Transcription, Audience du 18 février 2020
Volume : 1
Endroit : Gatineau (Québec)
Date : 18 février 2020
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Les participants et l'endroit
Tenue à :
Centre des conférences
140 Promenade du Portage
- Président: Ian Scott
- Vice-présidente, Télécommunications: Christianne Laizner
- Conseillers(ères): Christopher MacDonald, Alicia Barin, Joanne T. Levy
- Conseillers Juridiques: Adam Balkovec, Eric Bowles
- Secrétaire: Jade Roy
- Gérants(es) de l’audience: Jeremy Lendvay, Marianne Blais
--- Upon commencing on Tuesday, February 18, 2020 at 8:58 a.m./ L’audience débute mardi, le 18 février 2020 à 8h58
1 LE PRÉSIDENT: Merci, Madame la secrétaire. Bonjour et bienvenue à tous. Good morning. Welcome, everyone.
2 Tout d’abord, je tiens à souligner que nous sommes réunis sur le territoire traditionnel non cédé des Algonquins. Je remercie le peuple algonquin et rends hommage à ses Aînés.
3 The CRTC is holding this public hearing as part of a comprehensive review of mobile wireless services. The review is significant. Canadians, competitors, service providers are all paying close attention to it.
4 Our objective is to ensure the regulatory framework enables sustainable competition that provides better prices and innovative services for Canadians, as well as continued investments in high-quality networks across Canada.
5 Le cadre actuel des services sans fil mobiles de gros a été établi en 2015. Ce cadre oblige Bell Mobilité, Rogers et Telus à fournir aux concurrents des services d’itinérance de gros à des tarifs fixés par le CRTC. Ce régime devait rester en place pendant au moins cinq ans pour permettre le développement d’une concurrence durable.
6 Since then, the CRTC has updated the Wireless Code, taken steps to make lower-cost data plans widely available to Canadians, and finalized wholesale roaming rates, all in an effort to empower consumers and ensure the marketplace continues to meet their needs. We also made access to mobile wireless and Internet services part of the universal service objective.
7 We want Canadians to have access to world-class mobile wireless services, in terms of coverage,
8 quality and price.
9 Entre 2016 et 2018, les fournisseurs de services sans fil ont investi plus de 7$ milliards dans leurs réseaux pour étendre leur portée et améliorer la qualité de leur service. Selon nos données les plus récentes, 99 pour cent de la population a accès à la couverture LTE, et 95 pour cent de la population a accès à la technologie LTE-A.
10 Nous voulons nous assurer que les investissements dans les réseaux se poursuivent afin que la qualité et les vitesses des réseaux sans fil du Canada soient parmi les meilleures au monde.
11 In terms of price, there has been progress. Mobile wireless rates decreased by an average of 28 percent between 2016 and 2018. We remain concerned, however, that these price decreases may not be keeping pace with what is transpiring in other jurisdictions, and we want to see a broader range of affordable options for consumers.
12 In light of these concerns, and the fact that there has been limited resale competition in the market, the CRTC decided to move ahead with a review of the mobile wireless framework.
13 Depuis que nous avons lancé cet examen, nous avons entendu des observations par de nombreux Canadiens et d’autres parties intéressées. En plus des nombreux commentaires qui ont été soumis dans le dossier public, plus de 28,000 Canadiens ont participé à une consultation en ligne sur leurs services sans fil mobiles.
14 Un sondage téléphonique nous a également permis d’obtenir les opinions de plus de 1,200 Canadiens qui sont statistiquement représentatifs de la population canadienne. Les rapports de la consultation en ligne et du sondage téléphonique font partie du dossier public.
15 What we've learned from the telephone survey is that most Canadians who responded to the survey are satisfied with their cellphone provider and are not likely to switch providers.
16 That said, we've heard loud and clear from Canadians that their cellphone bills are a concern to them. The vast majority of surveyed Canadians were of the view that prices for their cellphone service are not as competitive in Canada as they are in other jurisdictions, with 66 percent saying that Canada's cellphone prices are worse than elsewhere in the world.
17 Clearly this is an important issue for Canadians and for the Commission.
18 Lors de cette audience, nous nous concentrerons sur trois éléments clés. Premièrement, nous examinerons l’état de la concurrence dans le marché des services sans fil mobiles et déterminerons si des mesures supplémentaires doivent être prises pour améliorer le choix et l’abordabilité des services.
19 Second, we will consider whether mobile virtual network operators, also known as MVNOs, should have mandated access to some or all wireless service providers' networks and, if yes, subject to what considerations.
20 On this matter, the CRTC's preliminary view is that the national wireless service providers, Bell Mobility, Rogers, and Telus, should be required to provide MVNOs with wholesale access to their networks, subject to certain constraints.
21 Enfin, nous examinerons si des mesures réglementaires peuvent être nécessaires pour faciliter le déploiement de l’infrastructure de réseau 5G au Canada. Nous sommes à la veille d’une importante transformation technologique, car les fournisseurs se préparent à déployer les réseaux 5G.
22 À terme, ces réseaux se traduiront par des avantages considérables pour l’économie canadienne, les municipalités et les Canadiens. Notre pays doit être prêt.
23 We have been developing an extensive public record during this proceeding and will continue to do so through this hearing, and the final comments that will be filed by interveners.
24 To all those who took the time to participate, we'd like to thank you. You are an important part of the proceeding and we value your input.
25 The CRTC will make its decisions, in the public interest, based on the evidence put forth on the public record during the entire proceeding. While some issues may be raised in a more prominent manner during this hearing, we will be looking at the entirety of the evidence found on the public record. Our goal is to ensure that Canadians indeed have access to a world-class communications system.
26 Before we proceed, I'd also like to remind parties that the Commission has, under consideration, procedural requests from the Canadian Network Operators Consortium and Telus Communications. These requests seek disclosure of information filed in confidence by the Commissioner of Competition. A decision on these requests will be issued in the coming weeks.
27 Enfin, j’aimerais faire quelques présentations.
28 Le comité de l’audience se compose des personnes suivantes: madame Christianne Laizner, vice-présidente, Télécommunications; Christopher MacDonald, conseiller, Région de l’Atlantique et Nunavut; Joanne Levy, conseillère, Manitoba et Saskatchewan; Alicia Barin, conseillère, Québec; et moi-même, Ian Scott, président du CRTC.
29 Le personnel du Conseil qui nous assiste comprend: Jeremy Lendvay et Marianne Blais, gestionnaires de l’audience; Eric Bowles et Adam Balkovec, conseillers juridiques; et Jade Roy, notre secrétaire de l’audience.
30 J’invite maintenant madame Roy à expliquer la procédure que nous suivrons. Merci.
31 Madame la secrétaire.
32 LA SECRÉTAIRE: Merci. Bon matin.
33 Before we start, I would like to go over a few housekeeping matters to ensure the proper conduct of the hearing.
34 When you are at the presentation table, we would ask that you please turn off your Smartphones.
35 Le service d'interprétation simultanée est disponible durant cette audience. Nous désirons rappeler aux participants d'allouer un délai raisonnable pour la traduction lors de leur présentation à vive-voix, tout en respectant le temps alloué pour leur présentation.
36 Please note that the Commission will also be tweeting the documents during the hearing @crtchearings using the hashtags #CRTC.
37 There is a verbatim transcript of this hearing being taken by the court reporter sitting at the table to my right. Please know that the transcript of each day will be posted on the Commission's website the following business day.
38 Just a reminder that pursuant to section 41 of the Rules of Practice and Procedures, you must not submit evidence at the hearing unless it supports statements already on the public record.
39 If you wish to introduce new evidence as an exception to this rule, you must ask permission of the Panel of the hearing before you do so.
40 Please also note that if parties undertake to file information with the Commission in response to questioning by the Panel, these undertakings will 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 the undertakings. Any undertakings will be due on March 10th.
41 Parties are advised that four exhibits will be posted shortly on the Commission's website, which will be referred to during the hearing.
42 Exhibit 1A and B, Posted Wireless Service Provider's Prices, are two price surveys conducted by CRTC staff. They include plan prices as of 21st November 2019 and 13 February 2020, as posted on certain wireless service provider's websites.
43 The second exhibit, Subset of Occasional Use Plans, is a non-exhaustive list of occasional use plans currently offered by wireless service providers under $15.
44 Pièce 3, Résumé des plans proposés par les groupes de consommateurs, comprend la liste des forfaits sans fil proposés par les différents de consommateurs dans le cadre de ce processus, ainsi qu'un résumé des composantes et prix des forfaits suggérés.
45 Finalement, Pièce 4, Engagements, fournit une liste des engagements auxquels les parties qui comparaissent à l'audience devront fournir les réponses, des réponses s'il y a lieu, d'ici le 10 mars.
46 All the exhibits will be available in the back of the room and in the examination room, and they will be posted shortly on the Commission's website.
47 And now, Mr. Chairman, we will begin with the presentation by the Competition Bureau.
48 Please introduce yourself and your colleagues, and you have 20 minutes for your presentation.
PRESENTATION / PRÉSENTATION
49 MR. BOSWELL: Good morning, Chairperson Scott, Vice-Chair Laizner, Commissioners, Commission staff and counsel. My name is Matthew Boswell and I am the Commissioner of Competition at the Competition Bureau of Canada.
50 Before I begin, let me introduce the members of our panel. To my immediate right is Laura Sonley, a Senior Competition Law Officer in the Competition Promotion Branch who leads the Bureau team in this proceeding. To her right is Dr. Tasneem Chipty of Matrix Economics. Dr. Chipty is the economic expert the Bureau retained in this Proceeding. To Dr. Chipty's right is Derek Leschinsky, legal counsel for the Competition Bureau.
51 Finally, to my left is Anthony Durocher, Deputy Commissioner of Competition who leads the Bureau's Competition Promotion Branch.
52 This proceeding involves a complex industry and a complex set of issues, analyzed and interpreted by a group of stakeholders with highly divergent perspectives. While most stakeholders agree that the benefits of competition in this industry, such as lower wireless prices, more choice and high-quality networks improve the welfare of Canadians, there is little consensus on just about anything else.
53 This is why the Competition Bureau has placed such importance on our participation in this Proceeding. Evidence and impartiality is needed to make sense of this complexity, and this multiplicity of views.
54 En tant qu’organisme indépendant agissant dans l’intérêt public, le Bureau a le mandat de protéger et de promouvoir la concurrence au Canada. Les recommandations que nous avons présentées dans le cadre de cette instance s’appuient sur les preuves que nous avons examinées et analysées.
55 Comme vous l’avez indiqué dans votre avis de consultation, cette instance vise à faire en sorte que le cadre réglementaire des services mobiles sans fil favorise une concurrence durable qui donne lieu à des prix raisonnables, à des services innovateurs et à des investissements continus dans des réseaux sans fil mobiles de haute qualité dans toutes les régions du pays.
56 Dans cette optique et en nous appuyant sur nos travaux, nous avons proposé ce que nous croyons être la voie la plus prometteuse pour stimuler une concurrence réelle et durable à long terme dans cette industrie.
57 Nous vous remercions de nous accueillir aujourd’hui pour nous permettre de présenter notre point de vue et nos conclusions afin de vous aider à tenir compte de ces enjeux importants dans l’industrie des services sans fil.
58 Évidemment, nous sommes conscients que d’autres enjeux de cette instance dépassent notre mandat et notre expertise. Nos soumissions et les points de vue exprimés aujourd’hui reflètent notre champ de compétence, c’est-à-dire la concurrence.
59 Notre but, ce matin, est d’expliquer le fondement de notre recommandation d’adopter un modèle d’ERMV axé sur les installations pour stimuler la concurrence. Pour ce faire, je décrirai d’abord les deux principales conclusions de l’analyse approfondie effectuée par le Bureau et Madame Chipty qui soutiennent cette recommandation.
60 Premièrement, Bell, Rogers et Telus, les trois grands fournisseurs nationaux, disposent d’un pouvoir de marché et exercent leur puissance commerciale dans plusieurs régions du Canada.
61 Deuxièmement, les entreprises perturbatrices du secteur sans fil dotées d’installations régionales entraînent une importante concurrence des prix là où elles offrent leurs services en ébranlant le pouvoir de marché des trois grands.
62 These important findings that underpin our recommendation bear repeating.
63 First, Bell, Rogers and Telus, or the Big 3, exercise market power in many areas across Canada.
64 Second, regional facilities-based wireless disruptors drive significant price competition where they operate by challenging the Big 3's market power.
65 Our analysis began with a foundational question, is there a competition problem in Canada's wireless industry? This question is key because, in our view, without a competition problem, there is no need for a regulatory solution.
66 To test whether a market is sufficiently competitive, the CRTC assesses whether firms have market power. This test is also at the heart of what we, at the Bureau, do on a daily basis.
67 There are different indicators of market power, including the level of market concentration, the profitability of market participants, and the presence of high barriers to entry. By any measure, the wireless industry in Canada is highly concentrated, very profitable, and it is extremely difficult to enter given, among other factors, the need for spectrum and capital-intensive network build-outs.
68 These indicators of market power are reinforced by Dr. Chipty’s in-depth quantitative analysis using wireless carrier data made available to her through this proceeding. Dr. Chipty tested for market power by assessing whether, and how, the Big 3 react to increased competition. Dr. Chipty consistently found that they significantly lower their prices when faced with increased competition from regional facilities-based wireless disruptors, such as Videotron and Freedom Mobile. This solidified the Bureau and Dr. Chipty’s finding that the Big 3 possess market power in many markets across Canada.
69 Having concluded that there is a competition problem in the industry, we next assessed how it should be addressed, keeping in mind the need to balance increased competition with the incentive to invest in Canada’s high-quality networks.
70 Depending on a stakeholder’s viewpoint, the recommendations that have been put forward fall within a spectrum from broad MVNO access to no change to the status quo. The Bureau’s perspective is that regulators should only intervene when necessary and based on the best available evidence.
71 In the wireless industry, that would mean that facilities-based competition is the preferred solution, if it is working. Which brings us to the Bureau’s second key finding.
72 Facilities-based competition from wireless disruptors is creating a marketplace where Canadians can enjoy the benefits of competition, including lower prices and more choice.
73 The evidence we analyzed painted an encouraging picture of the significant progress made since the CRTC’s last wireless review five years ago.
74 The evidence demonstrates that Canadians are choosing facilities-based wireless disruptors more and more.
75 Five years ago, Videotron had around 10 percent of Quebec’s subscribers; and Freedom, formerly Wind Mobile, was approaching 800,000 subscribers. Since then, both of those numbers have nearly doubled.
76 Further, the evidence demonstrates that the Big 3 are clearly responding to competition from facilities-based wireless disruptors. Dr. Chipty estimates that Canadians pay on average 10 percent less for a Gigabyte of data where a wireless disruptor has achieved a 5.5 percent market share compared to areas without a wireless disruptor. This benefit increases to a 65 percent saving where a wireless disruptor has achieved 20 percent market share.
77 Simply put, in parts of Canada, competition from facilities-based wireless disruptors is increasingly delivering lower prices and more choice. Knowing this, the Bureau proposed a facilities-focused MVNO model aimed at enhancing and expanding the reach of these competitive benefits to more Canadians.
78 In contrast, an MVNO policy without a facilities focus raises several issues.
79 First, an MVNO would rely, largely, on both their competitor and the CRTC to set the bounds within which they can compete. The competing network operator’s incentive would be to raise the MVNO’s costs and use whatever levers are available to make them a less effective competitor. A broad MVNO policy may result in more entry than the Bureau’s facilities-focused MVNO model, but those entrants will likely be less effective, even in aggregate, because of their cost structure.
80 To illustrate the importance of cost structure, consider that the existing wholesale rates in the context of mandated roaming would need to decrease by up to 64 percent to offer comparable plans to those of Videotron, Sasktel and Freedom Mobile.
81 Second, the evidence of the success of broad mandated MVNO policies internationally is mixed, with some policies resulting in greater competition, but not others.
82 Finally, and perhaps most importantly, a broad MVNO policy could weaken or slow the growth and competitive impact of facilities-based wireless disruptors. As mentioned earlier, Dr. Chipty found that Canadians begin to see meaningful benefits when facilities-based wireless disruptors achieve a scale of at least a 5.5 percent market share, and these benefits are substantially greater where a wireless disruptor reaches a 20 percent market share.
83 In order to significantly improve pricing and choice for Canadians, these are the targets that we should aim for. A broad mandated MVNO policy could work against this goal by forcing facilities-based wireless disruptors to compete against MVNOs for the same customers on an uneven playing field.
84 Namely, the MVNOs would have access to broad incumbent networks built up over decades, while facilities-based wireless disruptors would be limited to their own networks that are decades behind in build-out. This places at risk the benefits that wireless disruptors are bringing to consumers.
85 Dr. Chipty calculated that, just for Freedom, if their forecasted growth were to slow by 25 percent, it could amount to a savings loss of around $234 million annually due to unrealized price reductions for consumers.
86 For these reasons, to adopt a broad MVNO policy at this stage is a risky bet, when the evidence demonstrates that the entry and expansion of wireless disruptors will continue to pay off for Canadians.
87 Our recommendation aims to encourage and incentivize network expansion by the wireless disruptors through a time-limited regulatory intervention.
88 The facilities-focused MVNO model targets areas where consumers’ options are still limited to the Big 3 by promoting growth of the most effective form of competition, facilities-based competition. Wireless disruptors have been aggressively expanding the reach of their networks into these areas.
89 For example, at the end of the period studied by Dr. Chipty, four areas remained without a regional competitor. Freedom has since entered all four of those areas. Our policy seeks to preserve and enhance the investment incentives of wireless disruptors so more Canadians can benefit from the demonstrated competition that wireless disruptors bring.
90 The facilities-focused MVNO model we recommend is time limited, with a view to a world where wireless disruptors are no longer reliant on their competitors. Wireless disruptors who operate their own network, like Videotron and Sasktel, have full control over their pricing, product offerings and network quality, allowing them to compete more aggressively given the greater latitude afforded by their cost structure. And, importantly, the Big 3 are incented to respond to this increased competition by improving their own offerings to win new customers and retain existing ones.
91 Some have argued the risk of decreased investment is overstated since the Bureau did not find concrete evidence to suggest investment decreased after broad mandated MVNO policies were implemented internationally. However, it is important to distinguish between the investment incentives of the Big 3, and the investment incentives of wireless disruptors.
92 In many of the jurisdictions studied, a broad MVNO policy was introduced, in part, to incent entry by facilities-based carriers akin to the wireless disruptors in Canada. Our international findings regarding investment, therefore, may provide some indication that the investment incentives of the Big 3 are unlikely to be impacted by a broad MVNO policy, but do not provide much insight into the impact on the investment incentives of facilities-based wireless disruptors.
93 Lastly, in terms of additional remedies, we believe certain measures aimed at lowering barriers to entry and expansion, and reducing switching costs for consumers, could improve the level of competitive intensity in the industry.
94 In this respect, we specifically note mandated seamless handoff, tower sharing and site access rules, roaming rates and device decoupling as issues warranting your consideration to enhance competition.
95 En conclusion, le Bureau recommande une politique qui encourage et incite une concurrence axée sur les installations et portée par les entreprises perturbatrices déjà en activité dans le secteur des services sans fil.
96 Nous estimons que la preuve présentée à cette instance a démontré que la concurrence fondée sur les installations, assurée par ces entreprises perturbatrices, est efficace et que cette conclusion devrait guider la voie d’avenir.
97 Par conséquent, nous recommandons une politique d’ERMV qui est axée sur les installations, par opposition à une politique nouvelle et plus spéculative qui n’a pas été mise à l’épreuve dans le contexte canadien et qui a donné des résultats mitigés ailleurs dans le monde.
98 De plus, nous recommandons cette approche puisqu’un modèle d’ERMV plus vaste pourrait mettre en danger les effets concurrentiels démontrés par les entreprises perturbatrices des services sans fil.
99 Un modèle d’ERMV plus vaste est une solution moins ciblée qui, puisqu’elle ne présente pas une voie définie vers l’indépendance par rapport aux trois grands, nécessiterait la surveillance et l’intervention continuelles du CRTC.
100 L’incitation et l’accélération de la croissance des entreprises perturbatrices dotées d’installations sont la voie d’avenir la plus prometteuse.
101 Le modèle d’ERMV axé sur les installations permettrait à ces entreprises perturbatrices de faire affaire en tant qu’ERMV dans les régions avant d’offrir ultimement leurs services aux consommateurs à l’aide de leurs propres réseaux.
102 Ce modèle est conçu pour encourager l’expansion et la croissance des entreprises perturbatrices dotées d’installations, une solution qui a fait ses preuves pour stimuler la concurrence et améliorer les prix et les choix offerts aux Canadiens.
103 Finalement, un modèle axé sur les installations conduirait à une concurrence plus efficace de la part de concurrents indépendants et autonomes et, par conséquent, s’avère la voie la plus probable vers une baisse des prix et une augmentation des choix et de l’innovation pour les clients de services sans fil à l’avenir.
104 We look forward to today’s discussion and greatly appreciate your time this morning. We will of course endeavour to provide you with clear and concise answers to your questions.
105 Thank you once again for inviting the Bureau to participate in this hearing.
106 THE CHAIRPERSON: Thank you. Thank you very much. Thank you for the presentation.
107 And I should take a moment to thank the Bureau for its extensive engagement in this, in our process, and its contribution to building the record on which we’ll make our decision.
108 It’s -- you do indeed, as a government institution have a great deal of expertise with respect to competition policy and we plan to benefit from it. And I appreciate your engagement.
109 Like any other intervenor, however, you may well be surprised that we have a few questions for you.
110 So with that, maybe I’ll jump into it.
111 I was going to begin by almost summarizing your position, but you’ve done that very well in your opening remarks.
112 But I note at page 6 of your presentation you made -- you described Dr. Chipty’s findings as the Big 3 possessing market power in many markets across Canada.
113 And maybe that’s where I’ll begin. I was going to say -- to ask you if it’s fair to say that a summary of the Bureau’s position is that the big three generally have market power? I think the answer to that is clearly yes on your part, with the exception though, of a few CMAs where there’s a fourth carrier strong enough, a facilities-based carrier strong enough to offset or to have you reach a conclusion that there isn’t market power.
114 Can you tell me then in which areas the national MVNOs do have market power and which they don’t?
115 MR. BOSWELL: Perhaps -- thank you very much, Chairperson Scott, perhaps I’ll just indicate, at a high level, and Dr. Chipty can follow up with more details, but markets with no regional wireless disruptor or regional wireless disruptor with less than 20 percent market share are experiencing the effects of an exercise in market power since the Big 3 can charge significantly higher prices in these areas.
116 And it’s my understanding, as you made reference to, sir, that this effectively, from Dr. Chipty’s observations, includes all markets except a few cities in Quebec, Saskatchewan, and Northern Ontario.
117 But perhaps I could ask Dr. Chipty to elaborate?
118 DR. CHIPTY: Yes, hi. I’d like to very much elaborate.
119 So I want to be a little careful in describing these cities where there is a large regional incumbent as to these without -- where the Big 3 are not exercising market power.
120 I don’t think that the evidence is able to let you reach that definitive a conclusion.
121 What I can tell you based on the evidence is that the Big 3 exercise less market power in those areas than in other areas.
122 Now, you know, generally speaking, if we were to look outside of this particular industry in Canada, if you have encountered a market place with four firms, you would still consider the possibility of the incumbents exercising market power.
123 So all I can tell you from the empirical work that I’ve done is that in the cities where there is a strong fourth incumbent, the Big 3 are exercising less market power than in the other cities.
124 THE CHAIRPERSON: Thank you. Let’s talk about market definition maybe for a minute.
125 So as you suggest in your evidence, the relevant retail geographic market is likely either as narrow as a city or as broad as a province, depending on the region.
126 So again, in which regions does the Bureau consider that the market is provincial?
127 DR. CHIPTY: May I start?
128 So let me just start with the concept and then hopefully get to a more specific answer.
129 So the concept of market definition really starts with understanding the substitution options available to consumers.
130 And so consumers generally can only buy in the areas where they generally live and spend most of their time.
131 And so that means that the relevant geographic markets here are likely to be local and the Bureau describes it in their report as cities.
132 Now, I’ve studied CMAs. And so really, the most the data are allowing us to study as granularly as possible are these CMAs, which generally focus around a city and then surrounding areas.
133 But as far as it’s necessary to really get your hands around a precise notion of a relevant geographic market, it’s been my position, and I’ve tried to explain this in different places in my report, is that it’s -- in my view it’s not necessary to draw strong boundaries to define -- to delineate the specific geographic markets.
134 Suffice it to say that the notion of a relevant geographic market will help to think through the competitive factors that belong in an empirical model to study movements and prices, but the precise boundaries of those markets need not be defined.
135 And so really, what we can see from the geographic pattern of price movements across Canada is that cities where there’s a strong regional competitor are experiencing lower prices. And that already tells us that the markets are probably as narrow as that and possibly even narrower. We can’t rule that out.
136 THE CHAIRPERSON: I understand that may pose some challenges for us as we try and think about remedies and apply it to a particular market so we’ll come back to that.
137 But even in the context of using CMAs, as you have, would it be appropriate to group CMA’s, for example, for conducting a market power assessment then? If certain of them have that characteristic and others are less competitive, would that be a useful analytical exercise?
138 DR. CHIPTY: I think that it’s possible that some groupings could be legitimate. I haven’t grouped them myself, because disaggregate for the purposes of the empirical exercise, if you will, can cause no harm. But aggregating could potentially mask effects. And so, I tried to study this in the most disaggregate way possible, but I -- I do -- I do agree with you that there may be some groupings that are natural and appropriate, but I have not applied the groupings.
139 THE CHAIRPERSON: Okay. Thank you. Were there, in your studies or analysis, did you find any significant differences in the marketing practices for wireless services by a given carrier across CMAs located in the same province or territory?
140 DR. CHIPTY: So generally, as I look to some of the -- first of all, I started with looking at the -- the carrier’s responses to their promotional activity -- there was an RFI specifically directed to the carriers to describe the nature and, sort of, frequency of their marketing activities. And several of the carriers described marketing activities that were formally implemented province wide, not just to specific cities or specific CMAs, but some of them, like Telus, has described province wide marketing activities.
141 But in some follow-on responses from specifically, Bell and Rogers, both carriers responded to questions posed by the CRTC with respect to their marketing programs. And what they describe in their -- in their own words, is that when they are faced with the possibility of losing specific customers, they do target their marketing programs to their vulnerable customers. So to the extent that they’re losing customers to a particular regional, they might actually offer targeted discounts to retain those customers, or perhaps win them back.
142 And so, the collection of all of this information just led me to believe that -- that by in large, there is a whole variety of marketing going on by the carriers, some of which is very targeted, and some of which is province wide.
143 THE CHAIRPERSON: Thank you, again. If my voice cracks, it’s not because I’m being emotional. I have a bit of a cold.
144 So going back to that analytical framework, is -- are there disadvantages to this two-pronged approach of market definition? Or in the sense -- in particular, I’m concerned or trying to get my head around what it means in terms of the market analysis and the implementation of any remedies, by adopting such an approach?
145 DR. CHIPTY: So I think that this -- I think what you mean by the two-pronged approach, if I -- is ---
146 THE CHAIRPERSON: Market definition of -- of provincial and/or CMAs.
147 DR. CHIPTY: I see, I see. So I think there are two different purposes of, sort of, getting your head around market definition and one of them is to assess market power. And I think for the purposes of assessing market power, I don’t see much benefit in, sort of, distinguishing between the specific boundaries of a geographic market. I think that, you know, I’ve provided direct evidence of market power, and the bureau in it’s submission, has described a variety of indicia, both at the CMA and the province level, and nationally, which would lead you to the same conclusions.
148 So I think with respect to market power, I don’t see much value in sort of, picking precisely the boundaries of the markets over which a market power assessment is made. But with respect to the remedy, I understand your question and I think that one would have to look more carefully at the pattern of regional presence -- regional competitor presence.
149 And you know, I’ve shown you some of this evidence. I’ve compiled it from the RFI responses in Exhibit A-1 and in Exhibit 3 of my report, and I think that, you know, depending on what the ultimate policy objective is, there are certain regions of Canada that could be carved out, if you will, given a specific policy objective.
150 THE CHAIRPERSON: Yeah. In particular, I’m thinking as the Commissioner outlined at the outset, we want to use regulatory solutions where there is a problem to be addressed. And if we’re not confident that there is market power in a particular CMA or other defined area, then obviously it brings into question the need, or the nature of any remedy.
151 MS. SONLEY: If I may, I think that’s a -- that’s a natural outcome of our remedy, is that -- our proposed remedy, is that it does target the areas where we’ve identified more significant problems. So you may see less entry in Quebec or Saskatchewan for example, because the carriers in -- the regional carriers in those territories own spectrum exclusively in those areas. So there’s not really a prospect for them to continue building.
152 Our remedy does offer scope for them to improve their competitive ability with the four additional remedies that we’ve proposed. But you likely wouldn’t see them entering new markets, because they have covered most of their territory. I should say that Videotron also has spectrum in the Outaouais, Eastern Ontario Region, so you could see some expansion. Whereas, where you don’t have a wireless disruptor, you would see entry in those areas if carriers were to utilize our remedy. Because they’re -- that’s were, you know, there would not be a carrier today, but there is spectrum that exists that they could use to deploy a network.
153 THE CHAIRPERSON: Thank you. We’ll come back to that because, actually, I had some questions for that reason about Sasktel and Thunder Bay as examples. Just back to the definition, or using CMAs and provincial areas as defined markets. What about outside the CMAs? How do we look at the market outside of CMAs?
154 DR. CHIPTY: So I have done some work looking outside of the CMAs. I described a little -- some of it in the report. So you know, the RFI responses give us some window into what’s happening outside the CMAs, because they -- the carriers have provided some information, both at the provincial level, as well as at the CMA level, and so looking at the differences across the two, it is possible to take a look.
155 In general, I caution using metrics to measure the presence of regionals at the provincial level, because except for a handful of provinces, the regionals are there in only pockets of the different geographies. But certainly, in Quebec and in Saskatchewan, the regionals are largely everywhere. And so -- so you have a good idea that consumers in virtually all portions of those provinces have the benefit of a fourth large competitor.
156 Now, you know, in some of the welfare calculations I’ve done, what I looked at is benefits to Canadian consumers living inside the CMAs and the CA of Timmons, as well as what I called the rest of Canada. And the rest of Canada is exactly the geographies outside the CMAs and the City of Timmons, within the provinces themselves. And of the provinces, what I find is that with the exception of Quebec, Nova Scotia, and Prince Edward Island, the province -- all of the provinces outside of the CMAs could benefit from the creation of additional regional competition.
157 THE CHAIRPERSON: Okay. Thank you.
158 So moving on to prices, the bureau concludes in its evidence that where prices are lower, it’s due to the presence of a fourth facilities based competitor. Charles Rivers Associates report, filed by Bell Mobility in this proceeding, has an alternative claim, and that is that it’s due to lower network quality. So can you comment on that competing view as to what is indeed the driving force for lower rates?
159 DR. CHIPTY: Sure. I’ll start. So, you know, I find that sort of, bottom line conclusion of the CRA report, which I agree, that’s also what I -- how I understood the conclusion to ultimately come out, a little confusing. Because there’s some contradictory -- there are some contradictory facts, I think, that I try to reconcile myself.
160 The first seems to be that, you know, CRA’s position and Bell’s position is that the -- the national carriers have made substantial investments in infrastructure, and that the quality of the Canadian networks is quite high, especially in comparison to international, you know, networks.
161 And so there is that, and then there is the question of well, if the network quality is so high how can it be explaining lower prices?
162 So in particular, the work that CRA has done, and the work that I have done, looks specifically at the national carriers' prices as a function of regional competitor presence. Now, if the regionals have quality that's below the national quality, then I would expect that the nationals wouldn't have to work so hard on the price front to keep their customers from switching to the regionals.
163 So I guess, it wasn't clear to me where the lower quality comes from. If anything, I thought that what CRA might have been trying to say is that the nationals are able to charge higher prices because they're offering better quality, and that with high quality comes a commensurate high price.
164 But that fact -- that explanation doesn't reconcile with the fact that the nationals are actually lowering their prices when they face regional competitors, while at the same time, they say they're continuing to make infrastructure investments throughout Canada.
165 So I'm not really sure how to reconcile CRA's quality argument, except to note that, if anything, it looks like their -- the presence of regionals creates price discipline on the national carriers, and at the same time, the presence of these regionals has not eroded their incentives to the nationals' incentives to invest in quality or invest in infrastructure.
166 So anyway, the -- I don't know. Laura?
167 MS. SONLEY: I think a distinction between what Dr. Chipty has done in her study and what was done by Ms. Sanderson from CRA is to look -- Ms. Sanderson looked carrier by carrier, whereas Dr. Chipty is looking at the reaction by the Big 3 to additional competition.
168 So you could envision that some of the results from the CRA analysis would be driven by the fact that regional carriers tend to have lower quality networks than the Big 3. So if the result is that, you know, low quality or high quality is explaining price differences on a carrier-by‑carrier basis, that's a distinct finding than what Dr. Chipty has found, which is that when you have competition from a wireless disruptor quality doesn't decrease in response. So I think it's looking at two different questions.
169 And I don't think the Sanderson findings are necessarily surprising because we do know that regional carriers tend to have lower quality given that they're, you know, decades behind in trying to build their network. So it makes sense that you would see a relationship between those two things.
170 THE CHAIRPERSON: Okay. Thank you. As you mentioned network investment, it reminded me that I missed one question that I wanted to ask, moving backwards a little bit to market definition.
171 In your presentation this morning, you indicated that at the end of the period studied by Dr. Chipty there were four areas that remain without a regional competitor, but Freedom has since entered all four of those areas. Can you indicate what those are?
172 MR. BOSWELL: Yes. My understanding, Victoria, Kelowna, Lethbridge, and Bellville. I think I have that correct.
173 DR. CHIPTY: Yes, you do.
174 MR. BOSWELL: Okay.
175 THE CHAIRPERSON: Thank you. Sorry, I just omitted to ask that earlier. Sorry to change the line of questioning.
176 Back to prices. You mentioned Québec, and if we take the example of Québec, specifically, moving to another piece of expert evidence, Dr. Dippon has argued that the demand conditions are different in that province, which also explains lower wireless rates for Québec.
177 For example, he's argued that wireless ARPU has been historically lower in Québec compared to the rest of Canada, and that there are different general communications consumption patterns, lower demand, for example, for Smartphones; a greater reliance on wireline telephony; they may spend less on TV and Internet, and so on, when compared to the other provinces.
178 As was my earlier question, what are your views on those conclusions?
179 DR. CHIPTY: So, you know, I agree with Mr. Dippon that the analysis of prices should account for local demand factors, or the, sort of willingness to pay by local consumers. And when I first set out to build the regression analysis, I actually, sort of looked very broadly to the types of factors that have been studied in Canada in terms of explaining willingness to pay for wireless services. I also took into consideration, you know, studies outside of Canada that have been conducted in, not just telecommunication services, but similarly situated industries that involve monthly recurring fees paid by consumers for certain services.
180 And largely speaking, the types of demand factors that I found to be used by other studies, as well as in my own academic publications, are things like median household income, population density. In fact, Mr. Dippon, himself, talks about population density as being an important driver of both supply and demand side considerations.
181 And so the regression analysis I do does control for the cross-sectional analysis, does control for those factors, and what I'm finding are differences above and beyond controlling for those factors.
182 Now, in the difference and difference analysis I do, difference and difference is a method that does a controlled experiment slightly differently from the cross-sectional regression analysis. In difference and difference, I compare a geography and a time period where something -- where a change has occurred..
183 In the examples I study, I study Freedom's introduction of the Big Gig, or Eastlink's entry into five specific CMAs over the sample period, and I compared those areas in those specific sort of studies separately for Eastlink and Freedom to areas that didn't experience that change, and I do some testing of the fundamentals to see if those areas, the control areas and the treatment areas, are moving similarly before the treatment.
184 Which also gives you an ability to check whether sufficient underlying factors are the same before you try to draw a causal connection between, whatever it is we're studying in the cross-sectional study would've been the presence of regional carriers by different degrees, and in the difference and difference, it would be the implementation of the Big Gig Plan by Freedom, or the entry by Eastlink.
185 And so I think that, in principle, I agree with Mr. Dippon that I should and one should try to control for important differences. In practise, I believe I've tried to do this in a variety of different ways, and so the results that I've sort of come to are effects that I would interpret causally, given the fact that the different models try to control for differences across geographies.
186 THE CHAIRPERSON: Thank you. The Hearing Secretary mentioned a number of exhibits at the outset, and for the purposes of this proceeding, Staff conducted a survey of advertised prices for wireless service plans, as posted by the WSPs on -- first on November 21st, 2019, and then the results were updated prior to the launch of the hearing on February 13th of this year. Both surveys are publicly available, and they're contained -- the results are contained in Exhibits 1A and 1B, and the questions I'm about to ask refer to those exhibits, if you could look at them.
187 So when looking at the cross-province price comparisons, it's been argued at many places in the record that Saskatchewan, Manitoba, and Québec have benefitted most from the presence of a fourth strong regional player. But when I look at the survey conducted in November, the posted prices in Saskatchewan and Manitoba are pretty well comparable to all of the other provinces, and it's only Québec that seems to stand out.
188 And again, in the updated survey for February, prices for plans with data allowance is below 10 gig offered by both Premium and Flanker brands are similar, it would appear, across all provinces, again, except for Québec.
189 Is that, in your view, an indication that the impact of competitors in Saskatchewan and Manitoba is not as strong as -- that there's a change going on?
190 DR. CHIPTY: Let me start -- Chairperson, I will point you to Exhibit 4 of my report. I won't say the numbers out loud because this exhibit is marked as confidential, but if you look at that exhibit, the numbers and the pattern here are not dissimilar from what you've collected in November.
191 And I think that part of the explanation here is that the raw data are showing prices to be higher, for example, in Saskatchewan than in other parts of Canada where there are smaller or perhaps even no regionals, but these numbers are not controlling for other factors. And for the -- and what the regression analysis is trying to tease out is it's trying to understand how much of this price difference is driven by, you know, the different factors, and what we're learning is that, in fact, prices here in these areas would have been even higher but for the presence of a strong regional.
192 So, I would caution sort of trying to look at prices that are affected by many factors when, in fact, what the -- you know, just in the levels as they appear versus prices -- versus a model that tries to give you some window into the relationship between the presence of competitors and prices.
193 THE CHAIRPERSON: There is some difference in the larger capacity plans 10 gigabyte and up, for example, is that significant, in your view?
194 DR. CHIPTY: Sorry, could I ask you to explain what you mean by large difference?
195 THE CHAIRPERSON: I'm just asking -- you don't need to look at the exhibit -- is there a difference whether it's large plans, large capacity plans versus or across the board? Is there anything unique about the performance in those markets with big gig offers?
196 DR. CHIPTY: It's a -- let me -- I'm not sure, is the answer, but let me try to give you some facts that I think may help put some contours on an answer.
197 One of the things that comes out from the empirical work that I've done is that really the regionals are, in many ways, putting greater pressure on the nationals through their flanker brands, and the flanker brands are the, if you will, the fighter brands, the brands where perhaps -- the brands that are perhaps targeted towards the more price-sensitive customers.
198 THE CHAIRPERSON: M'hm.
199 DR. CHIPTY: So, it is certainly possible that -- in fact, we see all of the carriers, not just the nationals, we see all of the carriers implementing, you know, a menu of offerings that are essentially attempting to sort consumers based on their own tastes and their willingness to pay. Now, the price analysis that I've done and that's amenable to study given the CRTC's data gathering is really an average price at the brand level. And so, what it does is it -- it's an average across the different plans that you're describing here. So, the RFI responses aren't at the plan level.
200 And so what I'm measuring, and what all of our work has been focussed on is to look at the effect of regional competition on average brand level pricing by month, by geography, and so really, to the extent that the regionals are placing more pressure on a certain type of plan, we would only be able to measure that effect if that effect was strong enough to be measured in the average.
201 MS. SONLEY: If I could just add to your question regarding the reduction in the regional variation in pricing. I think that was something that was very interesting to us in comparing our study here to our study in 2017 of LMTS where we did not find that the Big 3 were reacting in a significant way to Freedom, and that's why they were not listed as a strong regional competitor; whereas, in this study, we are finding indications that the Big 3 are responding to Freedom. And some of the information that we received about advertising shows that competition is now occurring on a more localised basis, which does make sense, given that Freedom operates on more of a city basis, and you see other competitors -- or, sorry, other regional carriers across provinces that have a similar type of footprint. So, it seems that there may be some more targeted promotions that are occurring. So, that's just something I wanted to draw your attention to.
202 THE CHAIRPERSON: Thank you.
203 And what about the fact that, you know, in the case of SaskTel it's a Crown-owned corporation, or in the case of Tbaytel it's municipally owned, does that influence -- is there anything in your study that suggests that that influences pricing? Is there an obligation to taxpayers, or is there anything that you found that would inform us on that?
204 DR. CHIPTY: Yeah, so in my experience even beyond telecom, the governing structure or the underlying ownership structure has ultimately not been relevant. I'll give you a very sort of common question I get in healthcare. If you have a not-for-profit, does that somehow make it a different, you know, kind of organisation to study. And in my experience, the ownership structure of the firm rarely matters in these types of studies. I'm not saying it could never matter, but in my experience it rarely matters. And what we found here is that, in fact, what really matters is not who owns the carrier or what the history or the genesis of the carrier is, except for the fact that -- what matters is the size and the scale the carrier has been able to achieve.
205 And I think what's interesting about the government-owned and in the examples you gave is that those are exactly the regionals that were able to achieve the substantial regional scale that they have achieved, and that's what, to me, makes them unique.
206 THE CHAIRPERSON: Thank you.
207 Starting when you say ownership doesn't matter, it'd probably make a whole bunch of Crown -- heads of Crown corporations in Canada uncomfortable, but I understand the response.
208 So, going back to the November -- Bureau's November submission, you indicate that the matrix study finds significant price reductions in markets where a fourth competitor has a 5.5 per cent penetration rate, and that the price differential is larger if the competitor can obtain a 20 per cent penetration rate, and you summarised those findings this morning for us.
209 So, a question I'm struggling with is at what level of price reduction do you feel there's no longer market power?
210 DR. CHIPTY: So, you know, it's a really important question. I don't think that any of the price variation that we've seen in Canada can be described as prices generated in an environment where the large firms are not exercising market power. All we can say is that there are some areas where they exercise more market power and some areas where they exercise less market power. I don't think the -- I don't think we have the ability to tell you what a purely competitive price is.
211 THE CHAIRPERSON: I understand, but it leaves me still without -- I mean, I'm just trying to get a sense of where -- at what point do you believe that market power -- you know, what's the measure? Where is the bright line for us as regulators?
212 MS. SONLEY: I think what we've said in our report is the competition problem is clear where a wireless disrupter has under 20 per cent market share. When you exceed that threshold it's more difficult, as Dr. Chipty has described, because what we've done here is a relative assessment. So, on the end of the spectrum where you have higher market shares it's more difficult to say that there is not a market power problem.
213 THE CHAIRPERSON: I'm just struggling because if we get to 30 per cent share loss, do we then continue to need to have regulatory measures? I know I'm persisting. Your answering a slightly different question in terms of we don't know. I guess I'm trying to figure out when do we know? Is there a magic number, or are you suggesting that there isn't, I mean, we just -- we won't have a bright line in that sense?
214 DR. CHIPTY: Yes, if I could answer it slightly differently still. I think that in the policy consideration, as you think about the costs and benefits of incenting additional entry, I think what the results show is that the incremental gains are going to be substantially larger in areas with relatively less regional penetration today so that as you're making that sort of -- as you're balancing those risks, the gains to consumers in areas where there already is a very large incumbent regional are going to be lower than the gains to consumers in other areas.
215 And so in balancing those risks, I think you may want to treat the areas with the large incumbent regionals differently.
216 THE CHAIRPERSON: Is there anything -- does your analysis change in any sense as a result of the recent introduction of call it unlimited or wireless plans with no overage charges?
217 Obviously that's been a significant event in pricing in the mobile wireless market in Canada, and it's quite recent. Does that change or impact your analysis in any way?
218 DR. CHIPTY: You know, I've been thinking about this, especially because some of the -- some of the intervenors have raised these same questions. And I guess I have several thoughts on this.
219 The first is that, you know, the recent events, the 2019 events where the national carriers have, in part, simplified their plan offerings and in part moved to this unlimited data plan structure, to me, is very related to how they reacted just one year earlier in reaction to Freedom and its Big Gig plans.
220 So I would -- I actually -- as I look back over the last several years, I see some innovative products coming out in part because of the regional disruptors and in part I see innovative products coming out because of the different ways in which consumers are using data plans.
221 And so it's hard to really separate out how much of this could have happened organically or would have happened anyway versus happened because of regional competition.
222 And then -- so I guess it's not so clear to me that just because the large carriers have now moved towards those types of plan negates the value of regional competition and incenting more of it.
223 And the other thought that I've been really trying to clarify for myself is that when you move to an unlimited plan with data throttling, that's really what it is, that if consumers use up to a certain amount, the speeds are slowed down for them.
224 That is implicitly, if you will, raising price for consumers who actually want to use higher amounts of data, and so the older plans that actually had data overage charges gave us a way to monetize the cost to consumers. And so I'm not exactly sure that the -- simply because they've provided unlimited plans, they're not charging in some way, shape or form, consumers that want to use more data.
225 MS. SONLEY: I think it's also important to consider the magnitude of the decrease in price in comparison to the problem that Dr. Chipty has identified. I think in the Commissioner's opening statement he identified that when regional carriers can obtain up to 20 percent share, the prices decrease by 65 percent and the decreases that we saw with unlimited plans aren't of that magnitude.
226 So in our view, there still remains a competition issue. And it's also important to consider the shift in device subsidies that occurred simultaneously.
227 Of course, they have -- you know, there was a significant increase in the -- or decrease in the subsidy that customers were receiving at the same time that these unlimited plans came into market after some action from the CRTC that has -- subsidies have returned to some extent, but the Statistics Canada data still does identify that it's, I believe, 21 percent higher than it was prior to the launch of unlimited plans, so there is, you know, benefits and drawbacks to the introduction of those plans.
228 THE CHAIRPERSON: Thank you.
229 You mentioned data consumption. I had a question on that.
230 The Bureau's submission is that a lack of competition from regional carriers results in super-competitive pricing among the national operators and that, as a result, Canadians hold back on their consumption of data.
231 In your view, this necessarily has an impact on network quality when compared to international wireless carriers, as there's less traffic on the large networks, the national networks, than is the case for their international peers.
232 Again going back to Charles River's report filed by Bell Mobility argues that the evidence doesn't support the argument at either the national or the international level, could you respond to that disagreement or difference of view?
233 DR. CHIPTY: So we didn't find that persuasive to counter the point that we've raised.
234 So the pattern that they've identified is internationally where you have higher-quality networks, you tend to see higher usage. But that's not the case in Canada. We have high-quality networks, but we tend to see lower usage.
235 So we still think that the point that they've raised or identified supports what we're saying, that it's super-competitive pricing that is resulting in customers using less than they would otherwise like to if prices were lower.
236 THE CHAIRPERSON: Okay. Also in your November submission, you indicated that it was unclear to what extent that -- the downward trend in price per gigabyte can be attributed to an increase in competition. You provided technological advances as an example of a factor that's likely had an impact or contributed to those cost reductions.
237 So in your analysis, how do you separate out the effects of competition from technological change or the cost of providing service?
238 Obviously if cost -- the cost curve was going down, then prices should follow. How do you account for that?
239 DR. CHIPTY: Right. So the regression analysis tries to account for two types of movements in costs that might explain differences in prices.
240 So in terms of the trending that you were describing earlier just as part of your question, there has been, even from 2016 to 2018, an advancement in technology so that there have been, you know, reductions in the costs of providing service.
241 There have also been simultaneously, you know -- there are also, simultaneously, differences in costs across geographies because some geographies are just inherently harder to service.
242 Urban areas, it's even more costly to have customer service people that might go and, you know, install and whatever they do at the point of sale, and so there are differences, both temporal differences in costs that have been coming down as well as differences in geographies.
243 And so the regression modelling actually controls for both dimensions, so in the cross-sectional regression analysis, this is one of the very important roles of the time trend that's in there.
244 So the regression model has a very flexible time trend that tries to pick up changes in both supply side and demand side movements over time so that that time trend is picking up changes in technology over time, it's picking up changes in consumer willingness to pay over time, and it's also picking up -- it's also picking up, in part, the growth of the regional competitors over time.
245 So the time trend is going to capture whatever is common across Canada, across the geographies over time. And then there are some regional cost factors. In fact, I explained earlier I controlled for population density as well as median household income. Both factors are correlated with both the supply side, but also the cost side factors.
246 THE CHAIRPERSON: So not to put words in your mouth, both factors are relevant, but you've taken it into account in the regression analysis.
247 DR. CHIPTY: That's right.
248 And so then the effects of regional penetration that we're measuring are above and beyond those trend factors. And to the extent that the trend factor is absorbing some of the sort of trending in the regional presence, in the growth of the regionals, then the direct estimates that I have on the benefits of regional competition are actually under stated because some of the effect is being captured by the trend factors.
249 THE CHAIRPERSON: Thank you.
250 Let's move to profits. In your submissions, you indicate that the three national operators continue to maintain large profit margins relative to their global peers as being a relevant indicator.
251 Figure 1 in your submission provides an average EBITDA as a percentage of revenue for wireless operators for the G7 and Australia.
252 We note that EBITDA has been criticized on the record as being a poor indicator of profitability. For instance, Rogers makes the -- submits that it doesn’t take into account the opportunity cost of capital, nor does it account for depreciation and amortization charges that are significant in a capital-intensive industry like telecommunications.
253 So do you still consider that EBITDA is an appropriate measure to assess market power?
254 MS. SONLEY: You can look at a number of different cost measures. It’s still just an indicator of market power. So in our view, you know, this is suggestive, but it’s not definitive in assessing market power.
255 What is more definitive is the direct evidence that Dr. Chipty has put forward, which illustrates that the carriers are able to sustain higher prices in markets where they operate.
256 So in our view, that’s, you know, more concrete direct evidence.
257 THE CHAIRPERSON: So put another way, is -- I guess -- or put the question another way, is profitability a good indicator to assess competition in the market?
258 MR. DUROCHER: So in Canada, when we look at an assessment of market power, it’s been well accepted in courts in Canada in that regard, and it’s in our guidelines, that the best way to achieve an assessment is to look at direct or indirect indicators of market power.
259 So if we look at indirect indicators, they can be concentration levels, market shares, barriers to entry.
260 And if we look at more direct indicators, we can be looking at profitability levels, and also evidence of price discrimination and super competitive pricing when faced with competitors.
261 So in all those instances, we submit that the indicators of market power are there, including profitability.
262 THE CHAIRPERSON: Thank you. That’s a good segue into my next question actually.
263 So the Bureau’s Merger Enforcement Guidelines mention a safe harbour for approval of a merger is 35 percent market share, whereas the Abuse of Dominance Guidelines references a 50 percent share level for use in finding of dominance in abuse cases.
264 So which threshold is more relevant or important for us looking at the wireless market when assessing market power?
265 MR. DUROCHER: So the -- let me start with the difference as to why there’s two.
266 In Canada, the Abuse of Dominance Provision is a three-part test. You have to show dominance, a practice of any competitive acts, and that that is leading to a substantial lessening of prevention of competition.
267 Dominance has been interpreted by the Courts to having been tantamount to showing a substantial degree of market power. So it’s really a question of degree.
268 And that notion of substantial market power is really unique to the abuse of dominance provision.
269 So that’s why our guidelines, we’ve tried to note the relevant jurisprudence largely flowing from guidance from our Toronto Real Estate Board case on that notion.
270 But generally speaking, when we speak of market power, you know, the -- I think we’re working with the definition that’s been adopted by the CRTC, that it’s the ability of the firm or group of firms to maintain -- properly maintain prices above competitive levels.
271 THE CHAIRPERSON: How did -- how and if -- how did those thresholds translate into the MATRIX study, into your study, Dr. Chipty?
272 DR. CHIPTY: So the MATRIX study doesn’t rely on these types of indicia of market power, though they’re compatible with them.
273 And what I mean by that is if you calculate, you know, some of these indicia, let’s say HHIs or just look at the four-firm combined market shares across the CMAs in Canada. What you’ll find is that these measures of indicia will be very correlated with the presence of strong regionals so that it will appear that areas with strong regionals are less concentrated than areas without strong regionals, because imagine you go from three firms to four. So they’ll naturally affect the concentration index.
274 And so essentially what I’m finding is that prices are lower in areas with strong regionals. That’s compatible with the finding that prices -- you would expect prices to be lower in areas with less concentration.
275 THE CHAIRPERSON: Thank you.
276 MR. LESCHINSKY: I think it also bears noting that the threshold identified in the Mergers Enforcement Guidelines and the Abuse of Dominance Guidelines are in part the Competition Bureau giving direction to the market, it’s general approach to how it would, you know, approach an industry.
277 So these thresholds serve the purpose not necessarily of creating a safe harbour, but you’re there, you’re free. Rather, it’s to help the market have a general understanding of how the Bureau will approach a complex assessment such as the one it has done here in the context of a more complex and holistic analysis.
278 THE CHAIRPERSON: Okay. Thank you. But to make it maybe a little more specific, would you -- in your view, would you say that SaskTel and/or Tbaytel have market power in their respective operating territories?
279 MR. DUROCHER: We haven’t addressed specific instances of regionals that could have market power.
280 And just to echo what our counsel said, market share safe harbours are really thresholds.
281 And I think what is more important and meaningful for us in the context of our everyday work is to look at what does the evidence say about rivalry within a given market?
282 And so, you know, if we look at a specific wireless market in Canada, you know, what is noteworthy for us is to look at the vigour of competition within that market.
283 And I think if we look at evidence in Saskatchewan, or in Quebec, or in Northwest Ontario, I think there is evidence of meaningful competition, you know, not withstanding the regional provider having a significant market share.
284 THE CHAIRPERSON: Just continuing in the area of market concentration for a second.
285 Would it be appropriate to use penetration rates instead of market share in a competition assessment of a wireless market?
286 DR. CHIPTY: So in this particular case, we’ve actually shown it to you both ways. Exhibit 3 shows you market shares, so subscriber shares and Appendix A1 shows you penetration, which is subscribers divided by population.
287 And generally speaking, I mean, the levels are different, but -- and the numbers move around, but the patterns are very similar.
288 So I don’t think, in my view, at least in this application, it will make much of a difference one way or the other.
289 THE CHAIRPERSON: Thank you. On CapX, you indicate, again in your November submission, that the national MNVOs don’t appear to have a higher capital intensity than their international peers, that they rank basically in the middle of the pack.
290 But there’s a report submitted by Telus that argues that higher capital intensity internationally could reflect the fact that providers in foreign jurisdictions were lagging behind Canada in 4G development.
291 Do you agree with that explanation?
292 MS. SONLEY: I don’t think we agree with that explanation.
293 It’s a useful -- another useful measure to look at is per capita spending per carrier. And Canada is quite high in per capita spending, but low capital intensity.
294 So if you look at both metrics, I think it’s informative that that is not likely explanation.
295 THE CHAIRPERSON: Thanks. Coordinated behaviour. An area you have lots of expertise in. How critical is a finding of coordination to a joint dominance determination. In your guidelines you say it's not necessary, but that it would be probative. Can you help me understand a little better why a finding of joint dominance doesn't need to be supported by specific evidence of coordinated behaviours?
296 MR. DUROCHER: So joint dominance in Canada has been untested before the court so far, and we recently revised out abuse of dominance guidelines. And what we wrote in our section on joint dominance was a matter of much internal debate and external consultation.
297 And largely we think that, you know, it is important to keep a certain degree of enforcement discretion on how to interpret joint dominance, and it really would be a matter based on the set of facts at hand.
298 And, you know, as I said, this is a nascent area of the law, and it's one that we -- you want to tread very carefully, for the time being.
299 THE CHAIRPERSON: I understand, but there is -- you've given a number of examples in your submission that support a view of joint dominance. What's the difference, in your view, between intentional signalling and conscience parallelism?
300 MR. DUROCHER: So, it's a very good question. So, you know, the notion of coordinating and, you know, competitors in a concentrated industry showing accommodating reactions to certain behaviour, and monitoring behaviour, and maybe not being as aggressive as they otherwise would is not necessarily offside of the Competition Act.
301 Where we cross the line and we get into an area where there could be grounds for intervening is when there can be an agreement or an arrangement that facilitates or enables conduct in that regard. And we have two provisions, one criminal, one civil, to address instances where there is an agreement and arrangement. So, I think that's a critical and important distinction to make as to when we have accommodating behaviour on the one hand, and on the other we form an agreement or arrangement.
302 THE CHAIRPERSON: As you noted -- I just want to be sure I do have this right -- we don't have jurisprudence or guidance from the Competition Tribunal at this point?
303 MR. DUROCHER: On joint dominance, no.
304 THE CHAIRPERSON: On joint dominance.
305 MR. DUROCHER: No.
306 THE CHAIRPERSON: I'm thinking of other sectors that are similar in some respects, banking, gasoline, retail gasoline, airlines. It seems that it's not uncommon for companies in those sectors to follow each other's prices fairly routinely. Is the analysis similar, or in that case would you look at those industries and say that they could be jointly dominant? Are they different than the telecom wireless sector?
307 MR. DUROCHER: No, I would suggest every industry stands on its own and we're guided really by the set of facts and the evidence in respect of any industry, but, you know, generally speaking, you know, again, you know, reacting to competitors, and matching prices, and coordinating is not necessarily crossing the line into having an explicit agreement or arrangement. So, we are really guided by the underlying facts and evidence of those instances.
308 MR. LESCHINSKY: If I might add to that, Professor Chipty has presented direct evidence with respect to market power. And if you look at the evidence respecting, you know, coordination or unilateral effects analysis to that, in a way, that's really how this had happened. What's quite significant about the Bureau's evidence in this proceeding is that we have presented direct evidence on market power. So, when looking at the information respecting the coordination that's on the record, and that we would ask you to consider, you might put it in the how bucket. And that may -- you thought it was a secondary part of the presentation, the primary being the direct evidence that Dr. Chipty has submitted.
309 THE CHAIRPERSON: Fair enough, but you indicate that coordination can be difficult -- in your earlier submissions -- can be difficult to sustain when individual prices aren't readily observable. And the matric study shows that actual transaction prices differ significantly within and across markets, so how does that affect the ability of competitors to observe, monitor pricing and -- in the market?
310 DR. CHIPTY: If I could sort of provide a little bit of background and then maybe address the evidence directly.
311 The first is, you know, the coordination and the possibility of coordination. There's a long literature in economics that studies the factors that tend to facilitate coordinated practices. And the Bureau's submission actually goes through many of the dimensions that have been studied in the literature of factors that facilitate. Not all of the factors that facilitate need to be present in order for there to be coordinated activity.
312 So, that's -- you know, I'm not saying that monitoring prices is not possible. I'm just saying that even if it weren't, I'm not sure that it's necessary in terms of all of the other sort of factors that exist in this marketplace, but that being said, I think simply observing regional price variation does not support or refute the possibility of coordination.
313 A coordinated strategy does not require uniform pricing across areas. A coordinated strategy could very well be compatible with different responses and under different circumstances.
314 So, two firms might coordinate to offer lower prices in areas where they face certain market conditions, but had they not been coordinating, they would have chosen yet a different strategy. So, coordination doesn't require uniform pricing.
315 Now, the work that I've presented doesn't require there to be coordination, but if there has been coordination, or if there is coordination, then the effects of competition could be even greater, if it moves the Big 3 further away from a coordinated strategy.
316 THE CHAIRPERSON: Changing the subject somewhat, and I recognise that the Competition Bureau does not have -- did not have all this confidential information in this area, but what's the Bureau's opinion about network sharing, the current network sharing agreements that exist in the wireless industry in Canada today?
317 MR. DUROCHER: So, I think we recognised -- so, we're well aware of the existence of network sharing effects and their competitive significance. I guess we recognise that network sharing agreements on the one hand can lead to important efficiencies and lower the cost of deployments of networks. On the other hand, network share agreements between competitors can raise serious competition issues as well.
318 So, what matters to us is, you know, the underlying facts of the agreement in question, and it's an area we -- where we are vigilant at because, you know, these are important agreements, but, you know, just to underscore the fact that we recognise the efficiencies that they have, but also the inherent dangers for competition perhaps.
319 THE CHAIRPERSON: I want to thank you for that, but I wonder if I can just push you, prod you a little bit further.
320 When do they become anti-competitive? When do network sharing agreements become a problem? Do they have an impact -- did the existing -- in your view, did the existing agreements have an impact on retail competition in the wireless sector in Canada?
321 MR. DUROCHER: So, when could they have an impact is a matter of the evidence obviously. And the -- under the Competition Act, so if we look at our provision that deals with competitor collaborations, the test is that of resulting in a substantial lessening of competition. So the question is would an agreement maintain, enhance, or create market power?
322 And there are many forms where that could happen, and oftentimes with large, complex agreements the devil is in the detail as to what the terms say, which terms are legitimately or legitimate commercial terms to achieve an efficiency enhancing outcome in which don't appear to serve any legitimate commercial or efficiency enhancing purpose, and harm competition.
323 So it's really looking at the specific terms of any competitor collaboration agreement to identify where there could be harm. And every agreement I think stands alone and needs to be looked at with a view to understanding, not just the key terms, but their underlying rationale as well.
324 THE CHAIRPERSON: Thanks. On the basis of the information that you do have, do you think that the presence of network sharing agreements in Saskatchewan and Québec influence the ability of regional carriers and national operators to offer competitive prices?
325 MR. DUROCHER: So for -- what would say there, I fully appreciate the question. For the purposes of this proceeding, we did not study individual network sharing agreements and their potential impact on competition.
326 THE CHAIRPERSON: Okay. Do -- last question in this area. Do you think they also have -- the sharing agreements have an impact on network quality? Is that the offsetting parameter?
327 MR. DUROCHER: You know, I -- at a theoretical level, I think it might. If a network sharing agreement is going to result in faster deployment of new technology, I think that you could look at it as an improvement to quality if you have quicker deployment of a new technology.
328 THE CHAIRPERSON: Okay. Thank you.
329 I have a -- some specific questions about the Matrix Study. Maybe we'll start with the absence of Telus data in this study.
330 We note that Telus didn't readily have data at the CMA level available to be used in the Matrix Study. Dr. Chipty, what does the lack of information from Telus mean for the results?
331 DR. CHIPTY: And so, it's a very good question, and I've thought about it quite a bit.
332 So let me start with you're absolutely right. Telus did not provide usable data at the CMA month level. Telus provided responses to RFI103 at the annual provincial level. So even their provincial level numbers weren't monthly, they were annual. So there was very limited ability to use the Telus data in the kind of cross-sectional analysis that I've implemented, both in the main regression and in the event study work that I did.
333 But that being said, you know, there are two related additional factors that help me to learn about Telus because of Rogers and Bell. The first is that Rogers and Bell together account for about 65 percent of subscribes nationwide, and so even in and of itself studying the importance of regional competitors on Rogers and Bell, I think gives us a really important window into the role of regionals with respect to outcomes for consumers.
334 And the second is that as I look at some of the other evidence outside of responses, specifically to RFI103, and I look at Telus's other responses, for example, with respect to its promotional activity, Telus described on the order of -- well, I won't say the number publicly, but Telus described its promotional activity in 2008, it -- 2018. It went through and described each marketing initiative and gave some indication of what it entailed and why it undertook it.
335 And the majority of Telus's responses show that in 2018 the majority of its marketing initiatives were because of Bell and Rogers. That means in response to something they were doing. So if Bell did something, Telus rolled out something similar. If Telus did something -- I'm sorry. If Rogers did something, Telus rolled out something similar.
336 So if I put the -- if I put that sort of nature of evidence together with the observation that I can document that Bell and Rogers are responding to regional competition, and I know that Telus matches Bell and Rogers at the local level, it gives me a lot of foundation and basis to extrapolate.
337 And so at various places in my study, I do reach a conclusion that one can extrapolate from the findings of Bell and Rogers to Telus.
338 THE CHAIRPERSON: So I'll take that as a confirmation that you don't think that the lack of information from Telus has a negative impact on the confidence level in the study results. Is the opposite true? If you had the Telus data, would we have an increased level of confidence in the results of your study?
339 DR. CHIPTY: It's a good question. I should back up and say that as a researcher, I would always prefer more data to less, and if you have ---
340 THE CHAIRPERSON: Fair enough.
341 DR. CHIPTY: If you had, you know, managed to get usable Telus data, we would have certainly used it and looked at how sensitive the results were to their inclusion.
342 But that being said, really, I think the second part of your question goes to the concept, at least to my mind, of power, whether increasing the window and the observational basis for the analysis would improve, as you said, confidence level in the study results. I think that it would have increased confidence in one way and not necessarily in another. It would've increased confidence in that it would've definitively put to rest any doubts that the results could extrapolate.
343 But that being said, the -- in a statistical sense, the confidence level or the power of the analysis is actually quite good. And I say that by looking at the model fit quite high, and I also say that if you look for example at Exhibits 11 and 12 of my report, where I show you some counterfactual predictions that you could use the regression results to sort of evaluate. So I evaluate in Exhibits 11 and 12 what would be the reduction in price, dollars per gigabyte, if a region with a given level of -- if a region with zero regional penetration were to increase to some higher level.
344 And what you see in that -- in those charts is I actually show you the confidence intervals with which the model is estimated. And for penetration levels below 20 percent, the confidence intervals are quite tight, meaning that the ability of the study to measure precisely is quite high.
345 THE CHAIRPERSON: Okay. Thank you. In almost near the beginning of your study, you indicate that there is no measurable impact, or effect, rather, on competition below a 5.5 penetration rate. Is that there is no measurable effect, or is it that the impact on competition is limited or insignificant below 5.5?
346 DR. CHIPTY: So I think it's actually both. And I say that if -- the best way I think for me to explain that is if you look at Exhibit 11.
347 Exhibit 11 shows you the estimated percent change in the plan limit adjusted price for Rogers' and Bell's flagship brands if you use the regression model to predict what would happen to this measure of price, if you move from zero regional penetration to some higher level, you know.
348 And if you look in the neighbourhood of zero, if you go from zero to say 1 percent, the point estimate, so that dark green line, actually gives you the best estimate of the price effect. It's a very small price effect in terms of economic significance, and then there's a large confidence interval around it, so it's also hard to measure precisely.
349 So both the point estimate is close to zero and the confidence band is quite wide. And that pattern persists 'til you reach about 5.5 percent.
350 THE CHAIRPERSON: So what does that mean with respect to smaller competitors like Eastlink or Xplornet, in terms of us looking at -- at them?
351 DR. CHIPTY: Right. So the -- the results that I presented, especially with respect to Eastlink, because I’ve done -- I’ve done the cross-sectional work, but I’ve also done the event study work. And when I look at the Eastlink entry areas, there were five CMAs from 2016 to 2018 where Eastlink entered. And I looked at those areas before and after to see what’s going on and whether we can measure price effects from their entry. And what I am finding consistently is that where the regional is relatively small, where relatively small empirically turns out to be less than five percent ---
352 THE CHAIRPERSON: Five point five.
353 DR. CHIPTY: Where the regional is relatively small, there is no measurable effect. In essence, this -- this finding which is, you know, qualitatively robust, is what led me to the view that a useful policy objective would be one that creates an environment to not just create entry or expansion by a regional provider or an MVNO, but the -- but an environment that create --- that enables that entrant to grow to a sufficient scale. Because I don’t think the historical evidence will support, you know, consumer benefit effects without sufficient scale.
354 THE CHAIRPERSON: Thank you. In your study is the plan limit adjusted price, base on ARPU per Gigabyte. Is that an appropriate proxy for actual prices?
355 DR. CHIPTY: Good question. It’s obviously been something that others have raised -- a topic others have raised. So what he ARPU is, is essentially average price -- average effective price paid across the plans of a brand, in a CMA, in a given month. Okay. So it is a -- ARPU itself is a measure of average price. There are a couple of things to like about ARPU, and there are obviously things you might not like about ARPU.
356 One of the things to like -- that I like about ARPU, is it reflects the actual price experience. These are not posted prices. And during this period, 2016 to 2018, the ARPU, which is revenues collected -- in fact for Bell it is revenues billed -- but it’s revenues collected, excluding equipment revenues, for services provided, divided by the number of subscribers that collectively paid those revenues. And what it includes, it doesn’t include equipment, but it does include data overage charges, and I think that’s a really important dimension to capture a price effect for consumers.
357 If I had looked at just plan prices, it would have bene hard to figure out how to factor in the additional complexities of when overage charges kicked in. So ARPU, the -- the elegant thing about ARPUs is that it automatically reflects the effective price experience of consumers, on average.
358 The thing not to like about it is it’s on average, as opposed to for each individual plan -- set of consumers for a given plan. You know, that said, I will point out that the companies use ARPUs in their normal -- through business assessments, and it’s an important indicator to them about how well they’re doing on the pricing front. And so, I do think it’s an important industry-wide measure that’s recognized and used in industries where there are these monthly recurring fees, they become a very convenient metric to use.
359 Now, I don’t just look at plan limited adjusted ARPU. I look at ARPU separately. I look at plan limit separately. And then I look at the combination of the two. I also look at data usage. So I look at these four outcomes and I look at them in combination, I look at them separately, and I also look at them in combination to see whether the pattern of effects tells a story that makes sense.
360 THE CHAIRPERSON: I think you’ve already answered it, Rogers and Telus in particular, raise concerns about its use. Is there anything else that you wanted to add in response to their concerns about using plan limited adjusted prices as an alternate indicator of price?
361 DR. CHIPTY: Well, I guess there are probably two other things to make the response complete -- or as complete as I can think of right now. The first is that Rogers has a criticism of ARPU because they are suggesting that what ARPU is picking up is simply the mix of consumption decisions in different areas.
362 So Rogers suggests that, you know, I think it’s -- it’s Dr. Crandall for Rogers who describes a scenario in which you have two areas with identical offerings, same menu. But in one area consumers are taking the more expensive plans and in one area consumers are taking the less expensive plan. So he’s suggesting that by looking at ARPU all you are picking up is the mix of the consumption decision, not really price effects. And I think that theoretically, if that really were true, he would have a point.
363 But practically speaking, that’s just not true. You can look at the different products offered and the targeted marketing strategies by Bell and Rogers, and you can see that they’re not offering the same things in the same areas. And -- or at least not identically in the same areas, especially their -- their targeted products that are specifically intending to compete with the regionals are focussed on local geographies. So I think the predicate of Dr. Crandall’s sort of, hypothetical, just doesn’t hold in this case.
364 And the second response is really, I think from Bell and CRA, who suggest that really you shouldn’t calculate ARPU adjusted by plan limit, you should just control separately for plan limit. And I would suggest that you could do that and it’s not going to change the quality of the -- the directional quality of the results. I actually think methodologically, it’s better to isolate all of the decision variables to one side and keep all of the exogenous variables on the other side. But if you did what Bell suggests and what CRA suggests, it’s not going to materially change the results of the model.
365 THE CHAIRPERSON: Thank you for that. And just for the record, I think you misspoke when you said Dr. Crandall’s evidence for Rogers, that would be for Telus. Although I’m sure he’s prepared to send an invoice over to Rogers if it helps the case.
366 I’ll get back on my train of thought here. Is -- so when we look at regional provider penetration, is it what is measured by the subscribers to regional carriers in an area divided by the total population, as you used in your study? Is that a good proxy for market share considering that market share is typically measured from revenue?
367 DR. CHIPTY: So I -- I don’t -- well, I guess I don’t in my experience, know enough to say that it’s typically measured in revenue. I think that one could do it in both ways. You know, the U.S. merger guidelines actually look at it in both ways and they have, sort of, a description of what you might learn from one that you might not learn from the other, but that both can be valid measures of share.
368 And I have looked at it both ways, but in -- and but the two are quite comparable in terms of where you come out, in terms of the distribution and the relative importance of regional competitors in the different areas. But I prefer for this study, I prefer the subscriber based, the quantity-based share if you will, instead of the revenue-based share. For -- for mostly two reasons.
369 One is simply that I can abstract from -- I can abstract from prices, I can really get, you know, at least directly -- indirectly prices are there, because it affects the volume of subscribers. But I can really focus on, for regional presence, I was really trying to get at the -- the scale in a quantity sense, because that’s -- when we think about production scale, we usually think about it in a quantity sense. The presence of regional competitors, in terms of the physical scale they’ve been able to achieve in an area.
370 So I thought methodologically, the quantity share was better than the revenue share. And then as I looked back at some of the -- the communications monitoring reports. I looked at how the CRTC has historically thought about regional competitor presence, and it has also -- these reports also often use quantity shares, and so this is why I chose quantity shares ultimately.
371 THE CHAIRPERSON: Thank you, again.
372 On page 5 of your study you indicate the incremental benefit of adding additional regional competition is smaller and that the overall disciplining effect on Rogers and Bell is more uncertain in areas where the regional competitor has a penetration rate above 20 percent. Why is this?
373 DR. CHIPTY: I think the bullet on page 5 is trying to describe Exhibit 11 that we were looking at before.
374 And if you notice in Exhibit 11, what I’m showing you is that as regional penetration increases, prices decline, relative to no regional competition, and the effects are largest, the incremental changes are largest for thresholds below -- for penetration below the 20 percent mark and that above the 20 percent mark, consumers in areas with a strong fourth competitor. So a regional with greater than 20 percent penetration are still better off than consumers in areas with no regional competitors.
375 It’s just that the incremental benefit -- if you said, “Let’s increase regional -- let’s do something that would increase regional penetration from, say, 30 percent to 35 percent,” the consumer benefits that would flow from that increase would be less than going, say, from 10 percent to 15 percent. The same five percentage point increase would yield greater benefits on the lower end.
376 THE CHAIRPERSON: Okay. And then in Exhibit 5 -- maybe we’ll take a break after this question so we don’t wear you out all at once -- you give account of observations or data points at various penetration levels. There’s no observations for penetration rates between 16 and 36. Is that -- does that affect in any way the reliability of the study’s conclusions? Not having any data points in that range?
377 DR. CHIPTY: It’s a very good question and it’s something that I thought about a lot and I wanted to articulate very clearly, which is sort of part of the motivation for showing you Exhibit 5.
378 But, you know, ultimately if you look at Exhibit 11, you’ll see the role that the lack of data in certain ranges place in the study results.
379 So if you look at Exhibit 11, one of the reasons why I grey out the green line for a while, so there’s the green line and then it becomes just a faded grey line, then it becomes green again, is I wanted to expose and make sure the reader and the user of the study is clear that in that middle range, we don’t have support.
380 But even for the higher end where the line turns green again, you’ll notice the confidence intervals are quite high, quite large and wide, and the line generally flattens out.
381 And so with or without eyes on that middle segment, I think the variance in Canada, the variability that we do observe and are able to study is sufficient to tell us that below 20 percent, there would be likely consumer benefits flowing from additional regional penetration and that above a certain level in these high penetrated areas already with a strong incumbent, there would be less incremental gain.
382 So I don’t think the absence of that middle segment affects the actual interpretation of the -- at least the qualitative results.
383 MS. SONLEY: If I may, I find Figure 13 of the Bureau report quite helpful in understanding the difference amongst these different provinces. It’s just a very simple mapping of dollars per gigabyte by province from 2018 to 2018.
384 It is a confidential exhibit, so I can only describe generally.
385 But you’ll see the rate of -- if you think about the rate of change for each province, I think what Dr. Chipty is describing becomes clear.
386 You have certain provinces that started at a much lower level, so the rate of change is flatter. Whereas there’s provinces that started at a higher price point and are decreasing more quickly. And that’s the difference that she’s speaking about when you get sort of past that 35 percent market or 36 market share threshold.
387 THE CHAIRPERSON: Thank you. I have just a few more questions in this area and then we’ll move on to remedies. But I think this might be an opportune time to take a break.
388 We will break for 15 minutes, return at 11:20. Thank you.
--- Upon recessing at 11:02 p.m./
L’audience est suspendue à 11h02
--- Upon resuming at 11:22 p.m./
L’audience est reprise à 11h22
389 THE SECRETARY: Please take your seats.
390 THE CHAIRPERSON: Merci, Madame la secrétaire.
391 Oh, my microphone is closer. I guess I wasn’t easily heard. I hope you weren’t having a problem.
392 Let’s return then to the MATRIX study.
393 The CRA report again argued that the MATRIX study can’t determine the extent to its differences in wireless plan prices are due to differences in the carriers’ network quality across different geographies. I know you answered this in part earlier, but do you have any views on that argument?
394 DR. CHIPTY: Well, you know, the fact is that the penetration rates follow a specific pattern.
395 So the regional carriers with penetration rates above 30/35 percent are specific ones. Talking about SaskTel, Tbaytel, and in the earlier time period, MTS.
396 THE CHAIRPERSON: M’hm.
397 DR. CHIPTY: And in essence, those three are allowed to have -- because of the way the model is specified, I allow the effects of penetration to be different for regional carriers with penetration above 35 percent and the effects of regional penetration to have their own, perhaps different, effect, could be the same, but the model will -- the data will tell us if they’re the same or different for regional carriers with penetration below 20 percent.
398 So to the extent that the larger carriers have invested more because they’ve been around longer in their infrastructures, the marginal effect of their penetration will be captured by the fact that the penetration is allowed to be different for them in the geographies that they operate.
399 And then for the smaller ones, for Xplore Mobile, Eastlink, Freedom, Videotron, those carriers have, in the way that I’ve modeled the effects of regional penetration, have common effects, you know, they’re imposing common effects on the large nationals so that I’m capturing an average across the four of them.
400 And so essentially, if there is a concern or a question of whether the different regionals have difficult quality infrastructure in the geographies that they operate, what I would say is that, first of all, the model is flexible enough to have two groupings of regionals.
401 And then, within each group, what the regression model estimates is the average effect of the quality regional -- of the average effect of the regionals, given their combined quality, their overall quality, vis a vie the nationals.
402 Now that’s in the cross-sectional study, so I do think that the cross-sectional study allows for some heterogeneity across the regionals in this way.
403 The difference/indifference work actually is targeted to the geographies with and without Freedom. And there I actually did testing of what we call pre-trends to see before Freedom’s roll out of Big Gig, whether the areas with Freedom and the areas without Freedom were trending similarly enough for the purposes of conducting the event study.
404 And what I found there is that the different geographies sufficiently passed the standard thresholds of the pre-trend testing, which in sort of plain English means that there was no reason to think that the areas with and without Freedom were materially different once you controlled for the other factors in the regression model.
405 And so I know the CRA report has raised these issues, but I think that they more of a distraction than really materially affect the interpretation of the results.
406 THE CHAIRPERSON: Okay. Similarly, in the CRA report, with respect to Freedom’s introduction of its Big Gig offer in 2017, their argument is that the unlimited data wireless plans are not the result of a certain penetration rate threshold, but rather caused by dynamic competition among wireless carriers. What are your views on that argument?
407 DR. CHIPTY: Right. So, I read the same that you read in the CRA report and this use of the term dynamic competition. And I guess with respect to the Freedom event and the national carrier's response to Freedom, I think that Rogers and Bell's response to Freedom's big gate was very much a competitive response to a regional carrier. Do we want to call that dynamic competition? Sure. I have no problem calling that a dynamically competitive response, meaning that the carriers are not static. If their business is threatened, they will respond by doing something innovative, either by offering, you know, more data, or lower prices, or maybe a combination of both.
408 And so, I -- on the use of the term dynamically competitive, I'm not opposed to using it. I think that essentially what I've described is an indicia of the degree to which the regional competitor is placing competitive pressure and causing the -- and which is measured by the regional penetration rate. And what I'm essentially doing is measuring the national carrier's response to the presence of large carriers -- or, excuse me, regional carriers. And what I'm finding is that they react competitively when the regional carrier is sufficiently large.
409 THE CHAIRPERSON: Thank you.
410 Rogers, for its part, also argues that your study omits the cost of supplying wireless services, example, network costs, as a factor influencing prices and network quality. Do you have a comment on that?
411 DR. CHIPTY: Yeah, so the -- my study does not directly control for network costs, but what it does control for are differences in the average network costs across Rogers and Bell, because one of the things the study controls for in economics' language, it controls for carrier fixed effects. That means that the -- there's a, if you will, an indicative variable for whether the brand is Rogers, a Rogers brand, or whether the brand is a Bell brand.
412 And so essentially what the model does, is it controls for average differences in cost across Rogers and Bell. And to the extent they're common across Rogers and Bell, then the -- then essentially it's captured -- that average cost is captured across all of the coefficients in a symmetric way.
413 So, I don't think that the presence of average costs that are common across the two really affects the coefficients on penetration or the coefficients of central interest. The other variables in the model are doing the job of getting an average -- of differential cost differences across Rogers and Bell, which is really what the model needs to do, and it does do that.
414 THE CHAIRPERSON: So, Telus submitted that there's no economic or other evidence that establishes a correlation between mobile wireless penetration rates or data usage and mobile wireless retail prices. How do you respond to that argument that there's no correlation?
415 DR. CHIPTY: Right. So, a couple of different responses. First of all, I think that there's strong economic principles that would lead one to expect that the presence of an effective regional competitor should matter in the prices of the national carriers. And so, I begin with that. The theory tells us that we should expect some competitive response, provided that there isn't absolute collusion across the national carriers.
416 And then, you know, so setting that aside, then the question becomes is the model measuring a causal effect, and it must be the supposition that there's something missing from the model.
417 Now, if there's something omitted from the model that's actually correlated with regional penetration, then it's possible that what I'm measuring as the effect of regional penetration is simply really the -- a proxy for something else that we don't know yet.
418 But I will say that it's very easy to suggest that you're missing things in a regression model, but it's much harder to actually point to something that matters.
419 And I haven't seen anyone put forward a suggestion of what would matter that's missing from the model, and I've actually spent a lot of time thinking about what can you put in. Now, is the model perfect? No, the model's not perfect. I don't think any model can be perfect, but it's reasoned and there's a reasonable expectation that the effect I'm measuring on penetration is a causal effect, or at least telling us something about the importance of competition on the outcome for consumers in these areas.
420 THE CHAIRPERSON: Thank you.
421 Now, the national MNOs also use CAPEX per subscriber to compare investments. Is that an appropriate measure, in your view?
422 DR. CHIPTY: I'm sorry, could you ask the question again?
423 THE CHAIRPERSON: The national carriers are using CAPEX per subscriber to compare their investments. Is that an appropriate measure, in your view?
424 DR. CHIPTY: I guess I haven't spent a lot of time looking at that measure. I know that there has been some information provided on CAPEX in response to the RFIs, and I did take a little time to look at that at one point, but the problem that I had with reading too much into CAPEX, or CAPEX per subscriber, which one could calculate, is that it's very hard to distinguish between the different kinds of investments that are happening across the networks, as well as the geographies in which those investments are happening.
425 At one point I would have liked -- I tried to, because I would have liked to look at a correlation between CAPEX per subscriber in terms of regional standing and regional penetration, but the data that are available to study, at least the ones that were provided through the RFI responses, were not amenable to that. And so, I don't specifically have a problem with looking at CAPEX or CAPEX per subscriber, but I have a very hard time interpreting those numbers at the aggregate level that they're available and connecting them to some meaningful -- in some meaningful way to the questions that have been asked in this proceeding.
426 THE CHAIRPERSON: Maybe one last question in this area, and maybe it's a bit of a stranded question, but in this industry, what difference in price level do you think is sufficient to determine a different geographic market?
427 DR. CHIPTY: So, I go back to the principles of market definition. Well, actually, let me start by saying I haven't specifically looked at the question of what are the appropriate boundaries of a relevant geographic market, but there are principles that guide the question, that could help lead us to an answer. And we have to go back to the notion of demand substitution.
428 And so at the heart of market definition and thinking about what kind of price differences are sufficient to broaden the market, or what kind of price patterns would you have to see to say, no, you have to go to a broader geographic market, you have to ask whether the price differences say in one city are sufficiently different from another. So, as a consumer, let's say in city 1 prices were $5 and in city 2 prices were $25. Would consumers in city two be willing to move to city one in order to avail themselves of those better prices? If the answer is yes, then you -- the two cities should
429 be in the same market.
430 Now, typically in these types of service-related industries, you know, say cable television, or wireless plans, and things like this, it's hard to imagine that people would actually move because of their cell phone plan.
431 Now, if the choices were across the street you get this and this side of the street you don't, the shorter the distances, the more likely you can imagine substitution in geographies, but broad distances, at least my instinct would be that people wouldn't move broad cities just for a better cell plan.
432 THE CHAIRPERSON: Thank you.
433 Let's talk a little more about more broad issues. In the bureau's proposal, it suggested that mandated access be limited to carriers that you describe as disruptors, and you added a little bit in your remarks this morning. But how do you define a disruptor, and explain how that relates to eligibility for MVNO access?
434 MS. SONLEY: The criteria we proposed for assessing whether a regional carrier would obtain access is the operational managerial financial capabilities, and that comes from the tests that we would use, for example, in assessing a remedy buyer, and whether we think they would be able to, you know, build a business and actually concede and constrain the other firms in the market.
435 Practically speaking, what we've described is that that would likely be limited to carriers that are already in market and have -- can show that they would be able to build a network within 5 years. So that would mean, you know, carriers that have spectrum in an area, they don't already compete in that area, and this remedy would allow them to expand into that area more quickly than they would've otherwise and offer service.
436 So it's not necessarily that wireless disruptor means, you know -- and there's only certainly carriers that wireless disruptors and only they would get the opportunity to enter markets, it's that flexible criteria that we've assigned that we would suggest would be useful in assessing someone who wants to be a potential MVNO. However, as I've mentioned, the limiting factor is that they could credibly commit to building a network in 5 years, so that does limit the pool.
437 THE CHAIRPERSON: So maybe I can probe a little further. Can you identify who that might be, then, or expand on further eligibility criteria we might use?
438 MS. SONLEY: Yeah. So we've described in our report some of the carriers we think may be able to use this. Of course, they're better to speak to whether or not they intend to use this, where they intend to use it, et cetera. But for example, Freedom, in the areas where it hasn't already built a network but owns spectrum. So you could think about areas like, for example, Sarnia, or Renfrew, or Arprior, or the surrounding areas outside of the territory where they've already built, but they own spectrum so they could expand.
439 And the remedy seeks to provide a incented business case to expand into those semi-urban and rural areas and offer competition because that was what the Matrix study showed, those were the areas where competitive outcomes were significantly worse because there was no wireless disruptor.
440 Some of the other carriers that could use, I think I mentioned earlier, Videotron does have spectrum in certain areas in Ontario as well, so that could be a potential area. There is -- Eastlink has spectrum in areas where it could expand its network further. Tbaytel potentially also could, you know -- for example, Thunder Bay or -- or sorry -- Sudbury, Sault Ste Marie, North Bay, potentially.
441 That said, I mean, it is really to caveat that this is something that they would be better to speak to. We've just identified the realm of possible entrants.
442 THE CHAIRPERSON: Thanks. Now, you mentioned the managerial, operational, financial capabilities. How would we assess that standard in a meaningful way, and do you have any proposals for specific thresholds that we might use?
443 MS. SONLEY: Those detailed aspects of the remedy, we would plan to address. If it were the case that there were to be a subsequent proceeding to determine the specifics of a remedy policy, we would suggest that that would be the best place to come to a landing on some of those terms because it would be good to have additional information to be able to iron out what is...
444 You know, for example, first, you need to know what the metrics are that you're using as an incentive mechanism to -- and a monitoring mechanism to ensure that they're building out to be able to say, "Okay. This is what we should look at to assess whether this buyer seems credible".
445 But the types of things that we would look at in assessing a merger buyer, for example, is their business plan, their financial standing, and in this particular industry, a sufficient mix of spectrum would be relevant. So there's a number of different factors.
446 I wouldn't say that's an exhaustive list, and as I mentioned, were there to be another proceeding that could be an opportunity to dig into that further.
447 THE CHAIRPERSON: Now, you just mentioned spectrum, and again, in your November comments you stated that only wireless providers who have a sufficient quantity and mix of spectrum but haven't built out are likely to have that operational capability or capacity to meet the target in 5 years.
448 Do you have a definition, maybe it's the same answer, for sufficient quantity and mix of spectrum?
449 MS. SONLEY: Yeah. We don't have a definition at this stage. I think it would useful to get more information to be able to assess what that would be.
450 So for example, we theoretically could -- we could request documents about previous entry events by similar regional carriers and what spectrum was necessary to enter those markets and assess whether that would be available to them in this instant -- instance.
451 So the -- I think the -- you're correct in saying that it's sort of the same answer that it would be very useful to have additional information to iron out the very specific aspects of the policy.
452 THE CHAIRPERSON: Okay. Thanks. I guess I have some questions about the specific MVNO model you proposed.
453 But to start off, could you clarify for me, because I'm a little confused, as to whether the proposed MVNO model would only apply to areas where a regional carrier has spectrum but doesn't -- not offer service? Or is it that it would apply to areas where there is no regional carrier presence at all?
454 MS. SONLEY: It's the former. So where there -- they don't currently have a network but have the ability to build, or have the managerial, operational, financial capability ---
455 THE CHAIRPERSON: So they have spectrum, but don't offer service.
456 MS. SONLEY: That's right.
457 THE CHAIRPERSON: And your proposal appears to require that MVNO access be mandated at a very granular level. So let's say a carrier buys spectrum in a Tier 4 area and builds one tower, and that covers, let's say, a -- 10 percent of the market in that area. Under your proposal, would the carrier then have MVNO access for the remaining 90 percent of the Tier 4 area?
458 MS. SONLEY: So our proposal, they would first get MVNO access, but then after the 5 year period we would expect them to be able to build out sufficiently that they would a self-sufficient operator. So I don't think that that would be sufficient for them to continue to offer service.
459 THE CHAIRPERSON: But initially, they would only be eligible, then, for the 10 percent? Is that -- am I understanding correctly?
460 MS. SONLEY: I'm so sorry. I am not sure I understand the question. So ---
461 THE CHAIRPERSON: I will -- it's probably my fault, not yours. Let's try the example again. A carrier buys spectrum in a Tier 4 area and builds one tower. That gives it 10 percent coverage of the market in that area. So under your proposal, I'm just trying to understand if the carrier would then have MVNO access in just that 10 percent or in the remaining 90 percent ---
462 MS. SONLEY: Okay. I understand.
463 THE CHAIRPERSON: --- of that Tier 4 area, and we can go on if you want, and would that carrier be precluded from mandated access to serve the 10 percent where it does have coverage? Just trying to understand how the mechanics work.
464 MS. SONLEY: The balance.
465 THE CHAIRPERSON: It's just an illustrated example.
466 MS. SONLEY: Yeah. No, I understand now.
467 I think, again, that's something that's quite specific, and we would probably want to assess further and not, you know, speculate on the spot here.
468 But the intention is, is that, you know, you would have temporary mandated MVNO access. Over the 5 year period you would build that network out. So in the 90 percent where they don't have access, you would imagine they would be granted MVNO access and continue to build the area. Where they only have one tower, for example, I think that's a bit of a grey area that we would need to assess further, how it would apply specifically in that circumstance. And again, that would be something we'd be happy to comment on in the -- a subsequent proceeding if there were to be one.
469 THE CHAIRPERSON: Because as you can imagine, not that we're opposed to complex regulations, but this could create a rather complicated scheme that would make it very administratively and complicate it from a regulatory perspective to figure out an enforcement perspective, I should say, as to, you know, who started where and what coverage they have.
470 What about areas -- would we mandate, in your view, access where RAM has been or soon will be duplicated by a competitor? Is that -- and if so, how is that consistent with the Commission's essentiality test?
471 MS. SONLEY: So that would be a scenario, to use an example, in Eastern Canada, Eastlink is currently operating, but Xplore Mobile has spectrum and they would like to build ---
472 THE CHAIRPERSON: M’hm.
473 MS. SONLEY: --- and enter as MNVO.
474 Our policy is intended to be flexible in that case.
475 So were Xplore Mobile, let’s say, in that theoretical circumstance, to find that there was a business case to do so, we would -- under our model, we would propose that that would be an outcome that could be possible and it would really depend on whether they met that managerial, operational, financial capability. But we haven’t contemplated them being precluded from doing so.
476 THE CHAIRPERSON: So earlier when we talked about the Bureau’s model then mandating whole access to a portion of a Tier 4 area, how does that dovetail with the relevant geographic market definition? Doesn’t that kind of a definition mean that the geographic market is smaller than -- the relevant geographic market is smaller than the Tier 4 territory?
477 MS. SONLEY: We haven’t proposed a specific geographic allocation. Other intervenors, I know, have.
478 That’s something that we would want to have a lot more information on to be able to opine one.
479 But one thing with the geographic market, I just want to make sure it’s clear.
480 So really the geographic market is local.
481 But what we do here is aggregate up based on competitive dynamics.
482 So consumers, they consume services where they live and where they operate. And you know, service in Saskatchewan is not a substitute for me who lives in Ottawa, for example. So it really is a local product.
483 But what the -- our Act, and our jurisprudence, and our guidelines allow us to do is aggregate up based on competitive dynamics. And I think it’s referred to in Footnote 27 of our Merger Enforcement Guidelines, but it’s as a matter of convenience.
484 So it’s similar -- or that’s exactly what we’ve done in the circumstance.
485 And another way of thinking about what we’ve done is when we would analyze, for example, a grocery merger, we wouldn’t separately analyze the market for eggs, and then cheese, and then bread. Even though those goods are not substitutable, we would look at the merger for -- merger between grocery stores and aggregate up to the product offerings that are within that grocery chain.
486 So the geographic market is quite narrow. It’s that the competitive set varies on a provincial and CMA level.
487 And so that’s the distinction there between the geographic market and, for example, a Tier 4 area.
488 THE CHAIRPERSON: Okay. Just to pursue that a little bit further, ---
489 MS. SONLEY: M’hm?
490 THE CHAIRPERSON: --- but in your view would it be possible to do an essentiality analysis then on a Tier 4 spectrum area or a CMA? Or would that be too cumbersome?
491 MS. SONLEY: That’s not something we studied specifically, so I wouldn’t want to speculate.
492 That could be something that we may undertake if it would be helpful to give that some further thought. I just wouldn’t want to, you know, speculate and say something here that we wouldn’t later agree with.
493 THE CHAIRPERSON: Okay. It kind of goes back to one of my earlier questions, for which -- to which Dr. Chipty responded when she talked about potentially aggregating CMAs as part of an analytical approach.
494 And actually, as I’m thinking about it now, I asked if that might have some utility, Dr., and you said it might well.
495 Is there -- do you have any suggestions first about criteria that one might use in terms of grouping CMAs in that sense? Or similarly here, doing an essentiality analysis?
496 MS. SONLEY: The way we’ve described it in our report is aggregating based on competitive characteristics.
497 So you could look at, okay, where is Freedom an option, for example. That’s a different competitive set in the markets where they’re present than where they’re not.
498 So I know it is quite complicated, but it’s essentially that the geographic market is local, but you aggregate for convenience based on the competitive set.
499 So that, I think that competitive set would be how you could aggregate and how we’ve described it in our report.
500 So that varies; right?
501 So for Saskatchewan, if you do that, you end up with a provincial area.
502 If you’re doing it in an area where Freedom operates, it would be within a city level or, you know, a CMA or larger city and surrounding area level.
503 So I think that’s why you end up with these two distinct types of groupings. It’s really based on the competitive offering in that particular area.
504 THE CHAIRPERSON: I understand.
505 MS. SONLEY: Yeah.
506 THE CHAIRPERSON: I’m just trying to, and it may not be possible to do on the spot, but I’m wondering what might comprise that competitive set? If you have any further suggestions or if you could contemplate that? And by way of undertaking, if you had any further suggestions, it would be useful. Is that something that you could undertake to look at?
507 MS. SONLEY: Certainly. I don’t know if we’ll be able to come up with a definitive answer, but you seem to already ---
508 THE CHAIRPERSON: Fair enough.
509 MS. SONLEY: --- be acknowledging that. so, yeah.
510 THE CHAIRPERSON: I understand your example.
511 MS. SONLEY: Yeah.
512 THE CHAIRPERSON: I’m just trying to look through a little more granularity. If it’s possible for you to offer us some more insight into what that competitive set might be comprised of, what kind of thresholds or -- we might use.
513 MS. SONLEY: Yeah, certainly. We’d be happy to undertake that and, you know, be as helpful as we can in trying to ---
514 THE CHAIRPERSON: I guess and in doing that, we mentioned, or I mentioned earlier that it could get administratively complicated as you’re doing that.
515 If you have any suggestions for how we might avoid a very complex administration of various starts and stops in terms of who is rolled out in what area, at what point in time, and so on?
516 MS. SONLEY: M’hm.
517 THE CHAIRPERSON: That’s a concern to us both from an enforcement or monitoring perspective and frankly for regulatory burden perspective for those in the marketplace.
518 Switching gears a little bit.
519 From a regional competitor’s perspective, which geographic areas do you think it’s feasible to implement your proposed approach? You mentioned a number of carriers a few moments ago. Have you mapped out any of those potential areas?
520 MS. SONLEY: We’ve listed them in general terms in our report. So we’ve named the series of carriers that could theoretically use the policy.
521 The limitation is that we don’t have -- we’re not privy to, for example, agreements that might prevent entry into certain areas or perhaps historical reasons why a carrier wouldn’t want to enter a certain area. So we try not to speculate, you know, where exactly ---
522 THE CHAIRPERSON: M’hm.
523 MS. SONLEY: --- Freedom might choose to enter.
524 So it may be a question that you may get a more informed answer from one of the carriers.
525 THE CHAIRPERSON: Fair enough ---
526 MS. SONLEY: M’hm.
527 THE CHAIRPERSON: --- about the unknown.
528 What about the known in terms of there’s obviously some areas where regional carriers haven’t built out because a business case simply isn’t there, where there’s a lower population density.
529 How would having short term wholesale MVNO access improve that business case?
530 MS. SONLEY: I think the way it improves the business case is by allowing them to build a subscriber base, build a revenue base in the short run while they’re building out. So it’s not, you know, deploy first, sell later. You can sell immediately and then deploy after the fact.
531 So I think that’s essentially the reason we think it would create an additional incentive to build out.
532 THE CHAIRPERSON: And I guess I’m struggling a little bit with how do we get -- how does it result in sustainable facilities-based competition if there was no business case to invest in a rural area in the first place? I’m thinking of outside of the CMAs in particular.
533 MS. SONLEY: So there may be certain areas where there is no business case to invest with or without our remedy.
534 One of the benefits of this remedy, in our view, is that we can expose those areas.
535 It’s difficult right now because we don’t have advanced planning documents to know where carriers intend to build next.
536 So this may give you some insight into areas where it’s very unlikely that someone’s going to build an additional network.
537 And were that to be the case in five years, as we’ve described in our report, it may be warranted to have a broad MNVO policy in those areas, because facilities-based competition is unlikely to be a possibility in the future because there is no business case, even with the additional incentive that our remedy provides to build.
538 THE CHAIRPERSON: So in a longer term, you could see a situation where, in those circumstances where facility-based competition has not -- is not properly serving the market, or not producing market power, I should say, then a broader MNVO-type solution would be appropriate?
539 MS. SONLEY: Yeah, that’s right.
540 THE CHAIRPERSON: Is -- under your proposed policy, Saskatchewan and Quebec are unlikely -- you mentioned this earlier, Commissioner -- to see further entry, hence the regional carriers have already built out an extensive network in the areas where they hold spectrum. Some parties, like TekSavvy, have suggested that if the Commission were to implement your proposal it'd just be picking two or three, a handful of winners, and, well, just that. We'd be picking a small subset of companies that would obtain regulatory support, for lack of a better term, and it's not a broad solution. Comments on that critique?
541 MR. BOSWELL: I think that there are points, fair points in that critique, but our solution is based on our examination of what has been working, and how it's paying benefits to Canadians, and that this is all in the context of market power in Canada, and that a regulatory intervention, if there is going to be one, should be targeted surgical, I think we could describe it as, that aims to encourage and enhance what is working for the benefit of Canadians in multiple different areas across the country. That's our approach to this matter, given the evidence that's been analysed by Dr. Chipty in her findings and some of our other analysis as set out in our November report.
542 THE CHAIRPERSON: Thanks.
543 Just maybe one last one in this area. You indicate in your report that Xplornet could be a beneficiary as well of this proposal because of their 600-megahertz spectrum holdings. Can you just expand on how you came to that conclusion?
544 MS. SONLEY: So, Xplornet is a possible beneficiary, you know, based on their 600-megahertz holdings, but we were also speaking about, you know, in Manitoba they have spectrum as well, and so they could expand their network outside of the areas where they currently operate. They have some rural spectrum that could theoretically be used. So, I mean, Xplornet is better to speak to their intention to use the remedy, where they might see that there might be an opportunity to use the remedy. Our intention was just to -- we didn't want to just say that people might use it. We wanted to be a little bit more specific, but we also don't want to theorise what others might do.
545 THE CHAIRPERSON: Fair enough. Thank you.
546 MS. SONLEY: M'hm.
547 THE CHAIRPERSON: Now, you propose a very clear sunset, and I think, to quote your submission, set a clear expectation that if the policy doesn't substantially -- pardon me -- improve competitive outcomes by the time the CRTC conducts another wireless review -- we can all look forward to that ---
549 THE CHAIRPERSON: --- then the CRTC will mandate broad MVNO access in markets that are still lacking competition. So, we use that as an example -- or you used it, I should say, as an example a moment ago.
550 On the sunset, again, it's -- you know, the devil's in the details, when does the clock start? Does the clock start on the date of a decision to mandate service and terminate five years later, or is it a five-year time period, each time a carrier gets -- acquires spectrum in a given geographic area?
551 MS. SONLEY: That's something we've also been considering and something that we would hope to consider in a subsequent proceeding where we had more information. It's difficult right now. The reason for the five-year time period is that it would allow for subsequent competition analysis to identify if there were remaining problems, where those remaining problems were, so that's the idea behind it. But, you know, it'll depend on when the next proceeding begins, when it's completed, how quickly applications are filed. So, it is something that would benefit from, you know, comment from other interveners on the feasibility, and when it should begin, and when it should end, and further discussion, and thought.
552 But the idea is that to be able to -- you know, these aren't simple analyses to come to a conclusion whether there's remaining market power, where there's remaining market power. So, the idea was that a competition assessment would be very important in making that determination.
553 THE CHAIRPERSON: Now, you've already answered the question in terms of what happens for the areas where a facilities-based competition might not occur. It's a bit of a double-edged sword I think though because if we predetermine that we'll move ahead with broad MVNO access if facilities-based competition doesn't evolve, are we introducing a disincentive for some carriers to actually roll out their networks? To continue to invest in facilities-based competition might some players not simply wait it out in order to obtain presumably ---
554 MS. SONLEY: Broad ---
555 THE CHAIRPERSON: --- less costly approach to entry through MVNOs?
556 MS. SONLEY: That could theoretically be a possibility. I think the averse reactions that we've seen from the regional carriers sort of unanimously against an MVNO policy makes me think that may be less likely that these carriers want to continue to build. They've, you know, purchased spectrum. That spectrum has deployment requirements. They've shown a consistent track record of continuing to build. You know, Freedom entered I think it was 24 cities since 2017. And your communications monitoring report has a really great statistic, which is that in 2014 there was 35 per cent LTE population coverage on behalf of regionals, and then 4 years later that's more than double, then we're at 75 per cent ---
557 THE CHAIRPERSON: M'hm.
558 MS. SONLEY: --- regional coverage. So, I think there's sort of a proven track record that they are continuing to invest, and so we expect that they would want to, and that they would be averse to a mandated MVNO strategy where there was no obligation to invest.
559 THE CHAIRPERSON: I guess lastly in this area, and you partially answered this this morning in your opening remarks, but I was going to ask you if you accept the idea that broader MVNO access could result in an improved competitive outcome in the case that your proposed model fails to do so, wouldn't it be more effective to just broadly mandate MVNO access right away rather than waiting five years? And I appreciate the fact that you outlined in your opening remarks this morning what you perceive of are the relative advantages and disadvantages of the two approaches, but if you have anything to add in response to that, please go ahead.
560 MR. BOSWELL: Yes, thank you, Chairperson. I think I would say initially that we should look back to our examination of international experience. It's mixed in this area. That's our takeaway from a review of the international experience. It's not to say that a broad MVNO policy is not necessarily ineffective. There are some cases internationally where it has, and we acknowledge this in our report, where it has put competitive pressure. But from a sort of high level perspective, you'll -- we would expect you would see more entrance, that's for sure, but whether or not they would even in the aggregate provide the kind of competitive pressure that we believe you'll see from encouraging a facilities-focussed model, we don't think that that would come to pass.
561 THE CHAIRPERSON: Thanks.
562 On MVNO investment commitments you suggest that carriers would, could, or should also be required to make credible commitments to ensure they'll meet deployment requirements, and you're proposing possible financial penalties, or up-front financial investments. Do you have a definition when you say a credible commitment? Again, do you have any guidance for us as to -- or what might be required?
563 DR. CHIPTY: So, I think that the -- I don't think we have enough information to calculate a precise threshold level, but the idea and the motivation is to make sure that whatever this up-front commitment is, is large enough so that it ensures that whoever takes advantage of this regulatory access actually does make commitments in the long run because the cost of walking away from whatever commitment its put up front is too painful. And so, I think that the actual calibration exercise is something we did not have enough information to engage in.
564 THE CHAIRPERSON: Fair enough, and that might be a response to some other elements of this question. I was going to ask you if you had thoughts about how the Commission would verify that the investment targets are met or -- yeah, along those lines. But I assume it’s a similar answer, that you don’t have sufficient data at this point to spell out a detailed proposal?
565 DR. CHIPTY: Yeah, that’s right.
566 THE CHAIRPERSON: What about the timeframe though? I mean, network deployment is -- it’s a long-term process. Some of the more successful facilities-based entrants have been at this for more than a decade and progress is, as you note in your submissions, being made. But how do you -- you know, you’ve suggested a review would take place, you know, again in five years. But if we’re looking at this kind of network deployment and you’re proposing we have some kind of penalties, how quick -- how often do we have to look at it? Is it like an annual review? Any thoughts about how frequent the analysis needs to be, or do you wait till the five-year period?
567 MS. SONLEY: It certainly makes sense to me that some monitoring would be required to ensure that the investments were being made. That said, the intention of having, you know, the penalty at the end, is to motivate that behaviour. So the penalty at the end, or I should say the upfront bond at the beginning is, you know, if you’re not meeting those -- those deployment obligations, then you do have a penalty at the -- at the end, or you forfeit your bond. So I think it’s the combination of the two.
568 THE CHAIRPERSON: But again, this is a bit of a double-edged sword. Whether it’s forfeiting a bond placed at the front, or the imposition of an amp for not fulfilling a facilities build out, doesn’t the financial penalty then work against them having the necessary capital and resources to build out? I mean, presumably if they’re struggling to meet the requirement, it’s for financial reasons. I’m just struggling a little bit with the reverse incentive.
569 DR. CHIPTY: Well, I think it goes back to the calibration, and the -- you know, in my prior response I said you want it to be large enough to make sure that there is a commitment. But you also want to make it small enough to make the opportunity attractive. The idea would be that the combination of the carrot and stick ultimately lowers a barrier to entry, but still requires whoever is committing to take on this -- this opportunity, to be credible enough.
570 So in essence, if they don’t have the financial commitment, or the ability to take on the commitment at the reduced, if you will, entry cost, maybe they wouldn’t be someone that you’d long term want to, you know, be in the mix anyway.
571 THE CHAIRPERSON: It’s the classic Goldilocks conundrum, not too big, not too small. Finding the one that’s just right.
572 And I assume also then, you’d have to have some kind of provision for extenuating circumstances we have for existing carriers in relation to things like quality of service or other commitments, if there are natural disasters, or there are other, you know, force measure kinds of provisions. Would you envisage having those kinds of provisions as well, with respect to build outs and the like?
573 MS. SONLEY: I think the specific legal obligations placed on the -- or you know, those types of specific terms would be something potentially for a subsequent proceeding. I’m not sure whether they would necessarily relate directly to competition. We’d have to think about more of whether we had something to contribute to that discussion. But certainly, that would be a consideration I’m sure, for the CRTC.
574 THE CHAIRMAN: Okay. Thanks.
575 So here’s one of my favorite questions. Other than your own proposal, are there any proposals for mandated MVNO access on the record as you’ve read it, that the Bureau supports?
576 MR. DUROCHER: No.
578 THE CHAIRMAN: Fair enough.
579 MR. DUROCHER: You know ---
580 THE CHAIRMAN: Question asked, question answered.
581 MR. DUROCHER: Sure. But let me -- let me explain why. We’re proud of our proposal, because we think it is evidence based. And at the heart of this proposal is analyzing is facilities-based competition working? And the data suggests it is working. And that, we think, needs to be the guiding principle for the path forward.
582 And so, you know, this was done really with a view to be informed by the track record, the evidence, and the risks. And part of the exercise before us is there are many different considerations, many different paths that you can go on. All are fraught with a certain degree of risk. So I -- we believe it’s important that the data properly informed the risks.
583 And if we look at, you know, what could be a second-best alternative, which is a broad MVNO access, you know, we think there are important risks with that approach that bear mentioning. And I think we’ve talked about those. One is the -- the extent to which an MVNO, a pure MVNO, can be as effective as an independent facilities-based competitor, that’s issue one.
584 Issue two is when we are informed by the international experience it produces mixed results. So we’re weighing a proven track record of facilities based competition, with a more uncertain results if we look at the international scene.
585 And lastly, and very importantly, is the potential risk of a broad MVNO model impacting or undoing the progress that we’re increasingly seeing in Canada with facilities-based competition. So we believe, because of these risks, what we’ve proposed is based on a proven track record and principled remedy. Yeah.
586 THE CHAIRPERSON: Thank you. I’m mindful of the time. I know that -- I know that the Commissioner has some time constraint and I’m trying to get to the end of this.
587 But just quickly on that, so is it -- in your view -- I understand your view about full MVNOs. If the Commission didn’t adopt, chose not to adopt the Bureau’s model, would it be better -- would the status quo be a better alternative, rather than a full MVNO?
588 MR. DUROCHER: I think we recognize that in areas where there is likely to be ongoing market power concerns, being areas where there is no reasonable prospect of having a new regional facilities-based competitor, it may very well be that a broad MVNO targeted at those areas is appropriate.
589 THE CHAIRPERSON: Thank you. Last couple of questions for me, and my colleagues may have some, and I think counsel has a couple of questions.
590 Just about from a larger perspective, some parties have raised concerns about entry of large, well-capitalized companies, potentially as MVNOs. Large North American tech firms come to mind. In your view, is that a valid concern?
591 MS. SONLEY: We haven’t seen any evidence to suggest that that’s a likelihood. You know, we really did focus only on the evidence before us and not kind of tread into speculative prospects. And so, you know, I don’t think we -- we’ve seen anything that convinces us that that’s a likely outcome.
592 THE CHAIRPERSON: So you haven’t logically -- you haven’t given any thought to what kind of limits or caps might be feasible or appropriate that -- a fair assessment, given that you haven’t looked at it or seen evidence of it?
593 MS. SONLEY: That’s right. Yeah. It would -- I should say, it would only -- I think that risk only applies to a large extent with a broad MVNO model. In a facilities-focussed MVNO model it would have to be, I guess, through acquisition, which you know, some large well-capitalized external firm could purchase a regional carrier. So there’s sort of, two distinct areas, and that’s ---
594 THE CHAIRPERSON: I won’t ask you for an undertaking, but if you wish to provide any further thought, I’m not sure that would make legal counsel squirm. Is that an undertaking or not? If you wish to take an undertaking to give us any thoughts about if one were -- wished to constrain that type of entry in a full MVNO scenario, what might they be. Feel free to say, no thank you. But I’m giving you the opportunity if you'd like to add anything to the record in that area.
595 MR. LESCHINSKY: Without committing to the nature ---
596 THE SECRETARY: Sorry. Speak into the mic.
597 MR. LESCHINSKY: Oh, sorry. The mic.
598 Without committing to the nature of the response that we would provide, we would undertake to make best efforts to address your question.
599 UNDERTAKING / ENGAGEMENT
600 THE CHAIRPERSON: I have no further questions. Do my colleagues have questions?
601 Christianne, please go ahead.
602 VICE-CHAIRPERSON LAIZNER: Good morning, or maybe good afternoon.
603 So if I understand your proposed MVNO model, it would really be to allow established regional competitors to build out their unused spectrum more quickly than they might otherwise do. Is that it?
604 MS. SONLEY: Yeah, that's accurate.
605 VICE-CHAIRPERSON LAIZNER: Okay. And would it be an application-based system where the proposed MVNO comes and says, "Here's my business plan. Here's my unused spectrum. I want to build it out. This is what I can do in the next 5 years. Give me the access." Is that how it would work?
606 MS. SONLEY: Yeah. That's also what we were envisioning, yes.
607 VICE-CHAIRPERSON LAIZNER: Okay. So I guess one of my concerns is that -- and I get what you're saying about facilities-based competitors being in a bigger -- in a better position, but what does that do in terms of disparity of pricing and market power in those regions of Canada where you don't have that fourth presence within that 5 year period? I mean, isn't it just going to exacerbate that problem?
608 MS. SONLEY: I think we -- in our view, it would ameliorate the problem. So you know, there's a number of semi-urban and rural markets in Canada right now where there is no fourth carrier. We would expect additional entry with our policy to continue to bring the competitive force that we've seen from wireless disruptors to more and more territories over time.
609 We have acknowledged that there may be areas where it's not possible or likely that a carrier would have a business incentive to build out in the long run, and we have envisioned that that may be a market where you're in a world where facilities-based competition, which, in our view, is more effective, is just not an option.
610 So the policy allows you to identify those areas because right now, I think that bound is not clear. I'm not sure how it would exacerbate the problem in those areas; it would just bring additional competition where there was none before is the intention.
611 VICE-CHAIRPERSON LAIZNER: Okay. Thank you.
612 MS. SONLEY: Mm-hmm.
613 MR. BOSWELL: Just to that, I would also add that the bureau has, in its submission, indicated a number of other suggestions to decrease switching costs such as seamless handoff and device decoupling. You know, we've in our measures we think these would also go to address some of the urban cores that the primary remedy the bureau is proposing does not completely address.
614 VICE-CHAIRPERSON LAIZNER: Thanks.
615 THE CHAIRPERSON: Thank you.
616 Commissioner Levy, did you have a quick question?
617 COMMISSIONER LEVY: Just a follow-up to Commissioner Laizner's question.
618 So you're suggesting that for 5 years we allow the regionals to build out, and so forth, but you also suggested that this would give us the opportunity to see where there simply was no opportunity for that, and that in that instance a more broadly-applied MVNO regime might be appropriate. Is that correct? Am I reading that correct?
619 MS. SONLEY: Yeah, that is correct.
620 COMMISSIONER LEVY: So my question becomes if you are wedded to the notion that facilities-based is really the only precursor to success ---
621 MS. SONLEY: M'hm.
622 COMMISSIONER LEVY: --- are we setting up a system that is going to be successful for these players who might move into the areas that could not sustain facilities?
623 MS. SONLEY: M'hm.
624 COMMISSIONER LEVY: I'm really concerned that whatever we do we are setting a system for success and not creating instances where people are going to fail. So your response, please.
625 MS. SONLEY: I think if you think about the distinction between what we're proposing for facilities-based competition and our regulatory solution, it's not that facilities-based competition is the only way; we just view it as the better way.
626 Because we have seen the proven track record in Canada that's driving very aggressive pricing competition, they have full flexibility in the product offering that they can bring to market, and they're not reliant on their competitor which has every incentive to kind of pull those levers to make them less effective.
627 That's not to say that it's impossible that a broad MVNO mandate would have competitive benefits. For example, the bureau did endorse the CRTC's MVNO -- or resale regime in the context of wireline, for example. The difference is in wireless there is a business case and there continues to be a business case for carriers to build out, and that's been a proven, you know, strategy over many, many years.
628 In wireline, that wasn't the case. There wasn't a number of carriers in the process of building out extensive networks across the country.
629 So I think you can think of that divide in a similar way. Where facilities-based competition is an option, that's our preferred option; where it's not, there can be benefits from a wholesale-type access regime, it's just not the preferred or strongest option, in our view.
630 THE CHAIRPERSON: Thank you very much. I don't -- I understand Commission counsel has no questions.
631 So with that, I thank you very much for your presentation, for your responses, and your contribution to the record.
632 We'll recess for lunch. We'll come back at 1:30. Thank you.
--- Upon recessing at 12:22 p.m./
L’audience est suspendue à 12h22
--- Upon resuming at 1:31 p.m.
La séance est reprise à 13:31
633 THE SECRETARY: Alors, s'il vous plait. We will now hear the presentation of Shaw Communications Inc. Please introduce yourself and your colleagues, and you have 20 minutes for your presentation.
634 MR. COWLING: Good afternoon, Mr. Chair, Madam Vice-Chair, Commissioners. My name is Paul Cowling, SVP, General Counsel & Regulatory Affairs, and with me today representing Shaw Communications and Freedom Mobile are Paul McAleese, President of Wireless; Trevor English, EVP, Chief Financial and Corporate Development Officer; Peter Johnson, EVP, and Chief Legal and Regulatory Officer; Katherine Emberly, President, Business Brand and Communications; Brian O’Shaughnessy, SVP, Wireless and 5G Technology; Dean Shaikh, VP, Regulatory Affairs; Cynthia Wallace, Regulatory Counsel; and Brian Monaco, Regulatory Counsel.
635 Paul McAleese, the leader of Shaw's wireless organization, will kick us off.
636 MR. McALEESE: Good afternoon, and thank you for spending time with us today.
637 As we begin the proceeding today, we wanted to reflect on the fact that Canada has always honoured the men and women who are builders in this country, whether they lace the country with a ribbon of steel that connects our coasts, or they bring Canadians together with communities through webs of glass and invisible radio-waves.
638 In that tradition, in 2016, Shaw made a commitment to defy historical odds and boldly build a new force in wireless that will deliver on the promise of disrupting this industry with something new, something better, and something more affordable.
639 As the Commission opens this hearing today, we can say with certainty that this vision is becoming reality. It is absolutely working. Canada’s wireless market has never been more competitive than it is today.
640 Prior to Freedom's launch of Big Gig in 2017, no provider in Canada offered 10 gigabytes of data for less than $100, pricing that was holding our country back. How can Canadians take full advantage of the digital economy if they don’t have access to affordable data? We addressed this pain point by shaking things up with something completely different: 10 gigabytes for $50, and no overage fees.
641 Big Gig has not only benefitted Freedom’s customers, which have almost doubled since 2015, it also benefitted millions of the incumbent's customers. Big 3 pricing has decreased substantially over that time and our Big Gig plans have created an entirely new competitive dynamic. This has cascaded through the markets we serve and beyond: widely available unlimited plans, more choice across all price ranges, much lower prices, reduced overages, and a better customer experience
642 Fulfilling our brand promise, we’ve offered Canadians freedom, freedom to choose a more affordable, valuable alternative to the uniform, over-priced and punitive approach of the Big 3.
643 The Big Gig plans would not have been possible if Freedom did not have its own network. After acquiring Wind, Shaw invested billions of dollars to design and build a robust LTE-Advanced network. Shaw’s network independence is the reason for Freedom’s success in disrupting the wireless market in Canada. Our ability to leverage the full capacity of Shaw’s network allowed Freedom to maximize data and lower prices through truly differentiated, innovative plan that has forced the Big 3 to respond. MVNO resellers could never replicate this level of innovation and differentiation, given their dependence on the Big 3’s networks.
644 While succeeding in bridging Canada’s data divide, Freedom has never taken its eye off the lower-priced segment of the market. These customers matter deeply to us. They are the foundation of our business, and we ensure that they have a variety of options, with several plans available in the $10 to $15 range.
645 Not only have we moved to -- boldly to offer more affordability, we are rapidly expanding the reach of our network. In the past 18 months, Freedom has launched in 20 new cities, towns, and remote communities across BC, Alberta and Ontario, enhancing competition and choice for over 1.4 million additional Canadians.
646 Freedom's expansion and increasing strength have resulted in dramatically more affordable services now available across a growing footprint. We want this progress to continue, especially now that Canadians are finally enjoying the benefits of real choice, and with the country and the world on the verge of 5G. The fate of that progress hangs in the balance of your deliberations at this critical hearing.
647 In light of our success in beginning to crack the dominance of the Big 3, and, in light of what we need to do to finish the job, we cannot overstate our concern with resale MVNO regulation and the threat it poses to sustainable competition, investment and innovation in Canada’s wireless market. We are not opposed to MVNOs naturally evolving, but mandated resale access is not required for this to happen. Canadians won’t gain anything from rules that destroy Freedom's ability to continue pressuring the Big 3. Nor will they gain anything from a regime that destroys incentives for MVNOs to innovate and target underserved market niches, the most common role that commercial MVNOs play globally. In short, Canadians will gain nothing from resale regulation, but they will lose a great deal.
648 MR. ENGLISH: In 2016, after a long-term capital and strategic planning process, we embarked on a significant asset transformation that launched Shaw into wireless. Starting with the $1.6 billion acquisition of Wind, which we later rebranded to Freedom, we undertook billions of dollars in further investments, all with the goal of providing Canadians with a truly differentiated alternative to the Big 3.
649 The regulatory environment was a critical factor in this decision, specifically the long-standing view by regulators that investment is necessary for sustainable wireless competition. Our own aspirations to compete in the long-term aligned with the goals of Canadian wireless policy, and we expected support for competitive wireless investments to continue. This wasn’t based on a hunch. We had a clear understanding, reinforced by many years of decisions and policy pronouncements. Canadian policy makers not only wanted sustained competitive investment, they insisted on it as a condition of entry, made clear in specific spectrum license deployment requirements.
650 New wireless disruptors like Shaw have been spending billions of dollars in contested spectrum auctions to improve our spectrum positions. In addition, Shaw continues to invest almost $400 million per year upgrading and expanding the network. In order to launch in new communities, we must invest in retail distribution, brand awareness, and a marketing strategy specific to each new market. There are also other substantial costs, such as device subsidies, that are required for us to grow.
651 Since 2016, we have invested approximately $4 billion in wireless, which represents over 25 per cent of our market cap. In 2019, our wireless capital intensity was over 55 per cent of service revenue, and this doesn’t include almost $500 million related to the 600-megahertz spectrum purchase. We need to continue investing in order to effectively challenge the Big 3.
652 As we sit here today, we have yet to make a return on wireless. We are growing our subscribers and revenue, but we continue to invest more money than we make. Given the size and nature of the up-front and ongoing investments required, our time horizon for planning and generating returns is long. The regulatory environment must encourage long-term commitments through long-term support, rather than prevent them through regulatory U-turns.
653 The notice for this hearing came out 2 weeks before the start of ISED’s 600-megahertz spectrum auction, a critical process for the future of our wireless business. Our valuations and auction strategy had already been approved, after many months of preparation. The notice’s preliminary view regarding MVNO came as a shock. It called into question many of our assumptions, and caused changes to our auction plans, including pulling back on ambitions to expand into new markets.
654 There's another critical spectrum auction coming up for the 3500 MHz band, the workhorse for 5G networks. At Shaw, we hope to play a role in ushering in new technology for Canadians, such as 5G, while continuing to drive affordability and choice through sustained competition against the Big 3. However, all of this requires long-term investments in spectrum and networks, which depend on a reasonable prospect of a return.
655 If the Commission abandons its current path, and chooses broad resale, our ability to realize a return goes from being challenging to being impossible. This raises the obvious question of whether we can responsibly continue deploying additional capital into wireless.
656 MR. JOHNSON: As Trevor described, for many years the policy framework has encouraged facilities-based entry into wireless. This includes auction rules designed to address spectrum concentration, as well as the site-sharing and wholesale roaming frameworks.
657 Our hard work is starting to pay off for Canadians, but it is not finished. While the Big 3 invest in next-generation networks, Shaw will have to concurrently invest at two levels. Like the Big 3, we have to invest in 5G spectrum and infrastructure.
658 However, our foundation is not yet complete. We still need to expand network coverage, including the deployment of our low frequency spectrum. In order for us to continue with these dual track investments, we need to build on our momentum and scale. But how can Freedom acquire customers in competition against a reseller with the advantages of a regulated MVNO access?
659 In this environment, resellers will focus exclusively on short-term profits, with none of the burdens and risks that Trevor described. They can enter and exit the market as they please, all while enjoying the extraordinary advantage of regulated access to the more robust, more extensive national networks of the Big 3.
660 Resellers will use these advantages to target Shaw’s customer base and stifle our growth, thereby risking the consumer benefits Freedom is delivering and without making any commitments to Canadians like Shaw's multi-billion dollar investments. The economics do not support a broad MVNO resale mandate co‑existing with ongoing wireless deployment by a new competitor like Shaw.
661 We did not want to spend so much of this proceeding arguing against mandated MVNO, but given the preliminary view, we had no choice. However, there is an opportunity to refocus this hearing. The Commission has the ability to establish measures that will support sustainable competition, including better rules on seamless roaming and support structure access.
662 It is important -- it's more important than ever for Canada to facilitate deployment of competitive networks by new disruptors like Shaw. Canada needs strong competition that drives affordability and innovation over the long-term. It needs the competitive investment that will provide the foundation for our digital future. It needs to remove barriers for both urban and rural wireless deployment and broadband connectivity.
663 MS. EMBERLY: In this proceeding, the Commission faces the challenge of looking forward and regulating for the future. The stakes are high. In the 5G era, wireless connectivity will be even more important than it is today. Canadians will feel 5's impact profoundly through the new economic, social and cultural platforms it will support. 5G is not the end, it's the enabler. Through its ubiquity, 5G will change how we do things, strengthen the ties among us, and kick start an era as transformative as the industrial revolution.
664 Canada's international competitiveness and the strength of our economy will depend on the deployment of competitive 5G networks. In the next decade alone, 5G has the potential to create hundreds of thousands of permanent new jobs and increase Canada's GDP by tens of billions of dollars annually. These benefits, if realized, won't be limited to cities. 5G offers the potential for accelerated deployment of broadband to rural and remote areas through next-generation solutions such as 5G fixed wireless.
665 The Commission has the responsibility to lay the groundwork for Canada's success in the transformative shift to 5G. While there are lots of unknowns in the transition to this digital future, what we do know with certainty is that a dynamic 5G ecosystem depends on a foundation of competitive wireless connectivity. Without the Commission's support, including the definitive rejection of resale MVNO regulation, significant investments in competing 5G wireless facilities will not be possible.
666 We cannot risk returning to the dominance of the Big 3 and a static, uncompetitive wireless market in the 5G era. Canadians want and deserve true choice and to be global leaders in the new digital economy. We owe it to Canadians to deliver on the full potential of 5G.
667 MR. O'SHAUGHNESSY: The power of 5G will unleash a dense network of cells affixed to various structures, with hundreds of thousands of sites across Canada. To accomplish this, the Commission must join other global regulators and focus its energy on developing policies to accelerate deployment.
668 Canada requires a new regime for site access, including streamlined access to municipal property, new rules for accessing public right of ways, support structures, and multi-dwelling units, and measures to address the legitimate rights of all stakeholders, as well as the significant disadvantages that new disruptors already face in accessing sites.
669 Modernizing the roaming regime is another critical area of reform that will facilitate long-term competition. Mandated seamless handoff is an easy fix that is long overdue, and the consumer harm from its absence is intensifying.
670 As we launch smaller -- service in smaller communities, such as Comox, Medicine Hat, or Belleville, it becomes much more likely that a customer will leave that community, and the Freedom coverage area. This results in more dropped calls and data sessions, unnecessarily harming the customer's experience and causing misperceptions about Freedom's network quality. This harm limits Freedom's entry and scale in new markets and our ability to offer real choice to Canadians.
671 The Commission has an opportunity to fix this now. Not only have the Big 3 acknowledged that seamless handoff is technically feasible, it's already actively provided between them. By addressing this discriminatory treatment, the Commission will target one of the biggest barriers to Freedom's growth, while meaningfully supporting customer experience and choice, particularly outside urban centers.
672 MR. SHAIKH: There is overwhelming evidentiary support for our positions on the record of this proceeding, and evidence of robust competition in the wireless market continues to build.
673 The Competition Bureau and its expert, Matrix Economics, provided a detailed account of the state of wireless competition in Canada based on confidential data submitted by nearly twenty operators. Consistent with the evidence presented by Dr. Eric Emch, in his various reports filed by Shaw in this proceeding, the Bureau concluded:
674 There is strong competition against the Big 3 in those areas where there are strong regional disruptors like Freedom.
675 In the words of the Bureau, it is clear that wireless disruptors, like Freedom, offer the most promising path forward, in sharp contrast to MVNOs, who are necessarily beholden to incumbents' networks.
676 If the Commission mandates a broad resale MVNO regime, it will disproportionately hurt new regional disruptors, putting at risk the positive benefits they have brought to Canadian consumers.
677 While the evidence supporting these conclusions is indisputable, there is virtually no evidence in favour of mandating resale MVNOs.
678 The decisions in this proceeding must be based on facts and evidence, not impressions or unsubstantiated, self-serving, and costly requests to eliminate risks for certain business models. We respect the Commission's need to undertake its process to generate a substantial record, given its statutory obligations as an evidence-based decision maker.
679 Now that we have this record, Shaw sees no reason why the Commission would seriously consider an MVNO resale mandate, or any retail-level intervention to regulate the pricing of wireless services. Instead, as Peter explained, the focus of the hearing should shift to targeted measures that sustain competitive wireless investment through the upcoming transformative era of 5G.
680 MR. JOHNSON: Mandated MVNO resale proponents argue that the new policy direction supports their position. It does not. The 2019 Policy Direction puts forward diverse considerations, competition, affordability, consumer protection, innovation, rural Canadians, new, regional, or smaller competitor, and all forms of competition and investment.
681 Encouraging all forms of competition and investment does not mean picking resale over regional disruptors, but that is what a mandated resale MVNO regime requires. The existing framework accommodates both commercial MVNOs and ongoing competitive investments. In contrast, as we have explained, with mandated resale MVNO, the economics for wireless competitive investment no longer work.
682 Despite our strong opposition to MVNO regulation, the Commission asked Shaw to put forward an MVNO regime that would be acceptable. In response, Shaw carefully designed parameters that are guided by the public interest, including the objectives of the Telecommunications Act and the two policy directions, offering a model to advance the prospects of sustainable competition for more Canadians, for rural and remote areas, and for 5G.
683 The essential components are that the Commission should focus only on areas where there is currently no facilities-based competition against the Big 3, extending the benefits of choice to the Canadians who currently don't have it, many of whom live outside of large cities and in rural areas, in order to ensure ongoing competitive investment, MVNO regulation should only support temporary access while a new competitor builds a new network with automatic phase out in five years.
684 Eligibility must be limited to those who hold spectrum licenses in the relevant area and have a record of wireless investment.
685 In order to move quickly, and without interfering unduly in market forces, terms of access should be negotiated with a strong role for the Commission in setting timelines.
686 Although distinct in details, these parameters align with the Bureau’s recommendations. They differ fundamentally, however, from Cogeco’s self-serving model which, like resale, would destroy sustained competitive wireless investment.
687 There is no reasonable basis for you to conclude that MVNO resale complies with the regulatory requirements for mandated wholesale access or offers a better path to advance competition and affordability in Canada.
688 Our submissions have clearly laid out what’s at stake in this proceeding, where the public interest lies, and where the evidence unquestionably points.
689 Freedom’s success in bringing and enforcing others to bring an increasing array of lower priced, innovative, and consumer friendly services to Canadians proves our willingness and capability to drive real structural change in Canada’s wireless market.
690 We do not understand why you would put these benefits at risk by implementing MVNO resale regulation.
691 The Commission must restore the regulatory certainty and support that are required to continue delivering affordability, competition, and innovation to the Canadian wireless market over the long term.
692 MR. McALEESE: As this hearing proceeds, the question before the Commission is very clear; will Canada continue on its current path to sustainable wireless competition and affordability through the 5G era, or will we abandon that path and experiment with a resale model that risks destroying competitive investment?
693 The correct decision is equally clear. MVNO resale regulations simply does not make sense. It will hurt Freedom, the strongest, most credible champion for wireless affordability in this country, much more than it will disrupt the Big 3.
694 Several years ago, Canadian regulators developed a strategic plan to create sustainable competition that would eventually be strong enough to challenge the Big 3.
695 That strategy is working. In the past two years alone, Freedom’s presence has achieved more than a resale MVNO regime could ever hope to accomplish. Do not abandon it now.
696 The Commission must use this proceeding to reconnect with the spirit of Canada’s building pioneers, their vision, their initiative, and their willingness to take on the risks that propel our country forward.
697 Freedom has been building with a relentless focus on choice and innovation.
698 Canadians want and need us to continue.
699 As policy makers, you owe it to Canadians to please let us continue.
700 Thank you. We look forward to your questions.
701 THE CHAIRPERSON: Thank you. Thank you very much for your submission.
702 I believe Commissioner MacDonald would like to spend some time with you.
703 COMMISSIONER MacDONALD: Good afternoon and thank you for your comments this morning.
704 In your opening submission, you basically said that you wished you didn’t have to spend this hearing arguing against MVNOs.
705 So at least for the first half of my questioning, you’re going to get your wish, because although MNVOs have and will continue to take up a lot of oxygen in the room, there’s a number of other very important issues at play in this proceeding as well.
706 Just to start off, throughout the proceeding we’ve seen a number of different studies that have been presented, a number of different surveys to have been presented, outlining Canadian’s views on the state of wireless competition and the wireless market in the country.
707 I believe you recently did one showing that Canadians viewed regional competitors as having had positive impacts on competition.
708 Other parties have argued that the only reason we’re seeing improved pricing now is because of the threat of regulatory intervention.
709 And the Province of B.C. filed a study showing that 86 percent of Canadians still feel that their wireless prices are too high.
710 So we know from our tracking that wireless prices are going down.
711 Why does that perception among Canadians still continue to persist, despite the actions of companies such as yourself that have introduced new plans to the market as of late?
712 MR. McALEESE: Well there’s always a lag between sort of the reality and the perception on things like invoicing.
713 While we’ve seen significant declines, and the CRTC’s own metrics support the fact that we’ve seen really meaningful declines in pricing over the last two years. And of course, those studies predated the launch of unlimited and some of the more recent activity we’ve seen through the holiday period.
714 So I think the facts are undisputable that we have a significant reduction in the overall cost for Canadian households and their wireless phone bills.
715 But we do have a dynamic that’s pushing in the other direction that is not within the control of anyone in this room, which is the cost of devices.
716 We’ve seen over the last number of years significant inflation in the cost of the smart phones that most Canadians want.
717 And that, when bundled in, is one of those challenges that I think as operators, we have a difficult time getting relief on behalf of our customers for.
718 You know, the launch of the iPhone 8 and X two years ago were the first phones to reach the $1,000 barrier. A year later there was a $2,000 iPhone. You start to bundle that in.
719 As good as the work that we’re doing as regional carriers to reduce the cost of service, the reality is that the total cost of service, affected often by the cost of devices bundled in with that, can be distorted.
720 So there is perhaps a lag, Commissioner, in terms of the way people perceive it.
721 Many carriers, of course, bundle the cost of the device and airtime together.
722 So as Canadians continue to pursue and want the best, latest devices, it can often conflate what they are seeing on the cost of service itself.
723 COMMISSIONER MacDONALD: So when you’re looking at the cost to deliver that service, you mentioned devices. Canada is unique in many aspects with respect to the fact that we have a very large geography and a relatively small population.
724 So many intervenors have looked to other jurisdictions to try and gauge the competitiveness of the Canadian market against other jurisdictions.
725 And one of those submissions was submitted by Telus, a study from Dr. Dippon that say contrary to the views of many Canadians, prices here are actually below international benchmarks.
726 And I’m wondering if you could perhaps comment on that study and whether Freedom would agree with its findings?
727 MR. JOHNSON: I may have to -- well, I’ll let Telus speak specifically to that study, Commissioner, if I could.
728 But I think it’s a dangerous thing to compare a country of 39 million people that is as large as what we have with other jurisdictions. So I also am concerned about studies like that. There are more people in California than there are in Canada.
729 So we have a belief, I think held as an industry, certainly held by Shaw, that we’re -- the progress we’re making on the cost of service is significant and not really comparable to outside jurisdictions.
730 COMMISSIONER MacDONALD: Okay. If we just limit the question to Canada then, it would appear that some regions are more competitive than others.
731 If we look at the publicly available pricing that be found for residents of Quebec, their pricing tends to be the lowest in the country, even when you compare it to provinces like Manitoba and Saskatchewan, that historically we thought of as having the lowest prices.
732 So what is the cause of this variation between jurisdictions, even where there may be, you know, the Big 3 are obviously in the market, plus some regional competitor?
733 MR. JOHNSON: Well I think the Competition Bureau did a great job this morning articulating some of those distinctions.
734 Of course, the Quebec market is unique in that the fourth player there, Videotron, has long had a network sharing arrangement with Rogers. So it started with you -- there’s coverage anywhere that Rogers, it’s largest competitor at the time, had. And of course, they’ve layered on to that with the addition of facilities-based activity as well.
735 Again, a bit of a unique circumstance in Quebec, in that they were able to very quickly build market share distribution and confidence as they went to market, which I think supports exactly our perspective on what we believe is our best approach for prospective wholesale here.
736 Quebec will always have a bit of a unique feature because of its history. That really is, I think, the best explanation for why you’re seeing the advantage on pricing that you’re seeing here. early scale and sizeable benefit.
737 MR. COWLING: The profound, sort of, impact of the Competition Bureau’s observation that the variable of the presence of a facilities-based disruptor, I think, is the critical datapoint here in terms of geographic variability.
738 So where you have that disruptor, you have a better market performance in terms of pricing. Where you have a disruptor that has had time to build scale, like Quebec, then you have even better performance. I think that’s the really critical insight that the Bureau’s study brings to this proceeding and informs the assessment of the problem, as well as the assessment of any remedy.
739 COMMISSIONER MacDONALD: Thank you for that. Freedom obviously operates in multiple provinces. Do you unify your pricing across your network, or do you price based on what region you happen to be entering at the moment?
740 MR. McALEESE: We have uniform pricing across the markets.
741 COMMISSIONER MacDONALD: Okay. Thank you.
742 In Bell’s submission, they included comments from Charles River and Associates which basically said that, you know, variations in pricing were due to variations in network quality. And I’m wondering if you could perhaps give your viewpoints on that. Do you think -- you obvious -- when you’re entering a market, you’re trying to showcase your service based on price, based on coverage, based on network quality. Are you seeing large variations in network quality between -- between regions that may account for price differences?
743 MR. McALEESE: We are not.
744 COMMISSIONER MacDONALD: Okay. Thank you. What is your biggest challenge in growing your customer base in the regions that you operate?
745 MR. JOHNSON: Well, there would be a couple. In the first instance it’s a -- we’re now 10 years into the build of the combined Wind and Freedom asset. We’re coming on four years since Shaw acquired the asset, and really, for the first time, fortified the balance sheet of the -- of the wireless entity in such a way that it could go to the market, you know, in a competitive way.
746 For the purpose of the record, it was only three years ago that we began our LTE build. It was only two years ago that we first brought on the iPhone. So we have had a relatively recent success on a number of things, but compared to the 30 plus year history of our competition, it is -- it is still fledgling. In response to your question, we have a significant network perception gap relative to our peers. It is simply driven by 30 years of a head start.
747 So while I think the team that -- or rather the work that our engineering and network teams have done to build out our coverage and our quality have -- has been outstanding, particularly in the last few years, the reality is that we can simply not be in all of the places that we -- that our competitors can be. We look to remedy that and -- by acquisition of spectrum both in transactions and through auctions.
748 We’ve been a participant in that at every opportunity. We acquired nearly $500 million worth of spectrum from Videotron three years ago. We participated in the 600 auction for $492 million worth of low band. We are doing everything that we can to, as quickly as possible, remedy those network perception gaps. But the reality is it takes time.
749 So things like the Competition Bureau spoke of earlier on today, around seamless handoff where today, despite a very easy technical fix, we continue to have to force our customers as they leave our coverage area to drop a call and then reengage that call, is a 30 year old problem with a $100 fix, and it just isn’t getting done. So simple things like that are material in the way that people perceive our network performance. So as we look for opportunities to grow, that will be the single largest thing. It is the product.
750 COMMISSIONER MacDONALD: You mentioned spectrum, and that’s exactly where I want to go next. We’ve often heard that the cost of spectrum is higher in Canada than it is basically anywhere else in the world. And would that be your view as well?
751 MR. JOHNSON: Yeah. I would say, even though we certainly agree with the policy around set aside spectrum, it -- it didn’t come for free when you look at what we paid, which was roughly 80 cents per Megahertz per pop for the 600 spectrum, when you look at global averages, that’s right on top of the global average, even though we acquired it through a set aside regime. So we would say when you look at the spectrum acquisition costs, for us and the entire industry, it is fairly high.
752 COMMISSIONER MacDONALD: And I’m not going to ask for a specific number, because I’m sure that would be competitively sensitive information, but can you quantify for me how significant spectrum costs are in the grand scheme of things, and how that trickles down to the rate that your subscribers end up paying?
753 MR. ENGLISH: Yeah. I’d say it goes into the -- you know, when I go back and look at our original business plan when we -- when we acquired Wind back in 2016, we knew we needed to buy additional spectrum. We didn’t have any low band spectrum in our portfolio. We knew we had to go and get that. I would say it is higher than what we expected in our original business plan. It goes into that $4 billion investment and it goes into what we think we need to charge to, you know, earn a reasonable rate of return on those investments over the long term.
754 So it does have a significant -- it’s a significant input into our overall economics of the wireless investments that we’re making, and then the prices that we need to charge to earn a reasonable rate of return.
755 COMMISSIONER MacDONALD: So given the scarcity of, and high price of, spectrum, you obviously have to carefully measure how much spectrum you have from a network planning perspective. Can you -- I’ve never built a network. Can you outline for me what factors come into play from a spectrum management standpoint, and you deciding where to grow and when?
756 MR. O’SHAUGHNESSY: I’m sorry. Could I just ask clarification? You say from a spectrum management point of view. I didn’t quite follow the question.
757 COMMISSIONER MacDONALD: From your internal -- from your internal perspective, when you’re making decisions to bid on spectrum and how you in turn, you know, manage that resource, if you’re successful in the auction, to launch services for your customers.
758 MR. O’SHAUGHNESSY: Sure, okay. Yeah, there’s multiple things we must do when building a network in terms of managing technology and spectrum, et cetera. So first is building sites to the extent that we need to get full coverage. And then we start adding new technologies on top of that to get more capacity and be able to manage all the customers we have.
759 Spectrum is a key tool in that there is really two types of spectrum we go after. One is low-frequency, low band spectrum, because it covers very large ranges. Think of it like an AM radio covers farther from a tower than an FM radio does. It’s the same kind of concept. So it lets us built broadly and widely throughout.
760 So when we bought spectrum from Videotron recently, a couple of years back, we went and the main piece was buying that 700 Megahertz low band spectrum to allow us to get better range of coverage and service into houses, into buildings where people want to use it. We also recently, during the auction, bought 600-Megahertz spectrum, and there were two reasons for doing that. one, it was more low band, so you can get higher speeds at longer ranges and deeper into buildings. And the second is that will be the first piece of spectrum where 5G technology will be deployed.
761 So both of those went into a business case to decide, how do we want to buy that spectrum? Then you have a whole pile, and the main spectrum that everyone is using is mid-band, which gives you really heavy concentrations of traffic in cities, let’s you carry the large amount of traffic that our customers want to use. So those are the -- the pieces that we put together when using spectrum and making a decision.
762 COMMISSIONER MacDONALD: In paragraph 34 of your submission from May the 15th, you state that the Big 3 are incented and able to foreclose new competitors from getting access to the spectrum they need to compete. Can you expand on that a little bit for me? Do you mean that the national providers are intentionally hoarding or not using spectrum?
763 MR. COWLING: The -- it’s not so much a question of hoarding, it’s a question of the value of keeping competition out. It’s more valuable to pay more for the spectrum, regardless of the inherent value that they’ve done through a commercial valuation, to pay a little extra, the foreclosure value, to prevent an entrant, or a new entrant from acquiring the spectrum. We’ve made this point in many spectrum policy proceedings.
764 It is the critical reason why a set aside is a necessary measure to ensure that parties other than the Big 3 who currently have very high market share, who currently enjoy a very high share of revenue, they dominate the market. It’s their -- they’re incented to continue to dominate the market. And one of the ways they can do that is by maintaining their current concentration of spectrum holdings. So, with each band we -- you know, you take a look at what the spectrum concentration is, and are they incented to keep the new competitor out. On 600 the answer would definitely be yes, because if we didn't have that low frequency spectrum, we wouldn't be able to continue competing in the market. That's why spectrum policy is critical to our entry, our presence here and our ongoing success. It's ISED's jurisdiction, but it's an extremely important part of the whole equation in terms of our ongoing success.
765 COMMISSIONER MacDONALD: Okay. So, I'll try -- thank you. I'll try and ask that maybe just a slightly different way then.
766 If this belief, or this observation comes from the prices that national providers are paying for their spectrum, and it's just to keep you and other regional providers out of the market, I would assume that an indicator that that is actually happening could be large amounts of unused spectrum that's owned by the Big 3. Would I be correct in that?
767 MR. COWLING: Not necessarily. It's not necessarily the case that they wouldn't -- they may or may not be using the spectrum. They likely would use the spectrum that they would pay. The point is that they'll be paying beyond the commercial value that they've done through their own valuation.
768 It isn't necessary to prove that they have unused capacity in order to prove the foreclosure risk. There's widely available economic studies that prove the foreclosure risk in a circumstance like this.
769 COMMISSIONER MacDONALD: Okay. Thank you for that clarification.
770 Have you tried to negotiate access to the spectrum of the Big 3 in the past?
771 MR. JOHNSON: We have not negotiated or attempted to negotiate with any of the Big 3 with respect to access to spectrum per se, but there have been previous discussions regarding other opportunities, but not with respect to accessing spectrum, and this would have been some time ago.
772 COMMISSIONER MacDONALD: Okay. Thank you.
773 I know you said it would be sometime ago, so the information might be a little bit dated, and it didn't have to do directly with spectrum, but what did that negotiation process go like? Were you successfully able to negotiate well, negotiate commercially acceptable terms with the Big 3 for the services that you were looking to gain from them, or were you met with significant roadblocks?
774 MR. JOHNSON: Nothing materialised from those discussions, and I'd describe them as exploratory.
775 COMMISSIONER MacDONALD: Okay. Thank you.
776 Switching gears to seamless roaming, I guess it's -- I will ask the exact same question I just did again, but in the context of seamless roaming. Have -- I guess could you -- to start off, could you quantify the problem for me? I understand obviously someone, you know, drops their call when they're moving from one network to another. Can you quantify that problem for me?
777 MR. O'SHAUGHNESSY: Yeah, let me explain user experience, and it's a real issue that our customers face everyday, and it accentuates as we get smaller and smaller networks. And the reason being -- and I'm going to give you an example. If we were to leave from here right now, get in the car and get on the phone, and drive towards Brockville, you go through Ottawa down the 416. Everything would work find on the network. You'd be on the call continuously. As soon as you get past -- 5, 10 minutes past Barrhaven, the signal will drop because our network ends at that point. So, the call would disconnect.
778 Then for about the next 10 minutes, the signal, the phones can still see that there's a network there, but it's not strong enough to use, so you can spend the next 10 minutes not even be able to make a call, make or receive a call, because your phone can see the tower, but in a weak signal not good enough to complete a call. And after that 10 minutes, then you can launch onto the roaming network.
779 So, we have around every market that exists where we've built service, we have these grey zone boundaries all the way around where you cannot make or receive calls.
780 If we had proper intersystem handoff, roaming handoff, basically you'd get to the edge of the service, the signal would start to drop, the call would hand off automatically to the other network and continue on, and the customer wouldn't even know the difference.
781 So, the real issue is, especially if you start looking at what we've done in smaller markets, whether it's the interior B.C. or up and down the St. Lawrence Seaway, you have all these little towns where you're very quickly leaving a service area around the edges, and for a lot of people -- some that's acceptable because they're staying in the core. A lot of people it's not because they're in and out of town a lot, and they've got these zones where they can't use their phone.
782 So, this is what seamless handoff will do for us. It'll allow the customer to continue to receive service throughout that area.
783 COMMISSIONER MacDONALD: Thanks. I understand what it would do for you. I'm trying to sort of quantify how large the problem is, and it may be a question that you'd prefer to answer by way of an undertaking. I'm trying to quantify how many dropped calls are we talking about? How many customers have you lost because they view your service as subpar because seamless roaming isn't currently available?
784 MR. McALEESE: The number one issue in our churn studies, the reason that people leave the Freedom network is related to network. And the number one network reason is related to exactly this problem, which is the handoff between where we have quality coverage and where we don't have quality coverage. It would be over the course of a year millions of dropped calls, if not more than that. And in terms of quantifying it, I would probably condition this is something like 25 per cent of our churn is related directly to this issue. Not a hundred, but not zero. It's certainly a sizeable percentage.
785 And think, if you will for a minute, there are some customers that never experience it, so this is where the averages can be dangerous. If you are living and working downtown in Toronto or downtown Vancouver, this is an issue that you seldomly, actually, experience. If you live at the fringe, as Brian has discussed, you can have this occur, as you ping back and forth into coverage, many times in a course of a day. So, if you imagine yourself in that situation, Commissioner, it's a very difficult thing to want to stay with a carrier that could be remedied very easily, but for reasons that are really unclear it hasn't been remedied.
786 COMMISSIONER MacDONALD: And I assume that has a trickle-down effect into all areas of your operation. Presumably, you wouldn't want to sign up a new customer that you know was going to face those challenges on a day-to-day basis.
787 MR. McALEESE: You're absolutely correct. It trickles into how easy it is for us to secure distribution in those markets. It trickles into how easy it is for families to add additional lines, which is a common source of volume for carriers. And maybe more importantly than those things, it has a significant impact on our brand. So, it continues to, unfortunately, make a dent in the way that people perceive Freedom's quality. Even though it may be at the margins for many customers, those are customers that tend to be more vocal in their concern, so it makes its way into social and everything else. And while it may only be a fringe user in Brockville, that user may not be evident that they're in Brockville when they're on Twitter, or on Facebook, or one of the social sites talking about their network issues. So, it can be perceived as a network-wide issue across our national footprint.
788 COMMISSIONER MacDONALD: And would it also be a safe assumption that that means from a network perspective you need to spend a significant amount of your time and resources going back and filling in holes in the network versus launching new services to new municipalities or new regions of a given province?
789 MR. O'SHAUGHNESSY: Yes, absolutely. We spend a lot of time every year figuring out where these problems are occurring and trying to secure additional real estate and sites to help solve problems.
790 COMMISSIONER MacDONALD: Have you -- and this goes back to my earlier question, obviously the national providers can and are doing seamless roaming between them today, so it is technically possible. Have you approached Bell or others about entering into a seamless roaming agreement?
791 MR. McALEESE: Yes.
792 COMMISSIONER MacDONALD: Since you don't have seamless roaming to my knowledge with them, I can guess what the outcome of that process was, but can you expand on that in any way? Was it a total non-starter, or did it just get down to, you know, commercial rates, as an example?
793 MR. McALEESE: It's been a total non-starter. The commercial rates have been set through the mandated roaming, so rates aren't even on the table, so you can surmise what the issue was. This is a fantastic way to continue to subordinate Freedom's class of service at no cost to the Big 3.
794 COMMISSIONER MacDONALD: In -- still on the same topic -- in your second intervention of November the 22nd at paragraph 91, you state that,
795 “As the Big 3 acknowledged, seamless roaming is technically feasible..." (As read)
796 As we've said.
797 “...and the work required to implement and maintain seamless roaming is reasonable, not unduly costly". (As read)
798 You also agree with Quebecor that the cost and technical burden of implementing seamless roaming rests more with the requesting operator.
799 So can you give me an idea of what is required from a technical standpoint, and what the costs would be from the requesting operator's standpoint?
800 MR. O'SHAUGHNESSY: Right. So the actual implementation requires additional signalling links between the two operators. So that's fairly straightforward. We already interconnect with everyone today, so it's just an additional link to do so, and turning on protocols that already exists in our networks.
801 So it does not require the implementation of new equipment, it could be there's some traffic that requires just more capacity on a link, but there's no new systems required to make this happen.
802 I don't have off the top of my head a price in mind, but it's definitely not millions of dollars. It's an arrangement to connect and interconnect arrangement between us and labour to turn on the capability.
803 COMMISSIONER MacDONALD: And is that a one‑time charge or a one‑time cost, or is ongoing month after month?
804 MR. O'SHAUGHNESSY: There's two parts of it. There's a one‑time just to set up the architecture and make it work properly. There's monthly. Obviously, if you have additional links between us, there's a cost of managing those links. We're relatively small in the grand scheme of what we're already managing. And then there is just coordination efforts as we go on over time, to make sure as the boundary changes you have to at least change what sites are handing off to which other ones.
805 If as we roll out a larger network there's some reconfiguration work required, it all fits in the category of labour and activities, and it's stuff we do today. With our rolling mandate, as we add new sites, we need to go in and change the databases on both our networks to which ones are -- which one of their sites is going take our service now that we have a larger border. If we've moved it out a bit, we have to stop roaming on the sites where we now cover. That's just something we do month to month today anyway, so it's an ongoing extension of that activity.
806 COMMISSIONER MacDONALD: And presumably, that activity would have to be shared between yourselves and whoever your roaming partner is.
807 MR. O'SHAUGHNESSY: That's correct. There's work on both sides to make that happen.
808 COMMISSIONER MacDONALD: Okay. And how frequently does that work have to happen? Is it something that requires constant maintenance, constant staff dedicated to it, or is it a matter of, you know, keystrokes once a month?
809 MR. O'SHAUGHNESSY: It's normally we exchange information once a month, and/or every other month, depending on the area, and both sides must do some work. But it is not a massive piece of work. You don't need a department to do this. This is part of someone's job who already exists.
810 COMMISSIONER MacDONALD: If we were to mandate seamless roaming would changes need to occur with the roaming tariffs that are currently in place?
811 MR. COWLING: You'd need to clarify that seamless roaming is a part of the service. It doesn't change -- this is an implementation of the existing service. But apart from that, that's it.
812 COMMISSIONER MacDONALD: Okay. What are your thoughts on a phase-out to seamless roaming? Knowing that it is a problem in your fringe areas, presumably if that problem can be temporarily resolved that would give you time to further expand your network. Is this something that's -- could potentially have a sunset, or would need to continue indefinitely?
813 MR. COWLING: Again, we see this as an adjunct to the existing mandated roaming service, which is necessary because it is impossible to replicate the national scale of the Big 3. So as long as mandated roaming is appropriate, mandated seamless roaming should also be appropriate.
814 Again, it's not a different service or a new service that's being mandated. We're talking about the effective implementation of an existing service. We are not -- Canadians who deserve the benefits of the competition that seamless roaming facilitates aren't getting that benefit. We need to fix the implementation of the current regime.
815 ' So the phase-out of the seamless roaming would -- you wouldn't ask about that until you were asking about the phase-out of mandated roaming generally.
816 COMMISSIONER MacDONALD: Okay. Still on the same topic. Paragraph 85, you state that in your view, the Commission must clarify, as you've just said:
817 "...that mandated wholesale roaming supports the implementation of new wireless technologies and standards, such as VoLTE and 5G..."
818 Just to be clear, in your view, does the current definitions in the roaming tariffs of the national wireless carriers apply to 5G services?
819 MR. COWLING: Yes.
820 COMMISSIONER MacDONALD: Okay. And you feel that that would have no impact on the rates currently in place, or any other changes that would be required?
821 MR. COWLING: No.
822 COMMISSIONER MacDONALD: Very succinct. Thank you.
823 In the context of MVNOs, different parties have made, you know, the argument that 5G should be excluded for the purposes of this conversation right now because it's still very early days and it would be premature. Just so I'm clear, you don't think that same 5G should not apply thought should also apply to seamless roaming?
824 MR. McALEESE: If -- let me rephrase. We believe that seamless roaming should extend and expand to 5G as well.
825 COMMISSIONER MacDONALD: Okay.
826 MR. McALEESE: Yeah.
827 COMMISSIONER MacDONALD: Moving over to network sharing. Some parties in the proceeding have stated that one of the downsides of network sharing, is that they -- such arrangements exclude new entrants because national players are unwilling to enter into spectrum or sharing -- network sharing arrangements with regional providers.
828 Just to jump back to the earlier comment. You have not tried to negotiate any network sharing agreements with the national providers, or other regional providers for that matter?
829 MR. ENGLISH: No, we have not, but I would say that we're on the record to say we see the benefits for both sets of stakeholders around a possible network sharing arrangement, but we've also heard from other parties that say -- they're on the record as well that they think that there's a strategic advantage that they own and control their network 100 percent. So we haven't been able to enter into any in depth commercial arrangements or discussions around the possible network share.
830 COMMISSIONER MacDONALD: But you would not be supportive of the view that network sharing agreements should be limited or prohibited in any way. Would that be an accurate statement?
831 MR. ENGLISH: That's true.
832 COMMISSIONER MacDONALD: Okay. Some other countries, notably South Korea and Germany, have been looking at joint builds for 5G networks, and I wonder if I could get your thoughts on a similar approach in Canada.
833 MR. COWLING: I think this is -- introduces the whole issue of invigorating the access regime. I'll ask Peter to speak about that. But this is -- it really does tie into what we've been saying on the record about an increased focus on access.
834 MR. JOHNSON: Yeah. So if we turn to access, we've found it interesting in the FCM submissions that they supported and identified a concept of coordinated access for support structure. And we have had some experience with the City of Toronto, for example, at the Union Station, where the City required the Big 3 to basically negotiate access to the Union Station, and they also required that Shaw participate.
835 So what's critical here is that the competitors are given access on these joint sharing arrangements. They shouldn't be strictly available just to the Big 3, but to the competitors as well, so the disruptors like Shaw.
836 On access, generally, we have made a number of submissions and we've promoted the concept of a -- the Commission frankly taking some leadership in terms of the deployment to 5G networks. And we believe that there is international precedent for the, you know, leadership by a regulatory authority, such as the CRTC, to really facilitate the seamless deployment of networks and the efficient deployment of networks.
837 And in our submissions, we identified, for example, the use and the creation of a public infrastructure working group. We believe that the working group concept would really bring together stakeholders from across, both regulators, industry, manufacturers and other stakeholders to really coordinate the access to the public infrastructure.
838 We believe that this would be in the interests of municipalities. They don’t want to increase the burden on themselves in terms of the administrative oversight of access.
839 We also think it would really facilitate the deployment from the industry’s perspective and really coordinating that approach.
840 I’m happy to elaborate further, but I don’t want to traverse too far here.
841 COMMISSIONER MacDONALD: No, that’s helpful. And, I mean, I would assume with coordination and a joint build, there would be efficiencies that could be found, there would be cost savings that could be realized, and more people could avail of the benefits of 5G sooner, versus a scenario whereby each provider built up their own 5G network from scratch?
842 MR. JOHNSON: Yeah, we’d definitely see the efficiencies with this coordinated approach, especially on a national level, setting standards that would be, you know, used across the country by various municipalities and also would give some certainty to the actual industry players who are building up the networks.
843 COMMISSIONER MacDONALD: And I promised I wouldn’t get into MVNOs for the first half. But just one question.
844 You know, one of the strongest arguments against mandating MVNO access is that it could have a negative impact on the roll out of services to underserved areas, but also on the deployment of 5G.
845 If we assume that there would be negative financial impacts and a negative impact on the role of the 5G, could those scales perhaps be rebalanced if there was a joint 5G build in Canada?
846 MR. JOHNSON: Sorry, are you suggesting -- if we’re talking about a coordinated approach, we’re talking about an approach for network builders? I want to make sure I’m understanding your question. Are you suggesting otherwise within MNVO range?
847 COMMISSIONER MacDONALD: I guess to phrase it another way, could the benefits of that -- could the financial benefits of that coordinated joint approach be significant enough to offset what many argue is the negative impact of mandated MVNO access on network deployment?
848 MR. JOHNSON: I’ll let Paul speak to the mandated MVNO resale.
849 But the efficiencies that we’re realizing or would realize by way of a coordinated approach on deployment would be miniscule compared to the prejudice to network builders, particularly ourselves, of an MVNO -- mandated MVNO arrangement.
850 MR. COWLING: Commissioner, it’s a difficult question to answer because I think that the devil would obviously be in the details.
851 I mean, we’re certainly saying it on record that if there was a broad resale MVNO environment, it would make us think twice and pause, you know, what future investments we’d be prepared to make for future technologies, such as 5G.
852 If you’re able to stitch together a joint build or network share, would that offset it? It’s very difficult to answer your question specifically.
853 COMMISSIONER MacDONALD: Okay. That’s definitely fair enough.
854 In your submissions, you reported that you’ve experienced delays in gaining access to ILEC support structure and you made recommendations to help address these concerns.
855 Can you help quantify that for me? Expand upon it a little bit? What are the length of delays? How frequently do they come up? What is the impact to your end customers?
856 MR. JOHNSON: I’ll jump in here and then others can, or Brian, if he wants to provide specific examples, can.
857 What we’ve seen with the ILECs in particular is the delays in terms of their establishing certain ground rules, which we feel are prejudicial to us.
858 So it’s not that we don’t ultimately get access to the facility, it’s the time period for which we have the delay. So we can’t attach to a pole, for example, or a used conduit for some period of time.
859 That’s why we proposed a -- what we consider to be reasonable periods of time for reserving any space by the ILEC. We said one month for small cells and up to three months for wireline attachments.
860 Our experience is largely informed by our wireline attachments, but we’ve seen it with WIFI facilities, so access points, think of an access point attached to a strand between two poles, or other facilities, wireline facilities.
861 And our view is that the Commission can really take some leadership here in terms of its jurisdiction over the ILECs to really facilitate our deployment on an efficient basis and really remove the barriers that competitors like the new entrance phase.
862 But I would also say that I believe Rogers has also made some submissions regarding their challenges in terms of access to ILEC infrastructure as well.
863 So there is -- you know, it would be difficult to quantify it but, there certainly has been delays in terms of periods of time, in terms of when we’ve been able to access the infrastructure.
864 And I know that some of the submissions by the ILECs have suggested that they need a two to three-year window to really reserve the space on their support structure.
865 You can imagine how challenging that is for us to deploy our networks if there’s a two to three-year window in terms of reservation of stays.
866 COMMISSIONER MacDONALD: I think you started to go down the road of answering this question, but are the delays created just by the sheer volume of requests that may be going to an ILEC at a given period of time, for example, if you’re undertaking a significant network build? Or are there specific rules in place or requests for information coming from the ILECs that are causing the delays?
867 MR. JOHNSON: Delays take a number of forms. There can be, as you mentioned, a reservation of space, there can be construction standards, and there can also be Safety Code 6 or safety standards that are imposed on us but not on others.
868 And so those are all problematic from our perspective and really, frankly, need to be addressed for there to -- you know, for us to remove one of these barriers of competition and would really kind of enhance our deployment for a competitive network.
869 COMMISSIONER MacDONALD: You said imposed on you, not on others. Can you ---
870 MR. JOHNSON: Well we would suggest that it’s -- in our experience from both the wireline and otherwise, we’ve seen some challenges on -- these roles are really applied to our experience. We can’t speak for others, although the record is full of references by Videotron, Rogers, and others in terms of the challenges they’ve had with respect to access to ILEC infrastructure.
871 COMMISSIONER MacDONALD: The answer to this question is probably “It depends,” but how much time, how much delay is reasonable? What is a reasonable turn around time for you to be able to gain access to a given support structure?
872 And maybe that timeline differs depending on whether you’re trying to attach a 5G piece of equipment or fibre to a poll, or different types of support structure.
873 MR. JOHNSON: Yeah, we, you know, in our submissions, we’ve suggested a timeframe which we think is reasonable.
874 But certainly less than a six-month window would be critical for us.
875 And we are concerned about the amount of space that’s reserved. We’re concerned about the time periods and the delays that are imposed.
876 And again, it’s a challenge for us to do our own planning when -- and you can imagine with small cells, there’s going to be more, because of the number of them, it will really move -- we will want to move quickly to make the attachments and basically make a number of attachments over several blocks.
877 So we need to have some more certainty in terms of our planning.
878 COMMISSIONER MacDONALD: I guess at a high level, what indicators should be looked at to determine -- I guess to distinguish between what’s a reasonable amount of time or a reasonable delay and what might potentially be an anti-competitive behaviour on the part of the ILECs?
879 MR. JOHNSON: One of the reasons why we like to establish this working group is because believe that some of the details of this can be worked out and resolved through the working group.
880 Both -- we mention it with respect to public infrastructure, but we can also see it with respect to the -- with respect to ILEC infrastructure.
881 And so we believe if you bring the sticklers together, maybe we need to look at and make ready costs, for example, make ready-work costs in the sharing of the actual pole itself.
882 Maybe we need to look at first come first serve models if we can’t get to a point where we can live with the reservations of space and what’s considered to be a reasonable time period for that.
883 So there are different solutions that can come forward here.
884 And we think that the working group can, frankly, facilitate this and make this, you know, a process that will be efficient for all.
885 COMMISSIONER MacDONALD: Thank you for that.
886 You also proposed that ILECs should document and track their spare capacity.
887 I understand what the benefits would be for providers, such as yourself, looking to gain access. Can you weigh those benefits against the additional regulatory burden that would be imposed on the ILECs?
888 MR. JOHNSON: Yeah, we thought about this, and the first comfort serve model might work in a more limited to address some of the regulatory burden. So what do we mean by that?
889 The -- I think the consequence of that would basically be that the ILEC would probably have to share some of the make-ready costs, make-ready work costs with the licensees, and we think that there is an opportunity here for us to revisit that regime.
890 So if there is a concern about the regulatory burden in terms of maintaining the records for the reservation, then there is an opportunity here to look at a revised regime with a first-come-first-serve, and then address the make-ready work costs as well.
891 COMMISSIONER MacDONALD: And should the Commission do anything with that information proactively?
892 MR. JOHNSON: Well, we think that the Commission can certainly be engaged in the process, and that's why we like the working group concept. Because we could see the working group reporting back to the Commission and moving forward with some recommendations that could be adopted and then adjustments to tariffs.
893 COMMISSIONER MacDONALD: With respect to your working group or the committee that you've been talking about, what specific actions would you see them taking? What specific mandate should they be given beyond what is already accomplished when you or other providers are negotiating with the ILECs today?
894 MR. JOHNSON: What we would like to do and look at the opportunity globally in terms of what others -- other regulators have done in terms of facilitating access and moving forward with the deployment of 5G, and they've looked at a number of things, and we have identified them in some of our RFI responses from the summer.
895 We think that there's definitely a room to define what is considered a small cell wireless attachment. We think that you can look at a dispute resolution mechanism in terms of moving forward with any disputes that arise, whether it's with a municipality, or whether it's with a ILEC. We certainly think that there is a model to be looked at with the SCC September 2018 Order where they looked at basically the costs and fees that could be established for attachments; and particularly in the small cell piece, looking at whether or not permits should even be required in the first instance.
896 So -- and municipalities might have concern about congestion or aesthetics, and again, we think the working group really facilitates and expedites that process. Ultimately, we think that that's in everyone's interest; it's certainly in the municipalities' interests in reducing the regulatory burden, and it's also in the interests of the -- in Canadians and consumers, and in the interests of the industry as well.
897 COMMISSIONER MacDONALD: Perhaps you could comment on the effectiveness of a potential working group. In one of the challenges that is often cited, you get 20 different stakeholders in a room together can become difficult to find consensus on anything. Why do you feel that these different groups, multiple municipalities, multiple service providers would be able to be of one unified voice on many of these issues?
898 MR. JOHNSON: Yeah. We've actually, you know, been interested in some of the responses in the submissions by the municipalities that were supportive of some of the initiatives and the ideas that we came forward with in terms of our submissions. So we actually think there's more commonality of interests than meets the eye.
899 Certainly, we can see, and we've discussed some of the challenge with the ILECs, but we do feel that there is a common ground here, and that we all want to see the deployment of 5G because it will benefit all of us in terms of what we know to date in terms of the advantages of the 5G networks.
900 So there is some incentive for all of us to get this right and to move it forward quickly.
901 COMMISSIONER MacDONALD: Okay. Thank you.
902 Switching gears for a moment. I want to talk about affordability, specifically, low cost and occasional use plans.
903 And just to start off. To my knowledge, Freedom doesn't include any overage charges in your price structure, and I'm just wondering if you can expand upon why you made that particular business decision. Other -- your competitors are driving significant revenues from overage.
904 MR. McALEESE: Yeah, I've heard that. We made a decision early on in the brand promise for Freedom that we wanted to avoid what we classified as "toxic revenue", and we felt that punitive overcharges, particularly in some of the rates, onerous rates that are being charged in the Canadian market, which as I think you know, are upwards of $100 a gigabyte, felt like the kind of revenue that we could do without and the kind of customer interaction that we could do without. So we chose some years ago to simply throttle the speed of a customer's overage, but not ever penalize them financially for their use.
905 COMMISSIONER MacDONALD: Okay. I'll draw your attention to Exhibit No. 2, which was filed by us this morning, outlining a subset of occasional use plans that are currently in the market from various different providers. There are, I believe, two on the list from Freedom, one at about 15 -- one at $14 and then one at 15.
906 In your opening comments, you had said that you also offered plans sort of in the $10 to $15 range. Are there other plans other than these two that should be included in this list?
907 MR. McALEESE: Well, plans cycle in and out based on competitive dynamics. There's also credits available for customers that bring their own devices which net our $15 MRC rate plans down to a lower figure. So my reference to 10 to 15 was in specific regard to that.
908 COMMISSIONER MacDONALD: Okay. But even though they may cycle in and out, you may have some grandfathered customers on them, you would always be maintaining at least one plan sort of in that $10 to $15 ---
909 MR. McALEESE: Correct.
910 COMMISSIONER MacDONALD: --- zone. Okay. And is one plan typically what you would offer? Or do you like knowing that -- each individual, each household is different, do you offer various different plans for different subsets of the market in that range?
911 MR. McALEESE: We try and have plans that have the availability of no data for customers that are perhaps using Wi‑Fi or using it simply for more kind of emergency type of situations for perhaps an elderly parent or something just simply for point of contact. And then also small amounts of data for customers who might use their phone for occasional emergency mapping or something like that.
912 But we've tried to have a small blend of plans to hit different customer needs.
913 COMMISSIONER MacDONALD: And what is the lifespan of a plan before it's renewed? Presumably because you've changed them you go back and look at them periodically to make sure they're meeting the needs of your clients.
914 MR. McALEESE: We do, and fortunately over the last number of years typically those examinations have resulted in plans typically being enhanced. So as the market has changed, again in the interest of more affordability for Canadians, we typically moved to a situation where customers get additional value in those plans.
915 But typically they're at least a year. The Big Gig plans that were referenced earlier on that were launched in October of 2017 remain largely unchanged today. And I've been on record in the past saying that we prefer not to change our rate plans with great frequency; it's an expensive and frankly somewhat complicated thing to train our distribution We've got hundreds of points of sale and thousands of people that sell for us.
916 So we want to try and keep the operating costs of the model down. So once committed to a series of rate plans we try and keep them in the market for quite some time.
917 COMMISSIONER MacDONALD: And do you grandfather those plans if you still have customers on them that haven't migrated (inaudible)?
918 MR. McALEESE: Oh, absolutely. Yeah.
919 COMMISSIONER MacDONALD: Okay. So if I were in the market for a low-cost plan from you ---
920 MR. McALEESE: Are you? Because I could help you there.
921 COMMISSIONER MacDONALD: Well, talk to me after the hearing.
922 MR. McALEESE: Okay.
923 COMMISSIONER MacDONALD: How would I go about doing that? How are they advertised? Are all plans available and easily accessible on your website, or are they hidden multiple clicks away?
924 MR. McALEESE: No, no. They're all available on the website and very easy to find. They're also merchandised in our stores, and widely and easily found.
925 COMMISSIONER MacDONALD: And do you use any of those low-cost –- sorry, I shouldn't say used because that might have a negative connotation. Do you target any specific customer segments with those low-cost or occasional use plans? I'm thinking low-income individuals, seniors?
926 MR. McALEESE: Well we don’t target them in our mass-media specifically, partly because, frankly speaking, Commissioner, they’re a little niche.
927 You know, one of things that’s been most interesting to me since the launch of the Big Gig plans back in 2017 has been that customers are typically looking for higher value and higher use plans.
928 So despite the availability of these, these plans represent a relatively small percentage of what we sell.
929 So demand actually is relatively low here.
930 COMMISSIONER MacDONALD: Without getting into what that percentage is, does it change greatly year over year?
931 MR. McALEESE: It does not.
932 COMMISSIONER MacDONALD: Okay. And do you ever follow-up with these customers to ensure that plans are continuing to meet their needs?
933 MR. McALEESE: Yeah, once a customer has been activated in our system, they go into our base management group who follow them through the course of what we call journeys. So we know, for example, how old their phone is. So when we know that that phone might be reaching the end of its, kind of, productive life, or a customer may be interested in an upgrade on that phone, we try to follow them along and have regular contact with them.
934 So if the -- of course, every time the customer reaches one of our contact centres, it’s a point of discipline for us to ask if there’s anything else we can do, if the customer’s plan still suits their needs. While we have them there on the phone or in our stores, we take the opportunity to have that conversation with them.
935 So we try to keep it as current as we can on the customers that we have.
936 COMMISSIONER MacDONALD: Okay. Thanks. You mentioned this a few minutes ago, the number of points of contact that, you know, customers can use to purchase a device from you, or purchase a plan from you.
937 Are your customer service reps fully trained on all low cost and occasional use plans that you would have on the market?
938 MR. McALEESE: They are. They’re trained on the entire portfolio of plans without any particular focus on one versus the other.
939 So we’re as interested in a customer who’s on a $15 plan as on an $80 plan.
940 Customers find their way to us on these things and often come in with a friend or a relative, knowing what they’re looking for.
941 But we have a kind of broad range of training across all plans and all devices.
942 COMMISSIONER MacDONALD: Would it be possible for you to file a copy of your training material that you use? Specifically in the context of ---
943 MR. McALEESE: Yeah.
944 COMMISSIONER MacDONALD: --- low cost plans?
945 MR. McALEESE: We’d be happy to do that.
946 COMMISSIONER MacDONALD: Okay. Perfect. The deadline for undertakings is March the 10th at 8:00 p.m. Ottawa time.
947 MR. McALEESE: Thank you.
948 COMMISSIONER MacDONALD: With respect to low cost plans, are customers subject to a credit check if they want to purchase a low-cost plan?
949 MR. McALEESE: It depends whether they’re acquiring and financing a phone at the same time.
950 So if a customer comes in, for example, a lot of these plans typically are on prepay, so the customer will simply provide a month’s worth of service fee in advance, and at that point they’re not subject to any credit review.
951 COMMISSIONER MacDONALD: Okay.
952 MR. McALEESE: Likewise, if a customer is coming in on prepay with their own device, they’re not subject to credit review there either.
953 COMMISSIONER MacDONALD: Okay. Central parties that have intervened have suggested that the Commission should mandate a low-cost plan that would be available to a means-tested segment of the population, such as low- or fixed-income households.
954 And I’d like to get into those specific plans for just a moment.
955 But at a high level, what -- from your standpoint, what would be the potential challenges in terms of implementing and administering a mandated low-cost plan? What would it look like?
956 MR. McALEESE: Well, if we follow the U.S. example and the use of the universal service fee to support the Lifeline program in the U.S., the most significant complexity in administering that comes from the people who administer the data.
957 So the customer’s eligibility would have to be curated in a central point and provided on a safe harbour basis to the eligible carriers.
958 In other words, I don’t want to be the one determining whether a customer is bona fide, is true. Right? If someone is -- whatever the threshold is, that’s going to have to come from a bigger paygrade than me.
959 COMMISSIONER MacDONALD: I would be shocked if you said you wanted to do the means testing.
960 Given that complexity, would it not be simpler just to mandate a plan that is provided at low cost, but available to anyone who may choose to avail of that service? Skinny wireless.
961 MR. McALEESE: Well, branding not withstanding, I would question, if I could, the premise of that.
962 I’ve described these low entry cost plans as a solution to a problem that is not apparent to me.
963 We have very little demand for these plans, despite their availability now for something like 18 months.
964 And I suspect the other carriers that you see in here will tell you as well that despite them being widely available and very good value, it simply doesn’t provide customers with what they’re looking for.
965 So the vast, vast, vast majority of people in this country are now using a smart phone and seeking data.
966 And I’ll spare the blushes of the room, but I imagine there aren’t too many people in this room are looking for a $10 plan.
967 And so I have read and understand the position put forth by those third parties, but, as you can see from this list, which is two pages long and doesn’t have a rate plan over $15 on it, there are 20 options here. I’m not sure what a mandated plan would do that this piece of paper doesn’t suggest is already in place.
968 COMMISSIONER MacDONALD: Okay. I take that point. And before we get back to what a plan could look like, just a couple of final questions.
969 ISEDC’s Connecting Families Initiative works with ISPs to connect low income families with internet for $10 plus tax a month. And it’s available to those receiving the maximum amount of the child benefit.
970 Could such an approach be taken on the wireless side as well?
971 MR. McALEESE: It absolutely could.
972 COMMISSIONER MacDONALD: Other than the -- well let me go back. Would there be any challenges, from your standpoint, in honouring such a commitment?
973 MR. McALEESE: Not in honouring such a commitment. I think the complexity again goes to making that the information we have is current and well curated so that we’re abiding by the rules of eligibility.
974 We would potentially run into issues with customers who want that plan and then are looking to additionally finance a phone.
975 So I’m assuming that your credit check question had something about a back note to it, which is, are we ever putting customers into a position where they may not be able to get access to our network because of credit deficiencies.
976 And in my experience here, we will have a number of people who are looking to put $1,000 phone on a $10 plan.
977 COMMISSIONER MacDONALD: Okay.
978 MR. McALEESE: And that may pose a challenge to their eligibility to finance that phone with us.
979 COMMISSIONER MacDONALD: Okay. Other than the plans that we’ve discussed in the $10 to $15 range, do you have any other programs that might be specifically targeted at lower income Canadians, discounts on refurbished phones, for example?
980 MR. McALEESE: We do not.
981 COMMISSIONER MacDONALD: Okay. Exhibit 3, this is getting back to what plans could look like, outlines a number of different suggestions that we’ve received from four different intervenors as to what the plans could look like. They all range from $20 to $35 dollars a month.
982 But when I look at what’s already available in the market, there are already plans that aren’t that far off the $20 to $35 mark.
983 And I understand not far is a relative term, $5, $10 is a significant amount for many individuals.
984 How feasible would it be for you to implement and still be able to meet your commitments if you adopted the plan of the Coalition, for example? Would you realistically be able to put a plan in the market $25 to $30 unlimited voice and texting, four gigs of data a month?
985 MR. McALEESE: That would cause a significant rerate of our existing base. The cost -- the issue in that particular proposal is the four gigabytes of data, which has a retail, and has had a retail for a number of years significantly higher than the 25 to 30.
986 Again, if you’re talking about curating this for a specific subset of the population, that’s a different thing.
987 But to have a plan like this widely available for, I think, all carriers, certainly for us, would cause a rerate of that for people that are already paying a high price for this with no evident benefit to the carrier.
988 COMMISSIONER MacDONALD: So from a social good standpoint, that my be doable under a program similar to the one we just discussed, Connecting Families for internet, but not for the wider population.
989 MR. COWLING: The Connecting Families program was a program that was a program that was -- it effectively is a subsidy by the industry, and as a result, it is subject to eligibility requirements that are vetted through an administrative process. But in order to commit to that subsidy, that requires us to undertake significant diligence on what the quantum of that subsidy would be. And we did that through the Connecting Families process. We obviously haven’t done that for the wireless side.
990 And keep in mind where we’re at in terms of our own scale and our own growth. We’re at a very different place than our principle competitors, and actually this is a segment of the market, the lower end of the market, that we are particularly effective in playing and always have been and we want to maintain that comparative advantage, and we want to maintain that differentiation potential.
991 When we’re talking abut mandated plans on a broad basis, that potential for us is very harmful. It’s not an opportunity, it’s a -- it’s a source of harm. So Connecting Families is one thing, but we have to talk about what the constraints are with that, because again, it’s a subsidy. A broad mandated plan is regulation and regulation will hurt emerging competitors like Freedom.
992 MR. McALEESE: And if I could as well, Commissioner, I think it is worth reminding everyone that the history of the development of the subscriber base of Freedom and Wind, as is typical with new entrants into the marketplace, typically starts from lower value subscribers. So we have on a rateable basis considerably more subscribers at $30 as a percentage of our base, then when -- then the incumbents would have. Which means when we -- if we were to move to adopt something like this and the industry did it, it would have a disproportionate degree of harm to our subscriber base and profitability.
993 COMMISSIONER MacDONALD: I thank you and I appreciate those additional comments, because it helps put some colour on your particular reality versus -- versus others.
994 Just a couple of final questions before I move on. If some type, not suggesting what it would look like. If some type of mandated occasional use or low cost plan were to be implemented, would any additional requirements need to be put in place to ensure proper training of staff, proper access on your websites, that it be promoted in a similar manner?
995 MR. McALEESE: Eligibility confirmation would be a new phase of training for us, a new element of training to ensure that the customer is in fact able to receive the benefit, whether it’s subsidized or otherwise. That would be the primary thing.
996 COMMISSIONER MacDONALD: Okay.
997 MR. McALEESE: Otherwise it’s -- it would be a straightforward element to the -- addition to the training.
998 COMMISSIONER MacDONALD: Okay. Perfect. The CCTS has stated that if the Commission were to impose low cost or occasional use plans, the Commission would simply need to impose certain specific requirements on a particular type of wireless plan and the service would remain unregulated and as a result they would be authorized to receive customer complaints about billing and service delivery related to those plans. Would you agree with that assessment by the CCTS?
999 MR. COWLING: No. This would be a regulated plan. You would have to go through your forbearance analysis to determine that the market isn’t sufficiently competitive to protect consumers. On the face of the record that you have today, including the page that Paul pointed to, there’s no reasonable basis for you to do that. There is no reasonable basis for you to reregulate this into the market.
1000 So we would submit that you can’t do that. And if you were to do that, it would therefore be a regulated service that would not be under the jurisdiction of the CCTS.
1001 COMMISSIONER MacDONALD: Okay. Thank you for that.
1002 Win-backs. In response to question 204 of our RFI from July the 15th, you indicated that the national providers are targeting their customers using anti-competitive win-back tactics, specifically targeting Freedom customers. Can you expand upon that or provide any evidence to support that particular statement?
1003 MR. McALEESE: Yeah. There’s a long history in this -- in this business, of as quickly as possible trying to repatriate a customer once they’ve indicated that they’re about to port. And the big three have, certainly in my time -- three years here at Freedom, been particularly aggressive and particularly predatory in their pursuit of customers who have indicated a desire to port, or are in midst of a port. Going so far as to calling them while they are in our stores, on their phone, and offering them substantial, even better than retail offers in order to walk out of our store. So yeah, there’s a pretty significant body of evidence for that.
1004 COMMISSIONER MacDONALD: Do you have any insight as to whether that win-back activity is specifically being directed at Freedom, or would you assume it’s being directed at any customer that tries to port away from one of the Big 3?
1005 MR. McALEESE: I have a pretty strong sense, but I think that’s a great question for the three guys coming after me.
1006 COMMISSIONER MacDONALD: They will be here. Can you give me any sense as to how significant an issue that is for your company?
1007 MR. McALEESE: Well, first off, thank you for asking about this. It’s a significant issue for us on a number of fronts. I think it’s been long perceived, and perhaps it’s a dated perspective, that win-backs are sort of a victimless impact. Anything but -- that’s anything but the case.
1008 As we move to a world in which the average selling price of a phone in our store is about $1,000 now, three years ago by the way, that number was $300. But since we’ve taken on the iPhone and brought ourselves up into a broader device range, the customers are now spending on average between $900 and $1,000 when they buy a phone from us. When we crack the cellophane on an iPhone box, and if I do nothing more than crack the cellophane on an iPhone box, it’s worth about $200 to $250 less than it was 10 seconds before. That’s the reality of now a used phone.
1009 So when someone comes into a store and indicates a desire to port, and goes -- starts the process for us of opening a new box and moving into a new subscribership, and then gets a phone call from one of the incumbents to come back, gets some ridiculous way below kind of rack rate type offer because they typically know if they’re in a Freedom store what they are buying. That predatory call costs us hundreds of dollars in cash for what is often times no more than a 20- or 30-minute interaction with a customer, who by the way is now across the mall in one of the Big 3 stores. So we’re left with a big chunk of cellophane an empty box and a bit of a broken heart.
1010 COMMISSIONER MacDONALD: Are there specific win-back tactics that you are most concerned about, or you feel that are most egregious?
1011 MR. McALEESE: The most significant one is the call upon the trigger of a port. So that really is by a long way the most significant one. They will continue to call the customer back well after the customer has left our store. It’s just a little bit harder for them to, you know, to be successful when the customer has already gone home.
1012 But I would say just as a general principle, not dissimilar to what we saw in the old days of long distance in this country. I would suggest that a ban on contact with the customer for some period of time is probably something that’s well worth consideration.
1013 COMMISSIONER MacDONALD: Okay. Thank you. I honoured my commitment. I did spend the first half of questions on non MVNOs, but the moment has arrived. You had said in your first submission on the topic of mandates MVNO access, customers may end up with more competitors but not strong competition. So I want to talk about that for a bit.
1014 You submitted that the CRTC would need to revisit our essentiality. The essentiality of wholesale roaming for MVNOs because the last time we looked at that we did it as the same time as wholesale roaming.
1015 Is it your view that MVNOs -- MVNO access is essential if we were to analyze it alone?
1016 MR. COWLING: No, it's not essential. It fails on a number of fronts. The one where it clearly fails is on the competition input. The absence of mandated MVNO does not result in a substantial lessening of competition. In fact, the presence of mandated MVNO will result in substantial lessening of competition.
1017 Other aspects of that test, that analysis that you run under the requirements of TRP 2015-326 are not satisfied by any proponent who's argued for a mandated MVNO.
1018 And the policy reasons why you didn't mandate MVNO back in 2015 are still relevant today. I would argue they're even more relevant today because, as Peter explained, the competitors like Freedom need to invest on two tracks, not one. They need to expand coverage, and they need to invest for 5G.
1019 COMMISSIONER MacDONALD: With respect to the relevant geographic market, how should we be looking at that? Is it a national market for wholesale MVNO access? Should we look at it from a provincial perspective? Should it go even more local than that?
1020 MR. COWLING: The Competition Bureau provided a very useful, thorough, robust model for assessing the geographic market where there is a strong facilities-based disruptor versus where there is not. And -- so you look at where that is the case. It could be in the case of Saskatchewan, for example, that that's on a provincial basis or another province's, it's on a CMA basis, or it's smaller.
1021 One of the reasons why we talk about the Tier 4 area as a relevant area for purposes of a remedy is because that's a very clear indication of where a facilities-based disruptor is or is not. They have a licence, and they've either deployed that licence or they have not. That's a very good indication about whether that presence exists or it doesn't. And effectively, that is what we've learned from the Competition Bureau's analysis and work, is the geographic market is defined by the presence of absence of a facilities-based disruptor.
1022 COMMISSIONER MacDONALD: Just from a very practical standpoint. Do you think it would be too cumbersome to mandate wholesale access on some national level?
1023 MR. COWLING: For MVNO?
1024 COMMISSIONER MacDONALD: I -- for the underlying service provider or from the standpoint of the Commission.
1025 MR. COWLING: Well, if we're talking about a facilities-focused MVNO, along the lines of what we've proposed, no. There is a way that you can do that, there is a way that a -- that the MNO can do that.
1026 COMMISSIONER MacDONALD: Okay. Many have suggested that it would be the regional carriers would suffer the most if a full MVNO were mandated. To what degree would your concerns be alleviated if the mandated MVNO looked like the Bureau's model?
1027 MR. COWLING: Well, I think you can see that between what Shaw proposed by way of minimum parameters and what the Bureau proposed there's a lot of alignments between the two. They flow from the fundamental premise of looking at places that those Canadians that don't have the competitive alternatives that are bringing benefits to some. Where is there a fourth disruptor, a facilities-based disruptor, where isn't there? And so from that perspective, our focus is exactly the same.
1028 In terms of eligibility, our focus is also exactly the same. And experienced wireless provider with the credibility and capability of building a wireless network within that Tier 4 area, which we think is the right geographic area, is a key part of their proposal, it's a key part of our proposal.
1029 What we have also suggested, which is really just an additional detail beyond what the Bureau has proposed, is that to be eligible a party would have to have a licence. And that takes care of a lot of some of the -- a lot of the concerns that were raised about encouraging parties to deploy within the timeframe or punishing them through a penalty of some kind if they don't.
1030 Under our additional detail, which is really just a tweak, you wouldn't need to do that because to determine eligibility you need to have a licence. So you've made the investment in the licence, you're subject to deployment requirements, the temporary MVNO allows you to deploy sooner than you otherwise would, and you're -- otherwise, you're already incented because you have those deployment obligations.
1031 So -- and I just reiterate. One point that I interpret the Bureau proposal to say is that there is no MVNO regime in any area where there is currently a facilities-focused or facilities-based disruptor. So you only go where there is no disruptor today.
1032 So in our proposal, a Tier 4 area that has no build by a competitive alternative to the Big 3, that would be an eligible area.
1033 COMMISSIONER MacDONALD: And would that be a market that your company is interested in entering as an MVNO provider in parts of the country where there is no facilities-based competitor to one of the Big 3?
1034 MR. McALEESE: Yes.
1035 MR. COWLING: Yes.
1036 MR. McALEESE: Yes.
1037 MR. COWLING: But -- sorry.
1038 MR. McALEESE: Yes. Sorry, we're ---
1039 COMMISSIONER MacDONALD: It's two yesses.
1040 MR. McALEESE: We're debating who gets to say yes.
1041 Again, devil in the details, but yes, as a general principle that would be correct.
1042 COMMISSIONER MacDONALD: Okay. And under the Bureau's proposal, we still obviously want to make sure that there is going to be facilities-based investment in the country, and one of the concerns is that you, or other providers enter given regions as an MVNO and it serves to put downward pressure on investment in those particular areas, or remove the desire of companies to invest in a given area.
1043 How might we look at alleviating some of those concerns?
1044 MR. COWLING: As we have proposed, there should already be investment to obtain eligibility, and the key entry ticket, sort to speak, is to buy a licence in the relevant area. So that actually triggers a whole set of other incentives. You have deployment obligations under those spectrum licences, and you've paid money for the spectrum licences, so you're incented to monetize them.
1045 The MVNO is really just a temporary measure to accelerate timing to make some areas that would otherwise not be economical, economical. And you only have the benefit of it for a very short window, 5 years,
1046 And that's why we believe the 5 year phase-out is critical because that is also an incentive to make sure that people invest and make use of that spectrum licence that they have acquired and paid money for; otherwise, at the end of the MVNO period, if they haven't deployed a network to put that spectrum to work, then they have nothing; they can't operate anymore, they have no ability to service their subscribers.
1047 COMMISSIONER MacDONALD: And obviously getting that spectrum is a significant hurdle. If MVNO access were granted under this mandated -- under this scenario, how much faster would an entrant such as yourself be able to enter those underserved markets relative to the timeframe that would be required if you'd go out and build the network yourself?
1048 MR. McALEESE: Fairly quickly. We know the most significant issues there, and Brian will add in the network side, but because we've expanded things like our distribution, so in our instance, we have retailers like Loblaws and Walmart that we would able to immediately tap into who would have existing distribution in most of those locales, it's a natural extension for us on most operational fronts. So from that standpoint, it would be a very, very quick to market strategy for us.
1049 Brian, on the network side?
1050 MR. O'SHAUGHNESSY: On the other side, from my point of view having to build a network, it takes, especially in the smaller markets we're talking about going into, typically you don't have big skyscrapers you're putting antennas on top; you have to build towers. And that takes a couple of years to get permits to build. So it's a 3‑plus year window from the time we say let's go to build a market like Fort McMurray until we can actually turn it on.
1051 So I think the point is here, we’d be able to implement service through an MVNO regime while building a market and then swap over the customers once all the towers and sites are built.
1052 COMMISSIONER MacDONALD: That sounds like a very great scenario that you just outlined.
1053 What happens in the scenario whereby a provider perhaps not as responsible as yourselves does not undertake those network investments? Yes, they bought the spectrum, but they don’t actually proceed over the five years to build the towers, to build that network infrastructure, and they just in turn decide to sell the spectrum at the last minute or in the fourth year of the five-year mandate period?
1054 MR. COWLING: I do think it reaffirms the need for that admission process, so to speak.
1055 And as a minimum, you need to buy spectrum. You’ve undertaken the risk of holding that on a balance sheet and not doing anything with it. The Competition Bureau supported other ways of verifying eligibility and credibility. We believe you should have a proven track record in the wireless market of building, you are a builder, you can demonstrate to the Commission that you’re capable of that.
1056 I don’t think with those constraints on admission, on eligibility, I don’t think you need to worry too much about the backend. People want to build -- if they’re a credible wireless provider in Canada and they have a demonstrated track record like Freedom does, why would we abandon a Tier 4 area? It doesn’t make any sense.
1057 COMMISSIONER MacDONALD: Is five years enough time to undertake that deployment? I mean, you had mentioned it can take three years in a given area. But there are challenges with building in this country. Is five years appropriate?
1058 MR. O’SHAUGHNESSY: The -- yes, it is. I mean, there will always be outliers. Any city I’m in today, I have sites I’ve been looking for five, six, seven years for a given location.
1059 But the vast majority you can do within that realm.
1060 And if we’re talking about going into a place again, like a Fort McMurray, it’s probably 10 sites you have to build. Maybe it’s 15. It’s in that order of magnitude. It’s not like you’re going into a Toronto and having to build 800 sites.
1061 So the five-year window for that scale, for most of these markets, is very reasonable.
1062 MR. COWLING: There is the balancing consideration of incentivising people to build too. So this has to be a little bit shorter than a comfortable period of time. It has to actually encourage you to get started, encourage you to plan, encourage you to negotiate the MVNO terms. This is designed to accelerate sustainable competition through facilities-based competitive investment. And that five years makes sense.
1063 Just to give some perspective, Shaw bought Freedom in 2016. It’s 2020.
1064 COMMISSIONER MacDONALD: When does the five-year clock start ticking?
1065 MR. COWLING: From the date of the decision.
1066 COMMISSIONER MacDONALD: Not the date of whenever a provider is able to get access to the spectrum?
1067 MR. COWLING: The one thing that the Commission has to do, and the Bureau spoke about this earlier, is determine the eligibility -- the eligible areas.
1068 One of the reasons why we proposed a Tier 4 area is because you can easily do that through ISED data, for example. You can look at ISED data to determine whether a carrier has deployed spectrum. If any spectrum is deployed in any way, that area comes off the list.
1069 So you would have to undertake that process fairly quickly after you make this decision.
1070 I’m saying the time that the clock should run, from the day of the decision. If you wanted to give yourself the time to actually decide where eligible areas would be, that’s -- you know, that’s a reasonable compromise. But it should start soon.
1071 And in terms of the party’s eligibility, any time within the five years, if they’re -- if it’s an eligible area and they’ve become eligible, then they can choose to deploy.
1072 But the whole regime ends in five years. It’s not contingent on each specific party’s time frame for deployment.
1073 COMMISSIONER MacDONALD: And what happens at five years and one day, assuming some of these MVNOs have not built out their network, or at least have not built out their network to the entire area and there would be, you know, customers that would potentially be left stranded or without service if and when a mandate comes to an end in five years?
1074 MR. COWLING: Well, I mean, one other possibility, of course, is that the -- this is a negotiated arrangement. So if you need more time and you’re one of the players who got eligibility through your vetting process, and if the eligibility area was vetted through your process, you would negotiate more time with your MNVO carrier.
1075 COMMISSIONER MacDONALD: And if you’re unable to reach an agreement?
1076 MR. COWLING: What happens when licenses don’t get renewed?
1077 COMMISSIONER MacDONALD: Okay. Which carriers should be obligated to provide the MNVO access? Is that limited to the Big 3? Or are there different ways to potentially slice this?
1078 MR. COWLING: Well the Big 3 have the national networks, the national coverage, the scale, the Bureau talks about market power.
1079 This obligation should be confined to the Big 3. It is not appropriate to put that obligation on a party that is currently building a competitive network. That doesn’t make sense.
1080 COMMISSIONER MacDONALD: But if one of the arguments is that regional carriers could potentially be most harmed by the entry of an MVNO, if Freedom, for example, were mandated to grant MVNO access, would you at least not be able to offset some of that lost retail revenue with wholesale arrangements?
1081 MR. COWLING: If we’re talking about our model, or the Competition Bureau’s model, by definition we wouldn’t be there, so we wouldn’t be providing service.
1082 So we -- it’s physically impossible for us to do that.
1083 COMMISSIONER MacDONALD: Other models.
1084 MR. COWLING: On a broad MNVO resale mandate?
1085 COMMISSIONER MacDONALD: Yeah.
1086 MR. COWLING: Would the wholesale revenue from a broad MVNO resale mandate offset the harm to our business if you mandated broad MVNO resale?
1087 COMMISSIONER MacDONALD: Help offset, yes.
1088 MR. COWLING: Help offset? I think the evidence is overwhelming that MVNOs are going to target our sups, target our segments of the market. They’re not going to compete against the MNVOs.
1089 So the answer is an unqualified no, it will not.
1090 And on the same token, you know, we’re not really in a position at our point of scale and network deployment to be providers of wholesale services that ---
1091 COMMISSIONER MacDONALD: Would be attractive to ---
1092 MR. COWLING: That would be attractive.
1093 COMMISSIONER MacDONALD: Okay. What about a company like SaskTel that has a very large market share in Saskatchewan and a very robust network? Would you see that obligation extending to them to provide MVNO access?
1094 MR. COWLING: In the broad MVNO mandate, it’s not a model that we support, it’s not a model that we think you can or should implement.
1095 In our proposal, in the case of SaskTel, again, if they’re operating in that area, then it’s not eligible for MVNO.
1096 COMMISSIONER MacDONALD: Moving on to limitations, should MVNOs be permitted to wholesale access to other MVNOs?
1097 MR. COWLING: Yeah, I mean, this is a question that, again, it depends on the framework that you’re talking about.
1098 We’ve spent a lot of time thinking about a different version of MVNO. And in that framework, where the MVNO arrangement is negotiated, it’s a negotiated arrangement. So that’s up to the parties to determine.
1099 In a broad MVNO resale mandate, of course we would object to a resale of resale, just for the same reasons we object to resale. It doesn’t satisfy your test, it’s going to hard Freedom, it’s going to harm competition, it’s going to harm Canada.
1100 So no resale of resale if it’s broad mandate.
1101 COMMISSIONER MacDONALD: Thank you for that clarification.
1102 Sorry, I just lost my train of thought.
1103 Would one of the challenges with reselling the service of an MVNO be that the underlying network operator wouldn't have any visibility into who the end user actually is and problems that it could create.
1104 We've had similar complaints on the wireline side and I believe it was Eastlink raised that concern in this proceeding as well that the more time to service of an MVNO is resold, the underlying network provider has no visibility into the end user.
1105 MR. COWLING: That might be a concern which is probably, again, if it's a commercial arrangement, then you probably have some obligations to disclose that information to have appropriate visibility into that information. But I mean in a broad MVNO resale mandate, yes, that would be a concern. It would also be a concern for any eligibility constraints that you put on this if there's no visibility into end users or subsequent resellers who have that opportunity.
1106 COMMISSIONER MacDONALD: Okay, thanks.
1107 What about particular lines of business, would you have any concerns with an MVNO under your proposal selling to enterprise clients, selling M2M or IoT services?
1108 MR. COWLING: Under our proposal, this would be a negotiation.
1109 COMMISSIONER MacDONALD: And your answer would be the opposite under a broader ---
1110 MR. COWLING: Yes. I mean, again, you'd have to really -- when we're talking about the broad MVNO, we struggle with that because in order to get to that broad MVNO mandate, we would have to go through the requirements of 2015-326 essentiality. In our view, it fails on a number of fronts. And that's in the context of retail consumer services and in that regard it fails. It most definitely fails in the highly-dynamic unexplored area of M2M and other business markets.
1111 COMMISSIONER MacDONALD: And under your proposal, would access to 5G networks be included or not?
1112 MR. COWLING: It would be negotiated.
1113 COMMISSIONER MacDONALD: Okay, thank you. I get the sense that may be a response to a number of questions that I had.
1114 I probably have about another 15 minutes, 20 minutes. I don’t know if you wanted to ---
1115 THE CHAIRPERSON: Why don’t we take -- why don’t we recess for 15 minutes and we'll resume just after a quarter to, and you can complete your questions. And I think members may have a few others.
1116 Thank you.
--- Upon recessing at 3:32 p.m. /
L'audience est suspendue à 15h32
--- Upon resuming at 3:46 p.m. /
L'audience est reprise à 15h46
1117 THE SECRETARY: Please take your seats.
1118 THE CHAIRPERSON: Commissioner MacDonald.
1119 COMMISSIONER MacDONALD: Welcome back.
1120 So with respect to your proposal and it being commercially negotiated, obviously the rates would be commercially negotiated. Would that apply to the terms and conditions as well?
1121 MR. COWLING: Yes. As we've said on the record, MVNO is not a static thing. It's a unique thing tailored to the circumstances, so terms and conditions would be negotiated.
1122 COMMISSIONER MacDONALD: I would assume that adds a certain level of complexity to any negotiation. If the terms and conditions are to be negotiated, does that make it more likely that an agreement would not be reached?
1123 MR. McALEESE: No, not at all. Globally this is typically how they're managed and are subjected to a dynamic living agreement. So we need not look any farther than the U.S. to see a pretty significant MVNO activity that's has decades long expansion all done under a commercial negotiation.
1124 COMMISSIONER MacDONALD: Thank you.
1125 In an ideal world, every negotiation would be successfully concluded and everyone is happy. What happens when that is not the case?
1126 MR. COWLING: So one of the things that the Commission -- we'd encourage the Commission to do in this context is set timelines for the negotiation. That has to be reasonable and as Paul said, this will be a commercial negotiation.
1127 If you can't get an agreement within a timeline, then there would be an arbitration mechanism to resolve the dispute. We've pointed to the ISED arbitration rules as a possible basis for dispute resolution. We'd want to encourage as much as possible to get an air shaded outcome.
1128 COMMISSIONER MacDONALD: What's reasonable? What's a reasonable amount of time before one party could say, you know, no, this negotiation isn't going to go anywhere, I need a backstop from the Commission for example?
1129 MR. COWLING: Into the roaming rules and even the site sharing rules at ISED, there are timeframes for requesting parties to make proposals and for receiving parties to make kind of counterproposals and back. You could adopt that and if those timelines are not met, there could be some mechanism for trying to resolve that part of the process.
1130 But overall, this is -- you know, a commercial negotiation on this for something like this which will also require the facilities-based disruptor to figure out how and when they're going to build and that's a key ingredient on this whole thing. That's the end goal here as we want someone to build. So they need to figure out when and where they're going to build, how they're going to build, and they're going to be concurrently negotiating this MVNO.
1131 So, you know, six to nine months is probably a reasonable timeframe to get a deal done.
1132 COMMISSIONER MacDONALD: Okay. And if a deal doesn't get done and the parties end up in a final offer arbitration before us, do you think that that process will be much more cumbersome if we're trying to also deal with terms and conditions versus solely dealing with rates as an example?
1133 MR. COWLING: Well, terms and conditions and rates are all part of a bucket of things that are traded off in a commercial negotiation. So it's hard for -- it's hard for us sitting here. It's hard the Commission to determine exactly what that looks like from this vantage point without giving the parties the MNO and the MVNO or the facilities-based disruptor the opportunity to figure that out.
1134 COMMISSIONER MacDONALD: But at a minimum, it would introduce more moving parts too.
1135 MR. COWLING: It would, yes. It would introduce more moving parts.
1136 COMMISSIONER MacDONALD: Okay. Then in an effort to try and nail down some of those moving parts in advance, would it make more sense for the Commission to outline what standard Ts and Cs would actually look like to form the basis for these commercial negotiations?
1137 MR. COWLING: You just want to avoid the risk of constraining it to be, you know, unfavourable to the facilities-based disruptor. You'd want to -- you don't want to pre-judge the negotiation.
1138 That's the downside of the certainty that you're trying to bring there. We're trying to encourage a model that's focused as much as possible on market forces and a negotiated outcome, and I think you've got to let that process run its course before you define -- without the benefit of that commercial discussion, that commercial arrangement, define what it -- what this will look like in this particular region for these particular carriers, that there's risk in that.
1139 COMMISSIONER MacDONALD: So can some of that risk be mitigated if whatever we put forward was the basis or, at a most basic level, what the Ts and Cs would include and look like and then the parties are free to negotiate better terms if they can come to an agreement?
1140 MR. COWLING: Sure. You can -- you could set a baseline. I don't know how you define exactly what that is.
1141 COMMISSIONER MacDONALD: Okay. Do you envision that final offer arbitration being done by the Commission or do you see that being done by a third party?
1142 MR. COWLING: I think you'd want a third party involved with expertise in networks, with expertise in commercial arrangements.
1143 COMMISSIONER MacDONALD: If it wasn't a third party and it was the Commission, do our existing FOA processes -- would they be appropriate in this context?
1144 MR. COWLING: Well, I believe they are limited to rates. I think you need a broader mandate than that, and that's one of the reasons why we suggested looking at the ISED rules because they would -- they wouldn't have the constraints of just looking at rates in a final offer arbitration process.
1145 COMMISSIONER MacDONALD: Okay. Now, let's assume we don't take your suggestions with respect to what the model could look like and potential rates are not left to commercial negotiation. How would you see that rate-setting taking place?
1146 Some have suggested a retail minus approach.
1147 MR. COWLING: If you're asking whether we're supportive of that, we're not.
1148 Rate-setting is a very complicated process, and we're really encouraging you to focus on a negotiated outcome. The rate-setting process on wholesale roaming rates is imperfect. It's clearly not in line with what's happening in the retail market where prices are coming down significantly, and that was just finalized in 2018 after years and years and years.
1149 So I -- from a practical perspective, if we're trying to get a remedy out there that's going to have an accelerated impact from a timing perspective, I think a rate-setting exercise is not -- is not a fruitful way to go. I think the negotiated outcome is the way to go.
1150 COMMISSIONER MacDONALD: Do you care to comment specifically on the retail minus approach?
1151 MR. COWLING: No.
1152 COMMISSIONER MacDONALD: Okay. If we did go down that -- the route of rate-setting, would interim -- would the use of the existing wholesale roaming rates be an appropriate interim rate to set?
1153 MR. COWLING: For a mandated MVNO that's constrained in the way that we have proposed, sure.
1154 COMMISSIONER MacDONALD: Okay.
1155 MR. COWLING: is there a problem with the mandated roaming rates? Yes.
1156 COMMISSIONER MacDONALD: Thank you.
1157 Some parties have expressed some concerns about the potential entry of large, well-capitalized firms, large tech firms from the U.S. potentially coming in and taking advantage of a mandated MVNO access structure that may be advantageous to them but may not be, in the long term, advantageous to Canadians or the networks upon which we rely.
1158 Can you expand on your thoughts in that regard?
1159 MR. McALEESE: We share their view, and much as the Competition Bureau indicated earlier today, believe that requiring wireless operators to have some skin in the game the way that we've articulated in our proposal is the right way to go.
1160 MR. COWLING: This issue is an example of the perils of this mandated MVNO regime. There is no barrier -- for parties that have undertaken the risks of investment to build new networks, they have overcome barriers, in part because of spectrum policy, in part because of a mandated roaming regime, but also, mostly, almost 100 percent because of significant investment of billions of dollars.
1161 Whether we're talking about a reseller in Canada who has scale, and there are several, or we're talking about a foreign player who has even bigger scale, there is a risk to letting someone come in and get regulated access to a network and get an advantage over what Freedom has in terms of network quality. There is a huge risk.
1162 Ease of entry, ease of exist. They don't have to make a commitment. They don't have to build anything. They don't have to undertake any risk.
1163 That puts us in a competitive disadvantage, a significant competitive disadvantage. It's amplified if you're talking about very large multi-nationals, but it's no difference in kind from the risk that we're going to be facing from resellers with scale in Canada.
1164 We can't overstate the concern we have with that. We've said on the record if there is a broad MVNO mandate, which we obviously significantly object to, there has to be some kind of restriction for multinationals.
1165 There has to be a restriction that they are Canadian owned and controlled to mitigate that risk, but it still doesn't take away from the risk of a reseller in Canada getting a significant competitive advantage over us and undermining the value of the investments that we've made.
1166 MR. McALEESE: If I could as well, these are not organizations that just fell off the back of a truck. They've had ample opportunity to participate in spectrum transactions, to participate in spectrum auctions and to be builders the way that ourselves and others have been in this country.
1167 I think it is a dangerous precedent to reward the shortcut that you're suggesting to allow them to piggyback and ride our rails after years of investment. They've had their opportunity to be at the dance and chose not to take it.
1168 COMMISSIONER MacDONALD: I apologize if I mis-spoke because I wasn't suggesting such a model. I was actually trying to make sure that such a model doesn't happen.
1169 MR. McALEESE: I knew I liked you.
1170 COMMISSIONER MacDONALD: So I mean, the concern would be Amazon, for example. Amazon Prime, they include their streaming service free of charge for 100 bucks a year in an effort to sell everyone everything. Wireless could just be a throw-away item that, you know, ends up getting absorbed into the larger company without network investment, with, you know, investments in the Canadian economy.
1171 So to prevent such a scenario, is a market cap feasible?
1172 MR. COWLING: Videotron has suggested a market cap again as another constraint, but these constraints aren't getting to the root of the problem. And of course they're going to -- we support Videotron's market cap constraint. We support the constraint of Canadian ownership requirement.
1173 It doesn't get to the root of the problem. You are mandating access for a player that will not make an investment, that will not innovate the way that we have and will not disrupt the Big 3 the way that we have.
1174 That is the fundamental issue, so the constraints, we can talk about them. Obviously we support constraints on the broad mandated MVNO regime. It doesn't address the fundamental issue, which is empowering a competitor that has made no investment, that has not undertaken any risk and has no proven record of delivering benefits to Canadians that we have. That's what's at risk in this proceeding.
1175 COMMISSIONER MacDONALD: Thank you for that. On the topic of your proposed model, what's the most feasible way to impose an investment threshold and how should the Commission monitor over the five years before the sunset to ensure that those investment commitments and objectives are being met year over year?
1176 MR. COWLING: The Shaw minimum parameters were designed so that you actually don't have to be a police force on deployment. You have to make sure that the admission criteria are strictly enforced. So, as the Competition Bureau has said, someone with a proven track record in wireless -- eligibility should be limited to someone with a proven track record. We agree with that. As a minimum, you have to have a license in the area. If you have a license in the area, the license will be subject to deployment requirements. You have to build out that license. It takes you to the same conversation we were having a little while ago about, you know, there will be a natural incentive for you to build out before the mandated MVNO regime, the temporary one for five years, expires.
1177 COMMISSIONER MacDONALD: Well, there's a natural incentive to build out unless the strategy of a given firm is to hold onto the spectrum for five years and then sell it for a much higher rate than they originally paid for it.
1178 MR. COWLING: But there are deployment requirements under the spectrum licenses.
1179 COMMISSIONER MacDONALD: And you don't think any monitoring from the Commission would be required?
1180 MR. COWLING: Well, I wouldn't discourage you from monitoring. What we were trying to do is design an administratively efficient model where you wouldn't have to kind of police the deployment, because the deployment should take place on a, as much as possible, a market-base mechanism, and that would avoid the need to have some kind of penalty, or amps, or other sort of enforcement mechanisms at the end because there are a bunch of incentives in place for the carrier to deploy.
1181 COMMISSIONER MacDONALD: Thank you. I should have given the Chair a heads up. Those are my questions.
1182 Thank you very much.
1183 THE CHAIRPERSON: Thank you, Commissioner MacDonald. I have, like many things in life, your answers to questions beget other questions, so I do have a couple to add and other members may as well.
1184 In response to one of Commissioner MacDonald's questions earlier, I think it was Mr. English, you indicated you described in responding to a question about the cost of spectrum a global average cost of spectrum. I was just wondering how that was calculated, where it came from ---
1185 MR. ENGLISH: Yeah, and I was -- sure, and I was talking about specifically the 600-megahertz spectrum offshoot that concluded last year, and ---
1186 THE CHAIRPERSON: M'hm.
1187 MR. ENGLISH: --- we paid about 78 cents, and we went and looked at, you know, other -- and that's on a per megahertz per pop basis. When we went and looked at other global spectrum options that have occurred within that same band around the world it was right on top of the global average.
1188 THE CHAIRPERSON: And so that's something that you assembled in looking at public data ---
1189 MR. ENGLISH: Yeah, our ---
1190 THE CHAIRPERSON: --- in other jurisdictions?
1191 MR. ENGLISH: --- ourselves and our consultants that were helping us through the spectrum option. That's correct.
1192 THE CHAIRPERSON: And would you be able to file that with us?
1193 MR. ENGLISH: Yes, in confidence.
1194 THE CHAIRPERSON: In confidence?
1195 MR. ENGLISH: Yes.
1196 THE CHAIRPERSON: That's fine.
1197 MR. ENGLISH: Yes.
1198 THE CHAIRPERSON: If you accept that as an undertaking, and counsel at the end of the proceeding will remind everybody what the deadlines are. I don't have it in front of me, but that's fine.
1199 UNDERTAKING / ENGAGEMENT
1200 THE CHAIRPERSON: I also wanted to go back to seamless roaming for a second. If you were able to operate as an MVNO in areas where you have spectrum, but haven't fully deployed, does that mitigate or eliminate the concerns you have about seamless roaming?
1201 MR. O'SHAUGHNESSY: No, it doesn't because the real issue is at the edge of areas where we already. As you move from where our customers are today, such as in the Ottawa area, the call -- a hundred per cent of the calls drop as you cross that border, and that's what we're trying to overcome.
1202 THE CHAIRPERSON: Okay. Actually, I'll ask my next question and I'll come back to it. One of the things I'm struggling with a little bit is data, you know, some hard numbers about some of these issues. You mentioned it in the context of win backs. You mentioned it in terms of seamless roaming and delays, and access to support structures. I don't mean to belittle the concern, but when it's anecdotal and it's a significant problem, I'm trying to understand what is significant, and to the extent that you can help us with that by giving us hard data on some of these issues, it would be useful.
1203 So, for example, you indicated you tracked some of the reasons for customer churn, and that network issue on dropped calls were a major issue in that regard.
1204 Do you have data that you could share with us to support that assertion? I don't mean -- expect you to be able to ---
1205 MR. McALEESE: We do.
1206 THE CHAIRPERSON: --- have that offhand, but if -- again, if you could provide that through an undertaking?
1207 MR. McALEESE: We'd be happy to.
1208 THE CHAIRPERSON: That would be very helpful. If you could do the breakdown, for example, for the reasons provided by your subscribers, leaving in, let's say over the last couple of years, 2018, 2019?
1209 MR. McALEESE: Certainly.
1210 THE CHAIRPERSON: Thank you.
1211 UNDERTAKING / ENGAGEMENT
1212 THE CHAIRPERSON: Similarly, with win back, do you track the amount of prospective customers appearing in your retail points of presence that are subject to those kinds of win back offers?
1213 MR. McALEESE: We do. Although, to be clear, Mr. Chairman, it's not always obvious after the point of sale what their reason for return is, but we have a good sense certainly when it happens in our stores.
1214 THE CHAIRPERSON: Understood. You're not going to be surprised when I say will you agree to an undertaking in a minute, but maybe I can ask another couple of points and then we can describe the undertaking.
1215 You -- today you suggested a time-limited prohibition from -- as a possible approach to address the issue of contacting a departing customer. What kind of timeframe are you suggesting?
1216 MR. McALEESE: I think something in the order of 90 to 180 days is more than suitable. What we're -- most of the damage is done within 30, so if you can imagine your own experience, you have a -- your sensitivity to a call 6 months after the fact is not nearly as great as it is while you're standing in the store, and the offer may be more appealing. So, it doesn't need to be a long prohibition. I'd be comfortable with 90 days sort of solving most of the issue.
1217 THE CHAIRPERSON: So, as a general sense in terms of win back campaigns, but you mentioned that your -- you thought -- I thought I understood your key problem being people being contacted even as they're making a transaction. So, you think across the board once they've engaged with you there would be a restriction for a period such as 90 days?
1218 MR. McALEESE: I think the best single point would be the trigger of a port. So, that's typically -- that is when the donor carrier is notified, and that's when their machine goes into overdrive. So, yeah, it's from that moment, and then if we had 90 days after that, I think as an industry we would see -- we'd see a lot more calm.
1219 THE CHAIRPERSON: Then would you accept an undertaking -- and I think part of this may be in confidence and part of it would be for the public record, would you accept an undertaking to give us some more detail with respect to the numbers of prospective customers or customers appearing in your retail points of presence that are subject to win back offers?
1220 MR. McALEESE: Absolutely.
1221 THE CHAIRPERSON: I'm guessing that one might be in confidence?
1222 MR. McALEESE: It would be.
1223 UNDERTAKING / ENGAGEMENT
1224 THE CHAIRPERSON: And then secondarily could you give us some further -- or put your proposal for a win back restriction into a document?
1225 MR. McALEESE: We'd be happy to.
1226 THE CHAIRPERSON: Thank you.
1227 MR. McALEESE: Thank you.
1228 UNDERTAKING / ENGAGEMENT
1229 THE CHAIRPERSON: I have one last question, but before I go there, I think I'll ask my colleagues if they have any questions.
1230 VICE-CHAIRPERSON LAIZNER: On that issue of the seamless roaming you indicated that when you attempted to conduct negotiations with Rogers and Bell that it was just a non-starter. So, I'm more interested in finding out a non-starter in terms of just their saying they're not interested, or what are the reasons given why it was not feasible to have a seamless roaming arrangement. Do you think it's because the Commission didn't mandate it in 2015?
1231 MR. McALEESE: It’s not mandated.
1232 It’s very difficult to get any oxygen into the room on these conversations.
1233 The price, as I said, is already established by the mandated roaming. It’s simply a matter of catching attention. There’s no engagement there at all.
1234 VICE CHAIR LAIZNER: Okay. Thank you.
1235 THE CHAIRPERSON: Commissioner Barin?
1236 COMMISSIONER BARIN: Thank you.
1237 This morning the Chair had a brief discussion with the Competition Bureau on profitability and the link between profitability and retail price.
1238 I’m wondering, with regards to your own investment plans, to what extent they are sensitive or dependent on your current level of profitability?
1239 MR. ENGLISH: Yeah, it’s very sensitive right now.
1240 You know, when we started this journey in 2016, we knew had significant up-front capital and investments required to scale the business. And we’re happy with the way, you know, our subscriber loading and everything else is going. You know, roughly 250,000 thousand subscribers a year that we’re adding.
1241 However, that being said, our margin is roughly 20 percent and we’re still spending, you know, last year we spent -- we generated $200 million of EBITDA, still spent almost $385 million of capital. And that doesn’t -- you know, that’s a loss of, you know, $185 million. And that doesn’t attribute any associated financing costs to our original investment.
1242 So, you know, the profitability of our operations are very significant in terms of how we think about future investment, and they’re very sensitive to subscriber loading, and it’s very sensitive to the amount of revenue that we can receive from our customers on a reoccurring basis.
1243 COMMISSIONER BARIN: Thank you. No more questions.
1244 THE CHAIRPERSON: Thank you, Commissioner.
1245 Two (2) last ones, instead of one. One (1) is short, on a similar theme as I pursued a minute ago.
1246 Again, with respect to access delays with respect to access to support structures, do you have data that you would be able to share with us?
1247 MR. JOHNSON: We’ve got data in terms of -- informed from our wireline experience and our WIFI attachment experience. We could produce that in connection with the -- in an undertaking in connection with -- and its analogous, the WIFI data is analogous with the small cells in that it’s a piece of equipment on the strand between the poles, if that’s of help for the Commission.
1248 THE CHAIRPERSON: It might be. So why don’t we -- if you’ll undertake to provide that, then we can certainly look at it and add it to the record. A healthy record is desirable.
1249 So my last question, ---
1250 MR. JOHNSON: May we submit it ---
1251 THE CHAIRPERSON: Sorry, go ahead.
1252 MR. JOHNSON: Excuse me. Perhaps also if we look at our -- just the delays generally that we faced, that might be helpful or informative in terms of access to the ILEC infrastructure?
1253 THE CHAIRPERSON: That’s fine. Hopefully with some non-anecdotal and non-general, ---
1254 MR. JOHNSON: Yeah.
1255 THE CHAIRPERSON: --- but specifics would be helpful.
1256 MR. JOHNSON: We understand.
1257 THE CHAIRPERSON: Thank you.
1258 So my last question is, it relates to, we’ll call it’s your proposal, the Bureau’s proposal, and a full MVNO all rolled into one.
1259 If it’s a good thing to provide disrupters, as you called them -- this could be the theme of a new Global series, I think, reality T.V. -- if it’s a good thing for disrupters to have access to an MVNO throughout the territory where they have spectrum, would it be a better thing for them to have access outside their areas where they hold spectrum?
1260 MR. COWLING: Absolutely not. The point of this hearing is to encourage sustainable competition, innovation, lower prices, and the expansion of network -- high quality wireless networks for all of Canadians.
1261 So if there’s MVNO outside of the licensed territories, what’s the incentive to -- how do you reconcile that with a model that’s intended to promote sustainable competition?
1262 THE CHAIRPERSON: The underlying premise there, and I accept it, is that you want to continue to provide the facilities-based entrant with an incentive to build out facilities. Presumably any such would have to be accompanied by such an incentive, something that would continue to incentivise their build out.
1263 But would it not generate more revenue, perhaps enable a faster build out of -- for the facilities-based carrier within their spectrum -- their territory where they have spectrum?
1264 MR. COWLING: So are you -- so who are you -- who else is eligible in that scenario?
1265 THE CHAIRPERSON: Those who hold spectrum, or as you called them, disrupters.
1266 MR. COWLING: I mean, I think the fundamental premise that the Bureau took us to this morning is really informative. What is the problem that we’re trying to solve?
1267 And the problem seems to be that where we don’t have a facilities-based disrupter, there’s less competition.
1268 And that is why we should be encouraging competition and investment in those areas where there is no facilities-based disrupter.
1269 THE CHAIRPERSON: And what about the areas where there aren’t a facilities-based disrupter outside of the major municipalities in a number of rural underserved areas?
1270 MR. COWLING: Well that’s exactly what our proposal is designed to incent investment there, where a carrier can get access to spectrum, whether it’s a relatively larger carrier like Freedom, or a small wireless provider that provides local wireline service. There are several in Canada. They could take advantage of this model. They could obtain or they may already have spectrum in the relevant Tier 4 area. They can get a temporary MVNO to accelerate their build to make it economical where it wasn’t previously economical.
1271 That’s an expansion of network infrastructure, which is good for the economy, good for competition, good for all of the objectives that you have in this proceeding.
1272 If you don’t have that requirement, then how are you -- it -- how is that different from a broad resale MVNO?
1273 THE CHAIRPERSON: Okay. Thank you.
1274 Any last questions?
1275 Then thank you very much for your presentation and your responses.
1276 MR. COWLING: Thank you.
1277 THE CHAIRPERSON: You’ve been very helpful.
1278 MR. BOWLES: Mr. Chair, ---
1279 THE CHAIRPERSON: Oh?
1280 MR. BOWLES: --- if you don’t mind, we have a few questions ---
1281 THE CHAIRPERSON: Pardon me.
1282 MR. BOWLES: --- we’d like to ask.
1283 THE CHAIRPERSON: I omitted to ask ---
1284 MR. BOWLES: I’m sorry. I ---
1285 THE CHAIRPERSON: --- counsel. You’re not excused. And I’ve been a bad Chair. I forgot to ask legal counsel if they have questions, and I know they do.
1286 Please go ahead.
1287 MR. BOWLES: I just have two or three quick questions and I know my colleague has a question.
1288 You undertook to put some flesh around your win-back prohibition suggestion. And this might be discussed in whatever document you provide, but just in case it isn’t, are you suggesting that such prohibition would apply to your company as well?
1289 MR. McALEESE: Equally to all carriers.
1290 MR. BOWLES: Equally to all carriers?
1291 When you were speaking about the approach to a mandated MVNO service, should one be put into place, and you spoke about a negotiated -- essentially a negotiation regime that was backstopped by arbitration.
1292 But you were speaking -- you were talking specifically about a third-party arbitrator.
1293 I was trying to understand, and perhaps you can even clarify this matter for us a little bit, how that proposal meshes with legal rules against delegation of statutory powers?
1294 So if the matters under dispute go to a third-party arbitrator, it’s the arbitrator that determines the binding terms, conditions, and rates for a service that will be mandated by the Commission?
1295 MR. COWLING: So the reasoning for -- again, we were inspired, I suppose, by the arbitration guidelines of ISED in its regulatory framework for roaming. We have not considered the precise question you’ve raised about delegation of authority. It took place in the ISED context. And we can assess whether it could take place in the CRTC context and undertake to respond to that.
1296 MR. BOWLES: That would be appreciated.
1297 And also, related to that is the question of how that process would result in a just and reasonable rate, especially if, you know, under a more traditional final offer arbitration process, essentially the way the mechanism is conceived to work is people are coming to the Commission with essentially the service -- the parameters of the service understood, and then the competing parties to the arbitration put forward, you know, the rate that they think is appropriate, knowing that if they propose a rate that is clearly unreasonable then they might get stuck with the rate proposed by the other party, and that creates and incentive for people to provide a reasonable rate.
1298 If terms and conditions -- if people are going before an arbitration body and the terms and conditions aren't even agreed upon, how do you make sure that the rate that results from the outcome is just and reasonable?
1299 MR. COWLING: Well, I mean, this again, in terms of the ISED Guidelines, which is the guidelines we recommend starting with, there's an opportunity to influence the arbitration process. The panel of arbitrators that are involved, they would have to be experts in this field, and getting to a reasonable rate would be part of assessing the terms and conditions, what exactly is the content of this service, and what is that rate. Parties would be disciplined, just like they are in the CRTC's FOA process, to be reasonable in their submissions to the arbitrator, recognizing that the arbitrator's decision is binding.
1300 And we can explore this question further in our undertaking. I'd like the opportunity to do that, but that's my immediate reaction to your question.
UNDERTAKING / ENGAGEMENT
1301 MR. BOWLES: Thank you. I have one last question, and it has to do with, I guess, lower cost plans. Would it be possible for you to provide the percentage of your customers that subscribe to a plan that has a monthly rate or a monthly equivalent rate of below $35?
1302 MR. McALEESE: Yes.
1303 MR. BOWLES: Thank you very much.
1304 UNDERTAKING / ENGAGEMENT
1305 MR. BALKOVEC: Last one, I promise.
1306 Staying on the topic of low cost plans. It's pretty clear that your views that the marketplace is well served when it comes to low cost occasional use plans, that there's competition there, and that as a result it wouldn't be appropriate to deforbear from any currently forborne powers under the Act on the basis that the market, in your view, is competitive.
1307 But the record does contain a lot of evidence from Canadians and consumer groups relating specifically to consumers in vulnerable situations who may feel that they don't have sufficient access to these plans. To follow that through, it seems like it could be possible, irrespective of the state of competition, that there is a subset of users whose interests are not being met.
1308 Could you comment on the appropriateness of potentially deforbearing on that basis as opposed to a more traditional competition analysis? I would have you consider as well the Local Forbearance Framework 2006-15 where the Commission required that standalone primary exchange service be offered under a price ceiling, even in otherwise forborne, on a similar basis, on the basis that it would protect vulnerable consumers. Is that something that could be appropriate here?
1309 MR. COWLING: No.
1310 MR. BALKOVEC: Okay. That is equally as clear as your previous response, so thank you.
1311 MR. COWLING: I think we would be willing in an undertaking to provide our reasons why, if that was sort of -- if that was your aspiration in asking the question. I don't know. But the answer is no.
1312 MR. BALKOVEC: It's up to you as to whether you'd like to comment further than that, but ---
1313 MR. COWLING: I think we would.
1314 MR. BALKOVEC: --- I wanted to make sure you have the opportunity to do so.
1315 MR. COWLING: I think we would. Thank you.
1316 MR. BALKOVEC: Okay. No problem.
1317 UNDERTAKING / ENGAGEMENT
1318 MR. BALKOVEC: And then finally, last question on this. Would it be appropriate, rather than mandating a plan for the Commission to potentially impose a condition of service under section 24 relating to making sure that these plans are clearly offered and communicated to customers, I'm thinking of similar rules that exist under the Wireless Code, things like ensuring the customer service reps are properly trained, that prominent links are provided on websites, that information is displayed at points of sale, that sort of thing. Is that something that you would think might be appropriate?
1319 MR. McALEESE: No.
1320 MR. BALKOVEC: Okay. Again ---
1321 MR. McALEESE: We really have that well covered today. These -- as I said, and you early -- you indicated earlier, these are plans that are well merchandised, well trained. It's unnecessary.
1322 MR. BALKOVEC: Okay. Thank you.
1323 THE CHAIRPERSON: Then I'll try again, and thank you for your submissions and your responses, and wish you a good day.
1324 And we'll change over. We'll carry on and sit a little bit longer and get through our originally planned schedule.
1325 So I'll invite Madame la Secrétaire.
1326 THE SECRETARY: I will now invite Xplornet Communication to come to the presentation table.
1327 --- (A short pause/Courte pause)
1328 THE SECRETARY: When you are ready, please introduce yourself and your colleagues, and you have 20 minutes for your presentation.
PRESENTATION / PRÉSENTATION
1329 THE CHAIRPERSON: Good afternoon.
1330 MS. PRUDHAM: Good afternoon.
1331 Good afternoon, Chairman Scott, and Commissioners. My name is C.J. Prudham. I'm the Chief Legal and Regulatory Officer for Xplornet Communications Inc. I am joined by my Xplornet colleagues.
1332 To my immediate right is Tim Dinesen, who is Xplornet's Chief Technology Officer; and to my left is Carl MacQuarrie; and on the far right is Cheryl Brunato, who is our Vice-President for Xplore Mobile. We are pleased to be here today and to participate in this important proceeding.
1333 Xplornet is a champion for rural connectivity in Canada. We proudly serve those Canadians who choose to live outside the cities. Bringing fast, affordable broadband to rural Canada is more than just our business, it's our purpose.
1334 Over the last 15 years, we have become one of Canada's largest facilities-based operators. From our beginnings in the town of Woodstock, New Brunswick, we have rapidly grown our reach. With investments now totalling over 1.5 billion, we have built a national network spanning the second largest land mass country in the world.
1335 Today, we are proud to connect approximately one million rural Canadians located in every province and territory of Canada, and we remain proudly headquartered in Woodstock.
1336 The communities we serve share a common element, they are rural areas of the country that have been underserved by the incumbent service providers and needed better service. We have made it our mission to connect rural Canadians using the latest technology, including wireless, satellite and fibre.
1337 We are now offering speeds of 50 megabits per second with unlimited data on our fixed wireless network, and with plans to increase those speeds to 100 megabits per second. We're introducing fibre-to-the-home services in parts of the country, and launching the next-generation Jupiter-3 satellite to enable download speeds of 100 megabits per second with unlimited data to our satellite customers by 2022. We are preparing to launch 5G wireless services in rural Canada on the same timeline as is being launched in urban centres.
1338 The success of our business has been based on careful and deliberate planning. Delivering service is -- in traditionally underserved rural areas comes with many challenges that must be overcome. The most obvious challenge is geography. Another is cost. Canadians are not only demanding high-quality services, but rather, high-quality, affordable services. While we are proud of what we have accomplished to date, there is always more work to be done to deliver the latest technologies at affordable prices.
1339 At Xplornet, we enjoy talking about our experience in rural fixed broadband, but that's not the focus of why we're here today. We're here today to share our experience operating Canada's newest wireless service provider, Xplore Mobile.
1340 We launched Xplore Mobile in November of 2018, serving customers in the Province of Manitoba. Just like with fixed broadband services, we believe that there are many Canadians in areas of the country that may not be the focus of Canada's mobile service providers. These Canadians are looking for a simple, fair and transparent wireless provider. They want access to the latest technologies, and affordable prices. Xplore Mobile was born out of a desire to answer the demands of those Canadians.
1341 The record of this proceeding has echoed our beliefs. Many parties have told the Commission that Canadians want more competitive choices. We have heard that Canadians benefit from more affordable service offerings in areas of the country where there is a strong regional mobile provider operating alongside the three national providers. While many Canadians may have access to high-quality, affordable mobile wireless services, it’s clear there is more work to be done.
1342 As a new entrant in the mobile marketplace, we will not pretend to have all of the answers, because we do not. However, we would be happy to share some of our experiences with you. With that, I will turn the mic over Cheryl, who heads our Xplore Mobile operations.
1343 MS. BRUNATO: As CJ stated a moment ago, at Xplore Mobile, it is our goal to bring new competitive choice to Canadians and we are making significant investments to build and expand our mobile network to make this happen.
1344 As a new entrant, however, it is very difficult to compete in the mobile marketplace. We would like to start by highlighting a few changes that the Commission could make to its existing regulatory regime that would help us overcome some of the challenges we face.
1345 If you were to ask us what our number one change the Commission could make to the regulatory framework for mobile wireless services would be, it would be to revise the rates associated with the domestic roaming services of the national providers.
1346 We know this is not part of the present proceeding. However, we need to stress how much of an impact these rates have -- are having on our business. It is incredibly difficult for us to bring more affordable wireless offerings to Canadians, because the wholesale roaming rates we have to pay are so much higher than retail rates in the marketplace.
1347 In Manitoba, we are competing against plans from national providers that offer 10 Gigabytes of data for $65 a month. Assuming that this $65 were allocated entirely to data -- which it of course isn't because plans offer many features other than just data -- these plans are charging a maximum of $6.50 per Gigabyte of data.
1348 In contrast, the wholesale rates for data set out in the domestic roaming tariffs of the national providers are between 13 and $14 per Gigabyte, more than double the amounts being charged by the national providers at retail.
1349 Because of these high roaming rates, we are challenged in creating attractive plans for our customers. In order to make our plans as affordable as possible, we have currently structured our plans to include voice, text and data usage only within Manitoba. If a customer wants to use data, text or make voice calls from outside Manitoba, this usage incurs additional charges. Manitobans have told us they do not want regional plans like this. They want national coverage at one price. This is our number one complaint we receive from our customers. We are looking for solutions to address this and the Commission can help us.
1350 In order for us to offer affordable offerings for Manitobans, we encourage the Commission to revise the roaming rates to ensure they evolve with retail rates. As a company that is facilities-based by nature, we recognize this is not one-sided and roaming rates must strike a balance between being reasonable for those roaming and fair to those providing the roaming. In that context, we believe that a fair and balanced data roaming rate would be in the range of 3 to $5 per Gigabyte.
1351 MR. DINESON: The second regulatory change we would ask the Commission to address relates to network quality. We are currently investing to build a state-of-the-art, fully IPbased LTE network. This network will be the first of its kind in Canada and one of the highest quality LTE networks in the world. However, despite this investment, because the domestic roaming services of the national providers do not provide us with service parity, we are challenged to compete on quality in the marketplace.
1352 One example of service parity is seamless handoff, a subject we’ve talked quite a bit about this afternoon. Without seamless handoff, our customers experience dropped connections whenever they transition from our network to the network of a roaming partner. It is the equivalent of an electronic ring fence around a regional provider's network. If a customer steps outside this fence, their connection immediately drops. Dropped connections are frustrating for customers, and bad for business. Canadians don't care how high quality the network is that we are building if being our customer means their calls are going to drop. It’s a terrible customer experience.
1353 In our view, seamless handoff is critical for us to effectively build our business. Today, without seamless handoff, when we want to expand into a new area, we must build a significant amount of network before we can begin offering service. If we deploy service with only a small degree of coverage, our customers are going to need to transition between our network and the network of a roaming partner too frequently. The frequent dropped connections will be extremely frustrating for our customers, and damage our brand. Because of this, we can't afford to start selling service in a new area until we have a significant degree of coverage. This challenges the business case for expanding our network to serve new areas.
1354 With seamless handoff, we can begin selling to customers as we roll out coverage to a new community. We don't have to wait until we have a significant footprint to begin offering our services. Seamless handoff would allow us to start earning revenue while investing, thereby greatly reducing the barriers we face in expanding our business.
1355 The national providers have argued that seamless handoff is not necessary, or that it is too complex to implement. We do not agree with these arguments. Seamless handoff is a key functionality that should be incorporated as part of the mandated domestic roaming service, and the technical implementation is entirely possible.
1356 The Commission should ensure that the wholesale wireless framework does not serve to undermine the investments being made by regional operators. Domestic roaming must provide service parity to regional providers. In addition to mandating seamless handoff, we ask that the Commission confirm that domestic roaming services are to apply to all existing and future wireless technologies.
1357 MR. MacQUARRIE: Thirdly, we echo concerns raised by other parties in the proceeding about access to passive infrastructure. In particular, we believe that the Commission should consider changes that could reduce barriers for regional wireless service providers.
1358 We agree that there should be limits on how incumbents can reserve capacity on support structures for future use. Support structures are a public good and space on these structures should be allocated on a first-come, first-served basis. Incumbents should not be permitted to unduly reserve capacity for their own use, delaying competitors from expanding their networks or forcing competitors to incur make-ready charges.
1359 We also agree that small cells should be treated as strand equipment. Permits should not be required to place small cells on strand.
1360 By reducing these barriers for access to support structures, the Commission can support regional service providers in expanding their coverage and capacity more quickly to serve more Canadians.
1361 Other proposals have been made that can assist all parties in deploying their networks. For example, parties have promoted the development of a streamlined process at the Commission to help service providers and public authorities quickly resolve questions around terms of access to rights of way and public places. Parties have also made proposals to facilitate the placement of 5G equipment, such as small cells, on public property. We encourage the Commission to consider these proposals.
1362 MS. PRUDHAM: The changes that Cheryl, Tim and Carl have described would go a long way to resolving some of the largest barriers Xplore Mobile faces in growing our business.
1363 In addition to these changes, we would like to comment on a potential MVNO service.
1364 We are a facilities-based provider and we believe in facilities-based competition. We don't support the introduction of a MVNO service that would enable a pure resale model in the wireless marketplace.
1365 However, the Competition Bureau has proposed a carefully thought out MVNO service that we believe could help empower Canada's regional providers to reach more Canadians over the next five years. With a few modifications that we are happy to talk about, we support the introduction of this service.
1366 Under the Competition Bureau's proposal, service providers who will deploy their own radio access network in a new area would be able to subscribe to an MVNO service for a period of five years, in order to serve that area while they build their own network. We believe that this service represents an appropriate intervention to stimulate competition. This service is designed to give regional providers a boost in expanding their networks. It hastens the speed at which regional providers are able to roll out their spectrum while promoting facilities-based competition.
1367 We would recommend only two changes to the Competition Bureau's proposal.
1368 In relation to our first change, we agree that the MVNO service should be temporary. The Competition Bureau has proposed that a regional provider who subscribes to the service would be required to transition its customers to its own network at the end of five years.
1369 We would recommend a slightly more flexible approach. We believe that a regional provider should be permitted to use the MVNO service to sell to new customers for a period of five years. After the five years, the regional provider would be permitted to continue serving its customer, but no longer be permitted to sell service to new customers.
1370 We believe this change would enable regional providers to more broadly leverage the MVNO service to reach even more Canadians.
1371 With respect to our second change, we believe that the Bureau's proposal could be simplified. The Bureau has proposed an enforcement mechanism that contemplates fines for not deploying facilities. We do not think the Commission needs to implement an enforcement regime of this nature.
1372 The regional providers have already made large investments to acquire the spectrum needed to serve the areas in question. This spectrum comes with its own deployment conditions. By acquiring spectrum, regional providers have already demonstrated their commitment to deploying in an area.
1373 With these changes, we support the MVNO service proposed by the Competition Bureau.
1374 While an MVNO service for a limited time is something we support, we also believe that the changes Cheryl, Tim and Carl described a moment ago are critical to allow new entrants to continue to be successful, especially as they launch their own network and move off of the MVNO arrangement.
1375 To summarize, in order to help new entrants like Xplore Mobile overcome the barriers we face in bringing new competitive choices to Canadians, we would encourage the Commission to make the following changes to its regulatory framework.
1376 The Commission should take steps to address the rates associated with the mandated domestic roaming service. Wholesale rates should evolve with retail rates. Today, fair rates for data should be in the range of $3 to $5 per gigabyte.
1377 Number 2, the Commission should ensure that domestic roaming services do not undermine the investments that regional providers are making. Roaming services should provide for seamless handoff and should apply to all current and future technologies.
1378 And number 3, the Commission should ensure that competitors have timely access to support structures and public places to expand their networks.
1379 Further to this, we would support the introduction of the MVNO service proposed by the Competition Bureau, with the few modifications that we proposed. This service would provide a kickstart for a new entrant in deploying to new areas and still require an evolution to become a facilities-based provider, all while bringing new competitive offers to Canadians.
1380 We would like to thank the Commission for meeting with us today. We would be pleased to answer any questions that you may have.
1381 THE CHAIRPERSON: Thank you. Thank you for your submission.
1382 Commissioner Levy.
1383 COMMISSIONER LEVY: Good afternoon. Just before we begin, for those who are not entirely familiar with the scope of your mobile wireless offerings and for any in the room who might be from Manitoba and -- from rural Manitoba who might be potential customers, can you just take a moment to fill us in on what your service looks like, what you offer, what your value proposition is?
1384 MS. PRUDHAM: Well, I can take the first part of that, and I'll ask Cheryl to take the second.
1385 So we are a rural internet service provider in Manitoba. We have a very extensive deployment in that province, and a sizable customer base.
1386 We have augmented that by going into the mobile business recently, and we have tried to -- I'm not going to hopefully mis-speak and say how we position it, but we've tried to come in with some innovative offers that allow us to position ourselves slightly differently from the Big 3.
1387 And I'll let Cheryl describe them.
1388 MS. BRUNATO: Thank you, C.J.
1389 In Manitoba, we're focused on providing services to Manitobans and we've tried to come with an offer as bringing forward something new, so we did bring in the data roll-over concept to add value for customers. And this concept is to allow customers to bring their unused data from the previous month forward and be able to use it in the following month.
1390 Along with that, we have varied sets of plans ranging from $35 to $65 a month with various levels of gigabytes of data and including unlimited voice and unlimited SMS.
1391 COMMISSIONER LEVY: Thank you.
1392 Some of the information your pricing was not captured in some of the data that staff had calculated, so I wanted to make sure that you had a chance to put some of that on the record and we will be discussing a little bit more of it as we go on.
1393 In the -- in your interventions, you, of course, have talked about the positive impact that regional carriers have had on the retail mobile wireless market in Canada and in particular in Manitoba.
1394 Are the prices of mobile wireless services still high in Canada, in your view, in certain regions of Canada, and if so, where, compared to domestic or international benchmarks?
1395 MS. BRUNATO: I would say that as compared to what we see in countries like the United States, we still have a higher rate of charges for our service plans in Canada.
1396 We do see the regional variations as the Competition Bureau talked about this morning in areas that do have a fourth player or a regional disruptor. And we do see that sense of competition in Manitoba as we do see that competition there and that ongoing price drivers as we look at different offers that come to market, and some that are only available within the stores as opposed to visible online.
1397 COMMISSIONER LEVY: Okay. Do you consider -- would you agree with the study commissioned by Telus from Dr. Dippon? He concluded that Canadian mobile wireless prices are actually now below international benchmarks.
1398 I think you might have a bone to pick with him on that one.
1399 MR. MacQUARRIE: Well, we said that we would come here and try to answer your questions.
1400 Xplore Mobile is not the expert in the international evidence. We focus on identifying market opportunities to reach Canadians who need new options.
1401 So we are out there to identify people that we can provide a better level of service to. I don't think we're as well prepared to speak about how that relates to service in other countries.
1402 COMMISSIONER LEVY: Okay. So you've said before that you feel that the mobile wireless market is competitive in Manitoba as -- largely as a result of your presence as an extra regional carrier?
1403 MS. BRUNATO: I think a lot of it has to do with, actually, history of the legacy of MTS in Manitoba. And I think that the timeframes that were examined by the Competition Bureau were timeframes that MTS was operating in Manitoba.
1404 But we do see the legacy of that, and with the addition of bringing Xplore Mobile in right after, still a sense of additional competition in the area.
1405 COMMISSIONER LEVY: So do you -- I take your point that you're not experts on the international market, but as you look at the Canadian market, where do you see the points of most competition and the places where there seems to be a robust market?
1406 MS. PRUDHAM: Well, we are certainly of the view there is a robust competition in Manitoba. And we may have referenced the fact we are very focused and deliberate in what we do, and that's what we are focused and deliberate on right now is Manitoba. We don't operate outside of that province.
1407 COMMISSIONER LEVY: But you have operations across the country, so you must have a sense of where there might be future opportunities.
1408 MS. PRUDHAM: True enough, yes, in some way, shape or form. We are a rural-based provider, though, so please keep in mind that is probably indicative of what we're thinking in terms of our future approach.
1409 And it is again where we think we can provide value where there isn't a lot of other infrastructure that might be available.
1410 So without giving away where we might want to go to our competitors in a public forum, we have identified a few other areas where there might be opportunities.
1411 We are not necessarily interested in rushing to the lowest possible place.
1412 So it probably won’t surprise Videotron that we don’t think it’s appropriate to necessarily start there.
1413 COMMISSIONER LEVY: Okay. For the next few questions, I’m going to refer to the material that we collected in our exhibits on the pricing across the country, the price survey that was conducted by the Commission.
1414 Based on these publicly posted prices, it appears that the prices charged by the national Big 3, by the national MNVOs in Quebec are now lower than elsewhere in Canada, including in Saskatchewan and Manitoba, where prices have been historically lower compared to other provinces.
1415 Do you have any opinion as to why mobile wireless prices charged by the national MNVOs are now lower in Quebec?
1416 MS. PRUDHAM: We can only truly speak to our internet experience in Quebec, which has traditionally been a more price sensitive province.
1417 And in that context, and this is pure speculation on our part, because we’re certainly not wireless mobile experts in Quebec, but if that purchasing pattern is similar between internet and wireless, the people of Quebec tend to be price conscious and they tend to shop.
1418 COMMISSIONER LEVY: More price conscious than Manitobans?
1419 MS. PRUDHAM: It would appear.
1420 COMMISSIONER LEVY: Hard to believe.
1421 How can we explain that prices in Saskatchewan and Manitoba seem to differ from those in other provinces for the larger plans only? That seems to be the only place where, if you look at the data, there’s any real differences.
1422 MS. PRUDHAM: Interesting question. So at least on our part.
1423 But one might argue it comes back to the theme we mentioned, and Cheryl started with, which is the cost of roaming.
1424 We have a regional provider like us who is somewhat dependent upon roaming as people move outside of areas. It is extraordinarily difficult to offer the bigger gigabyte plans.
1425 So we are probably less effective as a competitor in that circumstance than we would be in the smaller ones.
1426 COMMISSIONER LEVY: There’s a study commissioned by Bell Mobility from Charles Rivers and Associates, and it concludes the differences in prices across provinces aren’t due to a lack of competition, but rather reflect differences in network quality.
1427 Do you think that that’s the case?
1428 MS. PRUDHAM: I don’t believe that we would share that opinion entirely, no.
1429 COMMISSIONER LEVY: Now, I take it that, you know, you’re in a small market. Do you vary your prices from one community to another based on what else might be offered in that community? Or you tend to be fairly uniform?
1430 MS. PRUDHAM: Do you want me to -- I can -- we price for Manitoba, and that largely has to do with media and effective buying on that part.
1431 But as Cheryl alluded to, we do face even store local competition, where, you know, a specific mall or a specific location will offer something special and we have to respond.
1432 COMMISSIONER LEVY: And you do?
1433 MS. BRUNATO: On a very specific basis. It’s usually not a full price plan level. It’s usually a promotion, a limited time offer of some sort, a promotional discount, say, on a set amount off of your bill for a few months. So those types of promotional offers. But not a varied change in your actual pricing.
1434 COMMISSIONER LEVY: Okay. There’s been a discussion about whether profitability is a good indicator to assess competition in the mobile wireless market.
1435 What do you think is the most appropriate measure of profitability, especially given how capital intensive the business is?
1436 MS. PRUDHAM: I’m not sure we have a view on that.
1437 COMMISSIONER LEVY: You’ll know when you get there?
1438 MS. PRUDHAM: Yes. I was trying to think of a polite way to say that. But, yes. We are -- obviously we’re a private company. We don’t make our financial information public. But it will not surprise anyone that we are obviously losing money at 14 months into the launch.
1439 COMMISSIONER LEVY: What are your biggest challenges to expanding your customer base?
1440 MS. PRUDHAM: I think the answer to that -- Cheryl, go ahead.
1441 MS. BRUNATO: I think it goes back to what we talked about earlier, it’s ability to offer our customers two things, different types of affordable Canadian-wide plans that are somewhat tied to the issue of the data roaming rates that we spoke about, as well as the seamless handoff and the customer experience as they exit and enter territories that we would have in our current deployment, as well as future rural areas that we would establish.
1442 COMMISSIONER LEVY: Certain parties, for instance, Telus, have talked about the cost of spectrum in Canada and they say that it’s higher than in other jurisdictions.
1443 Do you agree with this view and can you talk a little bit about what your experience has been with regard to spectrum?
1444 MS. PRUDHAM: Well we agree it’s expensive. This has been one of the great challenges of Xplornet, certainly on its broadband side. And we would agree we certainly see it on the mobile side as well, particularly because the spectrums are increasingly -- it’s a flexible use and it’s used on both sides of the business.
1445 It is indeed one of the biggest expenditures that you make in terms of trying to build your network and have enough, I think as one of my colleagues put it, oxygen in the network to breath.
1446 COMMISSIONER LEVY: Can you talk about how it affects your bottom line? Perhaps by giving us an example of how it affects your mobile wireless prices or your company profitability?
1447 MS. PRUDHAM: I think I’m going to let Tim explain a little bit and he would probably echo some of the comments Shaw made.
1448 Having more spectrum helps reduce your capital expenditure.
1449 MR. DINESEN: Yeah, taking into consideration not just the absolute cost of spectrum licenses, depending on the business that you’re in and the value of that spectrum, there’s a substitution cost for buying more spectrum versus building more sites and cell splitting to develop more network capacity given a certain topology.
1450 So there is a trade off for us when we’re doing capital planning, the value of spectrum versus structure or construction replacement costs. Call it that.
1451 How that factors into our thinking in terms of pricing, not directly. We think more in terms of what kind of investments do we need to make to develop the network capabilities to support the product promise with the number of customers that we’re trying to ultimately bring on to the network, and then over to product and marketing and other types of discussions in terms of how to develop that into revenue generating plans.
1452 So spectrum, absolute requirement. Licensed spectrum, even more so. There’s different ways to value it depending on where you are in the lifecycle of your business, what kind of products you’re trying to offer.
1453 And in terms of parody with international jurisdictions, all of that is on public record. I’d invite you to do some investigation.
1454 COMMISSIONER LEVY: How do you measure how much spectrum you have and how much you need?
1455 MR. DINESEN: So two requirements when we’re developing mobile networks.
1456 One (1) is to make sure we’ve got sufficient coverage to ensure that we’re covering the population we want to address, covering the terrain, making sure that we’ve got sufficient coverage along major transportation routes and other folks that are outside of urban centres.
1457 For that purpose, lower band spectrum is of more interest because you can get much better propagation than you can out of higher band.
1458 So that’s the topology of coverage.
1459 When you’re in urban centres or where people are static or high transportation traffic corridors, you need to start worrying about capacity. And that’s where -- particularly data capacity at peak, which is where mid-band spectrum is more useful to us. It’s shorter propagation, but you’re able to, if I can oversimplify it, jam more information into a given a band of spectrum
1460 So really, when we’re designing networks for both coverage and peak capacity, we need to take into account the flavour of the spectrum and where you want to put the radio equipment.
1461 COMMISSIONER LEVY: Is the network access agreement between your company and Bell that was part of the 2017 consent agreement with the Competition Bureau allowing Bell to purchase MTS, is that still in effect?
1462 MS. PRUDHAM: Yes, it is, at this point.
1463 COMMISSIONER LEVY: Let’s follow up a little bit more on some of your comments about roaming.
1464 Have you approached any of the national MNVOs to negotiate a seamless roaming arrangement?
1465 MS. PRUDHAM: Yes.
1466 COMMISSIONER LEVY: Can you expand a little bit on what that process looked like and how things went?
1467 MS. PRUDHAM: Let's put it this way. I think I understood exactly what the people at Shaw were saying earlier, and we likely had the exact same experience. It was a short conversation.
1468 COMMISSIONER LEVY: What were the nature of the stumbling blocks, the wall that you hit? What was the problem?
1469 MS. PRUDHAM: Well, I think that actually described it quite well. It's the issue that comes down to we want something, and they have incentives not to give it to us, and there's not really much to trade in that economic circumstance where you have a prescribed roaming rate already and it's a particularly high one. So, there aren't a lot of trade-offs there that you can make.
1470 COMMISSIONER LEVY: Similarly, have you tried to negotiate a network sharing agreement with the national MNOs and other regional carriers?
1471 MS. PRUDHAM: We have had conversations, yes.
1472 COMMISSIONER LEVY: And same results?
1473 MS. PRUDHAM: Yes.
1474 COMMISSIONER LEVY: You talked as well about access to support structures. Do you have specific issues with regard to access to the national MNO's towers and support structures?
1475 MR. MacQUARRIE: So, in our opening remarks we made some comments that we want to facilitate access to these structures. We're speaking mostly from a policy perspective at this point. Our broadband business has been largely leveraging traditional macro towers that are regulated under the ISED regime, and we're not asking the Commission to make any changes to that regime.
1476 When it comes to ILEC support structures, poles and conduits, we are getting more into that now, that we are deploying fibre into our network. And I wouldn't say that we've had any specific problems yet because it's quite new to us, but we understand the comments that other parties have made, and we support the recommendations that they're making as good policy.
1477 COMMISSIONER LEVY: With respect to access to spectrum, just to go back to that, to what extent does it constitute barriers to entry or prevent you from growing your business?
1478 MS. PRUDHAM: That's a great question. Spectrum is a scarce resource, and everybody wants it, for exactly the reasons Tim has just described because it is that trade-off with capital process. So, it has been a challenge in the 15 years of Xplornet to accumulate the spectrum portfolio that we have. It is disheartening when part of that was taken away last year as a result of the 3500 decision. That was a very difficult day, as I'm sure you can imagine, for Xplornet.
1479 So, yes, in answer to your question, there are definitely challenges. Is it possible? I guess we're living proof that it's possible. Is it hard? Yes.
1480 COMMISSIONER LEVY: Shaw indicated in paragraph 34 of its submission on the 15th of May 2019 that the national MNOs are incented and able to foreclose new competitors from getting access to the spectrum they need to compete. Do you think the national MNOs are intentionally not using spectrum they buy in order to keep it from competitors?
1481 MS. PRUDHAM: I can't comment as to their motivation. We can only comment to the experience of what we've seen. Certainly, with respect to some of the more recent acquisitions, we have seen deployment of that spectrum, very expensive spectrum that they've purchased. There's also the legacy though of the 3500, which went more than 10 years undeployed. So, it's an interesting question. I don't understand the difference in policy between the spectrum.
1482 COMMISSIONER LEVY: Do you have any evidence to support some of your -- some of the evidence that you've just given?
1483 MS. PRUDHAM: Well, it's a matter of public record.
1484 COMMISSIONER LEVY: On the public record.
1485 MS. PRUDHAM: It is a matter of public record regarding use, the 3500 hearing that was -- that I said.
1486 COMMISSIONER LEVY: Shaw talked about the larger MNOs having the ability to essentially overpay for spectrum in order to keep it out of the hands of those who don't have the same kind of resources. Do you have any sense that that's happening?
1487 MS. PRUDHAM: Well, our experience is a little bit different because of what we do. They are focussed on urban, and the concentration of people within a licensed area, such as a tier four. You've heard people speak about the tier four license areas. Those are combination when you get near the cities of both urban and rural and rough cut, but we can go through any city you'd like, but roughly 80 per cent of the population is on 20 per cent of the landmass. The other 80 per cent has the 20 per cent of the population. We're interested in the 20 per cent of the population. They're interested in the 80 per cent. Economics say that they can pay more because they have more people to potentially serve. That is the problem we run up against more frequently than trying to keep us out. It's just a different focus, in our experience.
1488 COMMISSIONER LEVY: You particularly target rural areas for high-speed internet.
1489 MS. PRUDHAM: M'hm.
1490 COMMISSIONER LEVY: Are there specific challenges that the Commission should consider when developing its mobile wireless policy in this proceeding?
1491 MS. PRUDHAM: We've had a lot of conversation about that because a lot of the focus is on urban and the urban prices associated with that, and I think someone earlier today even referenced that the goal was sort of four service providers makes it work in urban, and then they sort of backed off and said, "Well, we're not sure if that's true in rural". And really, the question is it's very rare to find four deployed infrastructures out in rural, but that doesn't mean there isn't a need for it, and it doesn't mean that there isn't a demand for it.
1492 But what we would perhaps suggest to the Commission is one size does not fit all in the solution that you seek here to find, and urban and rural may be different in terms of how you approach it.
1493 COMMISSIONER LEVY: And how much actually works ---
1494 MS. PRUDHAM: Yeah.
1495 COMMISSIONER LEVY: --- to their competition. Okay.
1496 MS. PRUDHAM: Absolutely.
1497 COMMISSIONER LEVY: Can you explain whether ARPU is an appropriate proxy for prices?
1498 MS. PRUDHAM: ARPU is how we manage our business and look at it, so, yes.
1499 COMMISSIONER LEVY: Okay. To what extent are your medium, long-term investment plans sensitive or dependent on your level of profitability? I can't imagine that's ---
1500 MS. PRUDHAM: Highly.
1501 COMMISSIONER LEVY: It is highly. But do -- you know, you are in other lines of business ---
1502 MS. PRUDHAM: M'hm.
1503 COMMISSIONER LEVY: --- such as broadband and wireline services, and do those subsidise your investments in the infrastructure that you use to offer the whole range of services, not just wireless?
1504 MS. PRUDHAM: At this time the answer to that is yes. Obviously to the extent we can make use of some of the broadband infrastructure that we use that's helpful, but we do look at the global business as a standalone, and we do expect to some day stand on its own, and that's important to us.
1505 COMMISSIONER LEVY: According to a survey filed by the Province of British Columbia, the vast majority, 86 per cent of respondents did not consider the cost of their wireless service to be reasonable. And this view was echoed by many who participated in this proceeding.
1506 In your view, what best explains these sentiments that mobile wireless services are not affordable?
1507 MS. PRUDHAM: Also, a great question, and probably speculative on our part to try and guess as to what that is. It could certainly be one part comparing to what we see in the U.S., and one part after a while we've been told it's uneconomic for years, or that it's too high without necessarily appreciating the differences between countries. But as Carl said, we're not international experts, so we can't really speak to specific on that.
1508 COMMISSIONER LEVY: How do you promote your lower cost plans? You said that you have a range of 35 to $65, so do you promote those lower cost plans in similar fashion? How do you know what works and what doesn't?
1509 MS. BRUNATO: We promote all our plans equally. They're all available on our website, in -- and all of our advertising materials, and in all of our store promotional information, and all of our brochures.
1510 We don't treat any of our plans differently. So, between 35 and $65 they're all equally available. The only distinction that we have is on handsets. That some of our higher handset tabs, we use the tab model for handset pricing, meaning that we very clearly and transparently show the customer their service cost and their handset cost. That we do limit for the higher tabs that they must on a minimum of the $45 plan.
1511 COMMISSIONER LEVY: Okay. The idea of this data rollover is quite innovative, I think, in Canada. How -- what was the impact? Is it something that customers talk about? Is it something that you highlight because it is a different kind of offering?
1512 MS. BRUNATO: Yes, and from our value proposition perspective it is a key part of our value proposition. And again, back to our fair and transparent aspect of our brand, driving that the customer bought the data, they're obligated to be able to use that data, and carry that forward for one month. And -- so it gives customers that certainty, I think, that they -- they like that ability to say, "Hey, I, you know, I paid for it and use, I get to keep it for the next month, and I -- it gives me a little bit of a buffer". So they see a value in that.
1513 COMMISSIONER LEVY: Do you offer both prepaid and postpaid plans?
1514 MS. BRUNATO: We do not. We offer postpaid only at this time.
1515 COMMISSIONER LEVY: Postpaid. Okay. And does your advertising for some of the plans at the lower cost end, do they target specific segments of the population, for instance? Are you -- you know, do you target seniors, in particular, or you know, people who are helping out seniors who want them to be connected for ---?
1516 MS. BRUNATO: Yeah. Due do allocating of our media spend, our media is quite generic. So again, propagates all of our plans, all of our general offerings in one message to all Manitobans that we cover in Winnipeg and Brandon. So we don't target market in that way at this time.
1517 COMMISSIONER LEVY: How do you respond to customers who come in? How do you assess? How do you train your people to assess what a customer's needs are so that you can tailor the offering to their needs?
1518 MS. BRUNATO: Sure. We have a needs assessment process that our reps are trained in and they go through with the customer, asking them about their habits, their uses, their needs around voice, text, and data to understand what they need in their current environment. We also usually ask what they currently have to understand what they have today, and what -- we also inquire as to what they do or don't like about the plan or service that they have today.
1519 And then from there, it's -- the reps are trained to give them a best fit or give them options and explain those options and what benefits they have at the different price points.
1520 We also allow our customers to change service if it's not meeting their needs, and whether that is an upgrade or a downgrade, they are allowed to do so.
1521 COMMISSIONER LEVY: It sort of comes up later in my list of questions, but I might as well ask now about the whole issue of winbacks, which we've talked about with some of the earlier -- with our earlier intervenor. Is this an issue for you?
1522 MS. BRUNATO: I would say that we don't -- we haven't seen -- I think due to our timeframe and the environment, we have not seen the large targeted winback experience that was described by Shaw, and as far as some of our reporting mechanisms, yet are probably a little junior, and don't have that detailed level of tracking at this time to really have a sense of that.
1523 I haven't heard our reps. We have regular meetings and our reps have not complained that customers are receiving calls in the store while they're in the process of migrating. We haven't seen that experience.
1524 COMMISSIONER LEVY: Okay. Could you file your training manuals or other documents to show how you train your sales reps with respect to your plans, and so forth?
1525 MS. BRUNATO: Sure. We'll make that an undertaking.
1526 COMMISSIONER LEVY: Thank you.
1527 UNDERTAKING / ENGAGEMENT
1528 COMMISSIONER LEVY: Some parties had suggested that the Commission mandate low cost plans that would be available to limited means tested segments of the population, such as low and fixed income households. To what extent do you think that would be feasible for you?
1529 MS. BRUNATO: I would start with the view that I think there are a lot of the low cost out there, similar to what Shaw said, we do see a lot of low cost already out there. I'm not sure that mandating it will improve that beyond what are already out there.
1530 The types of $10 and $15 plans that exist that are voice and text only, or only a small 50 minutes of voice, small bucket of text, at this time we have -- our plans are unlimited at a voice and text level, and we would not offer any services that did not include some level of data because we are an LT only network.
1531 COMMISSIONER LEVY: So you would then be against ---
1532 MS. BRUNATO: Yeah.
1533 COMMISSIONER LEVY: --- offering such plans, or if we should mandate such plans?
1534 MS. BRUNATO: I wouldn't be against -- no. We strive to make our plans affordable and available to our customers. At this point in time our plans start at the $35 rate.
1535 COMMISSIONER LEVY: ISED had a program called Connecting Families, which was referenced earlier, and it was meant to connect low income Canadian families to the Internet by offering a very low cost Internet $10 service to eligible families, and they were selected as those who got the maximum amount of the Canada Child Benefit. Do you think that a similar approach could be taken for mobile wireless services?
1536 MS. PRUDHAM: We actually have some concerns with that program, and Xplornet did not choose to participate. The concern was in setting how they were trying to address this they didn't take into consideration the difference between urban and rural, and that, you know, someone making, to use a wild number, 100,000 in Downtown Ottawa or Downtown Toronto might have a very different lifestyle than someone making say 60,000 or 50,000 in rural. So there wasn't really this recognition of the differences that exist.
1537 So we were concerned that that program, while of great intention, just -- it fit one problem but not the other. It wasn't quite built for rural; shall we say.
1538 COMMISSIONER LEVY: What -- how did it miss the mark?
1539 MS. PRUDHAM: Well certainly, as described to us, some of the qualifications were based on income, and at one point one of the numbers that they had floated which would produce a very, very small number of urban people that was, I think, less than 10 percent of the population urban, would've covered over 65 percent of rural. So that would have obviously resulted in a material reprice of the rural base, and as we said, it didn't take into consideration that you can live very well in rural on less income.
1540 COMMISSIONER LEVY: Similarly, Telus has the program Mobility for Good that offers a free phone and a ---
1541 MS. PRUDHAM: M'hm.
1542 COMMISSIONER LEVY: --- zero dollar plan for 2 years to people under 26 who have been part of the child welfare system. I know you don't offer anything like that, but is that perhaps the kind of program that might be considered?
1543 MS. PRUDHAM: I think at this stage we're trying very hard to get our network up and running, and while we definitely have good intentions, I think those will probably come after we can say we've got to the point where we've spent all our money on the network and got it up and running appropriately.
1544 COMMISSIONER LEVY: Okay. Data overage charges have been subject to criticism and complaints in the past, and there has been a move to try to address that. Why is a gigabyte of overage data priced so differently from a gigabyte of data included in a plan limit?
1545 MS. BRUNATO: In regards to the pricing, I think that the gigabyte in the plan has been discounted in order to build out the plan, and then for people who go into the overage they're recouping a much higher rate in that data overage. And I think that by and large that people buy plans that will make sure that they don't go into their overage so that they have that buffer.
1546 From our perspective, how we tried to assist in this area is by the data rollover, ensuring that you can continue to have your data that you've already paid for as a part of your plan in the future months, in the next month.
1547 COMMISSIONER LEVY: Just -- we're just going to go back briefly to, you know, meeting the needs of customers, vulnerable or not some sales channels are self-serving, like purely online. What tools do you offer your customers to help them assess which plans you offer will best meet their needs?
1548 MS. BRUNATO: On our online website we do offer them an ability to choose their plan. And if they’re wanting to purchase a phone, choose their phone, and see what that would look like on a monthly basis for them, so that they can do some assessment prior to coming into a store. So that modelling is available for them to do self-serve.
1549 COMMISSIONER LEVY: And you make it clear that the bills are going to separate out what the cost is of the ---
1550 MS. BRUNATO: Yes, there are two separate individual components to the pricing and it’s very -- it’s clearly laid out for them.
1551 COMMISSIONER LEVY: We’re going to talk a little bit about wholesale services now. In their submissions, the Bureau suggested that you would likely be in a good position to take advantage of their proposed facilities-based MVNO access model, given your 600-Megahertz spectrum. Would you consider offering a retail based MVNO service if you qualified for wholesale MVNO access? I know that you redressed it, but just think about it.
1552 MS. PRUDHAN: We were pleasantly surprised to hear the Bureau thought we would be excited about that this morning. It’s as we said at the outset, our mindset and our bias is, we’re facilities based. The prospect of a reseller opportunity has not been of interest to us in any area, whether it’s mobile or wireline, or anything of that nature. In part because of where we serve, there aren’t a lot of other facilities and we see the opportunity to build those facilities.
1553 Could an MVNO help accelerate our process? I think what we’re trying to say is yes, on a RAN access basis MVNO. Because it allows us as we start to build out a specific area, to potentially start to market in a much bigger area, so that we can build into that in the five-year plan.
1554 COMMISSIONER LEVY: So how could the Commission ensure that network investment continues at the same or an accelerated pace if regional carriers are incented to or encouraged to get involved in this?
1555 MS. PRUDHAM: Well, we very much agree with those suggesting that there should be a spectrum component, that you should definitely have that. Those have build requirements in them to deploy, and those are pretty big incentives, because as you asked the question off the top about is it really expensive, is spectrum -- yes. We are definitely not in the business of warehousing spectrum. That would be an incredibly expensive thing to do. If we buy it, we need to deploy it.
1556 COMMISSIONER LEVY: How would a sunset clause affect your thinking? Is that a deal breaker or does the five years seem like a reasonable time?
1557 MS. PRUDHAM: We actually thought the five years was a reasonable time, and we do think there should be a sunset. This should not be forever. It should not be a dependency. It’s an opportunity to kickstart, to get going.
1558 Our only concern, and the reason why we suggested the little tweak was if you take on the challenge of saying, I’m going to go into this area. I’m going to try it out. I’m going to start marketing in that area. I’m going to start building. And you discover it doesn’t turn out to be a financially successful outcome, what we were worried about was not so much us, but the customer. We just didn’t want the customer to fall off the cliff at the end of the five years.
1559 As long as they’re still connected, that’s the important thing to us. The fact that we couldn’t continue to market as an MVNO, that’s appropriate, like that should stop at the end of the five years.
1560 COMMISSIONER LEVY: You mentioned earlier that you had some area where you were thinking about expanding. This might be an opportune time to ask you whether you would undertake to provide us with your plans for your spectrum, for your 600 Megahertz and how that might be impacted by the Competition Bureau’s proposal for MVNOs. You can do that as a confidential undertaking. Would you be prepared to do that?
1561 MS. PRUDHAM: I don’t think we would be prepared at this time to do so.
1562 COMMISSIONER LEVY: Okay. It would -- as I say, it can be a confidential undertaking.
1563 MS. PRUDHAM: We understand.
1564 COMMISSIONER LEVY: All right. Are there any areas that are covered by your spectrum, but where you’ve not yet deployed? And I guess this is the same -- this is sort of the same part of the same kind of question, but I’ll ask you again, whether you would be prepared to make a confidential undertaking to let us know what those are?
1565 MS. PRUDHAM: Well, I think that’s actually a slightly different question. Because we do have other spectrum in Manitoba for example, that is not yet deployed because we’re working on that. So I think if your question is to confidentially tell you where it is where we’d like to turn up or might have plans to turn up, that’s something we could probably do in confidence.
1566 UNDERTAKING / ENGAGEMENT
1567 COMMISSIONER LEVY: Okay. And our legal department will remind us of these undertakings. The deadline is March the 10th. I would assume that the reason you haven’t built into some of those areas yet is because of the age of the undertaking and the resources that it takes to get there?
1568 MS. PRUDHAM: It’s -- this is a very expensive proposition to build out, and yes, it takes time.
1569 COMMISSIONER LEVY: So you sound as though the Competition Bureau’s wholesale MVNO notion is very attractive to you, and I ---
1570 MS. PRUDHAM: I don’t know that we would say it’s very attractive. It presents an opportunity.
1571 COMMISSIONER LEVY: Yes. So and that opportunity would be to get you to places where you can’t get to right now, in a way that allows you to make money while you’re building out?
1572 MS. PRUDHAM: Right. We look at it as an opportunity to accelerate the process as opposed to a wholesale, oh, we’re going to go here, but we wouldn’t have otherwise gone there. That’s not -- but could we get there sooner than maybe five or six years on our own? Yes.
1573 COMMISSIONER LEVY: Does the Bureau’s proposal ---
1574 MS. PRUDHAM: Sorry, yeah, absolutely.
1575 COMMISSIONER LEVY: I’m sorry. Go ahead.
1576 MR. DINESEN: Just to add some more colour to that, I think -- excuse me -- outlined in our written submissions, three elements that would help us in effect, do what we are going to do anyway, but faster and more affordably. So reduces roaming rates, that’s obvious, it reduces our cost to roam where we don’t have network.
1577 Service parity, we’ve described it as, which -- of which seamless roaming is an attribute. If we have that, then our customers are not disadvantaged compared to the target roaming customers that are dedicated to the roaming network.
1578 And ready access to facilities, so kind of ties together with respect to our aspirations in different parts of -- in different parts of Manitoba. The speed with which we can do what we want to do and how we are able to match revenues to the investment required to build those facilities.
1579 COMMISSIONER LEVY: So are you incented enough to be encouraged to purchase more spectrum in order to deploy in new areas, or do you have your own business plan, and this would be an adjunct, but it’s not something that would encourage you to buy more spectrum? How do you feel about that?
1580 MS. PRUDHAM: I don’t think it would encourage us to buy more spectrum. We -- as Tim has explained, it’s a very important part of our business, and if we intend to be in a particular area, we’re going to buy the spectrum to be there. So I don’t think it will change where we want to go. and where we might purchase spectrum.
1581 COMMISSIONER LEVY: Okay. So let’s assume that we do mandate wholesale MVNO access. Let’s talk a little bit about what it might look like. I -- we’ve talked about eligibility a little bit, and you’ve come down, I think quite firmly on the notion that it should be facilities based, who operate their own mobile wireless core, and serve the purpose of ensuring sustainable competition in the retail wireless market -- mobile wireless market.
1582 Another limitation parties propose was to exclude access to host carriers’ domestic or international roaming agreements in the mandate. However, roaming tariffs of the national wireless carriers requires roaming partners to have access to roaming agreements of the carrier providing roaming service. Should this be any different for MVNOs and if so, why?
1583 MS. PRUDHAM: Yeah. I guess we’re pausing a little bit because we’re probably not similarly situated to someone who’s contemplating entering the business. We are already in the business and have signed our own roaming agreements. So I guess we’re not as interested in obtaining that. It's not a necessity for us.
1584 COMMISSIONER LEVY: Okay. In terms of who MVNOs can sell to, is there any reason to exclude business and enterprise customers? For example, those who use machine-to-machine and internet of things applications?
1585 MR. DINESEN: Commercially, no. If we have an arrangement whereby we're procuring facilities that we don’t own for the purpose of turning them into product and selling them, we don’t see an issue with providing that to enterprise-type commercial applications.
1586 I think what you might be referring to, and correct me if I'm wrong, with respect to narrowband internet of things and machine-to-machine interactions, our view is that whatever wholesale arrangement comes out of these decisions, it should not be limited just to 4G and LTE. It should extend into 5G.
1587 My view is that part of the purpose of this proceeding is to lay down some fundamental principles that will allow people to invest in confidence in the next generation wireless networks, not just be constrained to backwards compatible technologies and use cases.
1588 COMMISSIONER LEVY: Thank you. That takes care of some future questions that I had as well.
1589 Some parties have raised concerns of entry by some of the large well-capitalized companies as MVNOs, large North American tech firms. In your view, is that a valid concern?
1590 MR. PRUDHAM: Perhaps we take a slightly different view of this than others when looking at it and we're a little unclear whether their concern is that the new entrant is really well capitalized or whether they are non-Canadian. And it would appear the fear is more non-Canadian than capitalized, to which our respectful response is that this has already been addressed by the Government of Canada through the Telecommunications Act, through the RadioCom Regulations which say if you want to be a telecom provider, you can in Canada being non-Canadian, up to 10 percent. Once you reach the 10 percent threshold of the marketplace, you have to become Canadian.
1591 I'm not sure there's a reason to change that rule specifically for this.
1592 COMMISSIONER LEVY: So you don’t think we even need to get to the place where we talk about whether a subscriber or market cap limit would be an appropriate way to address that concern. To you it's cut off at the nationality level.
1593 MR. PRUDHAM: We are respectfully agreeing with the Government of Canada's current policy.
1594 COMMISSIONER LEVY: Many parties have suggested limiting mandated MVNO wholesale access to commercially negotiated rates back by binding arbitration. And in addition to rates, should terms and conditions be negotiated?
1595 MR. MacQUARRIE: Yes, we would support that.
1596 COMMISSIONER LEVY: So do you think that it would be more appropriate and less administratively burdensome to set out those standard terms and conditions at the outset either in a tariff or a decision?
1597 MR. MacQUARRIE: I think our main concern about having those parameters fully set out in advance would be the amount of time that it might take to have proceedings to do that and we're supporting a negotiation because we think we can get that done faster.
1598 So I think it would be better if parties were enabled to go and negotiate the terms of access and perhaps the Commission could give some general guidelines about what types of terms would be considered reasonable or appropriate without having to set them all out in full detail.
1599 COMMISSIONER LEVY: Okay. So a general framework but not too specific not to limit you?
1600 MR. PRUDHAM: Well, yes, because inevitably everyone works a little bit different. So it would be very hard for you to prescribe in great detail the exact outcome.
1601 COMMISSIONER LEVY: Whether we mandate something or leave it up to negotiation and inevitably there is a point in these relationships where you need an arbitrator or some form of it, do you think that that should take the form of final offer arbitration?
1602 MR. MacQUARRIE: Again, yes, we would support -- we would support final offer arbitration.
1603 COMMISSIONER LEVY: And what form do you feel that it should take? The Commission has a final offer arbitration system. Others have suggested other variations and permutations. Do you have any views on that?
1604 MR. MacQUARRIE: Right. We did hear Shaw's answer and it may be that the current FOA process at the Commission would need a few tweaks but we think the Commission would likely be well placed to serve that role.
1605 COMMISSIONER LEVY: In terms of setting some of the rates, you proposed a retail-minus approach and do you think that this approach of setting wholesale rates is still reasonable given everything you've heard?
1606 MR. MacQUARRIE: We did say that at one point on the record, that's true. We're now mostly more in favour of negotiated rates. The benefit of retail-minus is that it allows the rates to evolve over time and avoids what we're seeing with domestic roaming today where the current rates are completely out of line with what the retail is. So that's something that we really want to avoid with these, with any new services and address with respect to the current services.
1607 COMMISSIONER LEVY: Okay. So you've rethought your position on that.
1608 MR. MacQUARRIE: Right, but there are benefits to it. I know that the criticisms of the retail-minus proposal were that it would drive up retail rates and I'm not sure how great the risk of that is particularly if you are considering an MVNO service outlook like the limited version that the Competition Bureau has proposed. That might be more of a risk with the full-blown resale model.
1609 COMMISSIONER LEVY: Okay. So if we -- if the retail rate and markdown was chosen, how should it be applied given that there are umpteen plans in the market? How would you -- have you given that any thought while it was still ---
1610 MR. MacQUARRIE: I'm not the math guy.
1611 MR. PRUDHAM: I think we're probably struggling a little bit with the answer because we really did, even when we wrote the submission and even as we sit here now, struggle to find that answer and we're probably not the right people to be able to answer that for you. But as you heard us say earlier, we acknowledge it's a balance. There has to be a balance between looking after the folks who do build the facilities and looking after those who are trying to serve the customer effectively.
1612 So regardless of which approach we took, the number we threw out of three to $5 per Gig was triangulated from all those perspectives of saying if retail is six or seven, reduce that within the three to five range. If you are looking at your facilities and your cost and that, you still come up into that sort of range where you would be willing to offer that to other parties.
1613 So we're not suggesting there's a perfect answer other than in our minds if we were negotiating with ourselves, we would come to that number.
1614 COMMISSIONER LEVY: In your submission, you supported investment targets. How would an MVNO demonstrate that the investment that they've made actually supports their mobile wireless services?
1615 MR. MacQUARRIE: On that one, those comments, we made those when we were discussing the proposal that Cogeco had put forward.
1616 COMMISSIONER LEVY: Okay.
1617 MR. MacQUARRIE: We now think that a more streamlined proposal is the one that the Competition Bureau has put forward. And if you have set up the eligibility for the service that parties that have spectrum are those who are able to access the service, I don’t think you need to measure the investment in the same way like that because the spectrum comes with an inherent demonstration of commitment to deploy, as well as conditions of licence requiring you to deploy. So I don’t think you need to measure the investment.
1618 COMMISSIONER LEVY: You proposed assessing investment at regular intervals. Would you rely on the existing annual reports to the Commission? Do you think that would be sufficient or should there be more frequent reporting?
1619 MR. MacQUARRIE: I think it would be best to have this reported through the annual facilities survey that we do. That’s well set up for this.
1620 COMMISSIONER LEVY: Keep it simple.
1621 MR. MacQUARRIE: Yeah, we don’t need something ---
1622 COMMISSIONER LEVY: If the Commission does mandate wholesale MVNO access, which carriers should be obligated to provide MVNO access?
1623 MS. PRUDHAM: I guess I get the short straw to answer that one.
1624 In approaching this, the obvious answer would be the Big 3 who have the national element to it.
1625 But as we said, we’re a facilities provider and we’re mindful of the fact that even if you started with the Big 3, at some point there would be a discussion about others, particularly, for example, us, in rural areas where the others might not be there, or only one of them might be there.
1626 So we’re conscious of that. And this comes back to our earlier comment about you may find yourself trying to find a different solution between urban and rural to resolve that.
1627 So we’d suggest starting where everyone else would suggest we start, but we understand that it might not be the end answer.
1628 COMMISSIONER LEVY: So you aren’t keen for the regional carriers, especially in rural areas, to be considered as providers?
1629 MS. PRUDHAM: Well this goes back to the rate issue. And in talking it through internally and some of the evolving thought that we’ve had, if you get the rate right, we should be indifferent. We should be willing to provide our network on the basis we’re being adequately compensated.
1630 If you get the rate wrong, I could see why people would say, “No, no, no. This is not a good thing.”
1631 COMMISSIONER LEVY: But you’re not ruling it out?
1632 MS. PRUDHAM: We are not ruling it out.
1633 COMMISSIONER LEVY: We’ve talked, and you’ve talked quite a bit in your presentation today, about roaming of various kinds. And you’ve made -- I think you’ve made your points very clear in that you want 5G included in any of the regimes that result from this.
1634 What impact do you think the changes would have on the rates, and terms, and conditions in the tariff? Like, what do you think would happen if the current definition of roaming included 5G? What would happen to the rates?
1635 MR. DINESEN: Difficult to say. And I think the intervenors previous have kind of shied away from the question with respect to the potential impact of 5G. It’s too early. We don’t know how much it’s going to cost. We don’t know how much accrued revenue we’re going to get.
1636 Our suggestion is don’t close the door, don’t require that it only be for existing deployed technologies, depending on the duration, durability of policy, we’re going to have 6G and something else down the road.
1637 So a mechanism whereby we can take into account the respective value of investment in future network technology should be at least contemplated as part of this discussion.
1638 Don’t freeze the policy around an existing technology, because we’re going to be having this conversation again not too long from now.
1639 COMMISSIONER LEVY: Would it be appropriate to limit the scope of mandated 5G roaming to a service connecting individual consumer devices? Or should it be a more fulsome mandate?
1640 MR. DINESEN: Well, again, back to why would you constrain it to a particular use case, or a particular market segment, or a particular geography? This is a policy discussion that, in our view, should be grounded in principles, which is to develop opportunities for innovative companies that are sufficiently capitalized with an intent to develop facilities-based services, regardless of the underlying technology, regardless of how they’re going to generate revenue, needs to be considered.
1641 Constraining that is going to, I think, impair the effectiveness of whatever policy we arrive at.
1642 COMMISSIONER LEVY: Bell Mobility -- let’s talk a little bit more about the seamless roaming side of things.
1643 Bell Mobility has suggested there’s significant ongoing costs associated with implementing seamless roaming. We’ve heard others who’ve said that’s not entirely the case.
1644 How would you implement such a function? How would we -- how do you see that happening?
1645 MR. DINESEN: My colleague from the intervenor previously I think outlined it very precisely and very accurately.
1646 It’s really the means by which or the mechanism by which a mobile device communicates with different cells within a single operator’s network, different cells across other operator’s networks. It’s a technology that exists in modern wireless deployments in every event.
1647 Yes, it’s work, but it is essentially an exchange of information, a one-time configuration, and ongoing management of that configuration. It’s neither expensive to set up, nor necessarily expensive to maintain, and it’s to the great benefit of customers on networks that are roaming onto the incumbent’s networks, delivering to them service parity. Otherwise, they’re disadvantaged.
1648 COMMISSIONER LEVY: Would -- to take another view of it, would seamless roaming negatively impact incentives for regional carriers to expand their networks? Might it have that kind impact?
1649 MS. PRUDHAM: No.
1650 COMMISSIONER LEVY: Okay.
1651 MR. DINESEN: Canadians and customers would benefit. And if it was a policy that we’re all subject to, then there would be no, as I said, service parity depending on where you are and what network you happened to be attached to.
1652 COMMISSIONER LEVY: So are you suggesting mandating or do you want this subject to negotiation? Or a mix of the two?
1653 MS. PRUDHAM: We are suggesting that it is probably necessary to mandate seamless roaming at this time.
1654 COMMISSIONER LEVY: Do you see having a phase out of it?
1655 MS. PRUDHAM: There would be a sunset on seamless roaming?
1656 COMMISSIONER LEVY: M’hm.
1657 MS. PRUDHAM: No. No. This is a -- for us, this about a poor customer experience that doesn’t need to happen. And we would certainly echo the comments of Shaw, that this has been going on for 30 years and it doesn’t need to continue.
1658 COMMISSIONER LEVY: We have some issue and some questions about interconnection in terms of MVNO.
1659 What do you see as the general benefits and concerns associated with single versus multi-point interconnection?
1660 MR. DINESEN: I’m not sure I understand the terms.
1661 COMMISSIONER LEVY: You’re probably thinking more in terms of aggregated versus disaggregated, perhaps?
1662 MR. DINESEN: No, I’m not familiar with the context of point versus many point.
1663 To the extent it improves service reliability and gives us more commercial diversity with respect to who the providers are, it sounds like a good thing.
1664 COMMISSIONER LEVY: Let’s talk a little bit, and I’m just about finished, about technology neutrality.
1665 Parties have indicated on the record that internationally, non-standalone networks will be the preferred standard for 5G networks deployment.
1666 If this were the case in Canada, would it even be possible to restrict wholesale access on the basis of network generation or technology?
1667 MR. DINESEN: So standalone versus non-standalone, the distinction is between whether you’re going to have a completely sequestered dedicated 5G network or use your existing 4G network and related spectrum and transition to 5G, just so we’re all clear on what’s being proposed.
1668 I’m not sure that I entirely agree with the assertion that most operators are going to go non-standalone. I think that’s predominately the case in North America, but probably not in other jurisdictions.
1669 COMMISSIONER LEVY: So is it premature to even look at this question? You know, is it ran the same no matter what the technology?
1670 MR. DINESEN: So the first part, I’m not quite sure that the assertion, I wouldn’t necessarily agree with the assertion that most operators are going to NSA.
1671 We are generally, and we have been up until now, 3GPP standards based. So we all operate in terms of how we design our equipment and establish our network and our operability against international standards bodies.
1672 That is the way forward as well for 5G.
1673 And without getting into the weeds of the specific compatibility issues and my network can't talk to yours, there will always be a way forward. I don't think it's necessarily required for us to specify that at this point. Most importantly, though, don't preclude us from being able to have the conversation with respect to introducing new technologies into wholesale roaming arrangements.
1674 COMMISSIONER LEVY: We're going to finish up with a couple of questions on looking into the future of mobile wireless. Parties have argued that network sharing arrangements between national wireless carriers provide incentives to foreclose competition from new entrants, and that these companies are unwilling to enter into network or spectrum sharing arrangements with companies other than other national wireless carriers. What are your views on the pros and cons of network sharing?
1675 MR. DINESEN: On the pros, and I think we're having these discussions asking some very big questions, and I might add, in the context of tele -- other -- reviews of other files. Big questions to be asked, and certainly policy direction that should be established as a result of those.
1676 Pros and cons of network sharing. I think we are all dealing with legacy regimes in terms of how we have allocated public assets, spectrum amongst them; land, another one; access to civil structure; et cetera. The most efficient way for us to deploy that that might be a softening or a different ownership licensing regime I would be of benefit to Canadians generally, both in terms of accelerated delivery of services, but also in terms of levelling out and making sure that we're not overbuilding capital investments. I think there's a mechanism whereby mandated roaming can help those conversations happen.
1677 What are the cons? I think there's been lots of handwringing about enterprise valuations and the go forward value of revenue streams associated with the current way of doing things, which incumbents would be rightfully defensive about.
1678 Somewhere in the middle is the right balance, where we're going to continue to invest in homegrown Canadian innovation, where we're going to continue to build on the assets that we've developed, where we're going to respect property rights, for example, and maintain service and licensing continuity, but also provide a means by which innovative operators, such as Xplornet, have an opportunity to participate in new lines of business and new revenue streams.
1679 That to me is the first step of a longer journey. As soon as we button up, and I've made reference to it a few times, as soon as we button up these proceedings we'll be on to some other technological variation and some other market pressure that we're going to need to consider.
1680 So my view, my personal view is that the more we can anticipate what our future requirements are going to be, what kind of use cases are going to be important to our children, how are we going to use this hearing as a means by which we can start to flatten the urban rural divide, all are important considerations beyond pros and cons of commercial arrangements for roaming.
1681 COMMISSIONER LEVY: Would we, perhaps, be well advised to consider what my colleague mentioned, the joint build of a 5G network, such as was done in South Korea and Germany? Would that be helpful in addressing some of the challenges, or what do you think about it?
1682 MR. DINESEN: I think it's an important question. I think it's a commercial question. I can't comment, specifically, on South Korea nor German policy, but clearly they're motivated by some sense of getting the latest technology out fast in the most economically-efficient manner.
1683 I would hesitate asking regulatory agencies to instruct operators. I think to whatever extent you've got influence provide the conditions where those conversations can be had, and possibly mandated roaming is a good place to start.
1684 COMMISSIONER LEVY: And finally, in your submissions you supported a requirement to document and track spare capacity in addition to limitations on reservation for future use as it relates to ILEC support structures. Could you just clarify your position? Do you have anything more to add?
1685 MR. MacQUARRIE: What I said in the comments earlier was that we don't think it's appropriate for ILECs to be able to unduly reserve capacity. It should be allocated on a first-come-first-serve basis. As these are public good structures, we all can't go around putting up our own poles.
1686 So if a regional provider goes to an ILEC to ask for to be on -- attached to their structure, that ILEC should not be permitted to say, "I might need that someday, you can't have that", and either force the -- a regional provider to come back at some point in the future and ask again, or to pay for make-ready work based on, you know, hypothetical use. There needs -- it needs to be more concrete in some way.
1687 Defining that might require some further conversation. I think Shaw did a good job this morning giving some parameters around that. Maybe a 6‑month window is reasonable for imminent use that might be about to take place, but we need to delineate imminent use versus hypothetical use to make sure that regional providers have efficient access to those structures.
1688 COMMISSIONER LEVY: So it sounds as though you're sort of backing off from your notion of a requirement to document this and create a registry and all of the administration that goes with that. Is -- am I correct in surmising that you have shifted your position to ---
1689 MR. MacQUARRIE: Well ---
1690 COMMISSIONER LEVY: --- one where there is some other mechanisms could be used ---
1691 MR. MacQUARRIE: There's probably a simpler ---
1692 COMMISSIONER LEVY: --- to move that along?
1693 MR. MacQUARRIE: --- do that. But I'm not sure that -- I don't know what kind of database we might need, or if we need one at all, but this space is being tracked. If someone can tell me that they're reserving for future use they obviously know what space is there, and what is -- and when it's going to be used; right? So I'm not sure we're recreating the wheel to do that, but I will back off from that. We need to track it, yes.
1694 COMMISSIONER LEVY: Okay. Thank you very much. Those are all of the questions that I have.
1695 THE CHAIRPERSON: Thank you, Commissioner Levy.
1696 I have a couple of follow up matters, then I'll ask the other members.
1697 Going back to the support structure issue for a second, on the issue of reserving the capacity. I guess the key thing is -- you know, I'm trying to identify what limitations would be appropriate.
1698 Would you be willing to submit by undertaking measures that you might propose then that in your view makes sense? What time limits, what -- how can we deal with the issue? You're the second party today to raise this as a particular concern, and it would be helpful to have a little more detail.
1699 So I don't know if you'll accept that as an undertaking? In particular, I guess a focus on the issue of future use, which is -- seems to be something of a dominant theme.
1700 Is that better? Could you hear me?
1701 MS. PRUDHAM: Yes, we will accept that undertaking.
1702 THE CHAIRPERSON: Thank you.
1703 UNDERTAKING / ENGAGEMENT
1704 THE CHAIRPERSON: You may have been in the room at the end of our questions to Shaw, and I asked about, if you will, call it a potential tweak of the Bureau's model, if carriers with existing spectrum were to become eligible for a national MVNO, rather than focusing on the Tier 4 specific MVNO mandate.
1705 What do you think of that as a concept?
1706 MS. PRUDHAM: I think we would respond that, as per our comments, we were deliberate planners, and we don't try to boil the ocean. So the national is probably of less interest to us. We think the Tier 4 would be more appropriate because you've made a decision about what spectrum you're buying, you've looked forward, you've done your planning on that basis, and the logical next step is to be at that level.
1707 THE CHAIRPERSON: Fair enough. Would you have a view, though, even if you didn't have that as a commercial interest, about a minimum amount of spectrum that would be a reasonable threshold, for example, to establish eligibility, for example, for such a regime?
1708 MS. PRUDHAM: So if I interpret your question correctly, you're asking what is a reasonable amount of spectrum that qualifies you in order to ---
1709 THE CHAIRPERSON: Actually, you worded it better than I did.
1710 MS. PRUDHAM: No.
1711 THE CHAIRPERSON: In other words ---
1712 MS. PRUDHAM: (Inaudible.)
1713 THE CHAIRPERSON: --- it would tend to be a problem if you sat there and go, "Well, I have one tower in one place. Now, can I have access to an MVNO nationally?" So if one were to have such a model, presumably you'd want some threshold, and I'm just wondering if you have any views on what might be a reasonable threshold.
1714 MS. PRUDHAM: Well, I think the answer to that is we are not supportive of the one tower and you get national, and that's in part why we are talking about the Tier 4 because we think there should be a demonstrated commitment. And by looking at it at the Tier 4 where you have build out requirements and specific spectrum timelines for when you have to do things, there is a clear plan and a commitment that you could say, okay, you've got it, as opposed to, you know, one tower in Calgary and you get to serve Montreal. Like that doesn't make sense to us.
1715 THE CHAIRPERSON: Fair enough. Thank you.
1716 Members, other questions? Christianne?
1717 VICE-CHAIRPERSON LAIZNER: Thank you very much for your presentation and the answers to the questions.
1718 I just have one question about your proposal that following a 5‑year period of MVNO access you would want to be able to continue servicing the customers you acquired in that original 5 years, but not be able to use the RAN access for new customers. Does that create operational issues for the underlying carrier? Like how does that work operationally? Is that easy or difficult?
1719 MR. DINESEN: Yeah. So this was borne of our reflection on is rural different or should we be thinking about it somewhat differently, and we could be in a situation where we're wholesaling or wholesaling from an incumbent carrier where at the end of 5 years there would not be any, let alone service, let -- before you get to competition, so would rural type deployments warrant different consideration in the framework?
1720 And we -- it was just an open question for us. At the end of 5 years, what we don't want to do is leave customers behind, and operationally it's pretty clean for us to not allow new customers to be provisioned on somebody else's network but still allow those customers to roam on that network. We wouldn't be provisioning on -- wouldn't be selling on their network.
1721 VICE-CHAIRPERSON LAIZNER: Okay. So that would rely -- that would be dependent upon your undertaking not to provision new customers using that RAN access?
1722 MR. DINESEN: It would be a negotiated arrangement where at some point during the term of our roaming relationship that we would no longer provision new customers on third party network.
1723 VICE-CHAIRPERSON LAIZNER: Okay. And is part of the benefit of that arrangement also to allow you to try in the first 5 years get as much of a customer base as you can in order to help with the investment of deploying facilities?
1724 MR. DINESEN: That follows, yes.
1725 VICE-CHAIRPERSON LAIZNER: Okay. Okay. And then I just had one other question with respect to the data rollover in your plans. Is that a data rollover that just is time limited for the following month, or does that continue?
1726 MS. PRUDHAM: The data rollover goes from your current month to the next month, and then it's used up first. And -- so it's carried over for one month.
1727 VICE-CHAIRPERSON LAIZNER: Just one month.
1728 MS. PRUDHAM: Just one month.
1729 VICE-CHAIRPERSON LAIZNER: So if you still an excess that would drop off the table and you would start over at Month 3 in a new position.
1730 MS. PRUDHAM: Just the excess of the first month.
1731 VICE-CHAIRPERSON LAIZNER: Okay.
1732 MS. PRUDHAM: So say that you are on a 2‑gigabyte plan, you used 1‑gig in the first month and you carried one over, and so in the second month you have 3 available to you. In that second month, let's say you only use half‑a‑gig. So at the end of that month you still have your full ---
1733 VICE-CHAIRPERSON LAIZNER: One‑and‑a‑half.
1734 MS. PRUDHAM: Well, you still have your full 2 ---
1735 VICE-CHAIRPERSON LAIZNER: Oh.
1736 MS. PRUDHAM: --- because you have 3; right? So the full 2 that's in your plan get carried over to the third month, but you don't get the extra half-a‑gig that came from Month 1.
1737 VICE-CHAIRPERSON LAIZNER: Got it. Thank you.
1738 MS. PRUDHAM: Okay.
1739 THE CHAIRPERSON: Commission Counsel?
1740 MR. BOWLES: I just have one, fairly, hopefully fairly quick question for you. You stated that in the event that there was a mandate deployed MVNO service that the parameters with the respect to the provisioning of that service be left to negotiations, and I think you clearly indicated that it was not just rates that would be the subject of negotiations, but also the terms and the conditions, and that failing successful negotiations that there would be some form of arbitration backstop process.
1741 You may have heard ask me this question to the previous intervenor. But if parties are coming into the arbitration process with divergent service proposals, how can one ensure that an FOA process will result in a just and reasonable rate if people are proposing rates on the basis of essentially a different service?
1742 MR. MacQUARRIE: So through those negotiations, probably the terms are going to be the easier things to lock down, and we'll be bringing a few discrete causes in a rate to you. The FOA process itself completely encourages both parties to be reasonable, so I don't think there should be a whole lot of worry about whether or not the rates that end up from that process will be just and reasonable.
1743 I think the question that you're asking that's a little bit tough is what if each party is bringing a fundamentally different service proposal forward, how do we deal with that. I'm not sure if that's -- if that would happen in practise or not, but I don't really have an answer to that one.
1744 MS. PRUDHAM: Well, if you look at historical negotiations around some similar circumstances, you would typically, for the same reasons that your rates, if it was just pure rates, the rates tend to come down to the incentive is you're not going to offer a crazy rate because you could lose and the other guy is going to -- you're going to try and make your rate as reasonable as possible.
1745 I would expect the same incentives to occur on the service side. That you're not going to go too crazy with the service, and most people will come to a fairly moderate middle ground with perhaps one or two things that differentiate them.
1746 MR. BOWLES: Thank you.
1747 MR. BALKOVEC: This well and truly is the last one now. Do you have a view on whether it would be appropriate for the Commission to reassert its powers of rate regulation over the retail market just to the extent that it's necessary to require the provision of a low-cost plan below a certain price, say that there'd be a price ceiling there, either on the basis that competition is not providing those plans to people, or on the basis that it could be a mechanism to protect the interests of vulnerable subscribers?
1748 MS. PRUDHAM: Yes, we have a view. The answer to that from our perspective is we are very competition-based and that is our orientation. So if there is a small segment that we are concerned about from a social perspective that does not have something that meets their needs, I think we have to pause and say is the Commission the correct place to try and solve that.
1749 Because I'm sure we can likewise point to, and certainly the Commission has decided that Internet is a basic service, but that's not unlike hydro or food or other things, and perhaps the better place to address that is in the social assistance side of the world. And that we acknowledge Internet is part of the things that they should be considering when they're looking at the basics that humans need.
1750 MR. BALKOVEC: Thank you. No further questions from us.
1751 Mr. Chairman.
1752 THE CHAIRPERSON: Thank you.
1753 Thank you for your presentation and your responses, and your patience for a very long day.
1754 With that, we'll adjourn for today, and resume tomorrow morning at 9:00 a.m. Is that correct, Madam Secretary?
1755 THE SECRETARY: It's correct, at 9:00 a.m. tomorrow morning.
1756 THE CHAIRPERSON: Thank you, everyone. Good day.
--- Upon adjourning at 6:11 p.m.
--- La séance est ajournée à 18:11
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