriers, they hold market power and this just increases the barriers to entry.

780   Now, when you look at what does that do to deal --

781   COMMISSIONER MOLNAR: Let me just ask you before you continue. Did you say that there is Commission, that there is evidence by the Commission that says they hold market power?

782   MS DORVAL: I was referring to the July Decision finding of the CRTC on the roaming issues.

783   COMMISSIONER MOLNAR: Okay.

784   MS DORVAL: Okay.

785   COMMISSIONER MOLNAR: So, not in the retail market?

786   MS DORVAL: No, I was not referring to the retail market. But then, when you listened to the Commission, the Competition Bureau's market this morning that finds within the caters as flat penetration in the market and above normal profits, and you look at facts like they have 90 percent of the market share, they have 92 percent of the wireless revenues, they have got 85 percent of all spectrum, and you look what it does at the wholesale market, it's non existent for RAN access.

787   For, you know, companies like ourselves and many others in this proceeding that would like to see, you know, the emergence of these new models of, you know, to increase competition in the market and allow to serve some of the customers who need to be, you know, we think better served with differentiated products.

788   So, there is certainly a link between retail and wholesale.

789   COMMISSIONER MOLNAR: Uh-huh. You just referenced to statistics you had in your submission.

790   MS DORVAL: Yes.

791   COMMISSIONER MOLNAR: That they hold 90 per cent of the subscriber market share, 92 percent of revenue. So, when we are looking at the retail market, why is it relevant that as a collection they hold -- like why should we be looking at the accumulation of the market shares of the three national carriers? Why is that appropriate in assessing the competitive state of the market?

792   M. MESSIER : Nous pensons que c'était important, oui, de regarder -- un instant.

793   COMMISSIONER MOLNAR: Hold on. Okay.

794   M. MESSIER : Nous pensons, oui, que c'est important de regarder l'effet combiné de es... de la concentration qui existe au niveau des trois MVNOs... les trois MNOs, c'est-à-dire, les larges "incumbent carriers", le fait qu'ils dominent le marché autant des revenus et la situation n'a pas évolué, si on regarde les statistiques qui ont été publiées hier, depuis ces dernières années.

795   Donc, ceci leur donne une capacité plus de pouvoir exercer leur pouvoir de marché, comme il a été question avec le Bureau de la concurrence. Et si on regarde le... si on regarde au niveau de la concurrence au niveau des prix, ceci origine davantage de l'entrée des nouveaux entrants plutôt que de l'espèce de rivalité que ceux-ci vont dire.

796   Donc, si on regarde aussi au niveau de la pénétration des services mobiles dans le marché, donc tous ces facteurs-là nous font dire que de pouvoir offrir un plus grand choix au niveau des consommateurs dans le marché pourrait amener une plus grande... donc, une plus grande concurrence à meilleur choix et un plus grand bénéfice pour les consommateurs.

797   COMMISSIONER MOLNAR: Let me ask my question again. My question was specifically, you referenced the fact -- you referenced to collective market share of the three carriers and I am asking you: Why, when we are assessing the competitive state of the retail market, is it relevant to be looking at the collective state?

798   I mean, lots of people say there is market power, they have market power. But I suppose if you add it together, you can't argue that 90 percent is significant, market share in significant revenue.

799   But why is it relevant to add that together, to say "they have market power" versus when you are looking at the market, you are looking at -- first of all, you look at the market, you look at who is playing in the market, you look at whether there is rivalry within that market.

800   So, why is it relevant for us to look at it collectively to determine whether there is or is not market power?

801   MS DORVAL: I think that Kirsten may have some insight on this and then Phillip.

802   MS EMBREE: Yes. So, I am not sure I am able to answer the question directly. As Nathalie said, we are relying on -- to a certain extent on the evidence of other parties in this proceeding, including the Competition Bureau.

803   I understand your question as why do we add it together and I think our response would be somewhere along with what the Competition Bureau said, which is the concentration, high concentration, the three combined creates a risk of coordinated interaction in the market and facilitates the coordinated exercise of market power.

804   Individually, we haven't done an analysis to determine whether they are individually dominant. It's the three -- it's the concentration, the three of them combined which leads us to this conclusion.

805   COMMISSIONER MOLNAR: Would you add together just -- this is just, you know, off the top, but it's an interesting thing you are just adding. You are the incumbent cable co within your territory, so if we were to add together the market share that you hold and revenue that you hold within the BDU market and add to it what might be the share held by any kind of IPTV provider or satellite provider, there would be three.

806   And if we added it together, would you say -- would you think that would be appropriate to determine whether or not there is market power and the opportunity for coordinated action?

807   I mean, we can add together the -- anybody if you want?

808   MS DORVAL: Well, I think the answer to that is that you have to look at the -- you know, each, you know, operation or each sector, and determine whether in each of these sectors all the facts and evidence are the same.

809   And I don't think you would find the same findings in the cable industry where you've got really many different competitors. You have got the OTT, you have got -- I mean, we had just a two-week hearing on the "Let's Talk TV" to see how this market has been evolving and I think it really is quite different than what we see in the wireless sector.

810   COMMISSIONER MOLNAR: And the broadband market. I mean we could talk about broadband, maybe I should have used broadband as a better example, but anyway, I am going to go on.

811   As it regards MVNOs, one of the interesting things, and you brought up in your own evidence, is in other countries there are more active MVNO markets and the U.S. is an example where MVNOs have not been -- it has not been mandated by the regulators, that they allow or enable MVNO access and yet it's quite an active market.

812   Do you know what would be the difference? Could you explain what you think might be the reasons why the U.S. was able to achieve an active market without regulatory interventions?

813   MS LEMAY: I can answer that. I guess it is because it mostly based on our evidence. But if you go back in U.S. the MVNOs have been in business for quite some time and -- but if you go back in time -- and let's say we go back to even the late nineties, there were a number of mobiles, affiliated mobile carriers in every market in the U.S.

814   We're talking the FCC used to record a report, markets where they had seven networks, six networks, five networks, four networks, and at that time I think that obviously stimulated when you have a lot of networks, that it did stimulate the MNOs to actually enter into agreements for wholesale or for other types of entities to grow their market.

815   And typically, you have the bigger players, AT&T, Verizon and Sprints, and I think all MNOs in the U.S. have -- do now, you know, have wholesale agreements or MVNO agreements that they host.

816   But typically, it has also been smaller ones, if I can use "small" in this context because we're talking tens of millions of subscribers, but smaller ones like Sprint would have had the most MVNOs attached -- hosted on their networks. So, I think that's why they never had to do it.

817   And once you have, you know, good, strong MVNOs entrenched in the market, it's a viable business, it's a strong business. If you need regulation then, and the market continues, you don't need it now. But I think that's the main difference is the evolution of the U.S. market and mobile is very, very different.

818   They were not national networks at the outset, they were, you know, networks that were patchwork and they were brought back together into national entities at a much later stage.

819   MR. JETTÉ: So, when you look at markets where MVNOs were actually allowed to enter the market, there is a win for the consumer at the end of this because they actually benefit from different types of solutions, creativity and innovation.

820   There is also a win for the MVNOs who can actually grow their business and work their service with other telecommunication services and provide portfolios of products in the market.

821   But there is also a win for the MNOs who can enter in the wholesale business and actually grow their market, grow their network, make investment at capacity. So, everybody wins in that scenario.

822   Here, what we see, is that only the three large MNOs have actually benefited from a very close ecosystem, so they do that, but within their own ecosystem. They have shut the door to everybody around.

823   COMMISSIONER MOLNAR: Okay. Thank you. One of the arguments that has been made against MVNOs and resale and the full range of MVNO arrangements by the incumbent carriers is that it has the potential to result in less network investment, less network deployment and less facilities based competition available to consumers?

824   MS DORVAL: I will let Johanne start with an answer on the international experience where you can see MVNO and MNO coexist and what that has done to investment and maybe Phillip can add on the investment that full MVNOs must do to emerge.

825   MS LEMAY: Thank you. Well, actually, just maybe to reverse that a little bit, I would like to start discussing the investment in Canada over recent years -- sorry about that. But, you know, when we look at and wisely use metric which is capital, wireless capital intent you just focus on the wireless networks in the Canadian market, for Bell, Rogers and Telus, and we looked at -- you know, we can go back a number of years, but let's say from 2006 to the first six months of this year, 2014, we certainly don't see any evidence of, for example, lower investment post the AWS auction for example, because that argument about lower investment was made also at that time.

826   But from 2006 to 2015, you have two investment cycles, two cycles of deployment of new technology that wireless networks, one being a HSPA and then, the other one being LTE, and what you can see, based on the CAPEC intensity of Bell, Roger and Telus in that time is that it increased in 2000 -- and I have to put on my glasses -- 2008, 2009, in the case of Bell and Telus, then, you know, which coincides with the deployment of HSPA, then it goes down a little bit in 2010, 2011 then goes up again when they deploy LTE.

827   And Rogers was actually a little bit -- maybe one year ahead of them in both cases. So, I don't see any evidence in this that Canadian mobile carriers have lowered their investment because there was a fourth MNO.

828   Now, we also looked in a report that were submitted at the capital investment, in capital intensity metric, comparing a number of carriers in other countries where there are MVNOs with those of Canada, the figure is there.

829   COMMISSIONER MOLNAR: And so, I am just going to follow up on your first point.

830   MS LEMAY: Yes.

831   COMMISSIONER MOLNAR: And then, I'll let you get into the other territories.

832   MS LEMAY: Alright.

833   COMMISSIONER MOLNAR: Because you are talking about the emergence of new MNOs and whether that has, in fact, you know, influenced capital intensity, but that wasn't my question.

834   MS LEMAY: I know, but --

835   COMMISSIONER MOLNAR: The question was whether wholesale regulation issue such as MVNOs are roaming where, in fact, others can use the network that's available, so there is no advantages, in theory, to some of your capital and, you know, investments, whether that has the potential?

836   MS LEMAY: Yes.

837   COMMISSIONER MOLNAR: So, if you can answer that question, I would appreciate it.

838   MS. LEMAY: Yes. That's where it was going because in our report, the second one, we also show data that show the capital intensity over the last four years of various carriers that operate in MVNO environment in country -- you know, in countries where they have MVNOs and we looked and compared that with, you know, Rogers, Bell and Telus in Canada where they don't have it and those carriers included, for example, AT&T, Mobile and Verizon in the U.S., individually with Bell, Roger and Telus, and they don't have a lower capital intensity than Canadian carriers do and they do support MVNOs.

839   And if I mentioned the first section in my response it's because I think, you know, that argument has been made many times for, you know, against MNOs and against MVNOs, but I don't think that the experience or data really supports it.

840   COMMISSIONER MOLNAR: I did read your report, but I read an awful lot of reports, so remind me this analysis of the capital intensity through the U.S. versus Canada and is that part of your report?

841   MS. LEMAY: Yes It's in the August 20th report and --

842   COMMISSIONER MOLNAR: Okay. Thank you. I expect that it's similar. I mean, there have been -- you have now given U.S. examples, but there has been an argument that says in your -- where they have mandated MVNO, in fact the outcome has been less capital investment. You know it has been lower prices that at the expense of investment and network quality?

843   MS LEMAY: Yes. I have in a table a few examples of European carriers. They're not all there in all countries, but we don't -- didn't see a lower capital investment from these carriers compared to the Canadian carriers.

844   I know there have been reports of lower investment or delayed technology deployment, for example, in European networks. I think there's a number of reasons for that.

845   One of them, I will say, is regulatory lag, delays in issuing spectrum, for example, just like the 800 megahertz spectrum in some cases such as in the UK. The other one being that, also, they had to repurpose some older -- some existing bands, the 1800 band, because in Europe, contrary to Canada, carriers did not necessarily decide, you know, a number of years ago which technology they could put in which band, so they had to get regulatory approval to change the technology.

846   That's been changed since then, but that has created, I think, some lag in bringing, you know, new technologies into the market.

847   But I think now there's a fair amount of LTE available in Europe, and they have low prices in general. They seem to have low prices in general.

848   COMMISSIONER MOLNAR: Okay. Just to put back what I heard, so essentially, it wasn't the regulations. It was some of the other issues in the European market that caused the investment lag.

849   MS LEMAY: I would say I have no indication that regulations regarding access from MVNOs or wholesale access has impacted investment on the -- on European carriers.

850   COMMISSIONER MOLNAR: Okay. Thank you.

851   MR. JETTÉ: May I add to this?

852   COMMISSIONER MOLNAR: Do you have evidence?

853   MR. JETTÉ: Just by saying when you implement the full MVNO network, you have to invest in your core network. So if you go back to this Figure 1 that we provided as evidence, column 2 to column 5 are all items that you actually need to invest as a full MVNO, so your voice core, your data core, all your messaging services, all your back haul, the interconnections, so there is a network to be built.

854   What, at the very end, needs a shareable arrangement, is the RAN only.

855   COMMISSIONER MOLNAR: Do you have a sense, and I anticipate you do, the relative investment you would make compared to that of a full facilities-based carrier?

856   MR. JETTÉ: Well, investment are always made with market growth in mind, so we -- as Cogeco, we have already operations. We have an existing customer base, and we will address this customer base, provide them with mobile service as it grow.

857   COMMISSIONER MOLNAR: Right. I'm going to ask my question again.

858   So you said that as a full MVNO --

859   MR. JETTÉ: Yeah.

860   COMMISSIONER MOLNAR: -- you would be making investments.

861   And my question is, as a full MVNO, if you look at the investment, let's say, you know, a new entrant, somebody who holds spectrum and all the elements of their network, a full carrier, their investment, 100 percent -- they've made -- they've invested 100 percent into their network.

862   In the elements that you need to invest in if you get access to the RAN, approximately what is that?

863   MR. JETTÉ: Well --

864   COMMISSIONER MOLNAR: Of the full cost of delivering service, how much would be an investment in your part versus a cost of using the RAN?

865   MR. JETTÉ: It's a little bit too early for us to provide a number on that because we're actually awaiting the outcome of this Commission to figure out what is going to be the model and then we can actually build the network, those services and the go-to market that goes with this.

866   So we're just ahead of business case, but it's still a lot of components to install, to buy, to provision and to maintain.

867   COMMISSIONER MOLNAR: All right. I'll ask that of somebody else and maybe I'll get a sense somewhere along this proceeding just how much because the argument is made that there continues to be significant investment required through the MVNOs, yet, I'm not really getting a sense as to how significant is that investment.

868   MR. JETTÉ: Again, it -- the offering mobile product is a full suite of elements that you need to put together, the network being one, but the device ecosystem is, as well, another.

869   So when we will go to market, we have to build a portfolio of device. There are some investments going towards that.

870   We haven't really quantified the device ecosystem component.

871   There's also the distribution channels. You want to build distribution in your go-to market. That, as well, as investment we haven't quantified.

872   So the total pieces are still to be worked, but the key message is there are substantial investments and we will make them.

873   THE CHAIRPERSON: Sorry. It sounds to me a bit surprising that you would have put all this effort in this hearing, probably gone very high up in your organization and you do not have an estimate of how much this will cost and how many investments you -- I get that you might not want to say it publicly on the record, but we have rules how to do that.

874   But you must have at least a fourchette of possible amounts of number.

875   MS DORVAL: So we would be happy to file this as an undertaking for Monday.

876   THE CHAIRPERSON: And request confidentiality?

877   MS DORVAL: And request confidentiality.

Engagement

878   THE CHAIRPERSON: If you require it because of -- we treat everyone equally, don't we?

879   MR. JETTÉ: But at the same time, I will add to this that it's also time based, so entering the market next year or in two years or in three years, the scenarios could be different, so keep that in mind.

880   THE CHAIRPERSON: Well, you can provide the answer you wish in that undertaking.

881   COMMISSIONER MOLNAR: And I would hope that that undertaking is showing incremental investment.

882   You made some comment about your customer service centres, and I would anticipate you already have a customer service centre, so...

883   MR. JETTÉ: Yes.

884   COMMISSIONER MOLNAR: Another comment you made in your intervention is that it is possible that you could enter as an MVNO and ultimately become a full facilities-based MNO in the future.

885   Do you have examples of where that's actually occurred?

886   MS LEMAY: Yeah, I think we provide a few examples in our evidence of MVNOs that became MNOs by different means.

887   One of them, for example, is Tele2 in the Netherlands, which were an MVNO for many years, and then they acquired spectrum in two auctions in, I think it was, 2010 or 2012, 800 and 2600, and are now deploying a network in the Netherlands for LTE.

888   Another example we give is, funnily enough, a British telecom, BTE, in the UK, which was an MNO, then had to -- was forced to -- I guess forced to get out of the mobile facilities-based business, operated for a while in niche segments as an MVNO and has now bought spectrum a couple of years ago while -- I guess in 2013, the latest auction, and is now re-entering the market as an MNO.

889   And another example that we do give is -- of course, and that's via different means, but Numéricable in France, the -- you know, one of the largest cable cos. But that is totally focused on the fixed mobile broadband convergence.

890   And to that effect, they were operating as an MVNO, but they acquired SFR, the second-largest operator.

891   So that's a different means, but you know, what you do see when you have this in a market is it opens up opportunities and it increases the level of dynamism in the market. And I think that's been beneficial to consumers in those countries.

892   COMMISSIONER MOLNAR: And just as it relates to Cogeco, it wasn't any expectation that at some point entering as an MVNO would enable you to become a full MNO in the future.

893   MR. JETTÉ: Well, on this we would have to assess a number of things, spectrum being one.

894   So if --

895   COMMISSIONER MOLNAR: Right. You've talked about the issues related to spectrum.

896   So your expectation would not be that you would transition to full MNO at some point.

897   MR. JETTÉ: Well, we would have to solve some of the technical challenge, and it's success based, so at one point, every MNO will have to decide if they -- if they have actually more variable costs by leasing capacity then building their own network.

898   Everyone has to make that decision.

899   COMMISSIONER MOLNAR: One final question, and it relates to your evidence that you put forward in another proceeding we have currently under way, and that's the review of the wholesale services.

900   In that proceeding, you state that you're opposed to mandating new wholesale high speed access services such as fibre to the premise and that mandating such a service on large Canadian carriers would negatively impact their investment decisions and could even discourage investment in such facilities since they would not be free to allocate their capital expenditures according to their priorities.

"Furthermore, it would introduce an obstacle to innovation, as the capacity of the carriers to develop solutions that meet existing market needs and enhance their competitive position would be handicapped."

901   So that is your evidence as it relates to wire line, that mandating services impacts investment and inhibits innovation.

902   In this proceeding, you've requested that the Commission implement new measures to unbundle the RAN and provide greater wholesale services.

903   So if mandated access to fibre to the facilities would have such a negative impact on investment and innovation, why wouldn't mandated access to unbundled RAN services have a similar impact on the wireless carriers?

904   M. MESSIER : Je vais parler en français.

905   Alors, dans le cas des installations basées sur l'accès au réseau fibre, ce que l'on a aussi donné comme information dans le cadre de cette instance, c'est le fait qu'actuellement nous fournissons le service de gros au niveau des fournisseurs ISP et selon la technologie qui est radio frequency over class. À ce niveau-là, tous nos systèmes fonctionnent, et nous allons continuer d'offrir ce service-là à travers ça.

906   Le point que nous avons fait ici, c'est que dans le cadre où est-ce qu'on a à construire, on veut construire tout un réseau entièrement basé sur la fibre des équipements optiques. Pour nous, c'est l'équivalent de construire un réseau entièrement nouveau. C'est presque faire un overbuild sur notre propre réseau. Et à ce niveau-là, nous considérons que nous ne sommes entièrement pas un incumbent. Nous sommes totalement un nouveau entrant, et là, effectivement, il y a des enjeux à ce niveau-là. Donc, à ce moment-ci, dans le cadre du marché, d'offrir ce genre de service-là pourrait effectivement avoir certaines préoccupations au niveau des investissements.

907   Par contre, je vous dirais que la comparaison par rapport à notre service de gros que nous offrons au niveau de l'Internet, actuellement lorsqu'on regarde le marché sans fil, nous demandons effectivement pour pouvoir entrer comme MVNO si on n'a pas accès au niveau du RAN. Et plusieurs tentatives ont été faites pour accéder à ce service-là. Le marché est complètement bloqué.

908   Si on fait une comparaison avec le marché de gros au niveau des services Internet de gros, d'accès Internet, le Conseil est intervenu il y a 15 ans pour forcer, faire en sorte que les fournisseurs, autant les telco et les fournisseurs les majeurs des câblodistributeurs, ouvrent leur réseau pour offrir ce genre de service-là. Quinze ans plus tard, nous nous retrouvons avec presque 10 pour cent du marché qui est accaparé par les nouveaux... par les fournisseurs Internet indépendants. Alors, c'est le parallèle que l'on fait avec les deux types.

909   Donc, tout relève de la question dont on... quel marché on cerne, et dans le cas de tous les réseaux basés sur les fibres et l'équipement optique -- peut-être que Philippe pourra ajouter à ce niveau-là -- nous nous considérons entièrement comme un nouvel entrant et à un point de départ de zéro.

910   MR. JETTÉ: Well, to me, it's very simple.

911   On one side, you have a closed -- a dominant -- a market where you have dominant players. And on the other side, we are not dominant, so I -- it's not an apple to apple comparison, to me.

912   COMMISSIONER MOLNAR: I don't think it was about whether or not you were dominant. It was the fact that the incumbents who make investments in the one market, the -- you know, the argument is -- where you are the incumbent, the argument is that if you mandate wholesale access to this, it's going to discourage investment and innovation.

913   In this market, where you are not an incumbent, you're saying that if you mandate access, it will not discourage investment and innovation. And that's what we're trying to understand.

914   How does that work?

915   MR. JETTÉ: It's a question of --

916   COMMISSIONER MOLNAR: And it's not investment and innovation on your part; it's an investment and innovation on the part of the incumbents.

917   MR. JETTÉ: So it's a question of timing. On one side, we have to build a network before we can allow others to actually come in and work with us.

918   On the wireless side, those networks are mature, they're built, they're existing and there is -- there is not an option for an MVNO actually to come and get access.

919   COMMISSIONER MOLNAR: So what does that do to the next generation of investment?

920   MR. JETTÉ: So in --

921   COMMISSIONER MOLNAR: I think these networks are -- next generations are, what, two, three years apart on wireless networks now, so...

922   MR. JETTÉ: Well, as I said before, on the wireless side, I believe that the total investment will actually increase because everybody will make investments, MNOs, MVNOs and other players, to make this ecosystem work.

923   COMMISSIONER MOLNAR: Okay. Those are my questions.

924   THE CHAIRPERSON: Mr. Vice-Chair?

925   COMMISSIONER MENZIES: I'd just like to explore with you for a moment your interpretation of the policy directive in terms of your understanding that this is consistent with it and help me understand that a little more fully.

926   The policy directive, as you know, sort of resulted in a forbearance framework, and you're arguing that it supports a de-forbearance framework, essentially. And the criteria used in the forbearance framework are pretty straightforward and certainly even those criteria, if they were applied to the wireless network, would demand forbearance.

927   So I'm trying to understand how the policy directive to rely on market forces whenever feasible intends this de-forbearance.

928   MS DORVAL: So Kirsten will give you her view on this.

929   MS EMBREE: I agree, the emphasis of the policy direction is reliance on market forces to the greatest extent possible.

930   I think the position of Cogeco in this proceeding is that market forces have failed in the retail market, and certainly in the wholesale market, where they, along with numerous other service providers, have tried to negotiate MVNO arrangements without success with the large MNOs.

931   So the policy direction does speak to Commission intervention where there is basically a need to intervene. It does contemplate scenarios where the Commission, when it does have to rely on regulation -- and we would say that regulation is required here -- that it should use measures that satisfy a number of criteria, one of which is the need to be competitively and technologically neutral in adopting those measures, establishing those measures and implementing them.

932   COMMISSIONER MENZIES: Okay. I understand your position.

933   What percentage of the markets you serve prefer bundled offerings, multiple -- your cable, your land line, your internet and, if you were successful in establishing MVNOs, cell phone?

934   MS DORVAL: We'll have to get back to you with the number.

Engagement

935   COMMISSIONER MENZIES: Okay. Thanks.

936   How important is it for a company like Cogeco to have a full smorgasbord of servings to be competitive in the market where others are -- have those four and you have, currently, three; right? How big an edge is that?

937   MR. JETTÉ: So it is obvious that wireless technologies are very popular. They're increasing in popularity.

938   From the total telecom revenue, we can see as well that the growing share of mobile services is actually growing over time, so there are signs that to have access to a mobile offer actually is something demanded by our customer.

939   From what we know, about 80 percent of our customers today have a cell phone which they buy from another -- in all cases, from one of the three large MNOs.

940   There is 20 percent of our subscribers that actually do not have any mobile service today, so that's where -- one of the areas where we see also an opportunity and evidence to say that the market will continue to grow. There is still 20 percent of our customers that eventually will go and buy a mobile device.

941   In Canada, the same number for mobile penetration is about the same when we compare against the U.S. where they are at 102 percent. And that suggests that some have more than one device.

942   There's a 20 percent lag there as well, so there is a portion of the market that is being unaddressed today where we think we have growth.

943   As well, we will have growth as well as existing customers of us that will prefer our nice customer care service, for example, or other innovative and differentiated service that we will bring to market, and they will take them from Cogeco as part of the office -- the offer.

944   COMMISSIONER MENZIES: Okay. What I'm taking from this -- and you can tell me I'm wrong, but what I'm taking from this is that if you look at land lines -- and, as this recent report pointed out, there was a six percent decline. That's one of your core areas. That without having the opportunity to compete in cellular, which is a growth area, one-third of your offerings is in significant decline and that will significantly impact your business planning as the years pass.

945   Is that correct or incorrect?

946   MR. JETTÉ: Well, it is correct that, over time, wire line telecom is declining. We offer three service, so overall, we have a good position in the market because video is still a good offer and internet is a very good one as well. But again, we would like to add mobile services to that because customers can -- will want to add this product to their portfolio.

947   COMMISSIONER MENZIES: Okay. Thank you. Those are my questions.

948   THE CHAIRPERSON: Thank you.

949   Monsieur le Vice-président.

950   CONSEILLER PENTEFOUNTAS : Merci.

951   Juste pour revenir brièvement sur les questions qui ont très bien été posées par ma collègue.

952   Sur l'idée et le désir de Cogeco de bâtir quelque chose qui serait l'équivalent de facilities-based et de ne pas rester au niveau d'un MVNO, même si c'est un heavy MVNO par rapport à un light MVNO -- puis si vous voulez le faire en privé, en confiance, faites-le, déposez-le -- mais je pense que c'est important pour cette audience-là de savoir si l'intention est là pour bâtir et est-ce que vous avez l'intention de boucler cette boucle-là au niveau du RAN? Vous êtes capables et vous êtes prêts à offrir toute la fourchette d'autres services, sauf pour le RAN?

953   Mais quels sont les plans à moyen terme?

954   M. JETTÉ : Mais à court et à moyen terme, puisque les règles d'enchère d'Industries Canada ne favorisent pas ou ne découpent pas des zones de spectres, de fréquences de façon appropriée pour COGECO, on ne peut pas acheter de fréquence à court et à moyen terme.

955   Donc, la première étape serait, pour ces règles-là d'être changées, et après ça on verra comment elles sont changées et comment on peut construire un modèle d'affaires autour de ça.

956   Mais à court terme, vous comprendrez que c'est impossible d'acheter toutes les fréquences de Toronto pour nos clients qui ne sont pas à Toronto, mais qui sont à l'extérieur de Toronto.

957   CONSEILLER PENTEFOUNTAS : Alors, tel quel, ce serait le modèle MVNO?

958   M. JETTÉ : À court terme, c'est le seul modèle qui nous permette d'offrir un service mobile à l'ensemble de nos clients au Québec et en Ontario.

959   CONSEILLER PENTEFOUNTAS : Si on lit les interventions et, également, toutes les études, puis on peut en empiler et perdre notre latin dans les études, là, pour citer ma collègue également, mais les observateurs diront que les nouveaux entrants avaient de la misère à survivre, pour que les MVNO puissent espérer survivre l'intervention réglementaire sera absolue et considérable.

960   Seriez-vous d'accord avec ce constat-là?

961   M. JETTÉ : Mais je pense qu'il faut rappeler que nous ne sommes pas contre l'arrivée d'un quatrième joueur, en fait CD, c'est (inaudible) au Canada.

962   Nous voyons les MVNOs comme un outil essentiel pour « complémenter » ou pour compléter l'offre des services mobiles au Canada. Dans certaines régions, dans certains segments de marchés, seuls les MVNOs pourront offrir une solution.

963   Les grands joueurs qui s'adressent principalement aux centres urbains ne couvrent pas tous les segments de marchés, toutes les offres et toutes les régions.

964   CONSEILLER PENTEFOUNTAS : Mais à ceux et celles qui diront et qui disent dans les documents que nous avons reçus que les nouveaux entrants avaient beaucoup de difficultés, continuent à avoir de la difficulté à survivre, la survie des MVNOs, ça sera même presque impossible, si on se compare à l'expérience des nouveaux entrants. À cette question-là?

965   MME DORVAL : Définitivement. C'est pourquoi on demande qu'un tarif soit établi. On ne croit pas en une solution négociée. Elle a été tentée à diverses reprises et sans succès.

966   Donc, effectivement, on demande à ce qu'un tarif soit établi pour accéder au... avoir l'accès au RAN.

967   CONSEILLER PENTEFOUNTAS : Et à l'argument des gros qui diront : Écoute -- puis Rogers et d'autres nous l'ont dit, là -- les grands opérateurs diront : On n'a pas d'intérêt à laisser de l'argent sur la table. S'il y a quelqu'un comme COGECO qui est prêt à se lancer en MVNO, l'argent c'est de l'argent, nous avons une obligation et une responsabilité envers nos actionnaires, alors il n'est pas dans notre intérêt de refuser de l'argent trouvé?

968   MME DORVAL : C'est peut-être là qu'on en revient à la question de pouvoir de marché et du meilleur intérêt de ces joueurs-là en ce moment qui sont dominants dans le marché et de l'appréciation qu'ils font d'un modèle d'affaires avec des MVNOs vis-à-vis ce qu'ils sont capables de générer comme profit en ce moment dans le marché.

969   CONSEILLER PENTEFOUNTAS : Bon. Merci. Monsieur?

970   M. JETTÉ : Est-ce que je pourrais ajouter à ça?

971   CONSEILLER PENTEFOUNTAS : Bien sûr.

972   M. JETTÉ : Et de la bonne utilisation des ressources « fréquencielles ». Lorsque certaines fréquences sont sous-utilisées dans les réseaux, c'est, je pense, quelque chose qui peut être adressé par les MVNOs.

973   CONSEILLER PENTEFOUNTAS : Justement, il y a de la capacité là et vous nous dites que c'est dans le meilleur intérêt des grands opérateurs de laisser cette capacité-là à rien faire quand il y a des COGECOs de ce monde qui sont prêts à offrir de l'argent pour de la capacité qui n'est pas utilisée présentement et qui peut être fort utile à aider leur ligne de profit?

974   M. JETTÉ : Mais c'est ça. Nous ne voulons pas que cette capacité-là reste inutilisée dans les réseaux. Nous voulons payer pour louer la capacité des réseaux RAN.

975   CONSEILLER PENTEFOUNTAS : Mais, vous, vous dites que les grands opérateurs sont prêts à laisser cette capacité-là à rien faire pour vous empêcher de concurrencer?

976   M. JETTÉ : Aujourd'hui, à l'évidence, ils possèdent beaucoup beaucoup de fréquences et elles ne sont pas toutes utilisées.

977   CONSEILLER PENTEFOUNTAS : Voilà. Merci.

978   MME DORVAL : Et il n'y a aucun "full MVNO" dans le marché.

979   LE PRÉSIDENT : Monsieur le conseiller Dupras.

980   CONSEILLER DUPRAS : Merci. Les ententes de partage de spectre, ça existe aussi. Vous disiez plus tôt qu'au niveau technique, le spectre des nouveaux joueurs, les bandes, là, ne sont pas nécessairement -- comment dire -- techniquement bonnes pour vous et que ça pose des problèmes techniques pour offrir le service.

981   De quelle bande de fréquence parlez-vous, là? Parlez-vous de la bande à venir de 700 mégahertz ou celle de 1700 à 2100 mégahertz?

982   M. JETTÉ : Les différentes bandes de fréquences ont différentes caractéristiques. Plus la fréquence est basse plus la couverture ou la propagation est performante. Donc, pour bien construire un réseau cellulaire, on doit avoir une combinaison des deux : la couverture et la capacité.

983   Les petites organisations n'ont simplement pas les moyens d'acheter les fréquences de couverture et de capacité avec suffisamment de largeur de bande pour offrir des produits innovateurs et compétitioner avec les trois grands opérateurs actuels.

984   LE PRÉSIDENT : Non, mais avec ceux, par exemple, qui ont gagné des fréquences, là, qui ont... aux enchères, là, comme au Québec, par exemple, c'est Vidéotron, et Vidéotron a déjà d'autres fréquences au Québec.

985   Il n'y a pas moyen d'avoir d'entente de partage de spectre avec eux?

986   M. JETTÉ : Nous ne disons pas que nous ne parlerions pas à Vidéotron ou à d'autres joueurs dans le marché, mais sur une base où on peut avoir le contrôle complet de la chaîne d'innovation, qu'on peut décider de quel produits et services on veut amener dans le marché.

987   Et c'est pour ça qu'on demande d'avoir le contrôle sur le code d'opérateur, code IMZI aussi, pour être capable d'installer dans notre composante du réseau des services différenciés.

988   Donc, sur cette base-là nous pourrions parler à plusieurs opérateurs sur une base de "full MVNO", et amener des nouveaux services aux Canadiens.

989   LE PRÉSIDENT : Quand vous parlez d'un quatrième jour au Canada, que ce serait possible, aujourd'hui de la manière que ça fonctionne avec les offres groupés, Internet, téléphone, télévision sans fil, quelqu'un qui va offrir de la téléphonie dans le reste du Canada à un "stand alone", est-ce que vous pensez que c'est ça un quatrième joueur ou ça va être un regroupement de joueurs régionaux qui va former le quatrième joueur?

990   MME DORVAL : Bien honnêtement, on ne s'est pas vraiment questionné sur la forme ou ce que sera le quatrième joueur. Ce qu'on dit, c'est que c'est une mesure qui est fortement encouragée par le Gouvernement et qu'on soutient cette mesure et que, nous, le modèle qu'on propose et qui est le plus viable, pour COGECO et beaucoup d'autres joueurs à l'évidence quand on regarde les documents déposés au dossier public, c'est le modèle de MVNO.

991   Donc, ce qu'on dit c'est que, nous, notre modèle préféré c'est le MVNO parce qu'il peut permettre de couvrir les régions qu'on dessert, servir les clients où on est en ce moment, qui ne sont pas toujours dans des zones urbaines où il y a une forte concentration de population.

992   Pour ce qui est du quatrième joueur, on n'a pas offert de position sur cet élément-là.

993   LE PRÉSIDENT : Et juste dans les faits, là, votre entreprise, l'idée d'avoir le service sans fil, c'est pour pouvoir offrir à vos clients essentiellement une offre groupée qui inclut la téléphonie sans fil. Mais ce n'est pas pour aller conquérir nécessairement d'autres marchés en dehors des secteurs que vous desservez déjà?

994   M. JETTÉ : Entendons-nous bien. On a une base de clients aujourd'hui à laquelle on ne peut pas offrir, malgré plusieurs tentatives de faire différents arrangements dans les 12, 13 dernières années, à laquelle on ne peut pas offrir de services mobiles.

995   Donc, le premier objectif de COGECO est d'amener un service mobile aux clients de COGECO au Québec, en Ontario.

996   LE PRÉSIDENT : Et les compagnies de câble, par exemple, comme je pense à Vidéotron en Ontario, là, où vous êtes et Vidéotron n'est pas?

997   M. JETTÉ : Vidéotron n'opère pas dans les territoires où nous opérons en Ontario.

998   LE PRÉSIDENT : Et dans le spectre, par exemple, que Vidéotron a gagné ou a acheté en Ontario, est-ce que ça couvre les secteurs que vous desservez présentement?

999   M. JETTÉ : La grande majorité du spectre que Vidéotron a acheté en Ontario se concentre au centre ville de Toronto pour la première enchère.

1000   MME DORVAL : Dans l'enchère de sept ans Vidéotron a une bonne partie de ceux de l'Ontario, là, mais dans les fréquences EWS, il y avait l'est de l'Ontario puis Toronto, sur une base de CR-3, donc ils n'ont pas tous les territoires de COGECO, par exemple, dans le sud de l'Ontario.

1001   Par contre, ils l'ont dans le 700, mais c'est dans un 5+5, donc c'est comme limité. On ne peut pas faire du LTE à 20+20 dans un 5+5.

1002   LE PRÉSIDENT : Très bien. Merci. Rapidement, lorsque vous regardez les nouvelles technologies à l'horizon à court et à moyen terme, est-ce que le spectre non réglementé tel que le WI-FI pourrait être une solution envisagée ou est-ce que c'est trop loin dans l'avenir?

1003   M. JETTÉ : Mais pour adresser la question de la mobilité, seulement les systèmes et les technologies reliées à la mobilité amènent vraiment un service mobile aux clients. Donc, comme on recherche vraiment d'ajouter le service mobile ou la mobilité, seulement les systèmes et les technologies de mobilité sont envisageables ici.

1004   Le systèmes comme WI-FI sont des systèmes fixes ou nomades, principalement utilisés à la maison et au bureau. Ils ne répondent pas au besoin de mobilité de notre clientèle.

1005   LE PRÉSIDENT : Vous parlez à propos des développements futurs, potentiels. Je sais ce qui est offert maintenant.

1006   M. JETTÉ : Je ne vois pas dans le développement de WI-FI la possibilité de couvrir de grandes régions géographiques en incluant la mobilité. WI-FI est une technologie de courte et de moyenne distance, par opposition aux technologies mobiles qui couvrent des moyennes, des grandes et des très grandes distances.

1007   LE PRÉSIDENT : Donc, vous n'acceptez pas les stratégies qu'on voit chez Shaw dans l'Ouest canadien?

1008   M. JETTÉ : La stratégie de Shaw n'est pas de déployer un réseau de mobilité.

1009   LE PRÉSIDENT : Pas pour le moment, non.

1010   M. JETTÉ : Et je n'ai pas compris la stratégie de Shaw que c'est leur intention de déployer un réseau de mobilité à partir du WI-FI.

1011   LE PRÉSIDENT : Très bien. Merci. Conseiller juridique, s'il vous plaît.

1012   Me STEWART : Merci, monsieur le président. Très brièvement.

1013   Dans la mesure que le Conseil accorderait votre demande et vous décideriez d'aller de l'avant, quelle échéance pourriez-vous établir en fonction aussi des questions techniques en ce qui concerne l'accès au RAN? Est-ce qu'il y a des complications qui se manifestent avec l'accès au RAN?

1014   Est-ce qu'il faudrait qu'il y ait un processus comme SISQ pour essayer de mettre en vigueur un tel système d'accès?

1015   MME LEMAY : En fait, dans notre proposition, on a demandé à ce que les MNOs, suite à une décision favorable, déposent un tarif dans les 45 jours pour la portion de l'accès au RAN et que les parties entament des négociations pour la mise en place de solutions techniques pour les interconnections dans un délai... et en arriver à une entente dans un délai de 60 jours, au-delà duquel on demanderait au CRTC d'intervenir dans un règlement de différend.

1016   Me STEWART : Merci. Et vous pensez que cette échéance est raisonnable? Est-ce que... et moi, je ne suis pas ingénieur, est-ce que c'est une affaire compliquée pour avoir cette forme d'accès?

1017   M. JETTÉ : Ce n'est pas une affaire compliquée et à la page 45 de notre... du dépôt de notre soumission du 15 mai, on avait établi la liste des sept points techniques dont il faudrait discuter avec les grands opérateurs MNO.

1018   Évidemment, là-dedans, il va y avoir... ça va être proportionnel à la bonne volonté qu'on va trouver autour de la table. Ces sujets techniques-là ne sont... ont été résolus dans la majeure partie des autres pays du monde en Europe, aux États-Unis, partout où les MBNOs et les full MBNOs existent aujourd'hui.

1019   Ce sont des considérations techniques connues avec des solutions simples. Donc, moi, je ne vois pas nécessairement un grand défi pour mettre ces choses-là en place à très très court terme.

1020   Me STEWART : Merci. Et pour permettre au Conseil d'évaluer le rapport de (inaudible) madame Lemay, quelles sont vos réactions face aux critiques, par exemple, de l'expert de Rogers, monsieur Feasey, de votre... des conclusions concernant l'Europe, par exemple?

1021   Mais en particulier, la Belgique, l'AIC, il a dit qu'il ne pouvait pas comprendre comment vous êtes arrivée à la conclusion que vous êtes arrivée?

1022   MME LEMAY : Conclusions sur la Belgique; en fait, je pense que nous avions l'intention de fournir, si je peux fournir une réponse à la critique qui a été faite par monsieur Feasey sur l'ensemble de quelques pays, là, qui ont été mentionnés, je crois que... je ne suis pas sûre exactement quand vous dites « la conclusion » là, je sais que...

1023   Bon, je pense qu'il argumente qu'il n'est pas d'accord avec certaines de nos conclusions, là, mais...

1024   Me STEWART : Pardon. Je vais vous citer de son intervention.

1025   MME LEMAY : Oui, c'est ça.

1026   Me STEWART : "I do not understand how Lemay says she has controlled the conclusion."

1027   C'est au paragraphe 8 de son rapport en date du 20 août.

1028   MME LEMAY : Oui.

1029   Me STEWART : Comment est-ce que vous réagissez à ça?

1030   MS LEMAY : Well, I think -- Je ne sais pas, j'aime autant vous répondre en anglais comme... in English.

1031   I don't think I understand necessarily why he states that he does not understand how we reach our conclusions, but I think that we see that in Belgium there is a fairly good market for MVNOs. They have had access to the facilities of the incumbent carriers for some time.

1032   There is also a very strong -- we see also growths from Cable Code, Cable Code model becoming MVNOs. I think it's very interesting and we see the growth in, you know, the success of those -- of those carriers. So, I think we see that there is a good example in Belgium, for example.

1033   I know he also talks about the Netherlands, so we intend to respond to that on the market of the Netherlands.

1034   Me STEWART : Merci, madame. Je n'ai plus de question.

1035   MME DORVAL : Monsieur le conseiller, si on proposait de re-déposer ces informations-là à titre d'engagement, là, pour lundi aussi?

1036   LE PRÉSIDENT: Oui, parce que si vous voulez ajouter de la preuve, là, c'est le moment; ce n'est pas plus tard, dans vos arguments de fin. Ça fait que si vous voulez répondre plus spécifiquement aux questions du conseiller juridique, ça serait possible.

1037   MME DORVAL : Merci.

1038   LE PRÉSIDENT: Pour le 9. Ça va. Merci. Ce sont nos questions.

1039   Nous allons prendre une pause pour le déjeuner jusqu'à 1400, s'il vous plaît. Merci.

--- Suspension à 1254

--- Reprise à 1400

1040   LA SECRÉTAIRE : À l'ordre, s'il vous plaît. Order, please.

1041   LE PRÉSIDENT : Alors, merci, Madame la Secrétaire. Vous pouvez annoncer les prochains intervenants. Merci.

1042   LA SECRÉTAIRE : Oui.

1043   Good afternoon, gentlemen. We will now hear the presentation from Globalive Wireless Management Corporation.

1044   Please introduce yourselves for the record. You have 20 minutes for your presentation.

1045   MR. ANTECOL: Before we begin, I just would like to deal with a procedural matter, if I might.

1046   In our presentation today we refer to three exhibits which are three single-page drawings and figures and we would like the Commission's permission to have these exhibits added to the record.

1047   The first exhibit is just reproduced from an interrogatory we've already filed on the record.

1048   The second exhibit is a map that we intend to use just for illustrative purposes.

1049   And the third is some information relating to WIND-CRTC, 3 March 2012, regarding our forecast for data growth in 2014 and 2015.

1050   THE CHAIRPERSON: Sorry. And in the case of the second exhibit, it's basically a visual representation of the arguments you're already putting on the record; is that correct?

1051   MR. ANTECOL: Correct.

1052   THE CHAIRPERSON: And in the third case, you're adding information that wouldn't have been otherwise available; is that correct?

1053   MR. ANTECOL: No. If you look at the interrogatory -- and we did file it in confidence -- but you'll see that we did forecast growth in data roaming revenue from 2013 to 2014 and then again in 2014 to 2015. We indicated in a footnote to that interrogatory that there was still some uncertainty as to the amount of growth --

1054   THE CHAIRPERSON: Right.

1055   MR. ANTECOL: -- because we didn't know what the cap rates would be and whether --

1056   So we won't be -- we're hoping to file a revised interrogatory response but we just don't the data complete yet.

1057   THE CHAIRPERSON: Okay.

1058   MR. ANTECOL: We've only had a few days. And so we've provided this exhibit in that regard.

1059   THE CHAIRPERSON: Okay. We'll take this under advisement, but go ahead.

PRÉSENTATION

1060   MR. LOCKIE: Good afternoon, Mr. Chairman and Commissioners, and Commission staff. This is an exciting day for WIND Mobile. This proceeding is of the utmost importance to WIND, and we are very pleased to appear before you today to address issues of fundamental importance to the future of competition and consumer welfare in Canada's mobile wireless market.

1061   My name is Simon Lockie and I am the Chief Regulatory Officer of WIND. With me today, on my left, is Brice Scheschuk, WIND's CFO, and to my right, Edward Antecol, our Vice President of Regulatory and Carrier Relations.

1062   WIND appears before you today as a proud contributor to the Canadian economy, with over 770,000 subscribers and having invested approximately $2 billion in Canada over just the past five years. We won over each and every one of our subscribers through our innovative service offerings and tremendous value proposition. While the road has been a bit rocky at times, as you may have surmised from recent announcements, we are now extremely well positioned to carry on as a competitive alternative to the Big Three in B.C., Alberta and Ontario. With your help, WIND is here to stay.

1063   Until very recently, WIND's hard-won gains were achieved despite the absence of effective regulatory measures. As a result, Canadian consumers have not yet reaped the full extent of the benefits of competition. That there continues to be a serious issue with the state of competition in Canadian wireless is, I hope, obvious to everyone in this room, however much some of them might deny it.

1064   It takes spectrum, time and lots of capital to build out mobile wireless networks. The ability to offer national wireless coverage is absolutely crucial to enable competition in mobile wireless markets. The only way that this can happen in the short to medium term is through mandated access to wholesale roaming services at fair, regulated rates.

1065   The Commission launched this proceeding to reconsider its absence, dating back to the mid-nineties, from the field of wholesale wireless services regulation. The issues to be discussed in this proceeding are critically important to the development of more robust, long-term, competitive choice for Canadians. Regulatory measures that facilitate competition on a level playing field will provide a genuine opportunity for WIND and other new entrants to offer next generation and evolving wireless services to more Canadians and facilitate sustained competition in Canadian wireless. This will result in better services, lower prices and more choice for Canadian consumers.

1066   The Commission has already determined as a matter of fact that the Big Three have both the power and the incentive to impede competition in the retail wireless markets through the rates, terms and conditions that they impose on new entrants for wholesale services, and that Rogers, at least, has unlawfully given into that temptation for WIND's entire existence.

1067   The fundamental question to be addressed in this proceeding is whether the Commission should reassert its jurisdiction to apply previously forborne sections of the Act in respect of wireless services and whether it should impose any additional terms and conditions under sections 24 and 27.1 of the Act to the provision of wholesale roaming and a handful of specifically targeted wholesale services. WIND's answer is an emphatic "yes."

1068   The roaming caps recently legislated into place are substantially lower than the rates paid by WIND under its initial domestic wholesale roaming agreement, but they need to be set substantially lower. WIND welcomed Parliament's initiative; it offered urgently needed interim mitigation of the exorbitant rates being charged by the Big Three to new entrants like WIND. However, as acknowledged by Minister Moore and as expressly provided for in the Act, the capped rates are only a temporary, stopgap measure until such time as the Commission renders a decision on wholesale roaming rates as a result of this proceeding.

1069   In this regard, WIND wishes to be clear: Wholesale roaming rates at a level equivalent to the Big Three's average retail rates per unit for retail voice, data and text services are far higher than what is "just and reasonable" and certainly above the level that will support vigorous and effective competition in the interests of consumers.

1070   Attached as Exhibit 3 is a chart tracking average data roaming usage in the period leading up to and immediately following the capped rates being implemented. This chart shows that average data roaming usage increased approximately five times despite the fact that, due to funding restraints then in place, the reduction was not widely advertised. This may be viewed as a positive effect of the capped rates. But even more clearly than that, this evidence demonstrates both that retail customers are price-sensitive to domestic roaming charges and also that there is enormous pent-up demand for roaming that WIND could not meet because of the wholesale roaming rates that were previously in place under WIND's initial wholesale roaming agreement.

1071   The capped rates should be set at the incremental costs of providing such voice, data and text services, plus a mark-up consistent with that employed by the Commission for wireline services classified as essential or conditional essential (i.e., 15 percent to 25 percent). The imposition of such rates is a longstanding Commission practice, reflecting a true measure of a just and reasonable rate. When the shoe is on the other foot, companies such as Rogers have not hesitated to ask the Commission for similar treatment with respect to critical infrastructure, including access to telephone company poles and strands for the deployment of their cable networks.

1072   Alternatively, wholesale roaming rates could be set at the average retail rate per unit, minus a percentage to reflect costs that are not incurred when providing wholesale domestic roaming. For example, retail rates must recover handset subsidies, the cost of establishing and running retail stores and retail websites for customer fulfilment, retail billing and collection functions, marketing budgets and other sales-related expenses, and customer facing support functions.

1073   None of these elements are relevant to the provision of wholesale data, voice and text services. Such services represent virtually costless incremental revenue for the provider of those services. In fact, offsetting sunk network capital with wholesale roaming services revenue garners a better return on that capital investment. Thus, anticompetitive motives aside, wholesale roaming service providers should be incented to compete vigorously for such revenues. In a well-functioning market for wholesale services, one would expect to see the Big Three competing with each other by driving rates towards costs. And this is exactly what you see in their competition for international roaming customers, which was in no small part behind the Bell and TELUS switch from CDMA to GSM, which has become the global standard.

1074   WIND also believes the capped rates are still far higher than rates charged by the Big Three to U.S. carriers when such carriers' subscribers roam on the Big Three's networks in Canada.

1075   High wholesale roaming rates represent a barrier to customer acquisition in many customer segments. When per unit wholesale roaming rates payable by WIND to the Big Three are equal to their per unit average retail rates, new entrants like WIND cannot simply absorb the resulting costs for roaming by their customers, particularly given WIND's need to continuously build out and augment its network. Thus, WIND has created "Home" and "Away" zones. When WIND customers are in a "Home" zone, they may make use of unlimited voice, data and text services. When WIND customers are in an "Away" zone, they must pay a per unit charge to cover the cost of roaming services.

1076   The capped rates have greatly mitigated, but have not eliminated, this barrier to customer acquisition. These rates are not sufficient to obviate the need to maintain WIND's "Home" and "Away" zones and thus compete on a level playing field.

1077   As an example, WIND's data roaming rate charged to its customers has recently dropped from $1 per MB to just 5 cents per MB, which is obviously an incredible drop, but what we pay for this traffic is still too high for us to simply absorb the cost or build it into a fixed plan, which is what you see with our U.S. plans and we'll speak to that more in response to questions you might have.

1078   Exhibit 3, in our view, demonstrates the demand for national network coverage as a feature of any retail mobile wireless service and, second, the extreme elasticity of this demand. Unfortunately, despite the great value we offer, many retail customers will not even consider WIND because of the possibility of roaming charges in and around the areas where they live, work and play. WIND's competitive effectiveness continues to be seriously constrained.

1079   Despite arguments to the contrary, there is absolutely no evidence to support the Big Three's claim that new entrants now have plenty of wholesale roaming partners to choose from. This is false. WIND, for all practical purposes, has only two choices for wholesale roaming: either Rogers or both Bell and TELUS. This is because Bell and TELUS only offer roaming on the portion of their shared network that they directly own. And even if agreements could be negotiated with both Bell and TELUS, this would not eliminate the need for Rogers as roaming partner since it would strand a significant number of our subscribers using certain legacy handsets.

1080   The suggestion that new entrants can simply patch together a quilt of regional roaming agreements is misleading and ignores one of the most fundamental and important elements of domestic roaming. The majority of wholesale roaming occurs on the outskirts of new entrants' existing network footprints.

1081   Exhibit 1 attached to our oral comments highlights this point. From a practical perspective, WIND requires a wholesale roaming partner that, first, covers the areas just outside of its networks in B.C., Alberta and Ontario. While we also absolutely need roaming in the Prairies, Atlantic Canada and Quebec, this is secondary. It makes no sense to point to the fact that WIND can obtain critical roaming coverage from Eastlink, MTS or SaskTel, as this would not address WIND's primary coverage need in the outlying areas of its current network footprint. While Videotron may provide an additional source of critical roaming coverage in Quebec, it is unclear to what extent Videotron will offer roaming on the shared portion of its network with Rogers.

1082   In addition, the Commission should reject Rogers' suggestion that wholesale rates should be higher when new entrant subscribers roam in so-called "rural" areas.

1083   Regulated wholesale roaming rates will not deprive the Big Three of anticipated return on investment in rural areas. According to research conducted by Lemay-Yates and Associates Inc. for WIND and submitted in evidence in our second-round submissions, the Big Three's retail rates factor in the capital costs of service and are not differentiated based on urban versus rural areas.

1084   The Rogers proposition yet again demonstrates the economic incentives that drive the Big Three's positions on the issues in this debate.

1085   One would have thought that in relatively sparsely populated rural areas, the Big Three would be incented to encourage wholesale roaming since more usage of sunk network capital in such areas guarantees additional recovery of such capital.

1086   Second, by Rogers' own admission, Rogers' analysis "cannot be used for the purpose of a cost study" since only one year was included for cost recovery, and many relevant capital and operating costs were not included in the analysis.

1087   I'm just going to skip ahead a little in the interest of time.

1088   The Big Three have attempted to make much of the effects that changes to the current regime for mandated wholesale roaming will have on their incentives to invest. The same spectre was raised by the Big Three consistently throughout in the period leading up to the AWS policy and licensing decisions, and in the follow-up reviews conducted by Industry Canada. However, the fact is the Big Three investment significantly increased, not only as a result of, but in anticipation of new entrant entry. Canada's 3G, 4G and LTE deployments occurred after the AWS auction and notwithstanding strong government policy to support and enable competition in mobile wireless markets.

1089   WIND would go further: Not only have innovation and investment not suffered as a result of legislative, regulatory and policy measures designed to inject new competition, the threat of new forces in the marketplace has been the engine for incumbent innovation and investment.

1090   Mandated roaming has not deterred new entrant investment either. Nor will strengthened regulatory measures to drive the price of wholesale roaming closer to the actual costs of providing such service deter any new entrant investment.

1091   Again, this is a tired refrain trotted out all too regularly, but there is precious little evidence to support these claims.

1092   WIND also notes that there are numerous built-in incentives for new entrants to continuously invest.

1093   First and foremost, regulated wholesale roaming should be subject to sun-setting. Using a cost plus mark-up or retail minus formula for a defined period of 10 years, with a review commencing within 7 years of implementation of the measures, will create another powerful incentive for new entrants to continue to invest and should not create any disincentive for investment by the Big Three.

1094   Serving and acquiring customers on our own network is always the preferred option. Ownership of network infrastructure is important, particularly to new entrants, because it allows new entrants to control costs and the quality of services and to consequently provide customers with innovative and differentiated service offerings. WIND certainly believes that ownership and control of wireless networks is vital to its long-term success.

1095   The lack of seamless handoff also creates an urgent need to expand WIND's existing network footprint and to fill dark spots in coverage areas.

1096   And again, I'll skip just in the interests of time.

1097   Wholesale roaming rates that are reflective of the true underlying costs of providing such service will enable it to gain scale and a sufficient revenue base to engage in further network build-out. This would permit WIND and other new entrants that are otherwise innovating in technological or process terms to acquire scale and develop our own expanded network footprints, all for the betterment of the consumer interest. In fact, such conditions are a precondition to such investment.

1098   I'm going to skip ahead to the wholesale international long distance section, which is paragraph 32.

1099   In addition to wholesale rates for the domestic portion of roaming services, the Commission should address the rates for international calling while roaming. Obviously, WIND customers occasionally need to place calls to the U.S. or overseas, even when they are roaming. They simply cannot wait to return to a WIND zone to take advantage of our very reasonable long-distance rates, nor should they be so inconvenienced. We are living in a world where there is a customer expectation of cost effective, high-quality global telecommunications services whenever and wherever they are in Canada.

1100   WIND has received rate schedules from various Big Three carriers where the proposed rates for calls to many international destinations are more than 100 times the actual cost to terminate such calls to their intended destination. The Commission can observe the outrageous rates by comparing destinations like Hong Kong in Appendix A of our domestic roaming agreements with the prevailing wholesale rates for Hong Kong, which I can tell you is less than one cent per minute.

1101   In the proceeding, WIND has proposed several solutions to the issue of high international call termination rates while customers are roaming that utilize hand-back of the in-progress calls for subsequent termination by WIND's own international carriers. Unfortunately, these proposals have been refused by the Big Three, which have little incentive to accommodate WIND's request. In our view they cannot have the right to charge abusively high international call termination rates and refuse to let WIND terminate such calls themselves.

1102   WIND subscribers enjoy the benefits of very competitive retail rates when making international calls while connected to our network. We offer unlimited North American calling on some monthly plans, as well as World Saver rates to many countries at rates that are as low as 2 cents per minute, including 2 cents per minute to Australia, the U.K., Hong Kong, Italy and Mexico. When customers make international calls while roaming, they face significantly higher rates, as much as 25 times higher, and suffice to say they do not like this one bit.

1103   If we had international calling rates from our domestic wholesale roaming suppliers that were capped at 2 times their average wholesale cost for each destination, a 100-percent mark-up, it would go a long way to controlling such costs.

1104   Alternatively, we urge the Commission to consider the two technical proposals we have put forward on this matter.

1105   Moving on to MVNOs, MVNOs do not typically have their own network elements but restrict themselves to customer-care operations, marketing and sales activities, and elements of pricing and billing depending on their underling wholesale costs. Even if they own some core switching elements -- as has been proposed today -- they cannot deliver improved network coverage, speed or quality beyond that available from its underlying network provider. Thus, they contribute little to the Act's section 7 policy objectives, including the objective "to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada."

1106   WIND does not support the provision of mandatory tariffs for the provision of services to MVNOs, which amounts to mandatory resale. Rather, in our submission, the policy goal should be to deliver sustainable long-term facilities-based competition. We note that mandated resale-based competition can only be sustained for as long as the Commission maintains a rate structure for such resale and only if the mandated rates enable viable resale competition. The Commission would be committing to indefinite regulation, and with the changes we are seeking in the proceeding, it is completely unnecessary.

1107   In this regard, mandated resale is inconsistent with the policy directive to "rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives" and the requirement to "use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary."

1108   WIND's proposals for mandated roaming is time-limited regulation that will enable and incent new entrants like WIND to build out their networks and become vigorous competitors with competing networks. At that time, both the incumbents and new entrants should be in a position to vigorously compete and even offer one another roaming services in parts of the country where roaming is still required.

1109   Now, I will ask Ed to speak to a couple of matters.

1110   MR. ANTECOL: Antenna towers and sites should be reclassified as "public good" assets and provided under tariffed rates, terms and conditions. Towers, similar to other support structures like poles and ducts, can be duplicated. But that is not in the public interest: Nobody wants more towers in their backyard.

1111   Even after the Commission granted conditional forbearance to the wireless service providers in the 1990s, access to the Big Three's antenna towers and sites was subject to Commission tariffs. From 2002 through to 2008, Bell Aliant, Bell and TELUS had tower access tariffs that were subject to price cap regulation as competitor services.

1112   In the essential services proceeding that led to Decision 2008-17, the Commission deemed support structures a mandated "public good" service because "engaging in the construction of duplicate support structure facilities would result in an inefficient use of public and private resources and would be an inconvenience to the public." However, the Commission did not address TELUS', Bell Aliant's and Bell Canada's tower access services as support structures. Rather, the Commission included these services in a list of "non-essential services" to be phased out either because there was "evidence that such functionalities have been duplicated" or because "parties did not provide any comment to indicate to the Commission that those services are required by competitors."

1113   Where communities object to tower proliferation for aesthetic and other reasons, Industry Canada rules discourage additional tower construction and force tower sharing. In such circumstances, it is inappropriate that the Big Three charge a premium above third-party rates for similar tower access. Yet, based on the evidence that we have submitted by Lemay-Yates Associates, this appears to be the situation.

1114   Towers and ancillary buildings are clearly support structures. While WIND would prefer to build towers without having to discuss tower colocation with an incumbent, this does not serve the public interest and we readily accept this. Therefore, the Commission should reclassify wireless towers as support structures and regulate such access based on cost-based rates plus a reasonable mark-up.

1115   I'm just going to skip ahead in the interest of time.

1116   We're also calling in this proceeding for access to indoor spaces where the public frequents and our view is that consumers would benefit from the imposition of a wireless building access condition similar to the multiple dwelling unit access condition which is applicable to local exchange carriers. No wireless carrier should be permitted to operate or utilize an indoor antennae system in a public or quasi-public indoor space unless such building is open to all other wireless carriers to place their own systems within the building. New entrants will then be able to either place their own antennae within such buildings or negotiate to join shared systems.

1117   I'm just going to turn it over to Simon to wrap up.

1118   MR. LOCKIE: Thanks, Ed.

1119   And thank you, Mr. Chairman and Commissioners, for the opportunity to present today.

1120   We hope that you will find the perspectives we presented today helpful. These issues are not just fundamental WIND's viability as we strive to overcome a 30-year head-start from companies built on networks using gifted spectrum, they are absolutely needed to develop long term facilities-based competition in Canada and the well-known associated benefits to Canadians consumers.

1121   We would be pleased to take your questions.

1122   THE CHAIRPERSON: Great. Thank you.

1123   Now, Commissioners have what was a more detailed prepared oral presentation before us so we have taken cognizance of it, but you chose not to read certain parts of it so we will add it to the record as an exhibit and of course those parts you haven't read we will put less weight on because you haven't put much weight on it either by not reading them.

1124   So I will pass you over to the Vice Chair of Telecommunications. Thanks.

1125   COMMISSIONER MENZIES: Thank you.

1126   I just want to clarify one thing in your written submission and again it was inferred today in your oral presentation. You suggested or there is a presumption there that the Commission has already made a determination on market power and I wanted to make clear that we have not.

1127   MR. ANTECOL: Understood.

1128   COMMISSIONER MENZIES: Okay. Thank you.

1129   The first question -- and I have quite a number of them so I will try to keep them short -- how did you determine your definition of the product market?

1130   MR. ANTECOL: Well, we agree with the Commission's 94-19 definition, which is the smallest market that is reasonably practical for your analysis and we view the wireless market as either being provincial or perhaps better think of it as a bunch of local markets, so there would be a market in the GTA and perhaps there would be --

1131   COMMISSIONER MENZIES: I'm just getting lost a little bit.

1132   The product market as opposed to the geographic market?

1133   MR. ANTECOL: Yes. Sorry. The product market is wireless services --

1134   COMMISSIONER MENZIES: Okay.

1135   MR. ANTECOL: -- okay, and the geographic market is --

1136   COMMISSIONER MENZIES: Geographic is...?

1137   MR. ANTECOL: Would either be province or it would be since smaller areas like census areas, census market areas.

1138   COMMISSIONER MENZIES: Okay. To be determined by us in that sense?

1139   MR. ANTECOL: Correct.

1140   COMMISSIONER MENZIES: Okay. Thanks.

1141   Concerning competition and market power, typically lines of concern get drawn around 35 percent, Rogers is 36 percent, Bell and TELUS are 28 I believe. What would market shares look like in your view in a healthy market?

1142   MR. ANTECOL: I'm not an economist and obviously I listened with interest to the presentation of the Bureau earlier today.

1143   I don't think there is any special magic threshold for market share and I don't think there is any special magic number in terms of the players in each market. I think that a properly functioning market are where companies are going at each other and that can happen -- as I think was alluded to by the Bureau, that can happen with only two players with 50 percent market share each, but it's rare in that circumstance.

1144   I think you have too much alignment of interest if you operate with sufficient presence in the market to keep prices high, and given that using the geographic market definition we have just talked about, if you look across Canada there is essentially a duopoly in every local market and they have the ability, in my view, to raise prices above what would be a reasonable competitive level and they exercise it.

1145   COMMISSIONER MENZIES: Okay. So I'm still not clear, how much market would you --

1146   MR. LOCKIE: The reason you are -- I don't think there is a number. I don't think I can answer the question directly. I think it's just more a function of looking at the circumstances in their totality, are people competing actively against each other.

1147   COMMISSIONER MENZIES: So it would be market by market in that sense. Okay.

1148   MR. LOCKIE: Absolutely.

1149   COMMISSIONER MENZIES: You made it clear that in most parts of the country you believe an oligopoly of three exists as a sort of single entity. What would we have to do, or what would need to occur if that was the case, to prevent it from simply becoming an oligopoly of four or five? Where do you see the triggers?

1150   MR. LOCKIE: The first point I would make is that we actually would suggest it's a duopoly on a regional basis. They do operate -- I mean it's sort of a catch phrase, but they do operate as an oligopoly, but it just depends on who your dance partner is in a market.

1151   COMMISSIONER MENZIES: Okay. A retail oligopoly and a wholesale duopoly.

1152   MR. LOCKIE: Yes. And certainly that is the distinction I think we have to make, particularly in this proceeding, is that when we are talking about wholesale services you really are talking about a duopoly. There are only two national networks which, as we pointed out in our materials, is what is most relevant for us as a wholesale services customer.

1153   You can look at, for example -- I don't think if you look at Saskatchewan where SaskTel has 70 percent market share, that's clearly a different market when you have the incumbents with a much more robust presence in the markets we operate in, B.C., Alberta and Ontario.

1154   So what would stop us from I guess joining the oligopoly is that we have very different considerations. We are a pure play wireless carrier and there is at this point a gap of almost -- their average revenue per user is almost twice ours and commercially we can't compete with bundles and their existing network coverage. So would circumstances be different 15-20 years down the road, perhaps.

1155   It's very hard to predict how that would all go, but I think that if you look at markets around the world -- again, I mentioned earlier that there is no magic number, but it certainly seems to be the case that governments go out of their way, as did the U.S. recently in blocking the T-Mobile merger to keep four players in the market because that does seem to keep competition going.

1156   COMMISSIONER MENZIES: Okay. Which sort of segues into another question. Is there really a market for a pure play these days because the big three and others all have multiple offerings and a pure play mobile is -- is your issue the wholesale rates that you have to pay, the roaming rates that you have to pay, or is your issue the fact that you are a pure play in terms of trying to penetrate and gain market share?

1157   MR. LOCKIE: I will turn it over to Bryce to speak to it on a more, call it granular or financial level.

1158   One thing I would just point out, which is a bit obvious, is that we have just recently secured very substantial investment from very sophisticated investors and they, like us, believe that there is an absolutely terrific opportunity in pure play wireless, but I will ask Bryce to speak to some of the more commercial elements.

1159   MR. SCHESCHUCK: Yes. Just on the matter of financial viability, so if we look at, call it the total revenue of the wireless market, I think it's in and around just north of $20 billion right now in the country, you look at the markets where we operate, which would be three of the biggest in the country, you start applying market shares over a long investment horizon, we easily see our way to multibillion dollars in revenue and an absolutely rational EBITDA margin within that that is very viable and profitable.

1160   And again, back to Simon's point on we transacted recently on the back of a refreshed business plan that factored in some of the new spectrum announcements that factored in some of the new regulated roaming announcements and I can tell you that Smart Capital tipped finally, and it has been a long process, as you know, and understood really the viability and the opportunity long term with that business plan. So yes, I would say it is very financially viable.

1161   COMMISSIONER MENZIES: And that includes the high cost of capital to build out towers?

1162   MR. SCHESCHUCK: That business plan is comprehensive. It includes spectrum, it includes LTE, it includes the site mixes that are required for significant population coverage expansion, it includes continued very strong market weight for branding, it includes all of the various factors that you need in a proper business plan to be financially viable.

1163   COMMISSIONER MENZIES: Okay. So explain to us the incentive you would have to continue high levels of capital cost, intense capital costs in terms of building out if you got the roaming regulation that you seek?

1164   MR. SCHESCHUCK: Sure.

1165   COMMISSIONER MENZIES: I mean, if you can roam at the costs you are looking at, why would you build?

1166   MR. SCHESCHUCK: Right. So I think some of the more policy-type points around time fuses on the length of the regulation, and so on, are important, but from a financial perspective if we look at roaming and we look at the history of what we have seen in our roaming business, we look at the U.S. roaming, we look at the percentage of roaming revenue as a percentage of our overall service revenue, the fact that really what we use roaming for practically is to build a broader package at the RPU levels that we have been talking about to kind of entice a customer to come over on a whole package basis, we look at the benefits that we brought to the market and the increase in gross ads as an example as a result of the U.S. roaming package, and we take all of that and we say and we cannot sell into areas where we haven't built. So it is an ancillary benefit to our customers.

1167   Our customers live, work and play in the WIND home zone primarily, which is where we have built infrastructure. What our customers perceive right now in many cases is they actually have no service off the WIND home zone. That's factual based on surveys.

1168   What is the reality prior to this recent August 22nd change of our domestic roaming from 2G to 3G is that practically our customers couldn't roam. So what we expect is relatively small amounts of revenue and margin, but the perception amongst a customer in an area where we have built to be able to have a national plan and that to us is the difference.

1169   So to come back to your question, to expand our network footprint, which increases our addressable market by increasing our POP coverage is a return-based decision and our business plan assumes that expansion. And, interestingly, roaming that allows us to sell into that area nationally becomes an important consideration in that financial modelling.

1170   COMMISSIONER MENZIES: In terms of those home and away zones that you talk about, Eastlink mentioned that they had a similar issue, but they chose to merge the home and away zones into a single rate.

1171   Why didn't you go that route?

1172   MR. SCHESCHUCK: When you say why didn't we go that route, do you mean on August 22nd?

1173   COMMISSIONER MENZIES: Why do you go home and away? Why don't you just take the away costs and merge them, spread them across your entire buyer?

1174   MR. SCHESCHUCK: So our commercial proposition was -- again, we have to look at two different worlds.

1175   COMMISSIONER MENZIES: Because there was resistance in the market to that idea, right, you have talked about it, they have talked about it.

1176   MR. SCHESCHUCK: Yes.

1177   COMMISSIONER MENZIES: Right?

1178   MR. SCHESCHUCK: Yes.

1179   COMMISSIONER MENZIES: So why didn't you fix it for the market?

1180   MR. SCHESCHUCK: Yes. So I guess what I would say is, from a 2G -- so prior to the August 22nd changes where we launched the new 3G plans at much lower rates for roaming, if we look at the 2G world, the view of commercial was that national -- national roaming barely existed, you almost couldn't do it, and their focus was on an addressable market segment that was in the WIND home zones and that's how they built the commercial proposition.

1181   I would suggest that we are -- you know, we did a back to school launch on August 22nd, we were under significant funding constraints and we launched in a way that it continues to be a paper use, albeit at a much lower rate.

1182   I would say that we are evaluating very carefully what the next steps will be for our roaming plans and packages and I would also say that it was a similar thing with the U.S., the way we launched and ultimately evolved to unlimited, the way we have ultimately added fair use and certain controls, and so on. It's an evolutionary process and that could very well form part of our commercial offering.

1183   COMMISSIONER MENZIES: So then help me understand your concept of sunset regulation here and why would you choose a time sunset as opposed to necessarily a market share sunset, say when somebody -- they would subject to regulation once they achieved a certain market share. This time you are just going with 10 years, right?

1184   MR. LOCKIE: Yes.

1185   COMMISSIONER MENZIES: And then it sets --

1186   MR. LOCKIE: Yes. No, it makes sense to me.

1187   The issue, from my perspective, is that if we were to achieve a certain market share -- and with any of these things obviously you have to draw a line and we do so without having had the opportunity to comprehensively build out our network to the point where we feel we don't need to rely on domestic roaming in our home home provinces, then that would be fine.

1188   The problem is that we just don't know what that threshold is. We know when you have obviously a -- and you wouldn't want to have other considerations trying to kind of compress your desire to add subscribers, and so on, but with time you know it's coming down the pipe and you know that you have to spend the capital and build the network in order to be ready for that.

1189   I think if you look to the future paradise when you come out of these types of proceedings, the goal would be to have comprehensive coverage within our home provinces and then you do have a circumstance, in my view anyway, where you can have regional carriers on almost an equal access basis, you know, helping each other out and you can create some actual competitive tension for roaming traffic where you can actually have people competing for your traffic.

1190   So the goal I think is to achieve a certain level of network coverage, not to hit a certain market share threshold.

1191   COMMISSIONER MENZIES: If you thought the rates you contracted to pay weren't commercially reasonable, why didn't you seek an arbitration process and you can continue on that by telling us what a better system would be in terms of arbitration.

1192   MR. LOCKIE: Well, I think we are in the better system right now. I think this is an area where market forces aren't sufficient to get to the desired outcome, so I think that obviously that's where regulation is appropriate.

1193   Back when we launched initially, we had already deployed $450 million of capital and the clock is ticking at that point on a return for that and you have to launch as soon as you're able.

1194   We then also had to deal with, obviously, all of the ownership and control matters, which you are very familiar with, and with all of that added up we actually -- in the arbitration itself -- or rather in the lead-up to what was going to be an arbitration just made a very, very difficult call. I can tell you -- and Bryce can reiterate, we were in the room -- the business plan that we made coming in was flawed in a couple of respects.

1195   One is that we thought we would actually get reasonable rates and the mechanism to address it was very clearly, "How far can I push you so that you're prepared to delay the inevitable?"

1196   We had very little information available to us in terms of comparables, so we felt we were at a huge disadvantage going into an arbitration, didn't know what the outcome would be, didn't know when it would resolve itself and we needed domestic roaming in place right at the outset.

1197   So we spent about half a million dollars in that early stage getting ready for an arbitration, but ultimately just couldn't rationally go down that path.

1198   COMMISSION MENZIES: Just to go back on that, one of the things that might have -- sorry, go ahead.

1199   MR. ANTECOL: Yes. I was just going to add.

1200   So our initial roaming agreement was for a period of five years. In anticipation of the expiry of that roaming agreement we did commence roaming arbitration with two carriers. I led the effort through that process with Simon and I can tell from my perspective it was a very unsatisfactory process and central to that process was the lack of specificity, the lack of guidelines around what the arbitrator should choose as a rate.

1201   Commercially reasonable rates, that's a pretty wide scope. We faced a huge informational disadvantage and we also faced the fact that historically domestic roaming rates in Canada at the wholesale level had been very, very high and so they were able to trot out all kinds of precedents of high roaming rates and we are arguing, "Well, it should be like U.S. roaming rates" and the problem is then they would argue that's a different market and there are different considerations, there's one-way and two-way.

1202   So at the end of the day we faced a lot of sort of informational disadvantages and a complete lack of guidelines to assist on determining a reasonable rate.

1203   COMMISSIONER MENZIES: So is there anything specific that the CRTC might develop that you would prefer in terms of a dispute resolution or arbitration type of system?

1204   MR. LOCKIE: No. My view is that this -- and as we have argued for, this has to be a regulated process.

1205   COMMISSIONER MENZIES: That's good. I have lots more questions.

1206   MR. LOCKIE: Okay.

1207   COMMISSIONER MENZIES: So I'll take that. That was fine.

1208   Just going back to what you were saying there, that you didn't anticipate the rates you would have to pay when you first went in, I'm very curious about that in the sense that how could you not anticipate that you would get ground pretty hard on the rates? As a new entrant you don't have little if anything reciprocal to offer, they have something you need and the only thing you have that they need is money, so why wouldn't they get as much money from you as they could? It's not an irrational thing to do.

1209   MR. LOCKIE: Well, no, you are quite right.

1210   I guess one thing I would highlight is that this isn't about revenue for the incumbents at all. They are not trying to maximize roaming revenue at this point. It's clear from the fact that we had to impose 2G roaming and pass on these absurdly high rates where there was very, very little of it happening. They could have been making a lot more revenue, but they would be enhancing our competitive model. So I just wanted to stress that part.

1211   But you are quite right, I mean we anticipated that we would have difficulty. What we were hopeful for is perhaps a more activist role played by Industry Canada or perhaps the CRTC stepping in and that didn't materialize.

1212   COMMISSIONER MENZIES: Roaming rates are in decline; right?

1213   MR. ANTECOL: Currently.

1214   COMMISSIONER MENZIES: At the moment. Why isn't that a sign that the market is working?

1215   MR. ANTECOL: Okay. Well, we have just negotiated a new round of roaming agreements and the rates in those agreements are the capped rates that came out of the legislation.

1216   From our perspective, the legislation is the the reason why roaming rates have declined the way they have in the domestic market.

1217   COMMISSIONER MENZIES: So it's not a genuine economic reaction is your contention?

1218   MR. ANTECOL: Correct. At least domestically.

1219   COMMISSIONER MENZIES: If we were to determine that wholesale rates should be less than retail, which is your suggestion, why wouldn't that incent an increase in retail rates by the providers who have most of the market?

1220   MR. LOCKIE: I'm sorry, I'm not sure I follow your question.

1221   COMMISSIONER MENZIES: Well, if you set the wholesale rates at less than retail, which is what you want; right?

1222   MR. ANTECOL: M'hmm.

1223   COMMISSIONER MENZIES: Why wouldn't that encourage people to increase their retail rate so that the wholesale rate would still be set higher? I mean you could sell it for less if you wanted, but could it not have a boomerang effect?

1224   MR. ANTECOL: I think I understand the question, but I think from our perspective the incumbents are always trying to increase their prices as much as they can and if they could get away with another $5.00 increase, they would implement another $5.00 increase and I don't think that lowering wholesale roaming rates is going to change that behaviour one way or another.

1225   I don't know, does that answer your question?

1226   COMMISSIONER MENZIES: Close enough.

1227   In paragraph 99 of your written submission you're talking about seamless connectivity and you talked about it today. What reasons have you been given for the fact that you are getting dropped when you are --

1228   MR. LOCKIE: Well, what we're told is that it's for technological reasons. Your staff certainly and some of your will be familiar from our unjust preference attempt to get that resolved.

1229   Whether or not there is any merit to that, I point out that they do in fact have seamless roaming arrangements with U.S. carriers. I don't think, and our technical team are clear that those are not legitimate basis not to provide the service. So I think it's one of the things, and you see it with international termination of calls while roaming and you see it with seamless.

1230   As I had just alluded to, when we were successful in getting lower rates commercially it was only precisely to the level that had been legislated. So unless they are forced to do something, they don't do something.

1231   COMMISSIONER MENZIES: And that's what they told you?

1232   MR. LOCKIE: That was my extrapolation. What they told us is that it was technically not feasible.

1233   COMMISSIONER MENZIES: Okay, thank you.

1234   MR. ANTECOL: And after they told us it was technically infeasible then they told us it would cost lots and lots of money to implement and after that they told us it would take a long time. And those are the three arguments they typically bring.

1235   COMMISSIONER MENZIES: Thank you.

1236   I just need you to clarify your position on MVNOs for a minute. In your oral submission here too you mentioned your argument against mandated tariffs is that it goes against the policy directives. Is that correct?

1237   MR. LOCKIE: I think it does. But that's not really my argument, if you will. I think the main argument for it is that it's not necessary if the right conditions are in place for facilities-based carriers like ourselves.

1238   COMMISSIONER MENZIES: Do you mean do you believe that an MVNO market will grow if the right conditions that you're the --

1239   MR. LOCKIE: Not necessarily. What I'm saying is I don't think mandated regulated MVNO access. I think it's less than minimally invasive given that there are actions that can be taken for facilities-based carriers like ourselves to be viable competition in every market. And so it's just not necessary.

1240   COMMISSIONER MENZIES: Okay. Desirable?

1241   MR. LOCKIE: I don't think it's desirable, no.

1242   I think that the challenge that you will have is that you will, as we have alluded to in our speech earlier today, you will be committing yourself perpetually to regulation and that's not necessary because we've pointed out that there can be a sunset for the kinds of measures we're proposing.

1243   And I think you'll also have, you know, quite a bit of chaos, if you will, in the market if that's kind of -- if people can just kind of fire up and build a core. I think that that's not sustainable long term.

1244   COMMISSIONER MENZIES: Okay.

1245   You've provided a reasonable amount of detail on tower and site sharing and your preferred remedies on MDUs in high traffic areas. I'm not completely clear on your preferences for tower sharing remedies, though. Could you clarify that for me?

1246   MR. ANTECOL: Okay, well, specifically we would like the Commission to reinstate the tower -- requirement for towers. And the reference to towers and sites it's really the cabinets and the specific sites where the towers are located.

1247   Typically, with respect to rooftops we don't lease rooftops from incumbents. We lease them from landlords. Sometimes the incumbent is there and we need the incumbent's consent to also co-locate on the rooftop.

1248   But the primary concern is with respect to towers. They create the most public angst. Nobody wants another tower in their backyard. And as we said in our oral submissions, the Industry Canada rules require us before building another tower to exhaust every reasonable effort to co-locate on an existing tower.

1249   And so when we come to a community and, you know, in some cases there are other structures we can use, other rooftops, water towers, et cetera. But as you push more urban and more rural, the number of apartment buildings and large buildings become fewer and fewer and the more important it is to utilize towers. In many communities it's a problem -- you know, it's a problem to put up another tower.

1250   So we're almost held hostage to negotiating. If we can't find a third party supply and we need to be in a particular location then -- or near a particular location, we need to co-locate on a tower and that's when we're kind of held ransom.

1251   COMMISSIONER MENZIES: Is the Industry Canada guidelines on -- recent guidelines on towers --has that had an impact on towers and sites?

1252   MR. ANTECOL: It has improved the timelines for responses. I can say that over the years the cooperation has increased somewhat by some of the more reluctant incumbents when it comes to tower sharing. We had huge problems when we were initially trying to launch.

1253   So they are controlling the timelines. We still face problems where we get responses back saying there is no -- the only room on the tower is on the bottom, you know, the 20-foot mark near the bottom of the tower. And you go and you take a picture of the tower and you still see lots of vacant space on the tower. And they say, well, that's reserved for future use. You go back a year from now and it's still there and two years from now it'll still be there.

1254   So there's lots to be dealt with, but the Industry Canada guidelines don't deal with rates. That's where we think we're being taken advantage of.

1255   COMMISSIONER MENZIES: Speaking of rates, Bell, Rogers and TELUS have all commented on that. Bell is that each tower is unique, has its own topography, technical and structural issues, municipal regulations.

1256   Rogers says its implementing a cost-plus regime for tower sharing would make no practical sense at all. They say two of every tower is different. Costs are based on location, size, weight of equipment, engineering, et cetera.

1257   TELUS, fairly similar. A tower -- regulating tower and sharing rates would be potentially unworkable. It would not be possible to take into consideration, they said, facts specific involved in each situation required and equipment/space/line requirements.

1258   So what's your response to their positions on that?

1259   MR. LOCKIE: Yeah, the way I would respond to that is just to point out that the only recourse we have right now -- and it's precisely that kind of thing, those types of arguments and the experts and the complexities that they throw at these things. They make arbitration a very unsatisfactory resolution mechanism.

1260   And so I think that those are all factors that could be put before an expert tribunal who makes more sort of a practice out of understanding these things so that we can get to an answer quickly because it becomes about time and expense.

1261   COMMISSIONER MENZIES: Okay.

1262   Videotron and Eastlink have proposed that to establish rates for tower and site sharing based on the costing principals that are supplied to support structure services.

1263   If we were to decide to establish tariffs for tower and site sharing would you be able to get back -- you might not be able to do it now, but could you undertake to get back and tell us which wireless carriers would be required to establish tower and site sharing services tariffs?

1264   MR. ANTECOL: I think that all wireless carriers should have tariffs for tower sharing.

1265   COMMISSIONER MENZIES: Okay.

1266   The next question is what are your views on Videotron's and Eastlink's proposal that the costing principals that apply to support structure services would be an appropriate approach?

1267   MR. ANTECOL: We agree.

1268   COMMISSIONER MENZIES: Okay. And what are the main factors you think should be taken into account when establishing such rates such as type of towers, type of antennas, et cetera?

1269   MR. ANTECOL: Well, for one thing, today most wireless carriers already have standard rate cards where the rate is based on things like number of antennas and other equipment, how much space you need at the bottom of the tower, et cetera.

1270   So in terms of the elements that would go into the tariff I think that if you requested the rate cards from all of the carriers for each of the elements that they currently charge out when providing tower access that would give you a good start.

1271   And then what happens on these rate cards is that they have escalator factors depending on how valuable they determine that site to be. I'm not sure that's an appropriate part of the tariff.

1272   COMMISSIONER MENZIES: Okay. Thank you.

1273   As I'm sure you're aware, the SaskTel/MTS/TBayTEl submission, within that they suggested a separation of regulation essentially for those with less than 10 percent of national market share.

1274   What were your -- what's your view on that?

1275   MR. ANTECOL: Well, I'll let Simon answer with respect to roaming, but with respect to tower sharing, a tower is a tower is a tower. If there's a tower in a community with space on it, it doesn't matter whose tower it is.

1276   I think you want to help mediate a fair access price through a tariff structure. So I don't see any rationale at all for that 10 percent limit.

1277   COMMISSIONER MENZIES: For the roaming?

1278   MR. LOCKIE: Yeah.

1279   COMMISSIONER MENZIES: That was just tower sharing.

1280   MR. LOCKIE: Right. And so I'll just speak briefly to roaming.

1281   I don't see any particular relevance to a 10 percent national market share as a threshold that should be applied to something like that.

1282   That said, I think that you know from our perspective and, you know, Videotron in Quebec, Eastlink out east and so on, it is -- I am more comfortable thinking that I'll get to reasonable rates with regional providers who don't consider me a direct competitive threat and aren't using their position as a built out network in a region as a competitive tool against me. And that to me is more relevant than a more or less arbitrary national market share.

1283   COMMISSIONER MENZIES: So I don't know. That sort of hinted that there's only two or three providers that you think should be regulated on this and the other ones the market is working with?

1284   MR. LOCKIE: Well, I'm speaking purely from WIND's perspective. Obviously, I think everyone will make their own --

1285   COMMISSIONER MENZIES: I wouldn't expect you to do otherwise.

1286   MR. LOCKIE: Exactly. No, and from our perspective we need access to domestic roaming across the entire country. And I think that there are, in regions where we don't operate, you don't have those countervailing anticompetitive motives behind what gets offered.

1287   So from our perspective there are only two viable domestic roaming partners that are absolutely necessary and that's Bell, Rogers or, rather, Bell and TELUS and Rogers. But then, you know, the others are parties that I'm more comfortable we can get a negotiated outcome.

1288   COMMISSIONER MENZIES: Okay. I need some comments on competitive framework and I'm just picking some items here for the sake of comment.

1289   Page 26 of Bell's submission, paragraph 64 and Figure 14, they have data that argues reasonably strongly in favour of the existence of a competitive framework. They show that in terms of net additions; WIND, I think, 11 percent, is outperforming Rogers at 8 percent, close to Videotron at 13 percent. And considering scale in terms of that figure it definitely appears to be a competitor. Do you accept the veracity of that data?

1290   MR. LOCKIE: No, I think that there is, as we've seen, a lot of pent-up dissatisfaction with the incumbents in this country. And I think that people are looking for an alternative to them. That is something we have benefited from.

1291   COMMISSIONER MENZIES: Right, but is the data accurate?

1292   MR. LOCKIE: I don't dispute the data, no.

1293   COMMISSIONER MENZIES: Okay. But the data would indicate that you're competitive in terms of net additions that there is a competitive framework going there.

1294   MR. SCHESCHUCK: Yeah. I haven't looked at the data, but it's the normal data that we --

1295   COMMISSIONER MENZIES: Facts can be useful things, right?

1296   MR. SCHESCHUCK: Yeah. If it's the normal data that I think it is, I think we've done okay within the limits that we've been operating. I think that our addressable market is quite low and our share within that is reasonable.

1297   I think that when you look at net ads you've seen a lot of bleed out of the incumbents from the prepaid segment so they are lowest value customers, and we've been able to take some advantage of that. I think that, you know, when you really get into the data and start segmenting it by market, by addressable market and so on, I think we've done an okay job.

1298   We are not -- you know, long term I've indicated we are strongly financially viable but there is a lot of -- there is a lot of wood to chop, as they say, to get there.

1299   COMMISSIONER MENZIES: Okay. I'll give you another example, paragraph 81, page 33 of Bell's submission, and Rogers and TELUS have similar data on this. Just picked this one off the tree, I guess.

1300   They have data showing a blended churn rate prepaid and post-paid of around 20 percent per year. They argue that this indicates a strongly competitive environment.

1301   Why shouldn't we accept that argument because it is a good argument on the face of it? So I'm giving you the opportunity to show that it isn't.

1302   MR. LOCKIE: Yeah, I think my -- as I say, I'm not an economist. I'm really speaking from the perspective I see on our executive committee meetings and so on.

1303   There is an almost laughable identity of every plan you see from the incumbents are -- on a price basis, on a data basis -- almost identical. And so when people move around, I think that they are playing off each other and that they move around and they preserve that pricing.

1304   What we've seen with our presence in the market is that we do have a very strong value proposition and that's resonated with Canadians. So we have, I'm sure, contributed to that churn. But I don't dispute the numbers.

1305   The question I would -- just to amplify the point a little bit -- in terms of the long term viability of WIND, which is something that we're here obviously to try and establish -- and it's taken, as Brice alluded to earlier, the confluence of many different threats whether its availability of spectrum, whether it's finally putting a cap on these rates, and to have those things kind of come together in a way that nonetheless lost our initial investor well over a billion dollars, is we're just sort of coming out from under that right now. And it doesn't obviate the need for those types of protections. It just shows that they are working.

1306   COMMISSIONER MENZIES: Okay. I have one more for you on page 41, paragraph 100, Figure 22.

1307   Bell argues or they present data regarding the volume of advertising involving mobile competitors. Is that data not a solid indicator of rivalries behaviour?

1308   MR. LOCKIE: I don't think that -- when I think about the incumbents, I don't doubt that they spend a lot of money on content with some of them. I don't doubt that they spend a lot of money on marketing and I don't doubt that so long as it doesn't disrupt their pricing, then they kind of go at each other.

1309   But where there is an identity of interest is there clearly is and was at the wholesale level when it comes to a value proposition like WIND, then they move in locked step.

1310   COMMISSIONER MENZIES: Right, but this -- I have the chart here in front of me and it shows -- I'll take this one, Figure 25, number of unique wireless print ads by region. I'll just give you the totals.

1311   So Bell had 110, Eastlink 16, Fido 110, Mobilicity 21, MTS Allstream 57, Rogers Chatter 322, Videotron 80. I don't have them all here but then Yak/WIND 11, right? So there is a lot of fight going beyond -- you're fighting too but there's a lot of fight going on between those competitors or so this indicates, right.

1312   Now, I mean, the question before us isn't necessarily whether there is competition between them. It's to a certain extent whether that competition is sufficient to serve the public interest in that sense.

1313   But don't you have to concede that this is an indicator that these -- that these three are behaving in a rivalrous fashion between each other and competing for consumers?

1314   MR. SCHESCHUCK: I'm not great on what rivalrous even means. I'm a dumb finance guy.

1315   COMMISSIONER MENZIES: It means fighting.

1316   MR. SCHESCHUCK: Yeah. What I'll say is high value customers in this country churn at some of the lowest rates in the world and typically will churn between the big three on, you know, 1 percent a month like you were alluding to or, you know, 15 and 16 percent a year of a type cycles.

1317   MR. LOCKIE: Well, and I would -- I just want to emphasize, and I maybe didn't do a great job articulating it before, you know, banging garbage can lids together and buying ad space and comparing your networks and so on, that's all well and good and it could well be identified as rivalrous behaviour. When you look at their pricing they are virtually indistinguishable. I think if they really were rivalrous what they would do is compete on price. That's something you don't see.

1318   MR. SCHESCHUCK: In our investor meetings, if I may -- sorry, Commissioner Menzies.

1319   COMMISSIONER MENZIES: I was just going to ask about the flanker brands, but go ahead.

1320   MR. SCHESCHUCK: Yeah, just another data point again.

1321   What we talk to is kind of the following. We say, if you look at the incumbents they have a very, very strong media weight in market. No argument to the exact point you are making. They have stunning amounts of points of distribution.

1322   You know, they are in the big multi-brand distribution. They have lots of their own brand distribution. They have flankers and so on. They buy the sources. They buy Black's. They make a lot of moves to lock up distribution.

1323   But where they don't move competitively is on price, so back to Simon's point. And that is generally the investment thesis that we are discussing with people in due diligence continuously.

1324   COMMISSIONER MENZIES: Thank you.

1325   Since the last time these matters were reviewed roaming rates, as indicated, for one reason or another have gone down and the wireless code has been introduced. No more three year contracts for instance which, I would think, would introduce extra opportunity for churn into the marketplace.

1326   So what has really changed in the marketplace other than that that would cause us to come to a different conclusion -- different conclusions than have previously been drawn? Or were the previous conclusions just wrong?

1327   MR. LOCKIE: I think they were.

1328   COMMISSIONER MENZIES: Okay. And primarily because...?

1329   MR. LOCKIE: I think that there is a lot of -- I think it's -- and you've seen it and you're going to see a lot of it over the course of this next week where you'll get -- no doubt one of my counterparts is going to hold up their iPhone pricing and compare it to AT&T's. There is a lot of comparisons drawn to the U.S. market which, to my mind, is one of the least competitive markets in the world as well.

1330   So there's been, and it was part of the conversation from earlier today, quite a bit of conversation at the level of competition at the retail level. And as we've spoken to, where you don't see that competition is in pricing. We think that that's important.

1331   At the wholesale level for us to compete effectively at the retail level we're asking for -- and unless I mis-remember, I don't think that you came to any conclusion on the wholesale services market specifically. You talk more about the retail market. And to me there's no question when you only have two providers who are strongly disincented to enable you to compete with them at the retail level, do you have a wholesale market that is competitive.

1332   COMMISSIONER MENZIES: Thank you. Those are my questions.

1333   THE CHAIRPERSON: Legal counsel?

1334   MS HULLEY: I have no questions. Thank you, Chair.

1335   THE CHAIRPERSON: You're clear. Thank you very much. Thank you, gentlemen.

1336   Madam la Sécretaire...?

1337   THE SECRETARY: Thank you, Mr. Chairman.

1338   I will now invite Mobilicity to please take place at the table.

--- Pause

1339   THE SECRETARY: Gentlemen, take your time. When you're ready you may introduce yourselves for the record and you have 20 minutes.

PRÉSENTATION

1340   MR. BOOTH: Great, thank you.

1341   Mr. Secretary, Mr. Chairman, Commissioners, my name is Anthony Booth, president of Mobilicity. With me here today is, Gary Wong, Director of Legal Affairs.

1342   Thank you for providing us with an opportunity to share with you our views in relation to wholesale wireless services.

1343   Wholesale roaming and tower sharing has always been recognized as two essential services in order for new entrants to compete. Of all the wholesale services, roaming and tower sharing were the two services selected by Industry Canada to be "bundled" with the AWS auction back in 2008; in our opinion rightly so.

1344   Wholesale roaming directly affects the costs and the ability for new entrants to market their services on a national level. Tower sharing on the other hand affects costs and the quality of wireless services.

1345   When Mobilicity was about to begin its negotiation of its domestic wholesale roaming agreement, it knew it was up for a challenge. Negotiations with large incumbents with decades of experiences when you are merely a start-up company that had not even established one subscriber had never been easy.

1346   In addition, Mobilicity was within tight timelines to launch its services and whereas the incumbent carrier had no such time constraints. In other words, Mobilicity was vulnerable to delay tactics that could potentially impede fair negotiations.

1347   Significant inequity in bargaining power and imbalance in time constraints are not the only factors that made fair negotiation of a wholesale roaming arrangement difficult. There were two unique factors that made negotiating fair terms almost unfeasible.

1348   Firstly, the maturity of the AWS spectrum and technical constraints with respect to the handset ecosystem meant that there was only one national carrier whom Mobilicity could enter into a roaming arrangement with in Canada. This created a monopoly within the wholesale domestic roaming market. The monopoly carrier was thus able to dictate much of the rates and terms of the agreement.

1349   The second issue that made fair negotiation unfeasible related to the vertical integration of the incumbent carrier. As a carrier that generates most of its revenue through the retail channel, it is reasonable to expect that the incumbent carrier would not be focused on generating wholesale revenue when doing so may be at the expense of its existing retail market share and sales.

1350   Indeed, as previously submitted by the Competition Bureau, the incumbent carrier may even be motivated to use wholesale roaming as a tool to stifle upstream retail competition.

1351   The combined issues of, one, the imbalance in bargaining power; two, the venerability to delay tactics; three, the monopoly; and, four, the motivation meant that roaming rates and terms could be dictated to Mobilicity by the incumbent carrier. We submit that the roaming agreement filed confidentially with the Commission is clear evidence of high rates, unjust terms and lack of quality assurance derived from such negotiation.

1352   After several years and millions of dollars of excessive roaming charges paid, changes in the Telecommunications Act came into effect on June 19th, 2014. The new roaming caps translated to "significant" decreases in wholesale roaming rates for Mobilicity in relation to domestic voice, text and data, in some cases a savings up to 95 per cent.

1353   Unfortunately, due to confidentiality obligations, Mobilicity is not at liberty to disclose publicly in this hearing how significant the reductions are exactly; however, if the rules were in effect since inception, the company would have saved millions and millions and millions of dollars and been in a much healthier position than we are today.

1354   Within weeks of receiving confirmation of the new rates this year, Mobilicity was able to pass on the savings directly to Canadian consumers by offering them low-cost new domestic roaming packages.

1355   Such packages included 100 megabytes of data for $5 a month, the equivalent of 5 cents per megabyte.

1356   Mobilicity, of course, would be selling at a material loss if it were to offer these packages at the old wholesale roaming rates. Consumers' wallets were able to benefit directly from the change in the legislation.

1357   However, it is important to note, at least in Mobilicity's own experiences, the domestic wholesale roaming rates had always matched what was minimally required by law. Whether it was a soft cap within the definition of "reasonableness" before the legislation or a hard cap mandated by the amended Telecommunications Act, the roaming rates were always the same as what is minimally required by law.

1358   If carriers are fiercely competing with each other in wholesale roaming, competition should be driving prices down. Wholesale roaming rates had been high for close to five years, and the recent drop in rates only happened when it became illegal to charge such high rates.

1359   Mobilicity submits that, when the minimum level of obligations as mandated by law is achieved, it should not be farfetched to conclude the legislature is the only driving force behind reducing the cost of domestic wholesale roaming.

1360   Carriers are simply not motivated to compete on the wholesale level when they have upstream markets to protect. Imagine this. You are the owner of a successful NFL team that had consistently made the playoffs. One day, in the name of promoting competition, the NFL decided to mandate that you share your training equipment and you field with a new expansion team; however, the NFL leaves it to you to negotiate the details and terms of the agreement with the expansion team.

1361   If you're the owner of this NFL team, would you not charge the expansion team as much as you could for using your training equipment and your field? Would you not charge them an arm and a leg if you're able to? In fact if you have two sets equipment that you can legitimately share with the expansion team, would you pick the newer, better set or the set that's old and of a lesser quality?

1362   With the Canadian mobile wireless services market as vertically integrated as it is, it should be foreseeable that carriers would not be motivated to compete in the wholesale market, especially if doing so would be at the risk of expensing their established retail market.

1363   The incumbents are often pictured as the bad guys; however, honestly speaking, what would you do if you were mandated to share your network with a direct competitor? Would you not charge the highest rate you legally can? If you could degrade the quality of your roaming service without being detected, would you not be motivated to do so?

1364   It is this simple motivational reason that we find rates always at the minimum standard of what's allowed by law, regardless of whether it's a hard cap set by law or a rate that fits within the soft legal definition of "reasonableness." The motivation to protect the upstream market will always exist so long as carriers are vertically integrated. It should therefore not come as any surprise if the results achieved are only the minimum level of obligations mandated by law.

1365   Mobilicity respectfully submits that, if it is in the public interest to not have wholesale roaming quality degraded, then we suggest the Commission should consider mandating that. If it is in the public interest to have a "lower than retail" capped roaming rate, then we suggest the Commission dictate what that rate should be.

1366   If it's in the public interest to eliminate certain anti-competitive terms or if there are terms that the Commissions would like to see in wholesale services agreements, we would suggest the Commission dictate those too.

1367   Due to either the motivation to stifle real competition or just the lack of motivation to compete in the wholesale market, past experience showed that only the minimum level of obligation as mandated by law be achieved in a wholesale mobile wireless environment.

1368   Pursuant to section 27.1 of the Telecommunications Act, the new roaming rate is essentially the formula: total revenue divided by total usage for the incumbent. For example, for data, the new roaming cap is how much retail revenue is generated by the carrier from wireless data services provided divided by the aggregate total number of megabytes used by its subscribers. To put it another way, the new cap for data is equal to the retail revenue for the carrier on a per-megabyte basis. We would like to place emphasis on the word "retail."

1369   One of the intentions of this proceeding is to determine whether the wholesale mobile wireless service market is sufficiently competitive. There had been numerous debates as to whether the wholesale mobile wireless services market is or is not competitive. For Mobilicity, the answer is simple: How can a wholesale market be said to be competitive when everyone is being charged the retail rate? Indeed, how can carriers like us effectively compete at a retail level when their costs are already equivalent to their competitors' retail revenue?

1370   Mobilicity respectfully submits that, if based on evidence available to the Commission retail roaming rates are being charged in the wholesale roaming agreements, then it should be strong evidence to support the conclusion that wholesale mobile wireless rates are non-competitive.

1371   By way of example, wholesale rates should more closely resemble the undisclosed rates between Bell and TELUS. After all, with Bell and TELUS sharing a network with undisclosed roaming rates, how can new entrants ever have a level playing field?

1372   Moreover, because formulas for the new legislated rates are tied directly to retail revenues, they are prone to change from time to time. These changes may prove to become riskier for carriers who pass on most of the savings to consumers. The risks are especially higher because retail rates can be controlled by retail competitors through price and usage adjustments.

1373   New entrants will always be required to estimate a buffer between the wholesale roaming rate and that offered to their retail rates they charge their consumers. The fact that carriers will always need to charge consumers something more than the legislated caps may potentially present two issues.

1374   One, because the legislated caps represent the retail revenues of carriers on a per-usage basis, it follows that recipients of the caps will never be able to effectively compete with these carriers. After all, how can we compete when the lowest rates we're able to charge is already the retail revenue of our competitors?

1375   Two, if we decided to pass on most of the savings to the consumer by implementing plans that charge near the same rate as the cap, but the cap later increases, we'll be placed at risk to either increase the retail price of our plans or to continue to sell at a loss on a per-unit basis. Furthermore, what increases the risks are the fact that the caps may be manipulated by the incumbent carriers as they have the freedom to set their own retail prices and usage caps.

1376   For the reasons presented above, we therefore respectfully request the Commission consider further reducing the caps on the wholesale domestic roaming rates. With all aspects considered, an optimal roaming structure for Mobilicity would have wholesale rates as follows: 5 cents per minute for voice, one-half of 1 cent for text -- outgoing only, incoming text should be free -- and 1 cent per megabyte for data.

1377   By enforcing the above rates, Mobilicity would be immediately placed in a much sounder position to compete with national carriers that have decades of experiences and overwhelming advantages in relation to market share and infrastructure. The lower rates would allow consumers to roam within Canada without having to incur substantial cost. In particular, the proposed data rate could perhaps mean that customers would finally leave their data roaming function on when travelling within Canada on their advanced smartphones.

1378   I'll now turn it over to my colleague, Mr. Wong, to talk about tower and site sharing.

1379   MR. WONG: Tower and site sharing.

1380   Similar issues exist in relation to tower and site sharing. Retail competitors are likely to be motivated to: one, take as long as it is legally possible to respond to tower sharing requests; two, refuse requests by claiming for "imminent future use;" or, three, charge higher rates and assert anti-competitive terms if they are forced to share at the end.

1381   We will use the following fictional example to illustrate. A team of engineers had just spent months analyzing a city, physically driving around the city, planning and plotting where every optimal site should be, and, where possible, visually examining each proposed site.

1382   For illustration purposes, let us assume that only one of these proposed sites requires sharing. The team of engineers thus submits a request to share to the retail competitor; however, despite numerous emails back and forth, each taking weeks, if not months, the engineers were still unable to determine whether or not they would be allowed to place their equipment onto the tower, yet alone when and at what cost.

1383   With launch deadlines fast approaching, the engineers are faced with the difficult decision to either, one, continue to wait, or, two, compromise and build two sites around the tower instead. If the engineers did not wait, then they would be hit immediately with significantly higher costs. In addition, because the site is no longer at its optimal location, there may be degradations in regards to the quality of the network and services around the area, which directly affects the consumers of the new carrier.

1384   Let us assume for our example that the engineers have waited for a response. When a formal response finally arrives, the engineers may discover that the retail competitors are claiming the available space on the tower as "imminent future use." Indeed, retail competitors acting in bad faith could fraudulently claim "imminent future use" in order to prevent requesting carriers from accessing their towers. Even for competitors that are generally acting in good faith, these competitors could nevertheless be motivated to claim "imminent future use" even when there is only a very remote chance that the space may be needed in the future.

1385   At the time when Mobilicity built the core of their network, there appeared to be no apparent downside if the claims for "imminent future use" are proven to be incorrect. First, these engineers would not discover whether or not claims for "imminent future uses" were incorrect until after 18 months. Even after waiting a year and a half, there appears to be no punitive recourse if the claims for "imminent future uses" are later discovered to have been made incorrectly.

1386   For our example, let us assume that the retail competitors did not claim "imminent future use" and had agreed to share the tower. After a fast celebration of a rare win, these engineers must then negotiate terms of the sharing agreement with their retail competitors. Similar to roaming, these engineers must try to negotiate reasonable rates and terms with a party that, one, lacks motivation to offer fair terms; two, are motivated to use negotiated rates and terms to stifle upstream retail competition; and, three, have far superior bargaining power and are happy to see you walk away from the table.

1387   We hope the above example sufficiently illustrates why regulatory interventions are required by the Commission in relation to mandated tower and site sharing. We agree with the Competition Bureau's submission.

1388   Vertical integration is a barrier to a healthy wireless system and strong infrastructure in rural Canada. To break this barrier, incumbents should not be able to own their own towers and towers should be controlled by an arm's-length third party, who will deal with all wireless carriers at arm's length and speculate on growth areas with potentially multiple clients instead of the sole tenant/sole tower ownership system we have to date.

1389   MR. BOOTH: Great. Thanks, Gary.

1390   So in conclusion, we applaud the Commission's initiative for examining the practice of wholesale wireless services, though we would have loved to be sitting here five years ago.

1391   Despite the initial mandate from Industry Canada, and the subsequent revisions, there continue to remain many undefined areas in relation to wholesale roaming and tower sharing. The vertical integration of carriers often translates to motivations for these carriers to charge rates and offer terms that are minimally obligated by law, one evidence of which may be readily available to the Commission as the Telecommunications Act was amended in June of this year.

1392   Despite significant reductions in wholesale roaming rates as a result of the amendment to the Telecommunications Act, one should not be content with achieving retail rates under a wholesale arrangement. Not having lower tariffed rates will risk continual changes and manipulation going forward.

1393   Evidence of similar trends may be found in relation to tower sharing when Mobilicity first built the core of its network. Whether it's lack of motivation to negotiate and fair terms or a motivation to use the wholesale service as a mean to stifle retail competition, mandated obligations but negotiated terms will often only result in achieving the minimum level of obligations as mandated by law.

1394   If the Commission agrees that retail rates should not be charged in wholesale agreements, Mobilicity urges the Commission to consider further reducing the cap in relation to wholesale roaming, as I stated earlier, to 5 cents per minute for voice, one-half of one cent per minute for outgoing text only, incoming text should be free, and 1 cent per megabyte for data.

1395   Thank you very much.

1396   THE CHAIRPERSON: Okay. Thank you very much, gentlemen.

1397   It's generally awkward to stop at this point, but we will. So we'll take a short break for about 10 minutes, and we'll be back at 3:40 to ask you some questions. Thank you.

1398   So adjourned till 3:40. Thanks.

--- Suspension à 1527

--- Reprise à 1540

1399   THE CHAIRPERSON: À l'ordre s'il vous plaît.

1400   So I pass the floor now to Mr. Vice-Chairman of Telecom, Mr. Menzies.

1401   COMMISSIONER MENZIES: Thank you.

1402   Just to start with, I'm a little confused by your analogy regarding minimum levels required by law that went through your oral presentation in terms of that. I'm trying to figure out so that I don't misinterpret the exactly the point you were trying to make. Because it's a little bit -- it could be critiqued as saying the problem that's going on here is that the speed limit is 50 kilometres an hour and everybody's driving it, right, nobody's driving 48, right, or 47. You know, as long as you're within the law, you're within the law, right?

1403   So what would be your expectations in a marketplace where people are fighting for market share and market dominance, if that's the case, or market entry, if that's the case? Why would they -- to adopt your analogy, I mean why would the NFL team give their best equipment to the other guy if they wanted to win?

1404   MR. BOOTH: Well, I think -- you know, respectfully, I think we would say they wouldn't. And they haven't. However, when it becomes clear that, you know, potentially, the setup -- initially, it was not a level playing field or would not allow the new start-ups to effectively compete, there, you know, could have been post-intervention at that time.

1405   All we say is: Did everyone play by the rules? Absolutely. Were the rules ever to create a level playing field so the new start-ups could effectively compete? We don't believe so.

1406   COMMISSIONER MENZIES: Okay, thank you for clarifying that.

1407   Just to clarify another couple of points, first of all, how do you define the product market?

1408   MR. WONG: Wholesale wireless.

1409   COMMISSIONER MENZIES: Sorry?

1410   MR. WONG: Wholesale wireless.

1411   COMMISSIONER MENZIES: Okay, thank you.

1412   And the geographic or demographic markets -- urban/rural, national/provincial/regional?

1413   MR. BOOTH: We would have a similar definition to what the previous presenters in WIND would say. We have our home zones, and then we would use roaming in our away zones. So we would, you know, more or less when we talk about our own business, just talk about our five zones, but then it would be regional in total, yes.

1414   COMMISSIONER MENZIES: So you're suggesting we would look at the market regionally when we do an analysis of market power?

1415   MR. WONG: And nationally. Nationally, because it's --

1416   COMMISSIONER MENZIES: You can do both.

1417   MR. WONG: -- it's essential for us to enter into at least one national wholesale -- in terms of roaming, at least one national wholesale roaming agreements.

1418   COMMISSIONER MENZIES: Okay, thank you.

1419   Just to continue on that, should some of these regional markets be viewed separately, however, in terms of potential regulatory framework -- SaskTel, MTS, Tbaytel, for instance, in their submission suggested that there should be a division or exclusion, however you wish to interpret it -- they can elaborate on it later -- for entities with less than 10 per cent of national market share.

1420   Should Quebec, with four competitors arguably already, be viewed separately as a market or not?

1421   MR. WONG: Sorry, just one moment.

--- Pause

1422   MR. WONG: We don't think they should -- we don't think they should be viewed differently. We think roaming is roaming. From our standpoint, it certainly helps wholesale competition if there are more players in the market. By restricting the number of players in the market in relation to wholesale roaming, it just lessens the amount of wholesale roaming competition.

1423   COMMISSIONER MENZIES: Okay.

1424   In paragraph 43 of the submission you've just made, you suggest 5 cents a minute for voice, $0.005 for text, incoming text free, and 1 cent per megabyte for data.

1425   MR. BOOTH: M'hmm.

1426   COMMISSIONER MENZIES: Where did you get those numbers?

1427   MR. BOOTH: So, you know, part of it is looking at our business model and what we would need in order to actually offer services to our consumer outside of our home zones that maybe make it seamless for the consumer, and allow them to sort of use the service like they use it in our current service area.

1428   So what we are looking at is to say: Okay, if we were to have consumers that saw something seamless, and would see us as a national carrier, what type of roaming costs would we need to get to come close to that?

1429   The other part is, you know, some of these similar rates that we -- you know, you would see in countries outside of Canada, for instance us or -- you know, we'd get free incoming text messages, right? We have roaming partners where we don't pay for incoming text messages. We pay for them in Canada, but we don't pay for them in other parts of the world.

1430   COMMISSIONER MENZIES: Okay. So it sounds like it's very Mobilicity-specific.

1431   MR. BOOTH: It is worded such that, if we had a wholesale roaming agreement such as this, we believe we would have a viable business on our hands going forward, yes.

1432   COMMISSIONER MENZIES: Would you be willing to submit to us the data you use to come to those numbers?

1433   MR. BOOTH: Yes.

1434   MR. WONG: Yes. Yes, we'll undertake to do that.

1435   COMMISSIONER MOLNAR: By next Monday?

1436   MR. BOOTH: Yes.

1437   MR. WONG: Yes.

Engagement

1438   COMMISSIONER MENZIES: I'm curious, too, about your suggestion here that:

"...towers should be controlled by arms length third parties who will deal with all wireless carriers at arms length and speculate on growth areas with potentially multiple clients..."

1439   What does that mean? You want to turn the towers into a public entity of some kind? People spend a lot of money building them.

1440   MR. WONG: I agree. I agree.

1441   I think what the suggestion is trying to do is trying eliminate the vertical integration in relation to tower sharing so that you will actually be -- so that towers are built by third parties because they think this -- you know, there is a need for this tower at this particular location.

1442   COMMISSIONER MENZIES: Be third private parties? Yeah.

1443   MR. WONG: Third private parties, yes.

1444   COMMISSIONER MENZIES: Affiliated with anybody --

1445   MR. WONG: Correct.

1446   COMMISSIONER MENZIES: -- currently operating voice and data mobile services?

1447   MR. WONG: That's the dream. That's the dream, yes.

1448   COMMISSIONER MENZIES: Any idea where that comes from?

1449   MR. WONG: No.

1450   COMMISSIONER MENZIES: No? So it would be a private -- so it's just a -- breaking up that aspect of corporate behaviour. So why would anybody build them?

1451   MR. BOOTH: So, for instance, today, when we put -- a good example today is when we put antennas on private company rooftops like apartment buildings. They go up very quickly. They go up without a lot of opposition. There is -- all the incumbents might be up there. Other new entrants might be up there. And we are able to proceed with those antennas quite quickly.

1452   We don't have the same success when we're looking at sharing a tower with someone else who already owns it, so you know, we're looking at the two paths to getting our service in place.

1453   One is very easy, and one is very difficult. And the one that's very easy and still meets economic needs and is a private company operating it and it generates revenue and it helps consumers is the one where there's some level of private consortium looking after it.

1454   Now, that happens to be someone renting out the rooftop of an apartment building, but it meets our needs, it meets their needs and it happens very quickly.

1455   That doesn't happen when it comes to sharing a tower with somebody else.

1456   COMMISSIONER MENZIES: So can you provide us with information showing the difference in the rates that you would pay for somebody's rooftop, for instance, as opposed to the rates charged by national wireless carriers?

1457   MR. WONG: Yes, we can undertake to provide that, confidentially.

1458   COMMISSIONER MENZIES: Next Monday as well?

1459   MR. WONG: Yes.

Engagement

1460   COMMISSIONER MENZIES: Thank you.

1461   Let's go back to the question there. Where would be the incentive for new builds in terms of towers?

1462   MR. BOOTH: Where would be the incentive for someone to build a new tower?

1463   COMMISSIONER MENZIES: Yeah. I mean, there's a lot has been built already, obviously, but there's still areas of the country that are under-served. There's still areas where service isn't available and that sort of stuff, so those are obviously not the areas that give the fastest return on investment.

1464   So under your scenario where the third party building them, what would be their motivation for building towers that have, oh, let's say, halfway between Fort Providence and Yellowknife on the highway there where one car goes by every three or four hours?

1465   MR. BOOTH: You would assume, though, like -- given it's a free market, you would assume somebody would figure out how to build a tower, what the appropriate rent would be to make a return on that investment, who would want to be on it, and figure out a way to make it economically viable.

1466   COMMISSIONER MENZIES: You'd kind of think that they would have done that already if it was -- if it had a good return on it, wouldn't you?

1467   MR. BOOTH: You could use the same argument, though, for why would somebody build a coffee shop halfway up some street somewhere that no one drives up because there's enough people over time that are going to buy coffee there to support renting out that coffee shop and building it and leasing it out.

1468   COMMISSIONER MENZIES: You could, but you would also argue that this is a telecommunication service and it is somewhat more vital than the cup of coffee that you might be able to drive a little further for if you needed to make a call.

1469   I mean, that's what people in rural and remote areas would argue, that there's no reason why they should -- some of them would anyway. There's no reason why they shouldn't have access to the same services as people have in urban areas.

1470   And I'm just trying to figure out what would incent that under the structures that you --

1471   MR. WONG: Of course -- of course, everything here is just speculative because we don't have -- you know, we don't have that reality.

1472   But you know, one of the -- if the big three or the incumbents are no longer able to build their own towers in rural areas, then I'm sure there will be someone, a third party, who's willing to build towers in rural areas and rent it out to the big three and also to new entrants.

1473   COMMISSIONER MENZIES: Why are you sure?

1474   MR. WONG: Because -- well, sorry. Let me rephrase my "I am sure".

1475   Okay. Going back to my premise, because everything is speculative, it would make more sense -- right now, it would definitely not make sense for a third party to go to an area where there is already a tower built by the big three because it just does not make sense. The big three has already built one.

1476   But if there are no towers at the particular location and the big three are not allowed to build their own towers there, then there will be incentive for a third party to step in and build a tower so that they can rent it out or lease it out to -- at arm's length to the big three or to entrants.

1477   COMMISSIONER MENZIES: Okay. Just to be clear, are you asking us to do something here or are just kind of blue skying?

1478   MR. WONG: It is a suggestion. It is a suggestion and a request.

1479   COMMISSIONER MENZIES: What's the impact of Industry Canada's new requirement on the tower and site sharing market, in your view?

1480   MR. WONG: When we built our core network, I think the example illustrates some of the frustrations or some of the -- some of the problems we ran into when we were negotiating or trying to negotiate tower sharing arrangements.

1481   One of the biggest problems at the time was the claim for imminent future use, even though -- you know, even though when you go back after a year or a year and a half or two years, you still see the space being available, but it was claimed imminent future use. That was one of the biggest problems.

1482   So one of the biggest problems was the fact that we cannot -- we cannot be on the tower.

1483   COMMISSIONER MENZIES: Thanks.

1484   I just need to clarify something. In your May 15th intervention, you didn't any relief, but in your February 10th in the unjust discrimination/undue preference proceeding, you requested four remedies. One was a tariff wholesale roaming rate that considers -- or 3, I guess.

1485   A tariff wholesale roaming rate that considers the following. Wholesale roaming rates domestically and in other national and international markets, and tariffs set by other foreign regulatory authorities such as the EU, and limiting termination to the following circumstances, and only after reasonable notice and non-compliance despite notice. Non-payment of non-disputed fees owing under the agreement. Two, failure to comply with a reasonable material provision of the agreement and, as a result, licensee's services or network experienced significant interference or harm, or three, as may be permitted by the regulatory authorities.

1486   Do you still require that relief and, if not, why?

1487   MR. WONG: So first of all in relation to rates, I think we've gone a long way in relation to rates with the amendment of the Telecommunication Act. However, we believe that because the rates are still a retail rate, it's still not enough, so we do request that the rates be lower.

1488   And if there are -- if we can only take away one thing, that would be the thing that we would like.

1489   But having said that, you know, we have, in the past and had always identified issues in relation to the roaming agreements. And again, I acknowledge the fact that exclusivity was -- is no longer an issue, but there could be other terms that were thought of back then or could be thought of in the future that could pose a problem.

1490   And lastly, in relation to -- in relation to roaming quality as well.

1491   COMMISSIONER MENZIES: Okay. In terms of the issue of us implementing or performing arbitration, media rules as an alternative remedy to setting rates and tariffs has come.

1492   Do you have a view on that, and do you have suggestions as to what we might create because the Industry Canada process was not heavily used?

1493   MR. WONG: Yeah. Well, let me answer this question going back in time.

1494   One of the reasons why we did not choose to arbitrate, I think Wind has already, you know, addressed many of those reasons. And those reasons resonates with us as well.

1495   Time constraints, the fact that we don't have enough information. A lot of the information are confidential information. We are one player, whereas the other side of the table offers -- offered roaming to many other parties of which they've, you know, already dictated rates or might have even signed agreements.

1496   So these are all the problems that we see with respect to arbitration.

1497   It's a much cleaner and simple position to simply tariff and regulate the rates, in my opinion.

1498   COMMISSIONER MENZIES: Thank you.

1499   To what extent do you think the issue might be -- in terms of difficulty for some new entrants, might be mostly related to the fact to being a pure play competitor as opposed to a multi-platform competitor?

1500   If you would view the overall -- look at the overall telecommunications market, most people are -- either have or are seeking to acquire multiple offerings for consumers in terms of that.

1501   Is it realistic to expect a single platform operator to be able to compete when there's obviously a lot of desire within the marketplace for bundling?

1502   MR. BOOTH: Yeah. Similar to Wind's point of view, we think there's lots of room in the market for pure play wireless.

1503   We got into this business knowing we were only going to be a pure play wireless company. We still think that model could be successful. We don't see massive consumer advantages to bundling services up and, you know, offering consumers multiple services.

1504   If you are like us and you offer the consumer a great value and a great service, then you could have a great business.

1505   So no, we don't see it as a massive disadvantage at all.

1506   COMMISSIONER MENZIES: Okay. I want to talk about the establishment or determination on the issue of market power and competition. And I'll just read you a quote from Rogers this time. I'll ask another -- a couple of other questions.

1507   Paragraph 26 of Rogers' 15th May intervention, they stated:

"The questions identified in 2014-76 imply a focus on assessment of competition and wholesale markets for purposes of determining the requirement for regulation of wholesale markets. However, the first question that must be asked and answered in any assessment of the requirement for regulatory intervention in wholesale markets is whether the downstream retail market is competitive. Competition in wholesale markets is not a measure of the competitiveness of retail markets, nor is it a necessary condition for competitive retail markets. In fact, there are numerous examples of highly competitive retail markets for which there is no upstream wholesale market at all, let alone a competitive upstream wholesale market."

1508   Bell and Telus have made similar arguments, so how do you suggest -- how should the state of competition in the retail market be applied to our assessment of whether the wholesale market should be regulated?

1509   MR. BOOTH: We believe that the retail market is competitive, we think it's very competitive. If you look at parts of the Ontario market you might have 12 to 15 brands in there. So we believe that market is competitive. However, it could be more competitive and we could have done a much better job if we had other more viable, more attractive wholesale options.

1510   So unfortunately for us, we become less competitive in the marketplace because our consumers get a very good experience at a great cost when they are using the Mobilicity service, however sometimes when they are using our roaming partner as part of our service they get less quality at a much higher cost.

1511   Out consumers don't necessarily understand or see they are using Mobilicity, then they are using our roaming partners, they just see it as Mobilicity.

1512   So unfortunately their view of the company and the services and the value gets degraded by their experience when they are roaming, right. So it would be very similar to Tim Horton's offering substandard doughnuts. It you're Tim Horton's you can say, "Well, that's our doughnut supplier, that's not really us", but the consumer just views it as you.

1513   So we could have done a better job if we believed we had more wholesale competition to choose from.

1514   COMMISSIONER MENZIES: So is the Canadian wireless industry competitive?

1515   MR. BOOTH: We believe at the retail level it is competitive; we believe at the wholesale level it is not.

1516   COMMISSIONER MENZIES: Thank you.

--- Pause

1517   COMMISSIONER MENZIES: Back to the site sharing. TELUS, Rogers and Bell have all made the case that the tower and sit sharing is far too complex to regulate in terms of those sorts of things, notwithstanding your position that it should be a third party. Should we not take your advice on that and get into an examination of tower and site sharing in terms of that, what's your response to their claim that it's too complex to be able to deal with?

1518   MR. WONG: I think the complexity that's being claimed goes along the line in relation to the motivation factor that we have always been trying to emphasize. It's only if one has a will to do something, one can do something and complexity is -- if one is motivated to do something one will do something and whether or not it's complex or not becomes a secondary question and of course it is always going to be their story versus our story.

1519   We will obviously hold the position that it is not complex and they will obviously continue to throw facts to say it is.

1520   COMMISSIONER MENZIES: Okay, thanks.

1521   You have limited your comments for the most part in such a way as that you haven't addressed the MVNO issue. You don't have to, but if you would like to this is your chance.

1522   MR. BOOTH: Sure, yes.

1523   I would say our only point of view on it would be two. One is, it's an interesting idea but the ship, in our view, has sailed. That might have been a discussion for 2007, but we don't really see the value of that discussion now after companies like us have invested hundreds of millions of dollars in spectrum, built sites, launched a national service, created thousands of jobs, then allowing companies to come in out of nowhere with basically no investment -- despite what Cogeco said -- very little to no investment and have a brand spout up on a national level overnight. So we don't really see the value of that in a market which we just said, we believe the retail market is competitive.

1524   So if there are 15 brands in Toronto today, would a 16th brand really solve all the problems in the wireless industry? Probably not.

1525   The other thing is, it's massive deterrent to investment. We believe the model today is right, auction off spectrum, put the money in the government coffers, create jobs, build the infrastructure and see if you can make a go of it.

1526   So we don't really see a role for an MVNO. It could make the retail market marginally more competitive, but we have already said that the retail market is competitive enough.

1527   COMMISSIONER MENZIES: So you are not opposed to them, but you are not -- you're just agnostic on the file?

1528   MR. BOOTH: I will say we are not in favour of them, how's that?

1529   COMMISSIONER MENZIES: Okay. Thank you. That clears it up.

1530   Thank you. Those are my questions.

1531   THE CHAIRPERSON: Commissioner Molnar, please.

1532   COMMISSIONER MOLNAR: Thank you.

1533   I just want to make sure I heard or understood what you have said when you were asked what is the relevant market for roaming. You said the market was national; is that right?

1534   MR. WONG: Yes.

1535   COMMISSIONER MOLNAR: And then you went on to say regional players should not be excluded, but how does a regional player provide a national service?

1536   MR. WONG: So I think it's a little bit of a two-part question.

1537   So it is essential for a carrier like Mobilicity to have at least one national agreement, but because our past experience tells us that this national agreement is probably not going to be the best host agreement that we will ever negotiate and if negotiating with a regional carrier will yield us with a little bit of a better agreement, we always want to keep that option open as well such that we can get the regional carrier to the table to negotiate or to have an agreement.

1538   Just by increasing the number of players it increases the competition.

1539   COMMISSIONER MOLNAR: Right. But you understand our direction is that regulation should be as minimal as necessary.

1540   MR. WONG: I do agree, which is why with only two networks nationally I feel that it is necessary to step in in relation to wholesale roaming.

1541   COMMISSIONER MOLNAR: At the national level where it provides you national --

1542   MR. WONG: At the national level.

1543   COMMISSIONER MOLNAR: Yes.

1544   The other thing, and this is somewhat related, but this morning when the Commissioner was here, fundamental to their analysis is the notion of the vertical foreclosure incentive. So because you are competing in the retail market you have an incentive to foreclose or make difficult competition at the wholesale level.

1545   So would there be any rational, in your mind, to mandate rates, terms or wholesale services where the vertical foreclosure incentive does not exist? You would expect --

1546   MR. WONG: Sorry, I just want to want to make sure I understand your question.

1547   COMMISSIONER MOLNAR: Okay. If you are not competing against somebody at the retail level --

1548   MR. WONG: Yes.

1549   COMMISSIONER MOLNAR: -- why would the Commission need to mandate the rates and terms upon which you would negotiate a wholesale service from someone where you don't compete against them at the retail level?

1550   MR. WONG: Oh, you mean in relation to a regional player?

1551   COMMISSIONER MOLNAR: That's an obvious link there, but --

1552   MR. WONG: I see.

1553   I believe it's fair to one; it's fair to all. The same rate should apply to everyone and only if you do that can we get a somewhat level playing field.

1554   COMMISSIONER MOLNAR: Okay. I'm not sure I understand what you're speaking of in level playing field, but I will take that as your answer. Thank you.

1555   That's it.

1556   THE CHAIRPERSON: I just wanted to build a little bit on a conversation you were having with the Vice Chair of Telecommunications about -- I think you describe it as your suggestion about tower sharing.

1557   You know, somebody looking at this might think that what you are inviting us to do is to go well on the road of -- I'm not sure if it's nationalization or expropriation or something of that nature. But shore of that, I was wondering if you had -- I think you have had some real-world experience with this -- considered perhaps some less interventionist avenues.

1558   I'm thinking in labour law there are mandatory conciliators; in family and commercial law there is often compulsory mediation; and we know that under statutes such as the CRA or the Investment Canada Act there are advance rulings available. That's not to take away from an arbitration model, but I was wondering if based on your experience something short of the suggestion you were putting forward would be workable?

1559   I'm talking about somebody or people who would accompany or help parties come to an understanding. You would have to have individuals -- I'm not sure what skills they would need, but certainly maybe a bit more knowledge about engineering and mediation and conciliation.

1560   MR. WONG: I think first of all mediation and arbitration and proceedings like that, it creates risk, it does not create certainty, and to an entity who is building the network -- I'm going back the clock a little bit, building the network, has to launch the network within a certain time, we need to know today whether or not we can have our equipment on that tower today. If we do not know today, then it may be difficult for us to make other decisions and we would often --

1561   THE CHAIRPERSON: But even under your suggestion that a third party owns that you won't be able to get an answer today because you have decided that you want access to a particular site or a particular tower, would you?

1562   MR. WONG: But with a third party what we do get is the -- what we do not get is the motivation factor or the vertical integration factor that comes into play.

1563   THE CHAIRPERSON: But even a third party might look at this and say, "Look, why would I come into a long-term agreement with this particular carrier who wants long-term access to my tower, taking up the space when I don't even know if they have the financial strength to be there in three, four, five years time.

1564   MR. BOOTH: But in all of the hundreds and hundreds of third party sites that we access we have never encountered any pushback from a landlord of that regard. It's basically you want on, we have space for you, sign the lease, give us the money, let's go get the tower up and move on; right.

1565   THE CHAIRPERSON: Right. But what you seem to be uncomfortable with this sometimes allegations that people have future use requirements that are, I got the impression from your testimony, that you were suggesting that that was not quite convincing to you that in fact there were future uses.

1566   MR. BOOTH: Well, it's not when you receive notice of future use and two, two-and-a-half years later you go back and there's no use.

1567   THE CHAIRPERSON: Right. That's why I'm putting to you maybe short of the more radical suggestion you are putting forward, whether a conciliator or mediator with tight timeframes, with expertise wouldn't help focus the discussion.

1568   MR. BOOTH: Yes. I think the answer is yes. I think it could be a great outcome if that party operate in the understanding of the constraints that a start-up would be under, particularly time. That's why we actually have great success dealing with private landlords, because they want money. If they have a five square foot area they will sell it to you if you can negotiate the rate.

1569   So when we are building a site we operate in maybe days or weeks or maybe a month timeline; 18 months or two years in the current environment to get a no back doesn't meet our needs, but if there was a format of a mediation that was expedited and we were confident we would get a yes or a not in a short period of time and if we got a no we could move on to something else, then that could be a very good idea for us, yes.

1570   THE CHAIRPERSON: Right. It just strikes me as a bit more pragmatic then somehow taking these private companies and taking their assets and somehow putting it in a third party --

1571   MR. BOOTH: Sure.

1572   THE CHAIRPERSON: -- which I'm at a loss of how we would actually get from point "A" to point "B".

1573   You understand the complexity of your proposal?

1574   MR. BOOTH: Yes.

1575   THE CHAIRPERSON: Yes. All right. Thank you very much.

1576   Those are our questions, unless Legal Counsel has a question.

1577   Ms Hulley, please.

1578   MS HULLEY: Thank you, Mr. Chair.

1579   I have one question. I would just like to follow-up on your conversation with Commissioner Menzies with regard to tower and site sharing services.

1580   You undertook to provide a comparison of the rates that you pay to third party tower providers versus those you pay to carriers. To assist the Commission in analyzing this information, could you at the same time provide a list of the characteristics of the services being compared, in particular the tower location, the number of attachments, size of space leased, any details that you could provide as to those characteristics?

1581   MR. WONG: Sorry, can you repeat the list?

1582   MS HULLEY: For example, tower location, number of attachments, size of the space leased and placement on the antenna. Those aren't exhaustive, any other characteristics that you think could be useful.

1583   MR. WONG: We can certainly do that. We will definitely try to have it ready by Monday, but --

1584   THE CHAIRPERSON: I don't know how we got into Monday. The actual date for undertakings was prescribed as the 9th of October, which is not Monday, Monday is the 6th. So even all your other undertakings and for other parties that undertook to provide things for the 6th, the 9th is the date.

1585   MR. WONG: Okay. Again, yes, we will definitely try to have everything ready, but if not at least the first part of the question and then we will provide the rest of the information as soon as possible.

1586   THE CHAIRPERSON: Right. Well, there will be a point where it's too late, so if you can undertake for the 9th, that would be perfect.

1587   MR. WONG: Okay, yes.

Engagement

1588   THE CHAIRPERSON: Thank you. Thank you, those are our questions and so we will go to the next presenter now. Thank you very much.

1589   Madame la Secrétaire...?

1590   LA SECRÉTAIRE : Merci, Monsieur le Président.

1591   I would now invite the intervener Benjamin Klass to please take your place at the presentation table.

1592   Just for the record, Mr. Chairman, Mr. David Ellis will not be appearing with Mr. Klass today, he will be appearing by himself.

1593   THE CHAIRPERSON: Welcome, Mr. Klass. Just take your time and settle in and when you are ready, please go ahead.

PRÉSENTATION

1594   MR. KLASS: Okay. I had a slide show, but technical difficulties. I guess you guys might be able to see my slides, but...

1595   Thank you, Madam Secretary, Mr. Chairman, and Commissioners. I greatly appreciate being given the opportunity to appear before you today.

1596   My name is Ben Klass, I am a graduate student studying Canadian communications policy. For the past several years, I have been at the University of Manitoba and I have recently moved to Ottawa to pursue my Ph.D. at Carleton. I'm a contributor to the Canadian Media Concentration Research Project and I maintain a blog which is focused on consumer issues.

1597   Unfortunately, Dr. Ellis is unable to join me today, but I would like to thank him for all the hard work he put in. I wouldn't have been able to do it without him, but the show must go on.

1598   Our comments today focus on three main areas:

1599   First, how the price of wireless services in Canada makes them unaffordable for many Canadians;

1600   Second, how reliance on "market forces" in the form of facilities-based competition alone is unlikely to solve this problem;

1601   Lastly, we would like to provide some suggestions for the Commission's consideration on how a more competitive wireless environment might be in the interest of Canadians.

1602   Throughout this proceeding much has been said about the high quality of the wireless services available to Canadians today. I often find myself thinking how truly marvellous mobile wireless services have become. Who would have imagined 10 or 20 years ago that we would have access to a wealth of knowledge, the world's culture, shopping, and our loved ones, anywhere, any time, and all at our fingertips?

1603   Bell's CEO once called Smartphones "the Swiss Army Knife of technology" and, more recently, TELUS' Chief Executive noted that "The device in our pockets isn't a phone anymore; it's become ... the remote control for our lives."

1604   I couldn't agree more. Mobile devices and the networks that connect us together have become crucial for life in the 21st century.

1605   Access to mobile tech has become a given for many and we often take our devices and the networks that support them for granted. But while we're busy chatting, texting and tweeting, let us not forget of the many Canadians who struggle to afford the benefits that come with these great technologies and the others who cannot afford service in the first place.

1606   Our high wireless prices are reflected by our low overall adoption. On a number of measures Canada is under-performing in this regard: In fact, no country in the OECD has a lower rate of adoption. The same goes when you place us next to our closest comparator countries, the G7. Canada trails Italy, the U.K., Germany, Japan, France, and the United States by a substantial margin.

1607   The CRTC's own data show that low and middle income Canadians are disproportionately more likely to be going without a mobile lifeline. Looking at CBC's most recent survey data, we see that the situation is similarly bad in terms of Smartphone adoption. Those earning less than $75K a year are clearly having a hard time accessing the new and innovative technologies that they deserve.

1608   Over the course of the coming week, we will hear from numerous parties about the innovative services being offered to Canadians. We will hear about how "Canadians love their Smartphones" and we will hear that our wireless carriers are fiercely competing to deliver the newest gadgets into our waiting hands. As the various parties argue how best to foster a competitive wholesale environment or, to the contrary, let us keep in mind why we are here in the first place: to ensure that Canadians have affordable access to high quality services whoever and wherever they may be.

1609   As we have noted in our submissions, these problems have long been acknowledged by Canadian policymakers. As early as 1995, Industry Canada stated that wireless services were "comparatively expensive for the average person to use." Again in 2007 we hear this line repeated and today the government of course is still in search of lower price, better service and more choice.

1610   A number of times since the mid-'90s the CRTC has decided to forbear from wireless regulation and each case competition was just over the next horizon. However, that competition has yet to take hold. With wireless prices reportedly on the rise again, it's clear that we need a fresh approach.

1611   Given past trends and the future uncertainty, we believe that the present proceeding is overdue.

1612   The position of the existing "new entrants" is precarious and the possibility of further entry is not likely in the current environment. We believe that it's imperative the Commission act now to foster competition in the interest of Canadians that is both sustainable and meaningful in the long term.

1613   The key to making this happen is effective and efficient wholesale regulation, which is necessary for two reasons. We need to ensure that the existing competitors can survive, and not only survive, but thrive and expand, and to enable new competitors to enter the market with innovative service offerings and new prices -- better prices.

1614   Existing providers like WIND and Vidéotron need fair access to roaming rates in order to attract customers and they must have access to towers if they are to expand their networks. To compete effectively, mobile virtual network operators need access to a number of network elements so that they can enter the market and differentiate their services.

1615   The incumbents refuse to deal fairly with companies like WIND and the many MVNOs eager to set up shop for one simple reason: They believe it is not in their interest to do so. I believe we are calling this "vertical foreclosure". Looking beyond the narrow interests of individual firms, however, what we have to recognize is that promoting these types of wholesale arrangements is in the interest of Canadians, the industry, and society more generally.

1616   Numerous parties have argued that the Commission ought to focus only on promoting "facilities-based" competition and that wholesale regulation is not necessary. Experience has shown, however, that this would be a risky gamble. Contrary to the incumbents' arguments, no one bootstraps their way to success in the wireless industry. All Canadian carriers rely on wholesale access to serve their retail customers; Rogers has network sharing agreements with MTS and Vidéotron and roams on TbayTel; Bell and TELUS share networks through agreements which have allowed them to avoid hundreds of millions in capital expenditures by avoiding the impractical duplication of each other's facilities. The regional providers rely on the larger national carriers to provide roaming, to secure devices, and to assist in building their networks at home.

1617   The new entrants and MVNOs, by contrast, have little bargaining power compared to the incumbents when it comes to accessing bottleneck facilities. They also do not have the benefit of a 30-year head start, ample spectrum, much of which was gifted to the incumbents in beauty contests, existing scale, and access to the tremendous amounts of capital needed to build and expand their network. While the incumbents enter into strategic agreements with each other, they are careful to shut out the new entrants, denying them access to the only practical and feasible way to grow their businesses. This is not a competitive market, it is textbook oligopoly behaviour. And what's more, it's hypocritical.

1618   Carriers such as Bell and TELUS argue that entrants can succeed simply by building their own networks, but even as they prescribe elbow grease for their competitors, they are lending each other a helping hand.

1619   Although it is shrouded in secrecy and hashtags, what we do know about the Bell/TELUS network sharing agreement -- referred to by TELUS as a "Next Generation Network Reciprocity agreement" in order to avoid using the term "sharing" -- is that neither carrier would be able to provide truly national coverage without it.

1620   Today, Bell's infrastructure, for instance, is concentrated in the Eastern and Central provinces. In the Maritimes, it remains the dominant provider by a wide margin, with between 53 and 71 percent of subscribers. In these areas, TELUS relies heavily on Bell-owned facilities to provide service.

1621   TELUS's infrastructure is concentrated in the West, where it controls 40 percent of subscribers in Alberta and 39 percent in B.C.

1622   Although the parties maintain their own facilities in some profitable urban centres, tower sharing, spectrum subordination agreements and mountains of hashtags make it impossible for outsiders to know for certain where one network starts and the other stops. What is clear, however, is that Bell and TELUS do not find it practical to reproduce infrastructure where access to another carrier's facilities is available.

1623   If the incumbent carriers need to share networks to succeed and are already pursuing this strategy, can we reasonably expect new entrants without similar pre-existing advantages and partnerships to go it alone?

1624   We suggest that promoting wholesale arrangements should not be viewed as a zero-sum game between investment and innovation on the one hand and true competition on the other. The case of Manitoba demonstrates how network cooperation is already benefitting some Canadians.

1625   Manitoba is often held up as the paragon of wireless competition in Canada. Prices for the most popular plans are considerably less expensive than they are elsewhere in Canada, and in terms of service innovation, unlimited data plans are available province-wide from MTS. I believe they said that the majority of their subscribers are using them. Our point is that the better pricing and service options available to Manitobans are not simply the result of four carriers who have built their own distinct competing networks, but rather can be attributed to the efficiency of cooperation at the wholesale level.

1626   Although Rogers and MTS hold over 80 percent of subscribers in Manitoba, they are disciplined by the presence of two strong competing providers. Bell and TELUS have entered a market controlled by two powerful incumbents and are offering service that would make their customers in other provinces green with envy. They are, for all intents and purposes, Manitoba's "new entrants."

1627   They have not, however, gained a foothold by each building their own network. TELUS has built out in the most populous areas of the province, gaining 10 percent market share to date. Bell, on the other hand, does not actually have any towers or spectrum in Manitoba at all. It effectively acts as a mobile virtual network operator on the TELUS network. This has not stopped it from gaining 6 percent of the market in a short period of time. Imagine that, market forces from a company with no facilities of its own.

1628   To consumers, it appears as if the "fourth player" strategy has worked out in the Prairies. But when we take a closer look at how the industry is organized, we see that the competitive environment in Manitoba is in fact characterized by a high level of network cooperation. Put another way, we can say that competition at the retail level is achieved through coordination at the wholesale level.

1629   Unfortunately, this situation has yet to develop in most other areas of the country, and Canadians in other provinces face much higher pricing than we do in the Prairies as a result.

1630   The regional incumbents are forced to deal with Rogers, Bell and TELUS because they require access to wholesale arrangements for roaming and devices, but the national incumbents have no similar incentive to deal with the likes of WIND or MVNOs in their home territories. Unless the Commission steps in, we are worried that the types of benefits Manitobans and Saskatchewanians are enjoying today will fail to materialize elsewhere in Canada.

1631   The incumbent carriers argue that investment will drop off a cliff if the CRTC regulates the terms of wholesale agreements. We need to see this argument for what it is: an empty, self-serving threat.

1632   We know this to be so because very similar obligations are placed on these very same firms. The affiliated Canadian wired ISPs are often -- I'm sorry. All of the incumbent wireless providers also offer regulated wholesale Internet service through affiliated wireline ISPs. Wholesale regulation in the wireline market has not dampened investment. In fact, we see that it has risen substantially in the past 10 years. There is simply no reason to believe that wholesale regulation of wireless services will have any negative effect on investment, especially considering that these companies are often one and the same.

1633   We believe it is crucial to ensure that roaming and tower sharing agreements are provided on reasonable terms through efficient wholesale regulation. Carriers like WIND depend upon it.

1634   The CRTC's decision to ban exclusive roaming agreements is a good start, and Parliament's cap on roaming fees helps too, but we do not believe that tying wholesale roaming fees to retail rates is the best approach because it won't allow carriers to be truly competitive. And I think at the current rate we're looking at something like $34 per GB for data, which is -- I mean that's a lot.

1635   In order to ensure that roaming partners are paying a fair rate and in order to minimize the possibility of "regulatory gaming," we believe that the Commission should institute either a cost-based or retail-minus approach, which, in the interest of fairness and efficiency, should apply to all licensed wireless providers.

1636   Roaming agreements are important but they do not allow carriers like WIND to sell outside of its existing network footprint like Bell does in Manitoba. Roaming agreements bolster the position of existing new entrants but it does not enable new firms to enter the market. Mandated access for MVNOs, on the other hand, allows service providers to enter the market anywhere by paying cost plus a fair rate of return to network owners who control scarce spectrum licences.

1637   For my part, I see the Canadian experience with wholesale in the wireline ISP market as a real success. Without the entry of ISPs like TekSavvy, Vmedia and ElectronicBox, it is difficult to imagine that Canadian consumers would today be benefitting from the greater choice and flexibility associated with features like higher data caps, lower prices and policies regarding privacy and data disclosure. While their market share may look small compared to the incumbent ISPs and cable carriers, wholesale ISPs have proven to be remarkably vigorous and play a crucial role in ensuring that all Canadians can benefit from affordable access to the Internet. We believe the Commission's approach to wireline wholesale could serve as an appropriate template for wireless.

1638   This could mean many things in practice. Carriers who benefit from spectrum received through beauty contests could be obliged to provide MVNOs with access to their networks. MVNOs should be granted access to networks wherever technically feasible to allow them the flexibility to offer compelling and competitive services to Canadians. This could include access to core networks by smaller rural carriers who own their own local networks as well as access to the last mile for carriers like Cogeco or broader network elements for resellers wishing to compete on customer care and billing. Empowering MVNOs to choose how they access wireless networks at the technical level is key to maximizing the possibilities for innovation and competition.

1639   The record of this proceeding demonstrates that there are numerous companies chomping at the bit to get into the MVNO business. We have heard Cogeco's views on this topic, and before the hearing is over we will have heard from Mike Kedar of Mobilexchange, Tucows (otherwise known as Ting in the States) and Primal Technologies, all of whom have much good to say about the possibilities for competition from service-based providers, and more importantly, they have experience as well.

1640   We believe that if the Commission decides to mandate access for these and other competitive wireless service providers we will see a jumpstart in competition in the same way as we have in the wireline world.

1641   We appreciate the opportunity to share our views and wish to express our thanks to the Chairman, Vice-Chairs, Commissioners and staff. We welcome any questions you might have. Thank you.

1642   THE CHAIRPERSON: Thank you very much, Mr. Klass. The Vice-Chair of Broadcasting will start us off. Thanks.

1643   COMMISSIONER PENTEFOUNTAS: Good afternoon, Mr. Klass. Thank you for your presentation today and the two documents you deposited earlier this year. Very insightful. I like the history. I also liked the comic relief, especially in your August document. I found it more humorous than the May document.

1644   Maybe just start with your presentation briefly in terms of sort of -- you talk about beauty contest and some people may be offended as to how the spectrum pre-2001, I believe it was, was granted. Would that be a fair description of how that spectrum was granted, to call it a beauty contest?

1645   MR. KLASS: Well, a beauty contest is a colloquial phrase to refer to what's known as comparative assessment.

1646   COMMISSIONER PENTEFOUNTAS: Okay.

1647   MR. KLASS: And in these circumstances, bids were basically made to the government. Carriers presented themselves as eligible sort of candidates to receive spectrum licences. In the States they had lots of problems with speculators purchasing these licences. So I believe that the Canadian government took a more cautious approach to who they awarded the licences to. However, as I understand it, there was quite a bit of controversy surrounding the award to Cantel in the original 1983 comparative assessment.

1648   I do think it's fair to say it's a beauty contest because the carriers present ideas about what they're going to do in the future and the decision-makers weigh the benefits and the downsides and they made a decision and just turn these carriers loose, right. So for most of the nineties and I think until -- or most of the eighties and nineties we had the two carriers.

1649   COMMISSIONER PENTEFOUNTAS: Two thousand and one, yeah.

1650   MR. KLASS: Yeah. I'm sorry?

1651   COMMISSIONER PENTEFOUNTAS: Starting in 2001 --

1652   MR. KLASS: Well, the auctions, yeah, yeah, but I mean this resulted in competition originally, competition insofar as it is not a monopoly because there was two carriers. And we see actually that those original licensees today constitute the two national networks really. So when we're talking about all this competition coming into the market and it's so competitive now, we're really looking at two sets of facilities that are based on this decision to divide a monopoly into two that was made 30 years ago.

1653   COMMISSIONER PENTEFOUNTAS: Can I just get you to sort of just push the mic over? Yeah, that's great, thank you.

1654   You know we heard Mobilicity today and you talked about MVNOs in your documents earlier this year and today's document, and Mobilicity described it as a deterrent to investment. Do we need MVNOs or do we need facilities-based carriers or do we need a combination of the two?

1655   MR. KLASS: Well, I think part of the point of what I'm trying to get across is that this is -- the distinction is not so clear between facilities-based and non-facilities-based and I think that this stems from the fact that the MVNOs are paying the cost plus a fair return, as determined by the Commission, and I believe that in the past, particularly in wireline, the mark-up has been generous by international standards.

1656   So these companies are generating demand for network resources that is sufficient to replace the cost and a fair mark-up as determined by, I believe, well established costing principles. Now, this would have to be applied to the specifics of wireless networks of course. But the reason these companies are saying it would be bad for investment really means it would be bad for their profits because they wouldn't be able to sell -- capture all the retail customers.

1657   COMMISSIONER PENTEFOUNTAS: But when I speak of new entrants and their opposition to an MVNO regime?

1658   MR. KLASS: Well, I'm a little puzzled by why the new entrants wouldn't want to attract MVNOs onto their networks. They would be able to guarantee this revenue without having the attendant expenses on advertising, marketing, service billing and so on.

1659   And regulators in other jurisdictions have explicitly endorsed their pursuit of competing facilities, based on the notion that when you have more facilities competition, these carriers will attract wholesale providers, which themselves create innovation by, say, for instance, offering a pick-and-pay model of data, minutes and so on.

1660   COMMISSIONER PENTEFOUNTAS: Would they not also help the new entrants defer some of the considerable costs of becoming facilities-based carriers?

1661   MR. KLASS: Yeah, I think that's possible.

1662   COMMISSIONER PENTEFOUNTAS: Okay. There's also some regional questions that you raised and you raised them again today and you talked about the benefits of being a Saskatchewanian or a Manitoban. I would perhaps add Quebec into that picture as well perhaps. But there seems to be an imbalance, from what I understand from your document, as it regards the service provided to Canadians.

1663   If the problem really exists in Ontario, Alberta and B.C., should the concentration be on better servicing those markets, all that in the context of the famous fourth carrier?

1664   MR. KLASS: Well, I think I -- I mean I won't be able to get through this presentation without invoking the policy direction. So I'll just say you have this problem, right, and regulation of national wholesale is the most efficient or it's the least intrusive, or however you want to phrase it, way of regulating wholesale, but the retail markets really are provincial and you can go on these carriers' websites and click different provinces and see what the different pricing is.

1665   Manitoba and Saskatchewan the prices are better. I included a brief comparison in my slides. They're substantially better there. B.C., Alberta, Ontario, not so much. Quebec, I think, is somewhere in between, right. So we have a sort of trade-off between the binding force of the policy direction here and the need to really address the problem.

1666   COMMISSIONER PENTEFOUNTAS: I'm going to sort of take you back to your May document, paragraph 17 and on, when you talked about barriers to entry. I'm not going to read -- I'm not going to cite you but I think you know where I'm sort of coming from. And you mentioned that set-asides weren't enough.

1667   Would set-asides combined with roaming and tower sharing be enough and would that make unnecessary an MVNO regime?

1668   MR. KLASS: I think that that's a possibility, but in presenting the history I was attempting to highlight the fact that we've been here before, that we have attempted to induce these facilities-based providers into the market and that the forbearance decisions always -- you know, I believe there was the '94, '96 and then 2012, the major ones, that weren't company-specific. In each of those there was always mention of "competition will be," you know, because it is or will be sufficient to forbear, right, or to protect the interests of users. In each of those circumstances there was competition -- you know, the fact that it was just over the horizon was a factor in the decision, clearly.

1669   And so I see that we're in a similar situation here, you know. Maybe WIND is going to succeed, but can they get enough money to build their LTE network? I don't know. Mobilicity wants us to break the towers off in order to get better access from the carriers. I don't know if we can do that. I do know that that's happened in the States but as a market-based approach, as some sort of a tax write-off scheme by AT&T or something.

1670   I do think that promoting the success of WIND and Videotron would be ideal but I'm just not really holding out much hope that they will be able to actually meet that goal in the long term.

1671   COMMISSIONER PENTEFOUNTAS: I think a final sort of question on the MVNO issue -- and you talked about the States and we talk about MVNOs overseas. In the U.S. it's not mandated but there is about a 10-percent uptake on MVNOs, and in Canada I think we're like .1 or something, we're hardly there.

1672   MR. KLASS: M'hmm.

1673   COMMISSIONER PENTEFOUNTAS: And some countries, I think the highest rate is probably Norway at 24 percent but a very generous mandated regime in place.

1674   Now, some might argue, and some have, that the only reason there isn't an MVNO uptake in Canada is because the market just simply can't support it. How would you answer those critics?

1675   MR. KLASS: Well, we clearly have customers who want access to service and I think this is demonstrated by our low adoption rate. It's not as if there is something about Canadians where less of us want access to cell phones. I think the reason we have less MVNOs here is because there are less competing sets of facilities and this is why we need to mandate them.

1676   In the United States, as you mentioned, we've got companies like Ting, Walmart Wireless, FreedomPop, Republic Wireless, right. In Britain there's more facilities-based competition and so you see that these facilities-based competitors will actually seek out these agreements with MVNOs. They see them as beneficial, whereas here it doesn't appear that our facilities owners view MVNO as something that they want to do, right. So I think that that structural problem is the reason that we have less MVNOs and it's not a demand issue.

1677   COMMISSIONER PENTEFOUNTAS: When you think about the American model, and you talked about some of the players there, and when you think about Sprint and sort of the entire business model was based on riding an inferior network, if you will, would there be some kind of formula whereby that can be put in place in Canada to allow an entry level at a lower cost?

1678   MR. KLASS: To encourage inferior networks; is that what you're asking me?

1679   COMMISSIONER PENTEFOUNTAS: Well, not necessarily encourage them but that was part of the model that developed Sprint south of the border.

1680   MR. KLASS: Okay. All right. I think I know how to respond.

1681   COMMISSIONER PENTEFOUNTAS: Would you absolutely need to have the superior network mandated, the LTEs and the 4Gs as opposed to the 2Gs for as long as the 2Gs sort of keep running?

1682   MR. KLASS: Right. Yeah. I mean I have an iPhone 4. You know, I can't update to the new version but apparently the new version busts the phone anyway, you know.

1683   COMMISSIONER PENTEFOUNTAS: Yeah, it's a catastrophe.

1684   MR. KLASS: I'm on 3G and it works just fine for me. I can do everything that you need to do on the phone. I can watch Netflix, although I don't ever do that. I can watch Bell Mobile TV on there but I got rid of my SIM card, you know.

1685   So I think, yeah, there's something to that, making sure that people have access to services that are useful. And I personally don't really know what I would do with an LTE signal, but I'm sure that it will be important in the future.

1686   COMMISSIONER PENTEFOUNTAS: You also raised the issue of a template on our wireline regime. How do you make that link? Because that sort of wireline regime -- and I'm not talking about -- maybe you're talking about the broadband regime, but when I was reading your May 15th intervention, early on, I think it was page 5, it talked about how you like that template on the wireline regime but the wireline regime's genesis was a monopolistic sort of model, whereas on the wireless side we had at least two facilities-based competitors traditionally.

1687   Do you still think you can tie those two together given the different genesis of the two services?

1688   MR. KLASS: Well, those -- I believe the wholesale regime was originally planned to be sunset but was renewed, I think in 2002 and then again, what was it, 2007, 2008.

1689   COMMISSIONER PENTEFOUNTAS: M'hmm.

1690   MR. KLASS: I think it's proven -- I mean I'm not intimately familiar with this particular line of regulatory development but it seems to me that there have been decisions made that we need to keep doing this. And even with regard to TPIA, like, for instance, in wireline you've got -- and by wireline I mean broadband --

1691   COMMISSIONER PENTEFOUNTAS: Right.

1692   MR. KLASS: -- you've got the twisted pair copper and then you've got the hybrid fibre coax, the cable carriers and the incumbent ISPs, and they're both mandated. I mean Canada is actually one of the very few countries in the world that does TPIA, and I recognize that this causes lots of headaches but I think that -- I mean the thing speaks for itself. It hasn't gone away and I question whether Canadians would have access to such high data caps and the prices that we do without this.

1693   COMMISSIONER PENTEFOUNTAS: You know, back on the wireline as opposed to the wireless broadband comparison and looking at Miss Middleton's study and Reza Rajabuin's study, when you first referenced it, I said to myself, yeah, but this is not a wireless study, it's a wireline study.

1694   Is there a difference? I mean can someone attack that comparison that you make on the fact that they're fundamentally different services?

1695   MR. KLASS: Well, I'm not an engineer or an economist, so I don't want to sort of pretend that I know everything about this stuff, but I think that fundamentally they're the same. The idea is basically that you connect devices to networks. You know, we've got a wireless -- like the primary difference really would be that it's harder to duplicate wireless last miles than it is to duplicate wireline ones because there's, you know, only so much spectrum and so on.

1696   COMMISSIONER PENTEFOUNTAS: Okay. I want to bring you briefly to support structures and not perhaps the discrepancy in the two documents but just a clarification. In the May document you were in favour of -- you were in agreement with the remedy on tower sharing and site sharing. You didn't give us the same remedy on your later document. The final position on support structures and --

1697   MR. KLASS: Sorry. I believe on May 15th I was recommending public good.

1698   COMMISSIONER PENTEFOUNTAS: Yeah.

1699   MR. KLASS: And then the next position is -- I mean I really -- quite frankly, I'm not able to give an argument there.

1700   COMMISSIONER PENTEFOUNTAS: Okay.

1701   MR. KLASS: It's too much information for me basically.

1702   COMMISSIONER PENTEFOUNTAS: Okay.

1703   MR. KLASS: It's clear that these companies need access, that the competitors need access to the towers. And the attitude of the incumbents is obvious if you read those interrogatory responses from Rogers. You know, I think I used the term they view it as a nuisance, right?

1704   And I think the point Mobilicity was trying to make is that if there was independent -- if there were independent companies attempting to attract business for these towers then you would see a lot less of that. If it was competitive you would see a lot less of that.

1705   COMMISSIONER PENTEFOUNTAS: Okay.

1706   Briefly on the duplicability issue as regards new entrants, given the fact that wireless carriers and facilities-based wireless carriers are duplicable, and I'm bringing you back to the MVNO issue, given that it is duplicable do we still need an MVNO regime?

1707   MR. KLASS: I think the test is whether it's practical and feasible and not whether it's technically duplicable.

1708   COMMISSIONER PENTEFOUNTAS: Okay.

1709   MR. KLASS: And I don't think it is. The principle which I'm operating from is that the firms in the market should not be able to have pricing power, right? And whether -- you know, you see that sometimes the fourth carrier is a maverick and maybe sometimes it doesn't have enough sort of zing to really attract customers or, you know, whatever you call it.

1710   You know, what we're looking for is the ability to -- or take the ability to set prices away from individual firms. We want price takers, not price makers. And I think if MVNO is the way to achieve that, then so be it.

1711   COMMISSIONER PENTEFOUNTAS: I'm going to give you a chance to sort of respond and you have. I'll just give you a chance to expand on it, the whole notion that my colleague just posed, I think, to WIND as regards competitive wholesale market as opposed to competitive retail market. And you can have competitive retail market and not have competitive wholesale market and almost vice-versa.

1712   At the end of the day, your position is that we don't have a competitive retail market or a competitive wholesale market.

1713   MR. KLASS: I don't -- well, I mean they are competitive insofar as it's not a monopoly but it's --

1714   COMMISSIONER PENTEFOUNTAS: Insofar as, sorry?

1715   MR. KLASS: Insofar as it's not a monopoly. We have, you know, basically two sets of facilities and a variety of firms who do compete with each other, like we see the advertising.

1716   But when I hear these arguments about rivalrous behaviour and look at how many ads we showed, I get the Canadian Tire flyer every week and I've looked at it. And I know that I only shop at Canadian Tire when things are on sale, right? I don't ever get a wireless flyer that says "half off service" or "get your first month for free". So I don't -- I mean I don't think that the extent of competition is really -- is sufficient to protect the interests of users.

1717   And I think the evidence I'm trying to present initially, much of which comes from the CRTC, that you know low income Canadians don't have these services disproportionately to higher earning Canadians and, in comparison to other countries, we have far less adoption. It shows that, you know, if the prices were lower I think we'd have more.

1718   COMMISSIONER PENTEFOUNTAS: You think you'd agree that it's fact-based, your conclusion, on whether we have two or three or four or five? You can have a competitive market with two players and you can have a non-competitive market with four. You'd agree with me?

1719   And what if we, even with a third facilities-based provider --

1720   MR. KLASS: Sorry, we're talking at the wholesale level here?

1721   COMMISSIONER PENTEFOUNTAS: Retail. Let's take it to the retail level for a second, because at the end of the day the consumer of which you spoke of, can't afford it at the retail level.

1722   And how do we create a condition whereby we can offer affordable wireless services? I think that's ultimately the goal of the exercise that you put before us in your preceding documents and today. Do you agree with me?

1723   MR. KLASS: Yeah, oh, yeah.

1724   COMMISSIONER PENTEFOUNTAS: And currently we've got, by your own admission, two facilities-based carriers. We've got Rogers and we've got Bell and TELUS sharing a network.

1725   MR. KLASS: Yeah.

1726   COMMISSIONER PENTEFOUNTAS: Right. We could have a third facilities-based provider and what if we still can't get to a point where we've got affordable wireless services for Canadians? The question was asked earlier as well.

1727   MR. KLASS: What happens if the third facilities-based provider doesn't give us competition?

1728   COMMISSIONER PENTEFOUNTAS: Yeah.

1729   MR. KLASS: Well, then maybe we'll look back and think, gee, we should have mandated MVNO.

1730   COMMISSIONER PENTEFOUNTAS: We should have mandated MVNO?

1731   MR. KLASS: Yeah. I don't see -- I don't see any necessity to adding one player and instantly solving the problem.

1732   There is no easy fix and, you know, we have different characteristics in different markets. We have different income levels in different markets. So carriers may price accordingly.

1733   COMMISSIONER PENTEFOUNTAS: Should the Commission be consumed with the viability of a third facilities-based carrier for the purposes of -- for the benefit of the Canadian economy at the end of the day?

1734   MR. KLASS: Well, if a whole bunch of money goes into the thing and it doesn't ever turn out to be or it turns out that it wasn't a good idea, then it seems like that is a wasted opportunity.

1735   COMMISSIONER PENTEFOUNTAS: So if we had one change that we could effect in the entire sort of ecosystem of wider service in Canada to allow that greater access to Canadians, what would it be?

1736   MR. KLASS: Well, I think unbundling the price of the phone from the service rate would probably do the most to bring the price of service down, to be honest. But that's out of the scope of these proceedings, as I understand it.

1737   So in terms of this proceeding --

1738   COMMISSIONER PENTEFOUNTAS: It was a previous hearing, actually. Go on.

1739   MR. KLASS: I wasn't around for that one. I think that in the context of this proceeding the most important thing to do is -- or the thing that would produce the results most directly for consumers would be to mandate MVNOs, yes. Yeah.

1740   COMMISSIONER PENTEFOUNTAS: Yeah, okay. Well, thank you very much.

1741   Mr. Chairman...?

1742   THE CHAIRPERSON: Commissioner Molnar...?

1743   COMMISSIONER MOLNAR: I just have a question about MVNOs.

1744   You spoke about spectrum being acquired through the beauty book but, as you know, I'm certain a lot of it was acquired through auction. In fact, billions were spent by incumbents and new entrants based on a set of conditions that they were expecting that they were investing in. And one of those was not mandated resale.

1745   MR. KLASS: M'hmm.

1746   COMMISSIONER MOLNAR: So what do you think that that does to the next, you know, sort of person's -- well, person's -- companies' certainty in making their next investment when their regulatory framework could change so dramatically?

1747   You know, we just had WIND and Mobilicity come forward, WIND saying that they've just recapitalized and have created a business plan. Now, they haven't -- I haven't seen their business plan, but I'm thinking it doesn't assume that MVNOs are able to come in and start capturing some of the market segments that potentially they're looking to get.

1748   MR. KLASS: So I'm sorry. Can you --

1749   COMMISSIONER MOLNAR: So what do you think? Do you think we should be concerned that they are putting in the investment that they've made under a set of conditions at risk?

1750   MR. KLASS: Will MVNOs put WIND out of business?

1751   COMMISSIONER MOLNAR: What's that?

1752   MR. KLASS: That is, will MVNOs put WIND out of business?

1753   COMMISSIONER MOLNAR: Whether it puts them out of business or not, I mean, the point is you're seeking to add additional competition where new entrants who have not fully -- not fully engaged, if you will, or met their full potential would see that as potential market that they could look at. So they've made an investment in spectrum in order to follow a facilities-based model given that that was the model, the regulatory framework that existed. Now, potentially, you would propose we change the model to mandate resale?

1754   MR. KLASS: Well, I don't personally have a whole lot of faith, you know, that this company will come in and revolutionize the one that's there right now. So there's the issue of whether it's going to solve the problem and there's now an issue that you're bringing up of whether MVNO will contribute to WIND's failure. And I don't have a good answer for that question.

1755   COMMISSIONER MOLNAR: Okay.

1756   MR. KLASS: I mean, I could provide you with an opinion but that's -- you know, it wouldn't be based on my research, no.

1757   COMMISSIONER MOLNAR: Right, thank you.

1758   THE CHAIRPERSON: Thank you, Mr. Klass. Just a couple of comments.

1759   You can watch whatever you want on your iPhone. The Commission is not in the business of preventing people from doing that.

--- Rires

1760   THE CHAIRPERSON: And second, as a Ph.D. student you obviously know that the best evidence is primary evidence, not secondary or third-hand evidence of people commenting on what might have been said in this room or not.

1761   But I must admit I appreciate your candour when you have no opinion that you don't provide one. That's very good. I wish more people did that.

1762   Now, in this particular instance help me understand. I don't know if you're familiar with Lemay-Yates' analysis of different types of MVNOs. It was in their evidence.

1763   So I'm trying to understand, and this is my only question. When you refer to MVNOs do you mean any one of these or the full MVNOs?

1764   MR. KLASS: I think the closer you get to the full MVNO the more desirable it is. We have several of these branded resellers in the country already -- well, several, 7-Eleven and PC Mobile. That's Petro Canada Mobile, not President's Choice which is a brand -- you know, that's a flanker brand.

1765   And as I understand it, these companies don't really offer competitive services, presumably because the terms on which they are allowed to resale service prevent them from doing so. So the phones you can get are limited, right? It's prepaid which means you're paying, I think 7-Eleven something like 25 cents a minute, $10 for 100 megabytes. So if you actually wanted to use the phone for anything other than sort of just the most, you know, sparse use you may as well sign up for a subscription, right? This is the sort of complete, don't compete strategy.

1766   So as you move up that scale in that chart which I saw on Twitter earlier today and, you know, have glanced at before while reading through Cogeco's stuff, yeah, I definitely think the closer you get to the tower the better because the company can differentiate its services.

1767   I think the Tucows' submission -- I mean the MVNOs' submissions -- a number of them had different approaches. But I think a broad theme that emerged was that we would need to be able to tailor our service offerings. And as I understand it, the closer you get to the tower the more likely that is.

1768   THE CHAIRPERSON: Do you think it's important for the ultimate subscriber to potential MVNO to know whose underlying network the service provider is using in terms of transparency?

1769   I mean, is that important to you because you make the point that people are sharing to a certain degree various infrastructures whether its domestically or internationally. There is an economic argument that encourages that.

1770   MR. KLASS: M'hmm.

1771   THE CHAIRPERSON: But in a sense, is it important since, you know, there are a certain level of sharing, to what extent would you or would other consumers think it important to know whose core network or network elements or facilities or functionalities are being used? Is that important to you?

1772   MR. KLASS: I think it probably would be important and I think people would probably be pretty good at figuring that out for themselves. So if you're asking this in the context of should part of a mandated system include requirements for transparency, I don't know how -- I don't understand what the question is directed towards but, yes, I do think it would be important for customers to know.

1773   THE CHAIRPERSON: I'm trying to get at -- you seem to suggest a lot of hashtags in some of the submissions.

1774   MR. KLASS: Oh, oh, yeah. I mean this is -- I've sprouted grey hairs since I started --

1775   THE CHAIRPERSON: It's not visible from over here.

--- Rires

1776   MR. KLASS: Okay. But I mean, it has been about a year, almost a year -- over a year that this has been ongoing for the most part, right, since the fact-finding exercise. But for me as an intervenor in this process, it's frustrating not having access to information.

1777   And I respect the companies need to protect confidentiality but I think that -- yeah, it makes it hard. It makes it hard to get a fact-based idea of what's going on.

1778   Considering the stakes, just in order to make these statements about the nature of the Bell/TELUS network sharing agreement, these basic statements, I mean, I've had to do a lot of work, right?

1779   And I'm still not, you know, 100 percent sure the maps that you guys can see there, often overstate the extent to which a carrier has its own facilities. Because they'll list -- if you click the Bell thing and then the TELUS thing it'll be the same tower but it'll show two different towers, one for each carrier because they are sharing a tower and it's the equipment that's measured, right?

1780   So the availability of public information on these topics is sparse and unreliable. So I mean, I'm glad that at least the Commission has got this although I understand that sharing agreement was not even revealed in full to the Commission.

1781   THE CHAIRPERSON: Right. Well, that's the nature of our proceedings. We often have information that others don't have. Unfortunately, people will have to trust us that we come up with the right answers with all that.

1782   Well, I really hope that you continue participating in the next days in this proceeding and do not sprout too many grey hairs as a result of that.

1783   MR. KLASS: Thank you.

1784   THE CHAIRPERSON: Thank you very much.

1785   Those are our questions.

1786   Anything from legal counsel?

1787   MR. STEWART: Pas de question, Monsieur le Président.

1788   THE CHAIRPERSON: Merci beaucoup. So thank you. We'll be adjourned till nine o'clock tomorrow morning.

1789   Thank you.

--- L'audience est ajournée à 1703, pour reprendre le mardi 30 septembre 2014 à 0900

STÉNOGRAPHES
Lynda Johansson
Jean Desaulniers
Madeleine Matte
Monique Mahoney

Date de modification :

2014-09-30