Transcription, Audience du 19 février 2020
Volume : 2
Endroit : Gatineau (Québec)
Date : 19 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 Wednesday, February 19th, 2020 at 8:57 a.m./L'audience débute mercredi, le 19 février 2020 à 8h57
1757 THE CHAIRPERSON: Bon matin. Good morning, everyone.
1758 Madame la secrétaire?
1759 THE SECRETARY: Merci.
1760 We will start this morning with the presentation from Bell Mobility Inc. Please introduce yourself and your colleagues and you have 20 minutes for your presentation.
PRESENTATION / PRÉSENTATION
1761 MR. MALCOLMSON: Good morning, Commissioners. My name is Rob Malcolmson and I am BCE's Chief Regulatory Officer. It is my pleasure to introduce our panel.
1762 To my right is Mirko Bibic, President and CEO of BCE and Bell Canada.
1763 To Mirko's right are two of the senior leaders at Bell Mobility overseeing our wireless business across the country, Claire Gillies, President, Bell Mobility, and Martin de Gooyer, Senior Vice-President, Consumer Marketing.
1764 To my left is Mark Graham, Assistant General Counsel, Regulatory Policies and Competition.
1765 Next to Mark is Margaret Sanderson, Vice-President and Practice Leader of Antitrust and Competition Economics at Charles River Associates.
1766 Next to Margaret is Bruce Rodin, Vice-President, Wireless Network Strategy.
1767 And finally, next to Bruce is Florence Chan, Legal Counsel at BCE.
1768 We will begin our presentation with a short video that illustrates what's at stake in this proceeding.
1769 (VIDEO PRESENTATION / PRÉSENTATION VIDÉO)
1770 MR. BIBIC: Good morning, Mr. Chairman, Commissioners.
1771 Chez Bell, comme vous venez juste de l'entendre, notre objectif est d'améliorer la façon dont les Canadiens communiquent entre eux et avec le reste du monde et pour atteindre cet objectif, nous sommes guidés par des impératifs stratégiques précis qui comprennent les mesures suivantes: bâtir les meilleurs réseaux; tirer profit de ces réseaux pour fournir aux consommateurs et aux entreprises des services spéciaux et innovateurs à des prix abordables; et investir pour promouvoir l’expérience client dans nos interactions avec les Canadiens.
1772 Nous avons choisi notre objectif parce que nous entrons dans une nouvelle ère de communication. Les déploiements de la fibre et des réseaux 5G vont offrir des vitesses multi gigabit favorisant l’internet des objets, la réalité augmentée et virtuelle, l’intelligence artificielle, l’apprentissage machine et d’autres applications que nous n’avons pas encore imaginées.
1773 Cet environnement nous positionne de manière à franchir la prochaine étape afin de transformer la façon dont les Canadiens communiquent. Cela signifie offrir plus de valeur que jamais aux consommateurs. Cela signifie combler l’écart entre les collectivités urbaines et rurales. Et cela signifie construire des réseaux qui favorisent l’innovation et stimulent l’économie canadienne moderne, tout en améliorant la productivité des entreprises et en créant de la croissance économique.
1774 That is why this hearing is pivotal, and certainly is the most important I have attended in my 16 years in telecom and I have been in this room for many hearings.
1775 Since 2008, the government and the Commission have supported the growth of a fourth wireless operator in markets across the country. That policy is achieving its goal.
1776 Today, Canadians in every province are served by four facilities-based wireless providers and have an unprecedented choice of 10 or more brands offering a wide range of services to meet different needs and budgets across the board.
1777 Wireless prices continue to decline, promotional activity is intense, and pricing and service innovation is constant. The wireless market has never been more competitive.
1778 Looking to the future, we expect that policymakers and the Commission share our goal of delivering unprecedented value to Canadians, bridging the urban and rural divide, and driving the innovation economy and Canada's economic prosperity.
1779 Given these shared goals, a key focus in this hearing should be how to build the digital infrastructure required to achieve them. That means making the once-in-a-generation upgrade to 5G networks as quickly as we can.
1780 It also means building those networks not just in downtown Montreal and Toronto, but throughout Canada's suburban, rural, and remote regions.
1781 To do this, we really do need a policy and regulatory environment that unlocks the investment of private risk capital required to put tens of thousands of Canadians to work designing and building 5G networks in communities of every size across the country.
1782 This is critical because we absolutely cannot take Canada's world-leading wireless networks for granted.
1783 Last year, BCE invested almost $4 billion in capital which we also noted in the video we showed. These investments must be made every year to maintain the world-leading networks and quality services Canadians expect. In fact, the need is even greater now, as we enhance our wireless networks to support unlimited plans and build out 5G.
1784 Public policy and regulatory rules inevitably affect our investments and regulatory uncertainty increases the risk profile of the entire industry's capital investments.
1785 Quite simply, if the Commission strays from its long-standing policy of encouraging investments in networks and instead favours wireless resale, we know what will happen. Significant wireless investments will be delayed or will be abandoned. In global capital markets, the cost of capital for Canadian carriers will increase and investment will flow out of Canada, reducing our competitiveness.
1786 We've seen this happen firsthand as recently as last year. The Commission's decision on regulated access rates for fixed broadband caused an immediate 20 percent reduction in our planned Wireless Home Internet rural broadband build, reducing coverage by 200,000 homes. In Québec, one of our competitors withdrew its most advanced service from the market entirely. In Atlantic Canada, a regional competitor cut $50 million from its annual investment plans. All across the country, providers confirmed the decision would reduce investment.
1787 The risk to wireless investment could easily be much greater. Imposing wireless resale would be a dramatic swing in the regulatory pendulum just as wireless operators begin investing in 5G.
1788 As other countries have discovered, when wireless investment falls behind it is very difficult to catch up. If Canada becomes a 5G laggard, then instead of closing the digital divide, new divides will emerge, not just between our largest cities and our suburban and rural communities, but also between Canada and the world's wireless leaders. In our view, there's no reason to take these risks now.
1789 As Claire will discuss in a moment, wireless prices are falling, regional competitors are stronger than ever, and the market has been transformed with the introduction of unlimited data and device financing plans. The fact is, policy goals related to affordable -- affordability, excuse me, and choice are being achieved without sacrificing the success of our policy of encouraging competition between networks.
1791 MS. GILLIES: I joined Bell 20 years ago, and there's no question that today Canadians get more value from their wireless services, and the market is more competitive, than at any other time in my career.
1792 In just over a decade, we have moved from CDMA to HSPA to LTE to LTE-Advanced, and now we are moving to 5G. We consistently deliver more value to our customers, better prices, more minutes, more data, and more support for our customers, while providing higher speeds, wider coverage, greater reliability, and greater functionality.
1793 While we prepare for the launch of 5G, independent third parties continue to recognize our network leadership. Open Signal has described Canada as a "global 4G superpower" and noted that:
1794 "Canada offers users among the fastest and most accessible 4G networks across its vast rural landscape."
1795 PC Mag has noted that in Canada they see:
1796 "Average LTE speeds that exceed what we're seeing on Sprint's new 5G network in the US."
1797 Just last week, Open Signal recognized that Canadians benefit from speeds that are almost equal to those of South Korea, which was the first in the world to launch a national 5G network.
1798 High quality services in Canada are not, however, limited to world-leading network speeds. They also include other technology leadership.
1799 For example, when the Apple Watch launched wireless capability, Bell was one of just 14 carriers from around the world chosen to support the product. Canada is routinely included in the initial launches of the most advanced devices, but our place among these world leaders would be at risk if investment falters.
1800 The value of leading-edge technology is not just about industrial applications and the digital economy, but about the quality of a user's daily experience with their mobile device. Whether you're downloading a large file to review while travelling, watching Crave on your lunch hour, calling for help from a remote stretch of highway, or using an app to navigate a new city, the high quality of Canada's wireless networks improves the way you live, work, and are entertained. And that is what our customers value most.
1801 At the same time, prices have been falling fast. According to the Commission, between 2016 and 2018, the average price of a 5‑gigabyte plan fell 35 percent and the average price of a 2‑gigabyte plan fell 28 percent. For each gigabyte of wireless data, our customers are now paying up to 80 percent less than they did when your last review of the wireless market was completed at the end of 2015.
1802 In the two-year period leading up to the launch of this proceeding, Canadian wireless carriers made more than 14,000 price reductions to the products and services they offer. During that time we also launched a new wireless brand, Lucky Mobile, focused solely on affordability.
1803 At our launch two years ago, Chatr offered a zone plan with 1‑gigabyte of data for $40. Today, Lucky Mobile offers a similar 1‑gigabyte plan with no zone restrictions for just $25. For $40, a Canadian can now get 5‑gigabytes of data.
1804 Last summer, we introduced device financing plans and affordable unlimited data plans at rates that are lower than entry level unlimited plans in the United States. This has transformed the market, and the plans have already been adopted by millions of Canadians.
1805 And just in the last six months, we've seen an unprecedented level of competitive activity, including: gifts-with-purchase up to $850; subsidizing the latest iPhones by up to $1,000; gift cards and bill credits, each worth up to $400; rate plan discounts of $15 per line for multiple user accounts; rate plan discounts of $10 per month off the posted price for 15 months; and countless other competitive initiatives.
1806 This type of activity is too often ignored in the public policy discussion, but it's an important feature of competition in the market and delivers significant value to consumers. To illustrate this value: an $850 gift with purchase is equivalent to a $35 reduction in the monthly rate over a two-year contract.
1807 And even as the price of iconic devices has increased to reach $1,500 or more, something we cannot control, hardware promotions, discounts, and credits mean that they remain accessible to millions of Canadians, often for zero dollars up front.
1808 The fact is, Canadians can choose among a variety of competitive wireless service providers, and they often do. According to the Commission's data, Canadians switched wireless providers more than 5 million times during 2018.
1809 Looking ahead, competition will only become more intense. Regional wireless carriers now win about one in every three net additional subscribers in the industry, a 33 percent market share.
1810 It's clear that facilities-based competition is continuously driving us to invest and innovate, and to differentiate ourselves as we fight for market share. To continue to deliver more value to Canadians, we launch new brands, introduce new types of plans, invest in leading-edge technology, deliver new functionality, create world-class retail experiences, lower our prices, and maintain extensive promotional activity. That's what it takes to succeed in the highly competitive Canadian market.
1811 MR. MALCOLMSON: The Commission has determined on four separate occasions since 2015 that mandating wholesale access for MVNOs would put facilities-based competition at risk, and that the negative impact on investment would outweigh any potential benefits. The extensive record before you today confirms those findings.
1812 First, the evidence is clear that facilities-based competition is working. All the evidence shows that prices are falling and the market is being transformed by unlimited plans. And, as you heard yesterday, the Competition Bureau's own independent expert concluded that prices are declining as a result of growing facilities-based competition.
1813 This success is reflected in the latest research from the Commission, which shows that 83 percent of Canadians are satisfied with their wireless service provider.
1814 Second, it's indisputable that the market is more competitive than it was when you made your findings in 2015. Since then, the price of data has fallen between 37 percent and 80 percent; about 5 million subscribers have entered the market, increasing penetration to a level equivalent to 100 percent of the population aged 10 years and older; regional carriers have expanded their LTE coverage from 31 percent to 75 percent of the population; unlimited plans and installment plans have been introduced. We introduced the Lucky Mobile brand and Videotron introduced its Fizz Mobile brand, increasing choice at the entry level.
1815 Third, there's no evidence that mandating access for MVNOs in Canada would bring material benefits to consumers that are not already being achieved through facilities-based competition.
1816 Finally, the evidence is clear that mandating access for MVNOs will significantly undermine investment, put the regional entrants at risk, and, as the Bureau said in its report, could "exacerbate existing network gaps for rural and remote communities".
1817 In fact, the evidence on this point is even stronger today, on the cusp of a massive investment in 5G, than it was in 2015. Given the opportunity 5G represents, the harm to Canada and Canadians would be much greater now.
1818 CRA calculated that an MVNO access mandate would reduce wireless investment by almost $500 million dollars annually in the short run and substantially more in the long run. This investment supports tens of thousands of skilled and good-paying jobs in dozens of communities across the country.
1819 All of the MVNO proposals put forward in this proceeding have the same fundamental problem: once you adopt a resale model, investment stalls, innovation lags, network quality suffers, and areas outside large urban centres fall further behind.
1820 We urge the Commission to follow the evidence where it continues to lead: to the conclusion that mandating access for MVNOs would not be in the public interest.
1821 Thank you for the opportunity to participate in today's hearing and we'd be pleased to answer your questions.
1822 THE CHAIRPERSON: Thank you. Thank you very much for your presentation.
1823 Commissioner Laizner?
1824 COMMISSIONER LAIZNER: Good morning, and thank you very much for your presentation, and your interest in this proceeding.
1825 I was interested to see in the video that you showed us and also your comments about the focus on investment for Bell, and so I'd like to start my questioning, basically, talking about your investments and how they're affected by things like profitability.
1826 First of all, maybe you could let us know how your investment intensity would vary by the stage of new generation network investment cycle.
1827 MR. MALCOLMSON: So, I'll like Mirko speak to that in a minute, but investment intensity obviously goes up and down depending on the stage and the particular technology cycle. Our investment intensity in terms of 2020 I think we're projecting it will increase our CAPEX by roughly $200 million to $900 million of wireless CAPEX, and that's in large part as we prepare for the roll-out of 5G. So, we're at a stage right now where the investment intensity, the capital spend is, you know, beginning to rise even further and will continue to do so for the next few years.
1828 The CWTA has published a report by Accenture that says industry-wide the capital investment required of our industry to roll out 5G and become a 5G leader is something in the range of $26 billion. So, that's why we're so concerned about an MVNO mandate of any form, given the impact it's going to have on investment at a critical juncture.
1829 MR. BIBIC: Our overall -- anyway hearing's about wireless MVNOs, but we're running a, you know, Bell in totality, BCE in totality, which is really a portfolio company with several business units. And so, at the top level, our capital intensity is in that 16 to 17 per cent range, the capital intensity ratio. So, it tends to be a stable $4 billion of capital each and every year.
1830 Now, if you can maintain your capital intensity ratio stable at the same level and your revenues grow, of course, the amount you get to spend in absolute dollars grows, but you can look at, you know, BCE's overall revenue growth, and it's not hard to figure out, and then that's why our capital intensity ratio's always in that 16 to 17 per cent range. And given our overall growth, that's why you tend to have stability around the 3.9 to $4 billion in absolute dollars.
1831 So, now if you're at the -- to get to your very specific question, if you're at the beginning of the investment cycle on something like 5G where I announced -- I said it 2 weeks ago on our results call that we expect our wireless capital intensity ratio to creep up to the 9 to 10 per cent range during the build cycle. You're seeing that we're going to -- we would anticipate, provided the conditions are right, we would anticipate investing more in wireless to accommodate this 5G build cycle, but that $4 billion -- you know, $4 billion of absolute dollars is going to pretty much stay stable, so something else is going to come down as a consequence.
1832 COMMISSIONER LAIZNER: Okay.
1833 MR. BIBIC: Now, of course, if, you know, competitive dynamics change, if the regulatory conditions change it has an impact on your -- anticipated impact on your revenues, and you keep your capital intensity ratios the same or you lower it as a consequence of your drop in revenues, that's going to have an impact on the absolute dollars you have to invest, and that's why these decisions, as we said in the video and we say in our opening statement, are going to have an impact. Just -- it's just math, and it's what we have to deliver to shareholders who are the people who provide us with the capital. $4 billion is a lot of capital that they're supplying, and they expect a return on that, of course.
1834 COMMISSIONER LAIZNER: M'hm. Is there a difference in terms of your medium or long-term investment plans and their sensitivity on level of profitability?
1835 MR. BIBIC: So, what -- you know, the way -- I mean, the way we look at this is -- let's go back to just the Bell example. So, it's $4 billion in capital every year, so it's capital investment. So, those are the dollars we invest in trucks, and setup boxes and the antennas, and the towers, like, it's, you know, those kinds of things, to build the networks, to maintain the networks. And as I said to you, I will repeat myself a little bit, but I think it's important and germane, we spend -- we have the opportunity, in fact, a privilege to spend that amount of money because what we're delivering to the shareholders in return, to keep it simple, is dividends, and we need to grow that dividend at the same time. If we don't deliver those dividends, and if we don't grow those dividends, then we're not going to get the $4 billion the next year and the year after that. And that's basically how it works.
1836 So, now to the profitability. So, if your revenues are affected by a particular exogenous factor, you have to -- you know, those revenues, if they get affected, to keep your profitability stable you need to grow it. Frankly, you need to cut your expenses. So, things like people -- you know, salaries is one, the retail experience is another, advertising would be another. So, you cut those things. Those aren't capital dollars. Those are your operating expenses, so that you can keep your earnings stable or growing. And then once you have your earnings, your profitability below that, from that you spend your capital, you pay your shareholders, et cetera.
1837 So, ultimately, to continue paying your shareholders their dividends and to continue to grow them, you -- in the face of an exogenous factor that's negative on revenues you have two levers: expenses, so example again, you know, salary, advertising, those kind of things, or capital dollars. Those are the two things you can pull the lever pretty much, you know, in the short term, in order to keep your free cash flow growing, so that you can generate a return for your shareholders and keep that dividend growing. And if you don't, then you don't get the 4 billion the following year and your cost of capital goes up, and that's basically how it works.
1838 MR. MALCOLMSON: Just to come back, if I -- just to come back to the investment point for a minute because much of yesterday seemed to be spent talking about the various MVNO models rather than the evidence before you in terms of impact of investment of an MVNO mandate, and I think it's important to discuss it.
1839 So, we had our expert Margaret Sanderson do an analysis based on an exhaustive study that had been done in 2011 by a firm called KIM that looked like -- looked at the impact of MVNO access on investment on 58 operators in 21 countries over an 8-year period. And what they did was they compared jurisdictions that had mandated MVNO access with those that did not, or those that had voluntary access, and they found that an MVNO mandated reduced investment intensity, CAPEX, by 17.1 per cent in the short-run and 33 per cent in the long-run. And then we asked Margaret to extrapolate those findings of that exhaustive study to the Canadian context and tell us what the impact would be on industry-wide investment. And as we mentioned in our oral presentation, it's $489 million in the short run annually, so it is a significant issue before you.
1840 COMMISSIONER LAIZNER: I did note that comment in your remarks. As you know, there are a variety of proposed NVMO models that have been submitted in the course of the written interventions and we started exploring some of them yesterday. But if I look at the two ends of the pendulum, so to speak, the Competition Bureau’s model would have MVNOs accorded to regional carriers with facilities. Whereas the CNOC model, of course, would be far more widescale in terms of MVNO access to the carrier’s RAN. So how -- ho do those two models square with your -- your comment about $500 million loss? I mean, wouldn’t there be a scale there?
1841 MR. MALCOLMSON: So the short answer is yes, there are three models in front of you. There’s the broad based CNOC model, you called it. There’s the Cogeco model, which isn’t much different from the -- from the broad based model in our view, and then the Bureau model. Certainly, the broad based model -- and I thought Shaw did a very eloquent job yesterday explaining that in that model, the MVNOs will use the higher quality networks, but target the customer base of the new entrants, and that will completely undermine the new entrants. So the broad base model, I think, undermines in particular the new entrants, and it will hurt us as well.
1842 And then the Cogeco model, when we look at it, it seems somewhat self-serving in the sense that it’s really just leveraging wireline facilities in to access to wireless spectrum, but not investing in wireless spectrum, again, riding on someone else’s wireless network. So that will have a similar impact.
1843 And then you mentioned the Bureau’s model, you know, it’s the least intrusive of the models in front of you. So I think on that continuum of investment impact it’s probably fair to say the investment impact would be less, but it would nevertheless be significant. And ultimately, I think ---
1844 VICE-CHAIR LAIZNER: How much less would it be?
1845 MR. MALCOLMSON: I haven’t quantified the numbers. We’re happy to do that but ---
1846 VICE-CHAIR LAIZNER: Okay.
1847 MR. MALCOLMSON: You know, the book ends.
1848 VICE-CHAIR LAIZNER: Be interested to know, you know, where that $500 million is on the scale of models and what your estimate would be of the impact to you in terms of the Competition Bureau model, for example.
1849 MR. MALCOLMSON: We can do that work.
1850 VICE-CHAIR LAIZNER: Okay. Great.
1851 UNDERTAKING / ENGAGEMENT
1852 MR. BIBIC: If I could jump in on that. From my point of view, each of the models is an aggressive form of regulatory intervention at a time when the wireless market has never been so competitive. Certainly, more competitive than 2015 when the Commission found that the harm to investment would outweigh any benefits from an MVNO. So they’re all highly aggressive. It happens to be that the Bureau model is the least of a range of highly aggressive options. And they will all unequivocally effect investment.
1853 I’ll give you another example, and this is nothing to do with a regulatory decision, so I think let’s move away from regulatory decision and let’s stop blaming regulatory decisions for a second, in my answer. So unlimited ---
1854 (Laughter / Rires)
1855 So unlimited plans came into the market last year. Undeniably good for consumers. But it has an impact on the network because as subscribers move to unlimited plans, they consumer more data. It’s obvious and it’s good, in fact those -- probably the consumers in Canada who have moved to unlimited plans on average probably use three times as much data as they used to.
1856 And I think my -- my rough estimate is that there likely are over 2 million Canadians now on unlimited plans. And my rough estimate is as a result in the increase in usage, we’ve had to increase capacity in each of the large networks, so the four or five large networks in the country. In 2019, and expected for 2020, I think the industry will probably spend around $700 million in those two years in incremental capacity -- industry capital, sorry -- industry wide to accommodate those 2 million plus subscribers moving to unlimited and tripling their usage.
1857 Now, in our case, that $4 billion I talked about at the very beginning didn’t jump to $4 billon, plus whatever Bell is spending in order to accommodate that usage. So something else fell off.
1858 So now let’s move back to regulatory, even the least aggressive of the highly aggressive forms of intervention that we’re talking about here would mean somebody else’s subscribers riding on somebody else’s network, creating an increase in capacity which has to be accommodated one of two ways. We either increase the capital to accommodate that usage, in which case some other project doesn’t get funded; or we say, forget it, like, we’re tired of investing for somebody else’s subscribers.
1859 The networks are really, really, really good in Canada. They’re going to be really, really good for two, three, four more years to go and we’re just not going to invest in that incremental capacity. So those -- I mean, you have trade offs. Something else doesn’t get funded or the quality suffers. It’s one of the two.
1860 VICE-CHAIR LAIZNER: So actually it -- your comments lead into a question I was going to ask you and I think you’ve talked about it a little bit, about the factors that drive wireless carrier’s decisions with respect to investments in their networks. And you know, what factors influence the level of the investment you make to expand coverage, as opposed to investing in existing infrastructures to improve the quality of your existing networks. Is there anything else you would like to add to that?
1861 MS. GILLIES: Sure. I can speak to that one. I mean, I think it’s always an evaluation of the market opportunity. And so, when we think about, do we extend coverage to new territories and regions? It’s a matter of what is the opportunity for use from both a market share and a revenue opportunity, versus the opportunity to expand the service quality within our existing footprint.
1862 So it’s always a trade off where we’re doing detailed business case, and really it is a stacked ranked model for us. So that’s how we look at our investment, whether it’s a new market or whether it’s existing service enhancements for our current customer base.
1863 VICE-CHAIR LAIZNER: And do other lines of business, such as your broadband and wireline services, subsidize investments in infrastructure that are used to offer another range of services, or do you keep everything siloed?
1864 MS. GILLIES: No, I think, you know, obviously at the highest level -- and Mirko can also speak to this -- at BCE’s level we’ve talked about our capital intensity and it absolutely is a model that we look at across the entire organization. So if the need is for fibre, then we’re doing fiber. If the need is for 5G, we’re doing 5G. So we actually do look at it in a very holistic way as to what are the greatest priorities for the business and for the consumers that we serve.
1865 VICE-CHAIR LAIZNER: Okay. Thank you. I think I want to change gears now to a discussion about some of the elements that we’ve been looking at in terms of market definition in the retain market, power assessment aspect of this proceeding. So your position is that we should be looking at census metropolitan areas, as I understand; correct?
1866 MR. MALCOLMSON: That’s correct.
1867 VICE-CHAIR LAIZNER: Okay. And how do you see that in terms of non-CMA areas, the rural, and you know, outside urban area surrounding areas, in terms of the differences between those competitive landscapes of urban versus rural?
1868 MR. GRAHAM: So I think in terms of -- pardon me -- market definition, another option that we’ve suggested you could use, which is roughly equivalent from the competitive assessment perspective, but helps on this issue is ISED Tier 4 licence areas. So I think the key point we’re making is that the competitive dynamic is often at a more localized level and the competitive set is often -- varies between that more localized level.
1869 VICE-CHAIR LAIZNER: So you wouldn’t be adverse to grouping CMAs for example?
1870 MR. MALCOLMSON: If they were in the same Tier 4 service area, no.
1871 VICE-CHAIR LAIZNER: For conducting your market power assessment?
1872 MR. MALCOLMSON: Correct.
1873 VICE-CHAIR LAIZNER: Okay. But how do you take into account the areas that are not included in that Tier 4, in your assessment of the market?
1874 MR. GRAHAM: I’ll answer. I don’t think you run into that same problem with the Tier 4 areas that you do with the CMAs.
1875 VICE-CHAIR LAIZNER: Okay. You mentioned that in terms of pricing, Canadian prices have declined for mobile wireless services. And how would you compare that to the rate of decline in other countries, for example?
1876 MR. MALCOLMSON: Sure. It's an important question because there seems to be this perception that prices in Canada, while declining, are not declining at the same rate of decline as in other jurisdictions.
1877 And that was a point you made in your opening comments, Mr. Chairman, and it's a point -- it's a fundamental component of the Bureau's evidence. And so we did take a close look at it.
1878 And when the Bureau did their work, they made the point that -- and they filed a graph; it was Figure 6 of their November 22nd submission, just for a reference. They filed a graph that showed Canada's prices weren't declining as quickly as in other territories.
1879 The data they used, and it's a bit of a flaw in terms of all of the data in front of you, it was old. They used the Wall Study from 2018, and what that -- it did show that Canada's prices were falling not as quickly.
1880 But what's happened is, if I plug in the current pricing for a 1‑gig plan, a 2‑gig plan, a 5‑gig plan today, if I plug that into the Wall's buckets of data, you'll find that in fact Canadian prices are declining, either at faster or in a manner that's comparable. And I'll give you some examples.
1881 In the study that the Bureau relied on, they listed a 1‑gig plan as being priced as $70.99. Well, fast-forward to today, a 1‑gig plan is available from Lucky Mobile for $25 and from Virgin for $45. So a significant decline at that level.
1882 The Wall Study had a 2‑gig plan at $75, and the Bureau relied on that. And again, fast-forward to today, a 2‑gig plan is available for $35 from Freedom, $50 from Koodo. A 5‑gig plan was listed by the Wall Study as being $87.32, but today, 5‑gig plans are available from anywhere from $40 to $60.
1883 And then finally, they looked at ---
1884 VICE-CHAIRPERSON LAIZNER: So you're not aggregating the prices of those plans, though. You're picking individual plans by individual brands?
1885 MR. MALCOLMSON: I looked at -- we looked at the least -- well, we -- I just gave you a sample, but if you look ---
1886 VICE-CHAIRPERSON LAIZNER: Okay.
1887 MR. MALCOLMSON: --- at the least expensive plans that I just read out to you, the cheapest plan listed in the 1‑gig, 2‑gig, and 5‑gig baskets would average around $33. That's much different than the evidence the Bureau put in front of you.
1888 MS. GILLIES: Yeah. And I think just -- I'd like to add to Rob's response, if I may.
1889 I mean, I think the most important thing we have to do is not to solely make the comparisons on price. You know, I think that's a very, very dangerous approach for us to take. We have to consider all the variables as it relates to quality. We have to look at coverage.
1890 You know, we offer 95 percent of Canadians access with LTE‑Advanced, speeds of up to 1.5‑gigabytes. We offer incredible reliability. We talk about the number of retail outlets we have. We talk about other benefits, like loyalty programs. So I think when you look at price, you can't just do rate plan to rate plan.
1891 And we also need to make sure that when you're looking at a global scale, you also look at whether the device is included in the plan. I think it's ---
1892 VICE-CHAIRPERSON LAIZNER: Right.
1893 MS. GILLIES: --- very critical that we look at an apples to apples comparison, and I think there is some evidence that Canadians actually have some of the very best plans in the G7 based on a most recent PWC survey. So I just -- I think you can't not do that.
1894 And then I think the last point is, we have to ensure that we look at other promotional type of activity on top of the plans. One of the things I spoke about in my opening statement was that we offer customers discounts for multi-user plans.
1895 So we have to look at all of the aspects, not just ---
1896 VICE-CHAIRPERSON LAIZNER: Yeah.
1897 MS. GILLIES: --- the posted price.
1898 MR. BIBIC: I won't belabour the point, but paragraph 36 of Claire's opening statement is fundamental. And it just astounds me all the time when we do these pricing studies, they never, ever, ever consider the gifts with purchase and the device subsidization and the multiple line discounts ever.
1899 VICE-CHAIRPERSON LAIZNER: M'hm.
1900 MR. BIBIC: And that the -- the handset piece is so important, because we cannot control that, ever, ever. And first of all, no one in Canada has the scale to be able to dictate to an Apple or a Samsung what the price is gonna be that we pay for the device.
1901 And -- so that's an important thing. We can't -- you know, you really do get into an apples/oranges problem when we do these international benchmarking studies.
1902 MR. MALCOLMSON: And just to come back to make sure I didn't confuse anyone. In terms of the Wall Study that the Bureau relied on, the prices that I gave you is the prices that the Bureau relied on, where the actual price is from the Wall Study.
1903 So when I said a 1‑gig plan for $70.99, that's what the Bureau relied upon to come to its conclusion that Canadian prices weren't falling as quickly as other jurisdictions.
1904 VICE-CHAIRPERSON LAIZNER: And would you be willing to file those prices, the underlying data for those prices that you've just talked about on the record?
1905 MR. MALCOLMSON: Yes.
1906 VICE-CHAIRPERSON LAIZNER: Okay. I think March 10th was the deadline. So that, and the previous undertaking.
1907 UNDERTAKING / ENGAGEMENT
1908 VICE-CHAIRPERSON LAIZNER: But if we're talking about pricing, promotions, competition, that sort of thing, a few months ago your company and other national MNOs introduced mobile wireless plans that had no overage charges. And we've seen on the record of this proceeding the Competition Bureau, TekSavvy, for instance, questioning the timing of the introduction of those plans and that they may have been motivated by the threat of regulatory intervention.
1909 So I'd like to give you an opportunity to respond to that.
1910 MR. MALCOLMSON: I'll ask Claire to respond in a second, but I think it's fair to say that, you know, the introduction of unlimited plans had nothing to do with the regulatory proceeding. It was one of many responses to what's increasingly a competitive marketplace.
1911 For example, when Freedom introduced their Big Gig plan, the national carriers responded, and then a national carrier decided to introduce unlimited plans, and again, the market responded. And that's indicative of the level of competitive intensity that we see, and it's benefitting consumers.
1912 But Claire ---
1913 VICE-CHAIRPERSON LAIZNER: And when you introduce plans like this one, do you have a certain period of time in mind for how long they will be in the marketplace, or before you review them, or once they're there they're generally ---
1914 MS. GILLIES: Sure. So let me jump in on that.
1915 VICE-CHAIRPERSON LAIZNER: --- (inaudible)?
1916 MS. GILLIES: I mean, first of all, I started by saying I've been in this industry for 20 years. I have never seen a level of competitive intensity as it is today. The rivalry amongst carriers across the country in every region is at a new level. And what you saw with the introduction of the no overage plans last summer, is exactly an example of that.
1917 One of our competitors' press released the day before they went to market that they were going to launch that. It's critical to our market share and our overall performance that we were able, because we thought that was a very attractive offering for consumers, that we needed to make sure we closed that competitive gap quickly.
1918 So that's the first thing. I think it's an absolute example of the rivalry we have in the market. No one gets an inch.
1919 And then when you think about the timelines, it's all constantly about market evaluation. We look at what is the impact of those plans? Is it causing switching behaviour? Are we seeing customers downgrade their plan, change their average monthly fee, move up, churn. We're looking at every indicator on those plans. Other things you might look at is cost to serve.
1920 VICE-CHAIRPERSON LAIZNER: Right.
1921 MS. GILLIES: So we're looking at all of those aspects on a daily basis to judge whether that is a good thing for our business. For our business.
1922 VICE-CHAIRPERSON LAIZNER: So to what extent would the decline in costs of offering a service impact pricing by Bell in terms of lowering prices? There are those who've said that cost of providing a gigabyte of data has gone down, so ergo, the prices at the retail level should also go down.
1923 MR. de GOOYER: I think the observation that prices have declined over the years is a reflection of new technology being introduced and causing a decline in costs. You know, we do -- as we produce more capacity every year, the cost per gigabyte does decline. And new technologies allow us to use spectrum and equipment more efficiently.
1924 And that's ultimately what's enabled the price declines that we've pointed to. And the price declines every year in this industry, and that's really, you know, at heart what enables that.
1925 VICE-CHAIRPERSON LAIZNER: So lowering of costs of offering the service has an impact on the pricing?
1926 MR. de GOOYER: That, and then the competitive dynamic, which Claire talked to, that's the starting point. But you know, the cost curve of the industry is kind of the enabler that allows that to happen.
1927 There is plenty of industries where price doesn't decline because cost doesn't decline. You know, take milk for an example. But you know, the product we generate is technology that is changing every single year, and it does play a factor in terms of what we bring to market.
1928 MR. BIBIC: In competitive markets you’ll tend to find that it’s price that determines cost and not the other way around.
1929 So you have to react to the competitive market, which Martin says, and you’ve got to force yourself to adjust your cost-base if prices are coming down.
1930 If prices are coming down because of competition and you’re not adjusting your cost structure, you’re not going to be very competitive for long.
1931 And of course, unit cost can also come down due to changes in technology, but in our industry as well, as you see unit costs come down and these price innovations coming into the market, like unlimited plans like I said before, you know, your absolute cost may group if there is a rush to the networks and usage goes up.
1932 So you’re always -- you know, you’re always balancing all these things.
1933 But typically, it’s not cost determining price, but in a competitive market, price determining cost and forcing you to be more efficient.
1934 VICE CHAIR LAIZNER: So we’ve seen some reports in the media, I’m thinking of an article in Journal de Montréal in January 9th of this year, reporting that Bell Mobility is going to increase the price of certain wireless plans in March of this year and that, for example, you’re going to increase your 10 gigabyte bring your own device plan that was originally priced at $60 to $70.
1935 So I’m just wondering, why are these prices increasing given you statements on the level and intensity of competition?
1936 MS. GILLIES: I mean, I’ll respond to that.
1937 I think first and foremost, we look at price increases with consumers as to where they are in their contract life cycle.
1938 So, I mean, the first thing to state is customers are never price increased within their contract cycle.
1939 So those customers for whom we are looking at doing price increases, as you saw in that article, are off contract.
1940 So that’s the first point that I think that we need to get on the record.
1941 The second thing is, you know, again, we introduce price plans as the market changes and as the market intensity is as it is.
1942 And then we look at what is -- what are we bringing to the market in terms of new network capability, new service capability, as those customers go through their life cycle?
1943 It’s like any other industry. I mean, I’m pretty sure Tim Horton’s increases the price of my doughnut every year as well.
1944 I don’t know if anyone else wants to add anything?
1945 MR. GOOYER: I think one of the things that Claire pointed to was the level of promotional activity.
1946 And so promotions run their course. We offer things for Black Friday, for Boxing week, and things like that. And after a time, those promotions end.
1947 You know, it’s the same with other products. The promotions end and then, you know, the regular price returns.
1948 Some of the things that you see are promotional periods that end. We’ve honoured them for the life of the contract, and then the price goes back to a more regular price.
1949 VICE CHAIR LAIZNER: And what factors influence your pricing determinations in different regions of the country?
1950 MR. GOOYER: So there’s a number of factors in every market. You know, we’ve got a different -- there’s demographic factors, there are -- there’s the competitive dynamic, there is your position in that market, and, you know, what you hope to achieve.
1951 You know, if you’ve got targets to meet in a particular market and you’re not doing as well as you’d like to do, you know, that will set off, you know, activity, marketing activity, to improve that performance. And pricing is one of those levers that we use in a market.
1952 VICE CHAIR LAIZNER: And when we look at the different regions across Canada, we talked about this a bit yesterday, about how prices are generally lower in Quebec than in other provinces.
1953 Do you have a view on why mobile wireless prices are lower in Quebec?
1954 MR. MALCOLMSON: I’ll start and others may want to supplement.
1955 But you’re right, they are lower. And when we look at it and we compare Quebec to Alberta, just for a point of comparison, in Quebec the average ARPU was just over $59 and penetration in Quebec, wireless penetration, is 76 percent.
1956 If you move over to Alberta, the ARPU is $77, penetration is 89 percent.
1957 You would expect the inverse of that to be true if that pricing was driving penetration.
1958 So clearly in the Province of Quebec, there are some different demand factors at play that are, even though prices are lower, demand -- or penetration is not as high.
1959 So that speaks to the uniqueness of that market. It could be people rely on fixed internet access more. It’s not clear to us. But there is a difference, and it seems to be attributable to demand factors, otherwise you would expect a different outcome than the one I just referred to.
1960 VICE CHAIR LAIZNER: And the network quality in Quebec would be similar to other provinces, like Ontario, for example; right?
1961 MR. MALCOLMSON: Certainly ours is.
1962 VICE CHAIR LAIZNER: Yeah. Prices we’ve seen in the Commission’s survey that was put on the record as Exhibits 1A and 1B, that prices in Saskatchewan and Manitoba seem to differ from those in other provinces only for the larger plans.
1963 Do you have a view on why that is?
1964 MR. GOOYER: As we talked about earlier, there are demographic factors at play.
1965 So, you know, western markets tend to have a younger demographic. An example being Alberta for sure. Saskatchewan, Manitoba, also.
1966 They do tend to consume more, and so we find that the bigger data plans sell better in those markets.
1967 VICE CHAIR LAIZNER: And you did, in responses to the Commission RFI in July of 2019, I’m looking at your response to Question 209 regarding whether you agree that mobile wireless penetration and mobile wireless data usage is lower in Canada than other jurisdictions.
1968 You -- as I understand your response, the number one factor might actually be the extent to which a consumer has access to fixed broadband networks such as WIFI. Is that right?
1969 MR. MALCOLMSON: That’s correct. I think Canadians on average have access to WIFI something in the range of 61 percent of the day, versus other jurisdictions. One (1) we looked at was Finland, and they were at 41 percent. So again, that may explain differences in usage to the extent that they are.
1970 VICE CHAIR LAIZNER: Some may say that the reason for the difference in usage is that the mobile wireless data prices are so high that consumers are looking to consume their data through WIFI.
1971 MS. GILLIES: Yeah, I think just to respond to that question, I mean, number one, Rob’s made the point about WIFI.
1972 But I think we introduced the no overage plans back in June, and I would tell you that we’ve seen a substantial change in data usage patterns for consumers.
1973 So I’m not sure ---
1974 VICE CHAIR LAIZNER: Meaning that they’re using more data?
1975 MS. GILLIES: Absolutely. And Mirko spoke about that earlier in terms of we don’t really have a problem there and that we’ve seen, on average, over the last three years, consumers have doubled the amount of data they’re using. And we see at least a 30 percent increase in data consumption every year, even before we introduced unlimited plans.
1976 Now we’ve introduced unlimited plans, we are seeing people to whom that was important, we’re seeing them switch.
1977 And, again, the earlier point made, there’s a couple million Canadians, we believe, on unlimited plans today. They’ve elected there.
1978 Of course, we still offer plans with overage, and there are other consumers who continue to chose those plans.
1979 So we were seeing an increase in data usage previously.
1980 VICE CHAIR LAIZNER: Okay. So where you said before that most subscribers do not use the full extent of their data, now you’d say that you’re seeing far more usage of data?
1981 MS. GILLIES: I think we’ve seen a couple things over the years.
1982 I mean, first and foremost, we’ve been watching people optimize their data buckets for many years.
1983 I mean, I’ve sat in this room and talked at wireless code hearings about how people were using data, whether it was they were pooling their data across multiple users, they were using the self-service tools we’ve provided to monitor data usage, or they were WIFI service.
1984 So there’s a variety of things that people have done overtime to optimize their data usage.
1985 As a result, you know, we look at our data overage, but people, quite frankly, when we look at the customers who are choosing unlimited today, I often say they’re buying insurance. You know? “I’d like to buy the unlimited plan because I don’t want to have to think about it, and I’m willing to actually spend more than I have in my current plan.”
1986 Even though there’s many other plans within our suite of lineups and brands that would satisfy their needs, they’re actually choosing to change their rate plan.
1987 And ---
1988 MR. BIBIC: I think, if I could just add here?
1989 MS. GILLIES: Go ahead.
1990 MR. BIBIC: Yeah, I -- back to your question about how people were offloading to WIFI and relative percentages compared to other countries and if that’s a function of pricing.
1991 In Canada, consumers have a range of options and they make their choices. And you're just in our case talking about unlimited, you'll see if you compare us to some of the others, we all have unlimited plans. We haven't had as many customers shift over those unlimited plans as for some other providers. Their customers are making their choices. They -- we are serving every single type of customer with -- from Lucky Mobile, to Virgin, to Bell, and within each of those brands we have different options, and then the customers can make their choice. Do I want to buy insurance, or do I not want to buy insurance? Do I have access to Wi-Fi 80 per cent or 61 per cent of the time, or 20 per cent of the time? Those are all decisions you make, so why spend the $75 for insurance you don't need if you're working from home and have access to Wi-Fi, you know, all day long? Maybe then you take the $45 Virgin plan with however six ---
1992 COMMISSIONER LAIZNER: M'hm.
1993 MR. BIBIC: --- gigs. So, those are the choices you get to make. That's a good thing. Then what we're doing is, okay, because 60 per cent versus 40 per cent are choosing Wi-Fi and unlimited plans are creating -- I mean, those are just little -- those are data points, but you got to take a step back and look at the overall trends.
1994 Same thing with pricing, and we talk about a price increase in Quebec on January 10th. That's a point in time. You have to look at a period of time. And clearly, the evidence shows that over a relatively short, but healthy period of time, prices in Canada are declining rapidly, and there's more and more value being delivered, and certainly far more competitive, I would say, than in 2015 when it was competitive and the Commission said now is not the right time. And I say, again, now's not the right time.
1995 COMMISSIONER LAIZNER: Are you seeing any change in the amount of your subscribers that are paying data overage charges? So, I note that in response to question 211 of our May 24th RFI you indicated that between 40 and 50 per cent of your subscribers paid data overage charges in 2018. Do you still have that same percentage of customers paying data overage charges?
1996 MS. GILLIES: Yeah, I think in general. If you're looking for more specific answers, we'll do that as an undertaking, and I think that might have been in one of your questions for March the 10th that you actually did ask us to do, so we'll absolutely take that as an undertaking. But in general, yes, as I spoke earlier, customers are using tools to optimise data in their plan, they're sharing data, and they're choosing to go to bigger bucket plans. So, in general, yes, we are seeing a decline in data overage.
UNDERTAKING / ENGAGEMENT
1997 COMMISSIONER LAIZNER: So, just so I understand clearly, you would consider a data overage charge where the customer has a limit on their plan, but uses your online tools to purchase an additional amount of data at a certain price?
1998 MS. GILLIES: Yes, I think -- assuming a consumer paid one of our plan fees and it included 4 gig, when they go beyond 4, they have access to buy one-time data plans. Anything that would sort of count I would say for the $50 data overage charge that's included in the Wireless Code, so absolutely consistent with that definition.
1999 COMMISSIONER LAIZNER: And if they just go over their data as opposed to picking up one of those plans, is the pricing different?
2000 MS. GILLIES: We give customers a variety of options, but, yes, should that customer choose to take a one-time data pass -- again, what we do, just so you have the full context, is when customers are at 95 per cent of their data bucket, we notify them. We give them a warning. At any point in time they can go into one of our self-serve tools and they can actually see where they are, what their consumption is, relative to their monthly plan,
2001 So, I think what we try to do for our consumers is give them tools, and also notifications, to let them know what actions they should choose to take, or they may choose to take. So, that's the first thing.
2002 Then customers can act. They can add a one-time data plan. They can change their actual rate plan, should they choose to. If they realise that, hey, my data usage has changed, and it's not a one-time event, this is an ongoing event. Or, if they think that it's more beneficial to them, they may just go into regular data usage charges, which are clearly laid out for them.
2003 MR. MALCOLMSON: If I could just come back to usage for a minute because ---
2004 COMMISSIONER LAIZNER: Sure.
2005 MR. MALCOLMSON: --- again, it's important that you have it on the record, and I just want to point you to some of our confidential filings. You asked for very granular information about our data overage revenues and we filed those in confidence, and ---
2006 COMMISSIONER LAIZNER: Absolutely.
2007 MR. MALCOLMSON: --- if you look at them, you will see a very significant decline in data overage revenues, which will continue with the introduction of unlimited plans. I think Rogers has spoken about that publicly in their quarterly results, but we filed ours in confidence with you. It does show material declines.
2008 COMMISSIONER LAIZNER: Okay. Let's talk a little bit about network quality. In your view, to what extent do networks differ in quality across Canada?
2009 MR. MALCOLMSON: Well, Margaret did a study of network quality and its impact on regional price differences, so it might make sense to have Margaret speak to you about her findings.
2010 MS. SANDERSON: Thank you.
2011 So, we work with public data on network speeds, upload speeds, download speeds, latency, or pings per millisecond. And with that public information about -- that covers a variety of regions, different cities in the country, and different carriers, we found there were considerable differences with respect to network quality across carriers and across geographies. And that became an important explanation for observed differences in wireless plan prices that had previously been attributed to the exercise of market power, which, in fact, we found working with the 2018 data and also earlier data were, in fact, more likely to be explained by differences in network quality across carriers and across geographies.
2012 There's sort of multiple examples of that. If you think of -- which we covered in our May report, so the first type of example is just within a carrier they offer different options that are at different price points that give you a lower price option for a lower network quality experience. So, if you think about the quality premium that you might pay to have Virgin, for instance, versus Lucky service, and that exists across all the different national carriers. That's one example.
2013 In 2018 there -- we reported on another example between carriers within a single geography. If you looked at the difference in network quality and price between Freedom and Bell, in both Toronto and Ottawa, as example, you saw very significant differences in the quality -- the net -- of the network quality experience with Freedom. And because of those lower quality characteristics in 2018 there was a significant price difference that was also evident.
2014 And then in Exhibit 1 of our January 2020 report, we provide you with the landscape of different network speeds that you see across carriers by geography, and you can see from that -- now, that, again, is 2018 data, but you can see from that, that not only do you have differences in between carriers, so that the -- at that time Freedom, Videotron and Sasktel's network speeds were considerably lower than the network speeds for the national carriers, but it's also the case that even within a given national carrier, the lower network speeds in 2018 for a company like Bell were in places like Saskatchewan relative to, say, Alberta. Some of those things will have changed over time because of additional investments that companies have been making, but that's what that study was based on.
2015 COMMISSIONER LAIZNER: But when I look at table 1 and 3 of your study where you lay out some data from PCMag, the network performance in the province of Quebec does not appear to be inferior when compared to other areas. So, I'm having trouble understanding how that affects ---
2016 MS. SANDERSON: So, I would ---
2017 COMMISSIONER LAIZNER: --- your study.
2018 MS. SANDERSON: --- I think you should look at Exhibit 1 of our January 2020 report, because that's where you'll see -- and there you can compare Montreal, again by carrier, compared to other cities. And it depends on the carrier you choose that you're making the comparison against. So, but even if you looked at that -- if you compared those to, say, Edmonton -- well, actually, I guess Edmonton has somewhat lower, but if you compared them to Toronto and a variety of other download speeds by city, you can see how the differences compare, and at least in the context of Videotron's speeds in Montreal at that time. They were considerably lower than their speeds in other -- well, than you see for the national carriers, for Bell and for Telus, in Montreal.
2019 VICE-CHAIR LAIZNER: But if you look at the PCMag speed tests, Rogers’ prices, wouldn’t they then be lower in most parts of Canada because their network speeds were lower as compared to Bell and Telus?
2020 MR. DE GOOYER: So I might just jump in for a second and then -- and then give Margaret a chance to follow up. But I think what you see in Margaret’s analysis is an attempt to do an economic analysis across a variety of factors and a variety of cases.
2021 VICE-CHAIR LAIZNER: Right.
2022 MR. DE GOOYER: It’s similar in that way to what Dr. Chipty did ---
2023 VICE-CHAIR LAIZNER: Dr. Chipty ---
2024 MR. DR GOOYER: --- with -- in her report. You’ve got to aggregate -- we’re trying to make some conclusions out of a very complex set of facts and a complex set of markets. And so, I don’t think Margaret’s analysis says it -- certainly we don’t think it’s true, that you can in any one case, pick one case and say that has to follow the aggregate trend that the economic analysis shows across all markets.
2025 And we talked about Quebec earlier and some of the unique demand factors in Quebec that may be influencing market activity there, and there are a variety of factors in every market. But standing back and looking at the Competition Bureau’s position, which is why Margaret did this analysis in the first place, was to address the position of the Competition Bureau, which was they were trying to draw a simple conclusion from differences in prices between provinces, that it had to be based on market power.
2026 And I think what Margaret’s analysis shows is that you can explain all the difference in the same way they are explaining it, based on network quality. And the other thing is that when Margaret first did this analysis, those differences between provinces were sometimes in the range of 35 or $40 price differences, which have now narrowed to, sort of, no more than $10. And given the unique factors in Quebec, you know the net effect of all that evidence is that there’s no way to draw a conclusion about market power from those small differences in prices between provinces.
2027 MR. MALCOLMSON: Claire, did you have a point?
2028 MS. GILLIES: Yeah. I think too, you know, we also have to give credit to the work that Videotron has done. It’s an example a very successful regional carrier, and when I think about when they first launched in that Quebec market, there was a variety of things that were very different. First of all, they didn’t have access to the iPhone. Their network quality was not equal to Bell’s. And they priced very aggressively to drive market share quickly.
2029 As they got iPhone, as they launched their LTE network, and we looked at the risk again to our consumers, we adapted Bell’s pricing strategy. If you go back in history in that market, you know, when they initially launched, we were competing largely with our Virgin Mobile brand against them. But as they gained strength, you know, we felt that was a bigger competitive threat for us and so the market condition changed.
2030 And I think, you know, you can look across every region and geography and say, what is the market condition and the competitive rivalry? And what are the conditions for competition? And Quebec is a great example of where a regional carrier has really -- has really risen to the occasion. And I think that, you know, if we put them at risk, as we said earlier, they now contribute a third of all the net additions in Canada. So they have their feet firmly planted on the ground, and you know, have made us better.
2031 VICE-CHAIR LAIZNER: Okay. But getting back to the example of Rogers and their network speeds, so their pricing across the country seems to be very similar to Bell’s, even though according to this PCMag speed test, their speeds would be lower. So can you explain how that fits in with your analysis?
2032 MR. MALCOLMSON: I think network quality and its correlation to pricing differences, you know, is one way of explaining pricing differences, just like Dr. Chipty’s economic theory that when a regional entrant acquires somewhere between 5.5 percent and 20 percent market share, there’s an impact on pricing. And no disrespect to the experts in the room, but I think it’s not as simple either way. There’s not one single explanation.
2033 Probably the best explanation is the competitive intensity that exists in the marketplace. And I should note that the Bureau at paragraph 139 of its submission, you know, after going through its analysis of regional price differences, again using older data, it then said that prices in regions with and without a strong regional competitor are converging. And that’s consistent with our evidence that this prices competition that the regional entrants are providing, is benefitting all consumers, even those consumers that aren’t situated within a regional carrier’s footprint.
2034 And you saw that in your exhibit that you came up with and showed the sort of, uniformity of rack rate pricing. You know, it’s showing that even though Freedom may not be in a particular town in Ontario, if you’re a Bell customer you’re getting the benefit of the competitive intensity Freedom delivered by being able to now buy a 10 Gig unlimited plan from Bell. So all of those factors are at work. It’s not just one explanation.
2035 VICE-CHAIR LAIZNER: Okay. And in fairness, when you were doing your pricing for your flanker brands, like Lucy and Virgin, I think you said that you’re offering lower speeds, the network, you know, experience is not the same as with the higher Gigabyte plans. So you would take that into account in setting your pricing?
2036 MS. GILLIES: Yes. We look at how our three brands work to cover the various different market conditions and customer segments.
2037 VICE-CHAIR LAIZNER: Does your network quality vary significantly by location in Canada?
2038 MR. MALCOLMSON: Bruce, do you want to speak to that?
2039 MR. RODIN: No, the design goals are the same across the country. There are challenges in rural areas, so you don’t get the peak speeds that we normally see. But we maintain a consistent level of design goal across the country.
2040 VICE-CHAIR LAIZNER: Okay. And how does branding and brand recognition influence your pricing decisions?
2041 MS. GILLIES: So, I mean, I think you know, it is our goal and obviously it was when we launched Lucky Mobile, just a little over two years ago, to make sure that we had -- we look at the various different market segments and what we’re trying to do and trying to accomplish in that market segment.
2042 If I use Lucky Mobile again, we were really not participating in that part of the market. We felt that it was a gap for us, and opportunity that we launched in December 2017. And if you look at our recent results on pre-paid, we think that we’ve -- it obviously closed a gap for us and increased the market competitiveness in that space.
2043 We obviously -- we look at all of the brands, not just on their brand recognition and brand identity, but the wholeness of what they being to the market. With Bell, you have wireless service, you have home internet, you have television, home phone, smart home services.
2044 VICE-CHAIR LAIZNER: Right.
2045 MS. GILLIES: And so, it’s more than just brand recognition, it’s all of the aspects that we look at to differentiate each one of our brands from one another and from our competition.
2046 VICE-CHAIR LAIZNER: So when the Commission did a survey recently, respondents in talking about or responding to questions about using flanker brands, seemed to be unclear about who the flanker brands belong to. So we got responses saying that, well I -- you know, I don’t trust the quality. Do you let potential customers know, who want to have a lower cost alternative, that Lucky brand is a Bell brand, or Virgin is a Bell brand?
2047 MR. DE GOOYER: The point of us having the three different brands is to appeal to different market segments, and they each have their independent voices to the consumers we target. Lucky is targeted towards new Canadians and value conscious Canadians. Virgin is targeted at kind of the young at heart. And Bell as Claire indicated, is kind of families and whole households.
2048 We talk about network characteristics on each of these brands, but we don’t reference another brand. It just -- it makes more sense for us to have distinct offerings for each of those.
2049 VICE-CHAIR LAIZNER: So if I go on the Bell mobility website and I’m looking for a lower cost plan, there’s nothing that would say, oh you want a lower cost plan? Check out Lucky.
2050 MR. DE GOOYER: There wouldn’t be a reference to Lucky on the Bell site, but we do have lower cost plans available on Bell as well. So you know, when we talk to people in store or on the website, there are pre-paid offerings on Bell Mobility and share plans, and multiline discounts that help address affordability for those subscribers. It’s in a different way than Lucky does it, but we work on, you know, addressing all of those price points on each of the brands.
2051 MS. GILLIES: Yeah. I think it’s -- you know, it’s important, we talk about what we do within our brands to have the various different disciplines to differentiate them from one another.
2052 I mean, when we talk about Bell, it’s absolutely about delivering the highest quality of network to our consumers; right?
2053 And we talk about that very openly and that’s, you know, our headline message, is with Bell you get Canada’s best network.
2054 With Virgin, you get member benefits.
2055 With Lucky, you get affordability, as Martin said.
2056 They’re quite simply, as I opened with earlier, there’s trade off decisions that consumers need to make, and we have to stay disciplined with regards to Bell speaks to Bell, Virgin is to Virgin, and Lucky is to Lucky.
2057 VICE CHAIR LAIZNER: I’m thinking of the concerns that Canadians have expressed about lower cost alternatives.
2058 For example, a senior citizen who, their entire life, had a Bell landline and now they’re getting into the cellphone market and they don’t know that Bell offers something low cost, occasional use, without understanding that connection. Shouldn’t you think that would be an important connection to make for them?
2059 MR. GOOYER: So just on the Bell brand, as I talked to before, we do provide multiple options.
2060 But each of the brands has got very wide distribution.
2061 You know, Lucky Mobile, we’ve gotten the word out about Lucky Mobile in the space of two years to a huge number of Canadians. You can get it in places that you otherwise wouldn’t have been able to get wireless service in the past, like Dollarama.
2062 You know, there’s 1,500 places where in the past you would never be able to buy wireless.
2063 I know a lot of people who go to Dollarama, including senior citizens, and you run into it in Dollarama and never realize that it was possible to get something like that. And lo and behold, you can buy your product there.
2064 So it’s not just about featuring it on one website or another, it’s about, you know, the full awareness picture that we tackle to -- that we try to get across to people.
2065 VICE CHAIR LAIZNER: And you talked a little bit about that paragraph 36 and the promotional activity, paragraph 36 in your opening remarks.
2066 So how accurate a measure do you think actual transaction prices are the posted prices?
2067 MS. GILLIES: Well I think at any given point in time, you know, if you went to a store today or you visited our website, you would see that there’s a tremendous number of discounts or options available for consumers beyond just the rate plan price.
2068 I in fact asked that question recently of our team and I said, “What percentage of our total new activations or hardware upgrades are receiving a promotional discount?”
2069 I know you’ve asked for that to be filed in confidence as an undertaking, so we’ll do that.
2070 But I can tell you that almost half of our consumers today on the Bell brand, as an example, are coming on a share plan.
2071 Share plans today offer a $10 discount in the market. So if you just take that, it’s easily more than half of all consumers are receiving some form of a promotional discount, just on their service pricing alone, let alone the hardware and various related hardware promotions that go along with that, such as gift cards.
2072 VICE CHAIR LAIZNER: And turning to Dr. Sanderson then, I understand that you used posted prices instead of transaction prices. So how do you think that would affect your findings, if you used the transaction prices?
2073 DR. SANDERSON: So we worked with wireless posted prices because we had to collect prices from competitors and so transaction prices with all of the discounts are not -- they’re highly confidential, they’re not posted.
2074 I don’t think it would affect the finding that we had, because you can think of the posted prices as a bit of a list price from which there’s promotional activity that then occurs.
2075 So as long as it’s the case that the discounting and the promotional activity that occurs is similar across different geographies, which I would expect it certainly would be, it’s not going to be the case that it would refute the finding that network quality was an important explanation for differences that existed in 2018 between carriers -- different carriers and different geographies.
2076 MR. GRAHAM: Just so, again, some context for why Margaret’s evidence is the way it is.
2077 We asked Margaret to do that analysis to respond to the Competition Bureau’s evidence, and you can see that in their May filing, again, that price differences between provinces, they said in their May filing, is evidence of some sort of problem for the Commission to solve.
2078 And given everything we’ve said about how competitive the market is, it didn’t seem right to us that there was any sort of competition problem in any market in Canada.
2079 And so we asked Margaret to look on the same basis that the Competition Bureau did, which was at posted prices, and see what the explanation for that was.
2080 So again, I think it’s always important to keep it in context. We’re trying to respond to a point that the Competition Bureau made, ---
2081 VICE CHAIR LAIZNER: Okay.
2082 MR. GRAHAM: --- which was sort of counterintuitive given the level of competitive intensity we’ve described in the market.
2083 VICE CHAIR LAIZNER: Parties have submitted that there’s lower data usage per month in Canada as compared to other countries.
2084 Do you, Dr. Sanderson, accept that as an accurate assessment?
2085 DR. SANDERSON: So I think what you would find is that data usage is highly correlated with the level of and the take up of unlimited data plans.
2086 So what I think you would find is that places -- the comparisons, for instance, between the United States and Canada that have been made, particularly using data usage statistics from 2018, which is what I believe a lot of those comparisons are making use of, there would have been -- at that time there wasn’t the same take up of unlimited data plans in Canada as there was in the United States. They’re a more recent offering here. And as a result, I would fully expect that data usage, as has already been described in Canada, is going to be very quickly at levels that you see in the United States, given the higher take up of unlimited data plans.
2087 VICE CHAIR LAIZNER: So when you have higher price data limited plans, you’ll have lower data usage, and when you introduce the unlimited plans, you’ll get higher data usage? Is that accurate?
2088 DR. SANDERSON: No, I don’t think it’s -- sorry, I want to -- what I want to say is that those statistics are based on an average across all plans and so what you have -- what you see -- when people have said there’s lower data usage in Canada based on 2018 data, that reflects the fact that there weren’t as many unlimited data plans in Canada at that time, relative to the United States. And now that there is -- now that there are more unlimited data plans available in Canada and the take up has increased, you’re going to see higher data usage.
2089 I think to go back to Quebec as another example, that’s the counter argument to -- or the counter example to the argument that the reason you have lower data usage is somehow reflective of higher prices.
2090 Instead, what we see in Quebec is even for -- we certainly saw this in the Bell data, that for Bell subscribers that have data plans, even for those subscribers, data usage in Quebec is lower for taste reasons, or demand reasons, or some other reason.
2091 VICE CHAIR LAIZNER: But not for network quality?
2092 DR. SANDERSON: Not for network quality reasons and not because prices are too high, because people have already talked about Quebec as being a location, and your own recent survey shows that it’s a location where there are lower posted prices.
2093 VICE CHAIR LAIZNER: And why do you think ---
2094 MR. MALCOLMSON: Sorry, Madam Commissioner, just on the usage point, part of the issue, I think, in terms of the record of the proceeding is that the data that most people are looking at is somewhat dated. And Margaret’s referring to 2018 data.
2095 And if you look at current data, and we filed data with you in confidence about usage, but the data she’s using is two or three years old.
2096 If you look at average gigabyte used in 2017, it’s up 23 percent just 17 to 18.
2097 So it’s -- I think it’s indisputable that usage is now increasing.
2098 And I would point you to, again, some of our confidential filings showing that between 2018 and 2019, the amount at which usage grew on our network, and it is eyepopping.
2099 So, again, I think, as you’ve seen the introduction of unlimited, as you’ve seen competitive intensity increase, usage is increasing.
2100 And when you’re thinking about regulatory remedies, I think you have to look forward rather than in the rear-view mirror to say what are the trends showing you going forward?
2101 VICE CHAIR LAIZNER: Okay.
2102 MR. MALCOLMSON: Prices are dropping, usage is increasing, penetration is climbing.
2103 So I think those are the factors you have to look at.
2104 VICE CHAIR LAIZNER: Again, to Dr. Sanderson, when we look at concentration in a given industry, the Commission has historically used market share. You use the Herfindahl-Hirschman Index. So I'm just wondering, did you have a particular reason why you used the HHI as a measure of competition and not market share of the regional competitors, for example.
2105 MS. SANDERSON: So there's some characteristics about -- there's some technical characteristics about the Herfindahl-Hirschman Index which make it a preferable index because it gives you, for measuring market concentration relative to just say measuring the share of the top four players in an industry. It -- because it gives you information about differences in the sizes of individual competitors.
2106 So you might, for instance, have -- you might have a situation where, let's say the top four firms in an industry have an 80 percent share but they are each -- they each have 20 percent market share. That's a less concentrated industry than a situation where the top four firms have exactly the same total share of 80 percent, but the -- but one of those firms is 50 percent and the others make up the remaining 30, you would get a much higher HHI.
2107 And we expect that in an industry that has a single firm that has a very, very high share, and other firms that it competes against which have much lower shares, that that will be a more concentrated industry and will have a higher HHI value. And typically, we would expect in economics that it might be an -- it might be the type of industry that might encourage higher prices relative to a situation that there is a more dispersed or a more equal set of shares among players that gives you a lower HHI.
2108 VICE-CHAIRPERSON LAIZNER: And you mention that an increase of HHI put upward pressure on prices, but that this does not necessarily confirm the exercise of market power. So I'm wondering if you can unpack that for us.
2109 MS. SANDERSON: So the -- so you do tend to -- I guess as an initial first principle, we would think that increases in concentration, they -- what we often talk about is the difference between sort of upward pressure on price versus whether you could actually achieve that. What's your ability to actually ---
2110 VICE-CHAIRPERSON LAIZNER: Yeah.
2111 MS. SANDERSON: --- take prices up?
2112 And that will depend on -- ultimately companies' ability to increase prices depends on the options that are available to consumers, and the ease with which consumers can switch to alternative, and the ease with which alternative providers' rivals can service those customers.
2113 And so one of the things that's quite interesting about wireless, relative to a lot of other industries, is people talk about churn rates. Of course, that's all about customers switching. So it's an industry where there's tremendous customer mobility and a lot of switching between rivals, so it's a place that makes it easy for customers to move around. And it's also relatively straightforward from a capacity perspective for single rival or a single firm, a single wireless carrier to then take on a new customer. There's no significant capacity constraints that would prevent Bell from servicing a new subscriber that comes over from Rogers, for example.
2114 And -- so that makes -- so then the ultimate effect of all that is that that ends up meaning that a -- even with the same -- in that set of industry characteristics, with the same HHI, relative to say an industry where customers are under long-term -- or under -- sort of committed to a given -- committed to a different company, there's not a lot of movement of customers, it's far less -- it's far more difficult for firms to then actually try to raise prices or to hold prices higher than they would otherwise be in a competitive environment, or to market inferior products to customers. Those are just gonna be things that are very, very difficult to do in wireless.
2115 VICE-CHAIRPERSON LAIZNER: You indicated that HHI in Canada is lower than in many other countries in the world. So in your view, does this preclude market power existing in Canada?
2116 MS. SANDERSON: I don't think it precludes market power from existing. I think there's -- it's really important talk about what is the definition of market power.
2117 VICE-CHAIRPERSON LAIZNER: Right.
2118 MS. SANDERSON: And -- so one of the things, the way that regulators, and I think competition authorities have thought about market power is that it's -- as I just said, it's the -- if a single firm is able to market inferior products at higher prices without customers switching and avoiding those inferior products at higher prices, that would be a situation that would give you evidence that that firm has market power.
2119 That's quite different than -- I mean, economists can have this textbook or technical definition of market power, which is that price exceeds marginal cost, which they think about as a perfectly competitive market. In wireless, you're always going to have price exceeding marginal cost because the fixed costs of providing services are enormous, there's huge investments, capital costs.
2120 It's always gonna be an industry that there is not -- there's only gonna be -- there's not gonna be 30 firms offering wireless services, there's always gonna be a few firms. And in that situation, I think it's important not to -- to think about this definition of market power to be what I've described, which is this -- that you -- that a firm would be able to act independent of its rivals.
2121 VICE-CHAIRPERSON LAIZNER: And when you talk about a relevant geographic market, you used national HHIs as opposed to provincial. Is there a reason for that?
2122 MS. SANDERSON: Actually, we -- in the regression analysis that we did, where we were looking at differences across provinces and carriers, we used HHI at the provincial level. The -- in the ---
2123 VICE-CHAIRPERSON LAIZNER: Oh. Okay.
2124 MS. SANDERSON: So that -- in the regression analysis, it's -- HHI is used at the provincial level because that's the level of aggregation that the wireless plan prices were being used.
2125 In the report that talks about the comparison internationally, that was giving you a comparison of national HHI levels in Canada at the -- at sort of again somewhat, as has already been pointed out, the data is a bit dated because the report was filed in May, but that gave you a comparison relative to international examples of countries that had mandated MVNO access and what -- how concentrated were their industries at the time that they mandated MVNO access.
2126 And there, I think it's really important to actually use HHI because many of those countries that were in a situation that they mandated MVNO access had a single carrier that had very, very high share, and -- which is quite different than the situation that exists in Canada.
2127 VICE-CHAIRPERSON LAIZNER: Okay. In your view, what level of HHI does market power exist?
2128 MS. SANDERSON: So there is no bright line. There is -- so it's an -- it -- basically, it depends on what your purpose is, I suppose, as to how you're thinking about how concentrated are you going to evaluate the market. So as I just said, the wireless industry is going to be a market that's going to be more concentrated than a retail sector is going to be because of the characteristics of the industry.
2129 What the comparisons show you, the international comparisons show you is that the level of industry concentration for wireless in Canada is far less than it is in many of the countries that felt that their sectors, their wireless sectors were so concentrated that they needed to adopt a mandated MVNO access to resolve a competition problem.
2130 VICE-CHAIRPERSON LAIZNER: And are there any other factors that you would take into account in assessing market power?
2131 MR. GRAHAM: So I think -- I'm just going to jump in for one second because I think this is a really important issue that you're exploring and I think we want to be helpful to you in the decision-making that you need to do.
2132 And the Chair explored this with Dr. Chipty yesterday. How do we define market power? And we've put forward a definition in the course of this proceeding when asked about market power in -- I think it is the July RFIs, Number 205.
2133 And it's a definition that's been adopted by European regulators for a similar purpose that the Commission is pursuing, and that's the power of a firm to behave independently of its competitors. In other words, you have market power if you don't have to respond to competitive activity from other competitors in the market, or as Margaret said you can offer inferior products with no consequence because you don't have effective competitors competing with you. And we think it's clearly not the case that the Canadian wireless market exhibits that characteristic.
2134 And the Chair asked Dr. Chipty whether her findings rule out market power in any particular area, and I think she rightly said she just didn't do the type of analysis that could rule out market power because she was comparing two areas. And that makes sense if you're doing the Competition Bureau's day-to-day job of determining the potential impact on prices of any given merger, you would do that type of analysis. But obviously, we understand the Commission needs to make a decision about whether there's market power in a market because there's regulatory consequences that flow from that. So, we've tried to put forward a definition that can help you do that, and I think everything you've heard from us today about competition in the market shows that -- but there's no sort of evidence at all, or there can never be evidence that we -- that there's market power in markets in Canada by that commonly used definition.
2135 COMMISSIONER LAIZNER: Thank you.
2136 When we look at the Bureau's analysis, Dr. Sanderson, I think in your reply you indicate that the regression you ran on Bell's data show that Bell's ARPU is negatively correlated with Freedom's introduction of their Big Gig plan, and not with regional provider penetration that was the finding in the matrix study. Is that accurate in terms of your position?
2137 MS. SANDERSON: So, I'll try and unpack it.
2138 So, we worked with the Bell data that was submitted and used by Dr. Chipty, and to try to understand the result that is reported in the matrix report about how, when a regional carrier reaches a particular penetration threshold of 5.5 per cent in a given CMA, that once it crosses that threshold, that that leads to a reduction in plan limit adjusted prices, as they -- as that concept of -- was defined.
2139 And I just want to pause for a second to speak about what that is. The plan limit adjusted price is ARPU divided by the average data limit, and that -- so, that's what that is. And what we found working with the Bell data is -- what we wanted to understand is how important was it that it was a regional carrier penetration above this threshold that resulted in this change versus what appeared to be the case from the difference in differences findings that are also in the matrix report that it's a response to the Freedom Big Gig and the new plan offering.
2140 And what we found is, working with the Bell data -- and it's a fairly simple test. We said, well, why don't we just look at the data for Bell before the Big Gig offer, because at that time there's variation in the regional carriers penetration, and there are some -- there's some CMAs that have regional carrier penetration of zero, and there's some that have levels that are below 5.5 per cent, and there's some that are at levels of 10 or 15 per cent, so there's enough variation if we just look at the sample before the Big Gig offer. And let's just run the same thing and see what -- whether or not increase in regional penetration drives this reduction on ARPU and this increase in plan -- average plan limits.
2141 And basically, what you see is, you don't see -- you see it's flat. So, you can increase regional carrier penetration above 5.5 per cent, up to 10 or 15 per cent, and you don't find -- you don't find that that changes Bell's average plan limit or Bell's ARPU.
2142 But if we change the sample and then we look at the sample including after Freedom's Big Gig offer, what we find is that -- what ultimately happens is that's a new offer that comes out into the market that's very attractive to consumers. In the case of Bell, they provide new plans that come out into the marketplace, that have higher data limits available.
2143 So, as the new plans come out that have larger data packages, that increases the average data limit, you've now increased the denominator in this plan limit adjusted prices, and that's what's ultimately driving the effect.
2144 So, in some ways ---
2145 COMMISSIONER LAIZNER: But it is because you've had a fourth entrant come in and offer a plan that ---
2146 MS. SANDERSON: Oh ---
2147 COMMISSIONER LAIZNER: --- you're responding to.
2148 MS. SANDERSON: --- it's absolutely because of ---
2149 COMMISSIONER LAIZNER: Okay.
2150 MS. SANDERSON: --- facilities-based competition. It's a hundred per cent because of facilities-based competition ---
2151 COMMISSIONER LAIZNER: Okay.
2152 MS. SANDERSON: --- and rivalry between carriers.
2153 COMMISSIONER LAIZNER: Okay. I just have one more question perhaps before break, Mr. Chairman.
2154 I just want to close the loop on a question that we asked Dr. Chipty yesterday related to the fact that Telus didn't provide information in response to a Commission's RFI. And in your view, does the lack of that Telus data at the CMA level in the study make a difference?
2155 MS. SANDERSON: Well, I think what it means is you -- you always -- whenever you look at any study, you have to think about the data that went into it. So, it -- what it means is that the results that are found from that study are based off of Bell and Rogers -- Bell and Rogers' data.
2156 And I think the other thing to remember about the data that goes into that study is that, as Dr. Chipty explained yesterday, it's an average revenue per subscriber. So, it's the type of data that can't distinguish how wireless plan prices might be priced differently because they have different data packages amounts, or they have different quality attributes, or that type of thing. So, I do think it's important to think about the data and when -- and the sample that's used with -- to then when you're evaluating the conclusions that derive from that.
2157 COMMISSIONER LAIZNER: And would you be willing to file the underlying data used for the studies that were referenced in the report filed May 15th, 2019 and January 13th, 2020, the data from PCMag and the speed test studies to assess network quality throughout Canada and other jurisdictions?
2158 MR. MALCOLMSON: Yes.
2159 COMMISSIONER LAIZNER: Great. Thank you.
2160 UNDERTAKING / ENGAGEMENT
2161 COMMISSIONER LAIZNER: I think this might be a good time to break, Mr. Chairman.
2162 THE CHAIRPERSON: Thank you. Thank you, Commissioner Laizner.
2163 Let's take a 15-minute break, resuming at 11:00. Thank you.
--- Upon recessing at 10:45 a.m./
L’audience est suspendue à 10h45
--- Upon resuming at 11:04 a.m./
L’audience est reprise à 11h04
2164 THE CHAIRPERSON: Please continue, Madam la secrétaire -- or, Commissioner Laizner. Go ahead.
2165 COMMISSIONER LAIZNER: Hello again. I just wanted to ask you a few questions about the cost of spectrum. So, would you agree with the proposition that the cost of spectrum in Canada is higher than in other jurisdictions?
2166 MR. BIBIC: Yes.
2167 COMMISSIONER LAIZNER: And what does that mean in terms of how it affects mobile wireless prices or your company profitability?
2168 MR. BIBIC: Oh, it certainly has an impact on overall cost structures and pricing, so -- and I answered quickly yes, but there's two ---
2169 COMMISSIONER LAIZNER: Yeah.
2170 MR. BIBIC: --- components to it.
2171 COMMISSIONER LAIZNER: Right.
2172 MR. BIBIC: So, there's the spectrum option prices get driven up because of some of the conditions that are put around the options to, you know, assist the fourth carriers in the country, and those were policy decisions that were made back in 2007 and so on, and, you know, it's -- I'm not going to rehash all those things. We are 12 years later and the fourth carriers have solidified their position in the network, but not to the point where I think we can take the significant risks that would, you know, fall upon them if there were MVNOs, but the fact is, those option structures have created an increase in option prices.
2173 And then there's the other component, which is for the spectrum that was not option, or for which the initial license terms post-option have expired their spectrum license fees that the government imposes, and our fees in Canada are much -- exponentially higher than in most other countries, the annual license fees. So, there's those two components, and it does affect overall cost structure. It does affect pricing ultimately, everything does.
2174 VICE-CHAIR LAIZNER: How do you measure how much spectrum you have and you need?
2175 MR. MALCOLMSON: Bruce, do you want to walk through that?
2176 MR. RODIN: Well, when spectrum becomes available, we certainly need to have it to grow. We’ve acquired spectrum at every opportunity and at this point, all of the spectrum we have in the GTA, for instance, is in service. The peak speeds that we talk about of 1.4 Gigabits a second to a phone, is a result of carrier aggregating four significant channels together. And in addition to that, all of the other spectrum we have in the GTA is currently operational.
2177 So we put everything in play, as we model looking forward, we fully expect to grow into 5G spectrum and use that to contain the tremendous growth that we’re seeing.
2178 VICE-CHAIR LAIZNER: Given your comments on the competition in the market, do you expect that there will be other new entrant carriers in the mobile wireless market in the next five years?
2179 MR. BIBIC: Well, there are -- there have been auction structures that have given players opportunity to come forward beyond just the four wireless players that we see in the market today. And to the extent that those option structures continue to exist, others will have an opportunity to come in and purchase spectrum.
2180 VICE-CHAIR LAIZNER: Do you think another potential entrant would be able to acquire enough spectrum to launch a competitive national wireless mobile network?
2181 MR. BIBIC: Why does it have to be national? I mean, it’s the way -- I mean, we have -- we have very strong competitors today in the form of Shaw, Videotron, Eastlink, Xplornet is starting to take root in Manitoba, none of those are national. So if you ask me if the word national is important to the question, then kind of difficult to answer that one. The answer is no, not national. But can strong regional competitors that are Canadian based and already own telecom facilities come into the market? I think, yes.
2182 VICE-CHAIR LAIZNER: Okay. All right. Let’s talk about seamless roaming. So we heard, and I’m sure you heard the comments of both Shaw and Xplornet yesterday, and I think Shaw describe it as seamless roaming being a 30 year problem with a $100 fix. So what are your views on that?
2183 MR. MALCOLMSON: We thought that comment was somewhat trite. It’s not as simple as Shaw portrayed it, and Bruce can walk you through just what would be involved from a technical standpoint and a cost standpoint in implementing seamless roaming.
2184 VICE-CHAIR LAIZNER: Do you disagree with what Shaw said would be involved technically in order to provided seamless roaming to some of these regional carriers?
2185 MR. MALCOLMSON: We -- we think it’s more complicated than how Shaw portrayed it, and Bruce can walk you through exactly how it would work, if it had to be implemented.
2186 MR. RODIN: Yeah, I -- you know, yesterday we got the impression that it’s just simple matter of a little bit of data fill down associated with the site in Brockville. And you know, in reality, it would be mapping the perimeter of their network all the way from Brockville, up Highway 416, around their coverage footprint in Ottawa, back down 416 and all the way around the perimeter of their network down.
2187 VICE-CHAIR LAIZNER: That would be the setting up the architecture?
2188 MR. RODIN: That would be -- yes, correct.
2189 VICE-CHAIR LAIZNER: And that’s a one time?
2190 MR. RODIN: Initially it would be set up where the sectors that would hand off would have to be established. But as the network changed, as -- then they would have to be revisited. There would have to be network facilities between our switches. There would have to be the protocols in the switches changed. There’s not standard for this, so these are proprietary implementations between vendors. There would be billing system changes, that again would have to be monitored.
2191 And then reasonably, we don’t do data fill and put it in service. Those things would all be tested. So thousands of sector pairs would have to be tested before we would go into service.
2192 MR. BIBIC: If I may as well? There’s also a broader competition point to be made here when we talk about all these things, but including seamless handoff. The reason -- the reason a call drops in those cases and doesn’t automatically transfer from one network to another is because you’re moving from one network to another. So you have a provider who’s invested in their own network, and the caller has reached the limits of that network and the call drops. We don’t -- we then don’t prevent the call from reconnecting once the customer reengages, because we don’t, and because there’s -- there are roaming rules.
2193 But at some point, when you say, okay, now we’re going to mandate roaming so everyone gets access to the three carrier networks. And now, we’re going to do seamless handoff, you have to ask yourself, you know, do we want to eliminate all the points of differentiation between networks through regulation? We don’t invest just for the sake of investing. We actually invest to differentiate our networks from others.
2194 You talked a lot this morning about speed as one potential differentiator. But there is also coverage, and there’s also other elements of network quality, like dropped calls. Those matter. And you know, we -- the very first couple of questions you asked, which I answered, were all around our capacity to invest and how we make those trade offs. There’s also an element of our desire to invest. Because the reason -- the regulatory model so far has directionally been supportive of investment. I say directionally, because there are some things we don’t like.
2195 VICE-CHAIR LAIZNER: Right.
2196 MR. BIBIC: Like, you know, mandated roaming, and we don’t like the price and all that. But it’s still directionally supportive of investment. And that’s why we keep investing and we keep investing because the other guys who have come into the market have gotten better. Claire talked about it. You know, as they went from what they were to LTE, to LTE advanced, and they got the iPhone, the price gap has narrowed.
2197 So now we say, okay, we want to invest again to be better than they are. But then we have situations where we have mandated roaming, now we’re discussing seamless handoff, which is eliminating the other point of differentiation. Under the ISED rules, not the CRTC rules, but under the ISED rules, you have the Big 3 permitted to roam on each other would ---
2198 VICE-CHAIR LAIZNER: So you have seamless roaming for Bell, Rogers and Telus?
2199 MR. BIBIC: No. No, no. I mean roaming. We do not have seamless roaming as between Bell and Rogers. I mean -- I’m back to roaming.
2200 VICE-CHAIR LAIZNER: Okay.
2201 MR. BIBIC: Just the -- you know, the incidental roaming, the garden variety roaming we talked about.
2202 VICE-CHAIR LAIZNER: So you don’t have seamless roaming with Rogers?
2203 MR. BIBIC: No, we don’t.
2204 VICE-CHAIR LAIZNER: You have it with Telus obviously, right?
2205 MR. BIBIC: No.
2206 VICE-CHAIR LAIZNER: No?
2207 MR. BIBIC: No, because we’re on -- we have each other -- that, we have our own network. So we don’t have -- there’s no seamless hand offs. You are on your own network when ---
2208 VICE-CHAIR LAIZNER: Okay.
2209 MR. BIBIC: On our network, on their shared network. We’re on our own network. With Rogers, Rogers is permitted to roam on Bell, but when a Rogers subscriber roams on Bell, they don’t get the benefit of seamless hand off. It’s an important point. They do not.
2210 VICE-CHAIR LAIZNER: So they would experience the same dropped call issue ---
2211 MR. BIBIC: Yes.
2212 VICE-CHAIR LAIZNER: --- that Shaw ---
2213 MR. BIBIC: Yes.
2214 VICE-CHAIR LAIZNER: --- expressed, and Xplornet expressed?
2215 MR. BIBIC: They just -- they just ---
2216 VICE-CHAIR LAIZNER: Exactly the same issue?
2217 MR. BIBIC: Yes. They just ---
2218 VICE-CHAIR LAIZNER: Okay.
2219 MR. BIBIC: --- they just experience it less, because they have a larger network, so it doesn’t happen in as many places.
2220 VICE-CHAIR LAIZNER: And there may be overlap?
2221 MR. BIBIC: Of course, there’s a lot of overlap.
2222 VICE-CHAIR LAIZNER: Right.
2223 MR. BIBIC: So in Brockville ---
2224 VICE-CHAIR LAIZNER: In the network.
2225 MR. BIBIC: --- they have their own network, they don’t fall off their own and onto ours.
2226 VICE-CHAIR LAIZNER: Right.
2227 MR. BIBIC: In Algonquin Park, for example ---
2228 VICE-CHAIR LAIZNER: Right.
2229 MR. BIBIC: --- Rogers would roam many times on Bell network, or in Northern Newfoundland. And then when they reach the limit of their network the call drops, they reconnect on the Bell network.
2230 VICE-CHAIR LAIZNER: So when Shaw and Xplornet say that when they -- they approach an NMO and the conversation is a complete non-starter, and I think that Shaw mentioned approaching Bell, that is because you wish not to have seamless roaming because it’s a competitive advantage not to have that. Is that correct?
2231 MR. BIBIC: Sure, I mean, I dispute the words non-starter, because there are discussions. But have we reached agreement on that, no. And why? Because it’s a key point of differentiation for us.
2232 VICE-CHAIR LAIZNER: So -- all right. You disagree with them saying that there was simply not an opportunity to open the conversation. So can you tell us more about what the negotiation process was?
2233 MR. BIBIC: Well, no.
2234 VICE-CHAIR LAIZNER: Okay.
2235 (Laughter / Rires)
2236 VICE-CHAIR LAIZNER: You don’t know, or just the ---
2237 MR. BIBIC: Oh, I do know it. I do know it. But there are many things discussed all the time across carriers on ---
2238 VICE-CHAIR LAIZNER: Right.
2239 MR. BIBIC: --- very narrowly on roaming, but broader issues, and then it comes on the table, and we haven’t agreed on that. And the reason we don’t agree on the seamless handoff point, and we’ve agreed on many other things with various players, is because of the point of differentiation.
2240 VICE-CHAIR LAIZNER: So would you be willing to negotiate an arrangement with a regional carrier for seamless roaming?
2241 MR. de GOOYER: Well ---
2242 VICE-CHAIRPERSON LAIZNER: I mean, we're looking at, you know, the state of the wireless market.
2243 MR. de GOOYER: I almost feel like if I say no because I want to retain my point of differentiation, then we may be faced with a regulatory mandate to do it, in which case we lose our point of differentiation. So it's a difficult one to answer.
2244 We haven't been willing to do that to date for the legitimate reasons I hope I've conveyed.
2245 VICE-CHAIRPERSON LAIZNER: Okay. What about network sharing agreements? Have you been approached by any of the regional MNOs to enter into a network sharing agreement?
2246 MR. de GOOYER: We have not been approached by any of the regional carriers.
2247 VICE-CHAIRPERSON LAIZNER: And would you be willing to negotiate a network sharing agreements with a regional carrier?
2248 MR. de GOOYER: Well, the network sharing agreements that we have, it's actually network reciprocity is what we actually call it. And it's because when we come to an agreement like this each party brings something to the table that makes it a worthwhile commercial arrangement for all the parties involved, and they're commercially negotiated.
2249 So when Bell and Telus came to our network reciprocity agreement, the agreement was that we would each build and contribute capital and contribute spectrum to building a network. You know, similar kind of commercial negotiations around Saskatchewan, and in Manitoba.
2250 So always willing to talk network reciprocity, but that's what it is, it's reciprocity.
2251 VICE-CHAIRPERSON LAIZNER: Would you offer the same terms and conditions to a regional MNO who wanted to enter into a network sharing agreement that you have with Telus, for example?
2252 MR. BIBIC: So the network sharing agreement we have with Telus is undeniably pro‑competitive, is the first point I really want to have on the record.
2253 But secondly, back to Martin's point, it's reciprocity. So it's two parties building, you know, covering the same proportion of the geography, more or less, you know, contributing spectrum in proportionate amounts, investing the same amounts of capital.
2254 VICE-CHAIRPERSON LAIZNER: So a regional competitor ---
2255 MR. BIBIC: That's -- to say to offer those same terms to somebody else, well, if somebody else can offer that reciprocity across the board that's one thing, if they can't, then we won't offer the same terms, no.
2256 VICE-CHAIRPERSON LAIZNER: So would it be fair to say that in your view a regional competitor would probably not be able to offer that reciprocity because you're already competing against them?
2257 MR. BIBIC: Well, not because we're competing against them, because of their asset mix.
2258 VICE-CHAIRPERSON LAIZNER: Right. Right. But they're already there.
2259 MR. BIBIC: Yeah.
2260 VICE-CHAIRPERSON LAIZNER: Okay.
2261 MR. de GOOYER: Regional network reciprocity agreements have been struck, though; right? There was one in Québec, and in fact, is still operating; and there was one in Manitoba between Rogers and MTS. So it's -- you know, it does happen when the right commercial negotiation takes place.
2262 VICE-CHAIRPERSON LAIZNER: Okay. I'm going to shift gears a little bit. Talk a little bit more about low cost plans and affordability.
2263 You've talked before the break about the promotion of your lower cost plans. Do you have any studies or matrix that would show how effective the promotion of your lower cost plans are?
2264 MS. GILLIES: Well, I think there would be a couple of things. I mean, I think the first and the best measure of our low cost plans is actually the take rate of the low cost plans. You know, the percentage of people that are choosing to use pay‑per‑use prepaid service, who are choosing Lucky Mobile service.
2265 And as I think you probably saw in our fourth quarter results, we are seeing significant evidence of our prepaid product offering, which is available at a low‑cost, highly affordable space with no credit check required with a very significant and positive response rate from the population.
2266 VICE-CHAIRPERSON LAIZNER: And do you have training manuals or other documents that show how you train your sales representatives with respect to these plans that you could undertake to provide?
2267 MS. GILLIES: Yes, absolutely. I mean, I think -- you know, we have numerous retail distribution points where we actually sell all of our products. You can look anywhere from Walmart, to the Source, to Best Buy, and we sell our entire suite of lineup.
2268 And when we train those individuals, obviously we're selling based on customer needs. That is the primary goal of all of our training manuals, and so we absolutely can share with you as an undertaking.
2269 VICE-CHAIRPERSON LAIZNER: Okay.
2270 UNDERTAKING / ENGAGEMENT
2271 VICE-CHAIRPERSON LAIZNER: There were suggestions by some of the intervenors in this proceeding on the written record that the Commission should mandate low cost plans, perhaps through a limited means tested segment of the population. What are your views on that? Do you think that's feasible?
2272 MR. MALCOLMSON: I'll ask Claire to comment in a minute.
2273 But just in terms of the actual plan that I think was put forward, it was somewhere in the range of $25 to $30 for a 4‑gigabyte data plan. That particular plan I think is, a, widely available in the market; and b, if it became effectively a regulated plan at a regulated price it would have a distortive impact on the market. And I think you need to look at that proposal in light of what low cost plans are available today, and you know, our submission would be that that market is well covered.
2274 And Claire can take you through some of the low cost options that are available, but I think that end of the market is being served. And we also, as you know, launched Lucky Mobile, and we launched a low‑cost data only plan in response to the Commission's desire to continue to open the lower end of the market.
2275 VICE-CHAIRPERSON LAIZNER: But there seems to be a disconnect, because we have intervenors representing, you know, vulnerable Canadians who don't seem to be aware of the plans that you've just mentioned. So where is the gap there? Why aren't they aware? What is the problem with respect to promotion? Is there anything the Commission can do, or that the carriers ought to do to make those plans more visible?
2276 MS. GILLIES: Well, I think -- I perhaps start with yesterday you handed out a document, and it highlighted those rate plans. They are visible on our website, and in our points of distribution. In fact, if you use Lucky Mobile, we make our plan lineup available in retail.
2277 So I don't know if there's a problem with the visibility per se of those plans. I think -- you know, one of the challenges I see just when I looked at the plans that were proposed, the plans that are requested at $25 to $30 with 4‑gigabytes of data on the fastest speeds available, and in some instances, device financing, they're just not realistic in today's market. In fact, you're asking for more data in those plans than the average Canadian uses.
2278 You know, I think my history with research has been if you ask people for what they want with no consequence, the sky is the limit. You know, and I think this is an example, is you've asked people how much they'd like to pay without saying what would the trade-off decision be.
2279 Those products, those price plans, you absolutely found them in your research, you absolutely could see them in the training that our retail reps have, and you absolutely would see them when you speak to one of our customer service agents in our call centres. So I don't think there's a problem with the access to low entry price point service plans in the Canadian market today.
2280 MR. BIBIC: If I may? Just if I may.
2281 As I'm listening to the series of questions on -- for -- especially for vulnerable Canadians, and I hear where you're coming from.
2282 So there is the access to the plans, and then there is the awareness of the plans, and we're talking about both. I think -- I'm not going to repeat our answers on the access because I think we have a lot of plans that can take -- cater to various segments of the population, including for vulnerable Canadians. I think that is a segment that we serve.
2283 On the awareness, as you explore awareness, I would just -- I'm going to ask the Commission to keep in mind that, take for example the earlier question about why is the low cost plan not more visible on the Bell website. Because a lot of the low cost -- we have Bell low cost plans, but the majority of our low cost plans are Lucky branded.
2284 We have an approach to our brand and our brand discipline that we will never put Lucky on the Bell brand on the Bell website because that's the Bell brand. We won't have a Lucky brand -- the Lucky brand inside a Bell store, but we have them in Wireless Wave ---
2285 VICE-CHAIRPERSON LAIZNER: Right.
2286 MR. MALCOLMSON: --- Tbooth, Walmart, at Dollarama. So ---
2287 VICE-CHAIRPERSON LAIZNER: But -- and when you talk about low cost plans on the Bell brand ---
2288 MR. MALCOLMSON: Yes.
2289 VICE-CHAIRPERSON LAIZNER: --- they're not at the same price point, obviously, as on the Lucky brand.
2290 MR. MALCOLMSON: It depends on the package and what we're offering. One point of differentiation is Lucky Mobile is 3G and the Bell low cost plans are not 3G, so they -- there'll be a price differentiation ---
2291 COMMISSIONER LAIZNER: Right.
2292 MR. BIBIC: --- by that fact alone.
2293 COMMISSIONER LAIZNER: They're more expensive. They're not at the same price point.
2294 MR. BIBIC: Well, some are, some aren't.
2295 MR. DE GOOYER: There are some similar price points. The offering is different of what's in them.
2296 But just from an awareness perspective, you know, our Lucky Mobile, one of our brand promises, or one of the slogans we use, if you're on a subway or anywhere else, you'll often seen cheap plans starting at $15. We're not hiding the $15 plan. It's a key part of the marketing proposition.
2297 If you walk by a Virgin Mobile kiosk at the mall, it will say plans starting at $28. We have digital screens, it always has plans starting at $28. It is a key part to us bringing new subscribers into the market. So, you know, we're not hiding the low cost because it is a real source of new subscribers to us, and we market actively that message.
2298 MR. MALCOLMSON: Commissioner Laizner, just coming back to -- from a customer satisfaction standpoint, we did note that in your consumer research you found that the majority of Canadians who agree they get good value for money from their cell phone provider have household incomes of under $40,000. So, that suggests to us that collectively the industry is doing a better job in terms of addressing that market segment.
2299 COMMISSIONER LAIZNER: So, in a nutshell, your position would be that we ought not to mandate low-cost plans?
2300 MS. GILLIES: I think they exist.
2301 COMMISSIONER LAIZNER: To what extent are customers denied access to the post-paid plans on the basis of their credit rating?
2302 MR. DE GOOYER: So, on post-paid, if you bring your own device, the credit requirements are actually quite low to be able to activate on a post-paid plan. If you're looking for us to finance the cost of a device, then the credit requirements are obviously linked to the value of that device, and, you know, the individual subscriber's profile.
2303 COMMISSIONER LAIZNER: We asked yesterday about whether a model similar to ISED's Connecting Families initiative that's on the broadband side would be useful on the mobile wireless service front. What are your views on that?
2304 MR. MALCOLMSON: I think those type of models are hard to design in a hearing room, but if you're, you know, looking for our willingness to participate in a program like that, we have participated in it on the broadband side, and I'm sure it's something we would be prepared to work with you on.
2305 COMMISSIONER LAIZNER: And do you -- on your own initiative, have you introduced any programs such as the Telus one, your own version of targeting a vulnerable low-cost market? I think the Telus program had to do with people under the age of 26 that were part of the child welfare system being offered a $0 plan for 2 years.
2306 MS. GILLIES: Yeah, I think we don't offer anything outside of our core three brands. We talked about we offer Lucky and Virgin. And if I use Virgin as an example, we have very aggressive plans for them. If I use Virgin for $35 you have a plan with unlimited talk and text, or for $45 you can add data, but we don't specifically target that segment, no.
2307 COMMISSIONER LAIZNER: And what's your experience been with the lower-cost data only plans that were introduced following our telecom decision 2018-475?
2308 MR. DE GOOYER: There's been limited interest in them. Most people, you know, do want to use -- a starting point is typically talk and text on a phone, and then they add data, as opposed to starting from data only. There is certainly a segment that goes data only, but they actually tend to want a lot of data, and it's a very specific niche segment. The low-cost data only plan doesn't really resonate terribly well with the market.
2309 COMMISSIONER LAIZNER: So, can you give us some information, even confidentially, on the take-up on those?
2310 MR. GRAHAM: I think we filed that as a requirement from a ---
2311 COMMISSIONER LAIZNER: All right.
2312 MR. GRAHAM: --- previous decision, but we'd be happy to update it, if you'd like.
2313 COMMISSIONER LAIZNER: That would be great. Thank you.
2314 MR. BIBIC: Madam, if I can go back to the Connecting Families concept and Rob's point, which I think is an important point. It's if something like that were to be crafted, it really needs to be an iterative dialogue, which is the point about it's tough to craft something like that in a formal hearing room. And the reason is, you have questions about eligibility, continued eligibility, but more importantly, huge differences between broadband and wireless.
2315 In broadband you provide a modem, we own the modem. In wireless, how does the low-income Canadian who would otherwise be eligible procure a handset, and which handset? In the Connecting Families program, the handset is the laptop. Government provided subsidies for that. We provide the modem, because that's what we do as part of the service. The wireless model it's different, so how do we decouple the hand -- because, you know, having a low-cost plan is kind of irrelevant if you don't have a handset. Handsets are very expensive, or we provide a lower-cost handset, and who's going to subsidise and finance that?
2316 Those are the kinds of -- if we're going to go down that path as an industry, those are the things we have to do, and you can't do it kind of answering a question, giving an answer, and then we all go our respective ways ---
2317 COMMISSIONER LAIZNER: Right.
2318 MR. BIBIC: --- and a decision ---
2319 COMMISSIONER LAIZNER: No, but fair enough, and we did hear some concerns expressed by Xplornet yesterday along the lines that, you know, because they're targeting a rural market that there may be issues there on the eligibility front, and the burden that would put on them and their facilities. So, I definitely appreciate that.
2320 I just want to talk as well about the win back issue that was raised by Shaw yesterday in their proposal for a 90-day cooling off period where you could not exercise win back tactics.
2321 MR. GRAHAM: So, I'll ask Martin or Claire to talk a little bit about what role win backs do and don't play in our competitive behaviour in the market, but just a couple initial points.
2322 So, first, I think as a threshold policy question, you know, restricting the ability of competitors to make competitive offers to try to win back -- to try to win customers, or win back customers, or offer consumers plans and prices that meet their needs is not something that you would ordinarily want to encourage as a regulator. I think it's pretty widely accepted from an economic perspective that you would only have a rule like that where it's absolutely required to allow a competitor to gain a foothold in a market when you would ordinarily have seen these kinds of rules. And, clearly, the regional entrants have much more than a foothold in the market if they're gaining, you know, a third of all net additions at this point.
2323 So, it's sort of a rule that we're a bit surprised that now it's being suggested by Freedom because it's sort of anti-competitive on its face, but with that sort of policy premise I'll ask Martin or Claire to comment on our use of them.
2324 COMMISSIONER LAIZNER: They are saying that they've experienced on the triggering of a number porting at that very instant when the customer is still in their store, but unfortunately, they've already unwrapped the cellophane on the iPhone, that the customer gets called. And ---
2325 MR. DE GOOYER: I was surprised to hear that comment yesterday as well, because when we -- when a number port request hits us, there is no manual intervention unless there's something wrong in the information provided, and the port goes through within a minute of receiving the port.
2326 We do not intervene in that port, and we don't call the customer. So, I didn't recognise the example that Shaw illustrated.
2327 MR. BIBIC: I too was surprised when the team advised me that we were actually talking in the hearing about restricting win backs again, which is a 20-year old movie that harmed competition back then and would harm it again.
2328 COMMISSIONER LAIZNER: So, you would be in favour of continuing win back promotions. Would you think that there should be any limits placed on the triggering of those win back ---
2329 MS. GILLIES: I think win backs is a standard ---
2330 COMMISSIONER LAIZNER: --- actions?
2331 MS. GILLIES: --- marketing practice in many industries, and I think that it affords Canadian consumers a tremendous choice, so I wouldn't put any restrictions or guidelines on it, no. I think it's good for consumers.
2332 VICE CHAIR LAIZNER: We talked a little bit about rate increases. And I wanted to ask you about the pay per use pre-pay rate increases where, I believe on Virgin Mobile’s webpage, local minutes and long distance rates will be doubling from 30 to 60 cents per minute and the text messaging rates will be tripling from 20 to 60 cents per text in March of 2020.
2333 How do you see those rate increases impacting the needs of consumers that have occasional use or emergency only plans?
2334 MS. GILLIES: I think in most instances, since those customers contracted with us, there’s been a variety of changes in the market environment.
2335 And so there’s a multitude of different offers for those individuals.
2336 So at the time any of those customers would have signed up, say it was more than two years ago, there was no Lucky Mobile, rates were higher, as we spoke about earlier this morning.
2337 And so there is a variety of different offers for them available today and there’s, as I also stated earlier, there’s no cancellation fee for those individuals. They’re free to move and change plans as necessary to find something that suits their needs.
2338 So there’s lots of offerings, prices on average are lower, and they have the choice and the freedom to move.
2339 VICE CHAIR LAIZNER: Thank you. So I’m just going to change gears now and talk about the wholesale services and the MVNO market.
2340 As you know, the Competition Bureau considers that an MVNO market would occur naturally where you have either excess capacity at the wholesale level, differentiation between the MNVO offerings, or willingness to negotiate MVNO agreements.
2341 And in the Competition Bureau’s view, none of these conditions exist in Canada.
2342 Do you share that view?
2343 MR. BIBIC: So in -- let’s -- to answer that question, let’s just compare ourselves to the U.S. for a second. So take one of the examples that the Bureau gave, excess capacity.
2344 So in the U.S., you had at a certain point in time, you had four carriers.
2345 Go back years ago, two big players, two disruptors, one of the disruptors was kind of, you know, through its uncarrier philosophy managed to gain a lot of traction in the market. And then there’s been a recent merger.
2346 But you had a couple of players, particularly the one, Sprint, with, I think excess capacity who probably would have wanted to get into the wholesale market in order to load up its network.
2347 We don’t have that in Canada.
2348 So that’s one differentiation -- point of differentiation.
2349 Another one is, you know, looking at the customer segments that you’d want to address, the main carriers in the U.S. decided that they were going to tackle the premium end of the market and the lower end of the market wasn’t served, and that’s how the MVNO market developed. They said -- you know, the carrier said, “Let’s let somebody else tackle the bottom end of the market,” so to speak, “through MVNO’s.”
2350 In Canada, a different strategy. We all undertook a different strategy to address a different segment of the market with our brands, which is why you have 10 plus brands in each geography, because we ourselves have addressed that market need.
2351 And then another key point of differentiation between the two markets, so I just, you know, I ask you to keep these in mind when you consider the Bureau’s evidence.
2352 So another one is in the U.S., as opposed to in Canada, in Canada, the cable companies are now the wireless fourth entrants. Putting Rogers aside, they’re a cable company who is one of the original three wireless carriers.
2353 But Eastlink, Videotron, and Shaw in particular, they’re the new wireless carriers, they were a cable company.
2354 In the U.S., the cable companies didn’t build their own networks, so they’re relying on MVNO access in order to gain access to that market.
2355 So there’s differences between the market -- in the market.
2356 So bottom line is, each of the carriers is seeking approaching the market for a retail strategy, each of the markets -- each of the carriers in Canada is attacking each segment of the customer base from low to high themselves. And those are big differences.
2357 And you’re not going to see the cable carriers seek MVNO access because they are MVNO’s in their own right in wireless in Canada as opposed to the U.S.
2358 VICE CHAIR LAIZNER: Right. So if a would-be MVNO approaches Bell Mobility to negotiate access to the radio access network, what would be the starting point of that negotiation?
2359 MR. BIBIC: Well we would consider whether or not there’s a need for us to engage in those discussions from the point of view of do we have excess capacity? Is there a portion of the market that we choose not to tackle on our own that the MVNO could?
2360 I mean, those are the kinds of things that we would be looking at.
2361 Martin, you want to ---
2362 MR. GOOYER: Yeah, we take all approaches from MVNOs seriously and we negotiate with them in good faith.
2363 You know, we’ve had, I think, about 15 contacts in the last couple of years hoping to discuss MVNOs. We have talked and met with every single one of them. Some of them we’re continuing discussions with.
2364 And, you know, as Mirko said, it focuses on what do we want to accomplish, and is it something that makes sense for both parties to engage in? That’s, you know, typically the discussion.
2365 And then we get into, well what does the business model end up looking like?
2366 So as I said, we’ve got several that we continue to have discussions with.
2367 VICE CHAIR LAIZNER: So you’ve had 15 contacts over how many years?
2368 MR. GOOYER: I think that’s since 2015.
2369 VICE CHAIR LAIZNER: And how many agreements have you concluded in that time frame?
2370 MR. GOOYER: We haven’t concluded any yet from those 15.
2371 VICE CHAIR LAIZNER: And why ---
2372 MR. GOOYER: But we do ---
2373 VICE CHAIR LAIZNER: Why would that be?
2374 MR. GOOYER: We do have five other wholesale agreements that are in place.
2375 VICE CHAIR LAIZNER: Why would that be that we’re now five years later and none of those agreements have been completed?
2376 MR. GOOYER: Well to be honest, most of them are initial contacts from very small organizations that, you know, come and try to find out if this is something that makes sense. They come with a, you know, very light business plan and aren’t yet prepared to continue those discussions. They haven’t done the background work on it yet.
2377 So that’s actually where the majority of the 15, I think we filed the details of them with you. So you’ll be able to see kind of some of the names that have approached us. And, you know, a lot of them are not names that you would have heard of before.
2378 VICE CHAIR LAIZNER: And you have five agreements in place right now?
2379 MR. GOOYER: Well they’re wholesale type agreements, but reach kind of the same kind of conclusion.
2380 MR. BIBIC: From my perspective, if the request is, “I want access to the best network in Canada for all customer segments in all geographies, we’ll offer all the same phones you do, et cetera, et cetera,” I’m a no, because we don’t invest for nothing. We invest to differentiate our services from those of others. And if we invest, and what we’re doing is allowing, either by regulatory mandate or just our own decision to give everyone, or some, access to everything we offer as well, then we’ve lost our point of differentiation and then, you know, there’s the desire to continue to make those investments.
2381 Now if it’s a broad-based MVNO from regulatory mandate, then the desire to invest that incremental dollar is gone, but so, arguably, is the capacity to invest, given the financial impacts.
2382 VICE CHAIR LAIZNER: Right.
2383 MR. BIBIC: So again, if the request though is a more targeted request to address a particular customer segment, and the business model makes sense, and we see that, you know, we can benefit from it as well, because it’s a commercial negotiation, then yes, the team has the mandate to explore that.
2384 The first model, no mandate to explore.
2385 VICE CHAIR LAIZNER: So would it be fair to say that of those 15, none of them have met your factors, Mr. Bibic?
2386 MR. BIBIC: Yeah, so far, the discussions haven’t reached an agreement yet.
2387 VICE CHAIR LAIZNER: So I’m getting the sense that there really haven’t been much in the way of discussions. Is that fair?
2388 MR. BIBIC: No, I don’t think that’s true. You know, we’ve, as I said, I think we filed with you the details of those discussions.
2389 VICE CHAIR LAIZNER: Okay.
2390 MR. BIBIC: So we absolutely take them seriously. We have the discussions. We try to get to a point of understanding what the -- you know, what the business plan would look like and whether it’s something that makes sense for both of us.
2391 But it does have to be a win-win; right? It needs to be something that makes sense ---
2392 VICE CHAIR LAIZNER: Right.
2393 MR. BIBIC: --- for both of us to do.
2394 You know, it just has to work that way.
2395 VICE CHAIR LAIZNER: And do you have a set of terms and conditions that would be provided to a would-be MVNO at the time that they contact you? Or does that come later in the discussion?
2396 MR. BIBIC: Most of the discussion -- I mean, each of these propositions is relatively unique. And so you try to explore what model works. And so standardized terms and conditions, I don’t think really work in this space, because each one of the opportunities is pretty different.
2397 VICE CHAIR LAIZNER: Okay. If the Commission were to mandate MVNO access on Bell’s network, what would be your position about whether that should also be extended to Telus and SaskTel, given your network sharing agreements?
2398 MR. MALCOLMSON: I’ll start and then others will chime in. But I think before you ask yourself that question, we all have to ask ourselves what’s changed since 2015 when you last looked at this and decided not to mandate MVNOs? What’s changed in the intervening period? Is the market more or less competitive? I think the answer is a resounding yes, the market is more competitive.
2399 Have prices come down? Again, the answer is yes, the price of data on our brand for example has come down between 37 and 80 percent. How have the new entrants been fairing since 2015 when you last looked at this? Again, the evidence is clear that they are highly competitive. They are now accounting for a third of new additions.
2400 You know, what have the new entrants been able to do in terms of extending their footprint, extending their coverage? The combined LTE footprint of Freedom and Videotron has gone from 45 percent to 75 percent of the population. The market, the wireless market since 2015 when you last looked at this has grown by 5 million subscribers. We’re seeing that overage charges are quickly becoming a thing of the past and the price per Gig is projected to drop by somewhere around 50 percent by 2020.
2401 So if you look at all those factors, between ’15 and now, the question we ask ourselves is where is the evidence to warrant such as sort of, intrusive regulatory measure?
2402 VICE-CHAIR LAIZNER: And I think it’s clear -- I think you’ve made clear your position that you don’t think that the market is such that MVNO should be mandated, whether it be the model of the Competition Bureau, or a different model.
2403 But I do want to give you the opportunity to comment with respect to some of the questions we have, if we decided based on the evidence on the record that we do need to go in this direction, as to what that model would look like and how it would affect you. So my questions are directed at asking you some of the questions that we’re also asking other intervenors to comment on those.
2404 MR. BIBIC: Well, I won’t say that you should mandate Telus to give MVNO access or SaskTel. By the same token, I can’t imagine that if there were an MVNO mandate that it would only be on Bell.
2405 VICE-CHAIR LAIZNER: Okay. And there are parties that have filed comments on the record saying that there should be no marketing restrictions imposed by the host carrier on the MVNO. So what would your position be on that?
2406 MR. BIBIC: Every form of MV -- these are highly aggressive regulatory prescriptions you’re asking us about. I respect the fact that you need to explore them. They’re highly aggressive. So any particular element that we’re asked about that gives more latitude to an MVNO player that does not invest in their own networks and simply gets to ride the benefit of our $4 billion of capital each and every year, and building the best networks, will be met with a, no, you can’t allow that.
2407 So if there are no restrictions at all on an MVNO, that’s the highest form of aggressive regulatory mandate you could possibly order. So we’re completely opposed to it.
2408 VICE-CHAIR LAIZNER: Okay. There’s been some talk about the issue of network capacity to accommodate MVNOs. So I wanted to ask you whether you -- whether you plan for spare capacity or whether you operate at 100 percent capacity on your networks?
2409 MR. BIBIC: Okay. We’ll take that in two parts. I’ll let Bruce jump in on kind of the guardrails he allows for the network to make sure we have a good experience. But again, kind of in terms of capacity and the impacts of, you know, an MVNO mandate would have on the capacity and therefore our need to invest, again, back to a couple hours ago, when met with extra capacity demands, we either invest more to meet that, maintain the same level of quality, or we hang back and we say we’re not doing this, and the quality dips. I gave the example of what happened with unlimited plans.
2410 The same thing -- the same thing has happened to us on mandated roaming. I’m talking about this incidental roaming. And there’s the Commission’s rule where the smaller, the regional players get to roam on our network, but there’s an ISED rule which allows Bell, Rogers, and Telus to roam amongst each other. That also has had an impact on the demands on our network and our need to invest.
2411 And if you were to add MVNO on to that, it would put more of a capacity -- a strain on capacity on our network and we’d have to make the decision as to whether or not we just meet that capacity demand or just let network quality suffer. And I’m sure you’ll hear the same thing from the other MNOs.
2412 And then over to you Bruce, on the specific question.
2413 MR. RODIN: Yeah. Well, the network quality will degrade over time. Of course, the introduction of unlimited has put a lot of strain on the network. It’s running hot now. We are anticipating -- we plan for 50 plus percent traffic growth year over years. That means a 10 times increase by 2025. So really, we are putting all technology, all new technology 5G densification in play to keep ahead of the demand that we see, based on the unlimited plans that are presented in the marketplace.
2414 VICE-CHAIR LAIZNER: Tucows, one of the intervenors in this proceeding, is of the view that the overall subscriber base in Canada is unlikely to increase as a result of MVNOs. So that a significant number of customers would be existing customers of carriers that it would compete for. Do you agree with that?
2415 MR. MALCOLMSON: So if I understood your question, their proposition is the market is not going to grow, there’s just going to be a shift in subscribers from one provider to another?
2416 VICE-CHAIR LAIZNER: Essentially. And that therefore, the capacity would -- would be enough to accommodate.
2417 MR. MALCOLMSON: I think that given the growth we’ve witnessed in wireless customers, and I refer to 5 million since 2015, that that’s an unlikely proposition that the market is not going to continue to grow. Particularly, as we’ve said earlier, when you’re seeing how far prices are coming down. So the entry into the wireless market is only becoming easier and more competitive. So I think you’ll see that market continue to grow. So we don’t agree.
2418 VICE-CHAIR LAIZNER: So then ---
2419 MR. BIBIC: You’d -- but you’d have to believe that there’s no population growth in Canada.
2420 VICE-CHAIR LAIZNER: Right.
2421 MR. BIBIC: You’d have to believe that there is no penetration growth in Canada, despite the fact that you -- there’s still kind of room, as far as I can tell. And you’d have to believe -- even if you believed those two things, and there’s a static number of wireless subscribers in Canada that’s going to stay static. You also have to believe that all those wireless subscribers are going to be using the exact same amount of data in aggregate today, you know, in three -- two, three, four, five years, as they do today. None of those make sense.
2422 VICE-CHAIR LAIZNER: So then increased MVNO access would lead to increased wireless adoption?
2423 MR. BIBIC: That’s not what I said. I said -- well, that’s not what I meant to say. What I meant to say is there will be population growth in Canada, there will be penetration growth, and there will be usage growth, regardless of whether or not we have mandated MVNOs.
2424 VICE-CHAIR LAIZNER: Okay.
2425 MR. GRAHAM: Just to -- maybe just to -- if it helps. We did in Margaret’s first report, there’s some evidence on the impact of MVNO regulation on wireless penetration. And I think what’s clear, if you look around the world, is that mandating MVNO access hasn’t increased wireless penetration.
2426 And just on the Tucows point, if their point is that mandating MVNOs won’t effect usage and won’t bring any new subscribers into the market, then I think the obvious question is what benefit would there be to mandating MVNOs?
2427 VICE-CHAIR LAIZNER: And I believe your position is that with respect to essentiality, it doesn’t meet the test?
2428 MR. MALCOLMSON: That’s correct. There are three elements to the test, as you know. Is competition sustainable? Clearly, competition in the market today is sustainable as evidenced by the success the new entrants are having and as evidenced by the number of their subscribers they’re adding. So clearly, we have a sustainable competitive environment.
2429 Looking forward, there certainly doesn’t seem to be any indication of undue market power, given, as Mark said earlier, you know, we’re not in a position to act independently of our competitors in terms of pricing. We have to act in response to the competitive changes in the market, and you’ve seen how Freedom has influenced that and you’ve seen how the unlimited plans have influenced that. So clearly an MVNO access mandate is not an essential facility. People have been able to acquire spectrum and build networks outside of that mandate.
2430 VICE CHAIR LAIZNER: And just to confirm, you would agree that at the wholesale level, the geographic market would be national?
2431 MR. GRAHAM: I think our position, and it’s in our May filing, and I think throughout our filings, the relevant geographic market is, as we talked about earlier, either the CMA or to your point about covering any of the ---
2432 VICE CHAIR LAIZNER: No, I’m talking about the wholesale.
2433 MR. GRAHAM: I think it’s the same geographic market.
2434 VICE CHAIR LAIZNER: Okay. Sorry. Okay. And just refresh me on why you would say that at wholesale level?
2435 MR. GRAHAM: I think if you’re looking at whether to mandate a wholesale service, the question is, does it meet the essentiality test in a relevant market? Because the essentiality test is driven off the definition of a relevant market.
2436 So if the relevant market is, for all the reasons we’ve given that more local market, then that’s the appropriate wholesale market as well.
2437 VICE CHAIR LAIZNER: Do you think that in areas where regional carriers have built out their RAN, that this would decrease the likelihood of further duplication by new facilities-based competitors in that region?
2438 MR. GRAHAM: Sorry, when you say that this would decrease the likelihood, just refresh us on what this is?
2439 VICE CHAIR LAIZNER: Right. Well, so we have some regional competitors that have built out or duplicated RAN under the test.
2440 Do you think that there could still be more duplication or that this would decrease the likelihood of further duplication given, you know, saturation of the market?
2441 MR. GRAHAM: If the question is, do we think it’s likely that a fifth carrier will build out the same areas the fourth carrier’s already built out, I think Mirko said it could happen on a regional basis.
2442 I think if you look around the world, Canada’s doing quite well with four carrier in every market. So I wouldn’t expect, sort of, widespread duplication to five and six facilities-based carriers.
2443 I think for a country of our size, we’re doing quite well.
2444 MR. BIBIC: I might be confused, but if the question is, would an MVNO mandate -- so duplication of networks is a good thing.
2445 VICE CHAIR LAIZNER: Yes.
2446 MR. BIBIC: It means you would have competition at the network layer.
2447 So you’d want the regional carriers who are here today to continue to expand their networks. And I think it’s in their desire to do so.
2448 So that’s what you’d want. So duplication is a good thing in that sense.
2449 So as I hear the question, I’m saying, “Well, I feel…” ---
2450 VICE CHAIR LAIZNER: You think it’s likely?
2451 MR. BIBIC: Well I think it’s likely that the existing regional operators wish to expand their operation. I also think it’s likely that with mandated MVNO, they will do the opposite.
2452 VICE CHAIR LAIZNER: Okay.
2453 MR. BIBIC: And I think you heard some of that yesterday.
2454 And in fact, the Bureau has said that as well.
2455 VICE CHAIR LAIZNER: But if we look at the Bureau’s model, I believe you suggested that by the time the new rules could be implemented, regional carriers are likely to have already hit a 5.5 percent threshold in many additional CMAs and that it wouldn’t have much impact on the penetration of regional carriers?
2456 MR. BIBIC: Yeah, well there’s a difference between expanding their networks and then gaining more share.
2457 MR. MALCOLMSON: Yeah, I -- if I understand your question, our evidence is that ---
2458 VICE CHAIR LAIZNER: You’re going to get there ---
2459 MR. MALCOLMSON: This idea that ---
2460 VICE CHAIR LAIZNER: --- already?
2461 MR. MALCOLMSON: --- we’re not going to get there and need to be accelerated through regulatory intervention is not warranted by the evidence if you look ---
2462 VICE CHAIR LAIZNER: So don’t give ---
2463 MR. MALCOLMSON: --- at current trends.
2464 VICE CHAIR LAIZNER: --- them a head start?
2465 MR. MALCOLMSON: Well it’s not -- you know, don’t give them the head start, keep in mind that they’re about to acquire spectrum at an auction on preferred terms so that they will access more spectrum for 5G.
2466 So our view is that the evidence just doesn’t warrant the type of intervention that you’re contemplating. They’ll get there.
2467 I think -- and even if they don’t get there as fast as you would like, it’s clear that the competitive benefits, and by those, I mean the price competition that we’re seeing in the market, are already happening.
2468 And I gave the example earlier of while Freedom may have a four percent market share in Ontario, I’m just picking that as an example, it’s clear that Freedom’s presence in Ontario is benefiting Ontario wireless customers by way of price reductions. And we’re seeing that, the evidence shows that.
2469 So bottom line is we don’t think the regulatory intervention you’re contemplating is justified by the evidence and the trends going forward.
2470 VICE CHAIR LAIZNER: Okay. If we look at the Bureau’s proposal, what do you see as administrative or operational challenges to implementing it?
2471 MR. MALCOLMSON: Again, you know our position on the Bureau’s proposal.
2472 VICE CHAIR LAIZNER: So you don’t want to comment?
2473 MR. MALCOLMSON: Well the one comment I would make is the idea of a sunset clause. Important to have a sunset clause? We’re skeptical that if you do mandate access under that model, that the sunset will never happen.
2474 I think history has shown on the wireline side of the equation that once something is mandated, it tends not to go away and it tends to be expanded as others seek to benefit of it.
2475 And again, we think that’s the wrong approach in the wireless market.
2476 MR. BIBIC: And I’m not going to answer so much on complexity, but why we firmly believe that all models are very risky in terms of a balance between the potential impacts on investment and then what would otherwise you would try to achieve with any model.
2477 But let’s talk about the Bureau model, even.
2478 Some people believe that it’s the least aggressive form of intervention.
2479 So let’s -- here’s -- if that were the model, and I have already said, I think it’s likely the least aggressive of very aggressive forms of intervention.
2480 VICE CHAIR LAIZNER: Right.
2481 MR. BIBIC: Even I would sit there, in our board rooms, and I would say, “Okay. Now we’re faced with this.” It still will impact how much we invest. I guarantee you it will.
2482 And one of the reasons is, well, say, okay, what happens in five years when the regional operator who has benefited from this Bureau model hasn’t met all those conditions? What will really happen?
2483 We know what happened in 1997 when loops were mandated in the traditional telephony world. They were supposed to be sunsetted in 2002 and they were finally forborne in 2019.
2484 I’ll have that in my mind.
2485 VICE CHAIR LAIZNER: M’hm.
2486 MR. BIBIC: And then I’ll think, okay, what really happens when you’ve got a base of customers that one of the regional operators has in one of the markets that they were supposed to gradually build into in five years? And if they haven’t done it, what do we do with those customers? Do I get to say, “Click. You’re out”?
2487 That’s what I will be thinking about. And I will make my judgement that even with this model, there is a big risk.
2488 And then I’ll say -- and then at the same time, it’s going to impact our market share, ---
2489 VICE CHAIR LAIZNER: M’hm.
2490 MR. BIBIC: --- clearly. It will impact our revenues.
2491 And then we’re back to my first answer to you, Vice Chairman, -- Vice Chairperson, sorry, which is got to cut investment.
2492 VICE CHAIRMAN LAIZNER: So in terms of limiting the impacts, the negative impacts on investment, there were some intervenors that have talked about potential eligibility criteria such as, you know, you have to build out your own facilities, not surpassing a certain level of subscribership, only serving certain geographic areas, owning spectrum.
2493 Are there any conditions that you think would reduce the negative impact that you say it would have on your investments?
2494 MR. BIBIC: No.
2495 VICE CHAIR LAIZNER: And I imagine you would not be in favour of any resale by an MVNO to -- of their access?
2496 MR. BIBIC: No, we would not be in favour of that.
2497 VICE CHAIR LAIZNER: And another limitation that some parties propose was to exclude access to host carriers’ domestic or international roaming agreements.
2498 Would that be possible?
2499 MR. MALCOLMSON: We take that as an undertaking. I’m not sure ---
2500 VICE CHAIR LAIZNER: Okay.
2501 MR. MALCOLMSON: --- we have an answer for you.
2502 VICE CHAIR LAIZNER: Okay. What’s you position on whether 5G networks are included in the roaming tariffs?
2503 MR. MALCOLMSON: Our view is the roaming tariffs were designed for a different iteration of network technology, so the tariff was designed for a previous generation network if -- so not included in 5G, is the short answer.
2504 COMMISSIONER LAIZNER: And so, if the Commission were to mandate some kind of MVNO access, would you contemplate that the 5G network would be part of that access?
2505 MR. BIBIC: No, it should not be part of that access.
2506 COMMISSIONER LAIZNER: Okay.
2507 MR. BIBIC: Should be no access. That would include not to 5G.
2508 COMMISSIONER LAIZNER: And why is that?
2509 MR. BIBIC: Well, it's the same principle and approach as to why we believe there should not be ---
2510 COMMISSIONER LAIZNER: Same ---
2511 MR. BIBIC: --- access whatsoever, but we are -- we are on the cusp as an industry to taking that next big step in building the communication's backbone for the country. It really is the communication's backbone for the country. And so, these decisions are going to have an impact on two things: continued fibre deployment, and 5G deployment. Those are two fundamental things for the next generation of, you know, Canadian economy.
2512 And so that would be one reason to answer no to your question, which is we should not be taking risks with the pace and extent of 5G deployment in Canada.
2513 COMMISSIONER LAIZNER: If mandated -- and I recognise your discomfort given your position on the whole issue of mandated MVNOs, but I do want to get your views on the record about whether if mandated there should be commercial negotiation, or Commission set terms and conditions, baseline conditions, wholesale tariffs as a backstop. Can you elaborate on that?
2514 MR. MALCOLMSON: So, in a world where MVNOs are mandated, our view would be that rates should be set through a commercial negotiation. If the commercial negotiation is unsuccessful, it could be backstopped through any one of a number of forms of arbitration.
2515 COMMISSIONER LAIZNER: And the arbitration would be by a third party, or through the Commission's process?
2516 MR. MALCOLMSON: I think you could do it either way. I heard the discussion the other day about your ability to delegate your statutory authority in terms of rate setting, but I think either the Commission could do it with the assistance of experts if they decided that they needed that, or the Commission could do it itself. And you have the FOA model on the broadcasting side that, you know, is a good precedent when commercial negotiations fail.
2517 COMMISSIONER LAIZNER: Some parties talked about non-binding mediation. Would you see that as part of the escalation of the negotiation process to the level of arbitration, or just negotiations break down and you go to arbitration?
2518 MR. MALCOLMSON: I think if you follow the existing route, you follow on the broadcasting side, there's a period of negotiation. There is non-binding mediation, and then ultimately goes to arbitration, if that's the final resort that seems to make sense.
2519 COMMISSIONER LAIZNER: And what are your views on the retail minus approach that some parties mentioned as a way of setting rates?
2520 MR. MALCOLMSON: So, we don't think any cost-based or costing mechanism is the right way to set rates in a world of mandated access. It should be negotiated. I think retail minus, in particular, as I understand it, can have the unintended consequence of perhaps increasing the retail price because the model is set up so that the wholesale rate is a discount off of the retail rate.
2521 COMMISSIONER LAIZNER: Do you care to comment on Competition's Bureau model in terms of investment targets for an MVNO and building out over a five-year period?
2522 MR. BIBIC: No.
2523 COMMISSIONER LAIZNER: Okay. Do you have any views on what repercussions might be if investment targets were not met?
2524 MR. BIBIC: No.
2525 COMMISSIONER LAIZNER: Just give me a minute here.
2526 I just want to talk to you a little bit about the issue of eSIMs. So, the Canadian Electrical Association and some other parties have raised eSIMs as something that they would like the Commission to look at in this proceeding. Do you support the use of eSIMs on your network?
2527 MR. GRAHAM: I think I'll let Bruce answer that, but the answer is yes, essentially.
2528 MR. RODIN: Yeah, we support eSIMs, and we have platforms that download eSIM profiles in real time.
2529 COMMISSIONER LAIZNER: And do you permit devices with more than one network profile to access the network?
2530 MR. RODIN: Currently, I believe that's -- you're capable of doing that.
2531 COMMISSIONER LAIZNER: I'm sorry?
2532 MR. RODIN: I believe that we can, yes.
2533 COMMISSIONER LAIZNER: You do that now?
2534 MR. RODIN: I ---
2535 COMMISSIONER LAIZNER: It's capable, or you do?
2536 MR. RODIN: It's possible ---
2537 COMMISSIONER LAIZNER: Okay. Have you had some negotiations with some of these parties that are looking to have that capability, you know, electrical utilities, railways, cities?
2538 MR. GRAHAM: Yes, we have, and we've described some of that in our responses to the Commission's RFIs on this point, but I think the -- in short, we've had some discussions. I'm not sure they've really progressed generally to the level of negotiation, and that's largely because on the customer side there's not necessarily alignment between individual customers and some of the associations. So, you know, we described in our RFI response a meeting with the CAA where there was some divergence in views among the membership around exactly what kind of model they wanted, and so that conversation is ongoing.
2539 On the -- the Halton Regional Police have one model in mind, but that model is still in a testing phase through Public Safety Canada that hasn't settled a final model, and I think the vast majority of other public safety organisations have a different approach in mind to the one that Halton Regional Police have.
2540 And so, it's really early days I think is the bottom line for all these types of conversations. We've got a number of solutions in the market that have been very successful with customers and with these types of needs, critical infrastructure and public safety, that's really serving their needs, some of which we're quite proud of. They're innovative solutions.
2541 So, those are continuing to sort of find take up and the conversations are continuing around other models.
2542 COMMISSIONER MAIZNER: So, is it fair to say that that's an area where you think it would be premature for the Commission to intervene and that the negotiations should just take place as they are right now?
2543 MR. GRAHAM: Yeah, absolutely we think -- it's a quite a complex area with a range of paths to go down and that needs to be settled commercially between the relevant parties.
2544 COMMISSIONER LAIZNER: Okay. In terms of network sharing agreements, your view is that they should be allowed to continue, and they provide benefits. What do you say to the parties that have seen these as anti-competitive and would like them to be prohibited?
2545 MR. MALCOLMSON: Well, I listened closely to the Bureau's evidence yesterday, and they commented on network sharing agreements, and the comment they made -- and they're the competition regulator -- was, you know, they can have commercial benefits. They increase speed of deployment of networks, and then therefore are pro competitive.
2546 And, you know, to the extent that there's an issue with a particular agreement, I think the representative from the Bureau said the devil is in the details. We're quite happy to talk about -- Martin will talk about how our network sharing agreement with Telus there's absolutely no relation to how we compete with Telus at the retail level. The agreement, you know, is quite specific about that.
2547 And maybe, Martin, you can take us through it?
2548 MR. DE GOOYER: Yeah, our network sharing agreements have actually led to a heightening of competition.
2549 So, when we first contemplated network reciprocity with Telus, each of the two carriers were contemplating building an HSPA network. We would have built two HSPA networks in all the same places, and a lot of coverage areas would have been left uncovered.
2550 By combining the build, we've expanded coverage to places that in the past never had multiple carriers competing. So the efficiency allowed us to build a, you know, a vast network in northwestern Ontario, where there was only a single carrier before our network arrived there and brought two more carriers into the market.
2551 Similarly, the network sharing agreement in Saskatchewan increased the number of competitors in that market from two to four. We've built coverage in places that otherwise would never have seen coverage, and the people in those places absolutely benefit from that.
2552 So we view network reciprocity as a very competitive tool to increase competition.
2553 VICE-CHAIRPERSON LAIZNER: And some parties have suggested that these network sharing agreements ought to be filed with the Commission for approval. What are your thoughts on that?
2554 MR. BIBIC: We disagree, vehemently.
2555 VICE-CHAIRPERSON LAIZNER: Yeah. So ---
2556 MR. BIBIC: So those are my thoughts.
2557 VICE-CHAIRPERSON LAIZNER: Yeah.
2558 MR. BIBIC: Like they should not be filed.
2559 VICE-CHAIRPERSON LAIZNER: Okay. Because?
2560 MR. BIBIC: Because they're market-based, they allow us to move rapidly, they allow us to get -- go to market rapidly, they increase efficiency. And what would -- I would ask, what would the Commission be doing with the agreement, and is it just a step towards pre‑approval? And then I don't see why that would be necessary. So -- and it's working.
2561 VICE-CHAIRPERSON LAIZNER: Okay. What about your thoughts on a joint build of 5G networks, which has been mandated in some other countries? Do you disagree with that, I guess, coordinated joint planning for 5G networks?
2562 MR. GRAHAM: So I think, and others will surely want to jump in, but we certainly disagree with a mandated joint build for 5G. As you saw right from the very first frame in our video, and on through our presentation, like we're eager to invest in the best networks to deliver the best value services to Canadians, and our motivation to do that is to be the best in the market, and that's what motivates us to do that. So a joint build mandate to us just sounds like a recipe to slow down 5G deployment in Canada.
2563 In terms of some of the joint coordination, I think it has the same impact. So if I were someone worried about falling behind in the 5G build out race, I would try to impose some kind of process solution in the middle that slows down my competitors from building out 5G and forcing them to spend their time in a working group with me describing their plans to me, would be a good way to do that.
2564 So we certainly think there is opportunities for carriers to work together where it makes commercial sense to make municipal approvals go more quickly, but a mandate that forces carriers to all move in lockstep, we don't support.
2565 VICE-CHAIRPERSON LAIZNER: So what aspects of the Shaw proposal for a working group are you in agreement with, and where would you differ?
2566 MR. GRAHAM: I think our core difference is our experience with those types of working groups is that they haven't sped up deployment. They -- you have conversations over a long period of time and things don't get resolved, and then they end up being resolved outside the working group the way they would have anyways.
2567 So like I said, we're not opposed to -- and we have in the past, where it made sense in coordinating municipal projects in order to improve efficiency for the municipality and for ourselves, but I think our core disagreement with it is it's just that it's not necessary.
2568 VICE-CHAIRPERSON LAIZNER: Okay. Do you have concerns with respect to disclosure of competitively sensitive information were there to be some joint work?
2569 MR. GRAHAM: Yes. My former life is as a competition lawyer. So if someone asked me in the company about participating in this kind of working group, I'd quickly say you need to have a lawyer and here are your guidelines. And one would be don't disclose any information about your plans.
2570 VICE-CHAIRPERSON LAIZNER: And what about non‑disclosure agreements as a way of mitigating any concerns on that front?
2571 MR. GRAHAM: Well, I think typically the concern is about disclosing competitively sensitive information to your competitors, rather than them disclosing it to someone else.
2572 VICE-CHAIRPERSON LAIZNER: Right.
2573 MR. GRAHAM: So I don't think it really supports the issue.
2574 VICE-CHAIRPERSON LAIZNER: And it doesn't apply.
2575 I just want to talk a little bit more about some of the concerns that have been expressed about access to support structures. Can you talk to me about the average time it takes you to grant access to a support structure?
2576 MR. GRAHAM: So I think our support structure tariffs have timelines. It varies. The appropriate timeline varies based on the nature of the request, so the more support structures you're requesting access to, obviously the bigger the lift in terms of investigating each, and so the timelines are a little bit longer. And similarly, I think there's a longer timeline for support structures that are located in remote regions because the investigation can be more difficult.
2577 So I don't know -- I don't have an overall average amongst all those categories, but there are timelines in the tariff.
2578 VICE-CHAIRPERSON LAIZNER: So what do they range from?
2579 MR. GRAHAM: We -- I don't -- top of my head, I don't want to venture a guess. I'd have to go back and check.
2580 VICE-CHAIRPERSON LAIZNER: Okay.
2581 MR. MALCOLMSON: But if it helps, Vice-Chair Laizner, when we looked -- we looked back from -- to 2014 to look at how many instances of permit denials to our support structures we had had, and it showed that 1 percent of the permit requests we received in Ontario and Québec were actually denied. So I think that is good evidence that, you know, that we act responsibly and only deny permit requests when there is a legitimate foreseeable use for us or some other reason.
2582 VICE-CHAIRPERSON LAIZNER: And ---
2583 MR. MALCOLMSON: Sometimes these polls are also owned by the utility but administered by us.
2584 VICE-CHAIRPERSON LAIZNER: Right.
2585 MR. MALCOLMSON: So it's not simple either.
2586 VICE-CHAIRPERSON LAIZNER: Do you provide reasons for denials, or do you just deny?
2587 MR. MALCOLMSON: I'd have to dig back and find out what level of detail we provide, and we'll undertake to do that.
2588 VICE-CHAIRPERSON LAIZNER: Is that -- is there a concern there about releasing confidential information if you give a reason, or you just don't know?
2589 MR. MALCOLMSON: I just don't -- I don't have the factual answer for you right now, so ---
2590 VICE-CHAIRPERSON LAIZNER: All right. Give an undertaking.
2591 MR. MALCOLMSON: --- happy to look at it and file something.
2592 VICE-CHAIRPERSON LAIZNER: Okay.
2593 UNDERTAKING / ENGAGEMENT
2594 VICE-CHAIRPERSON LAIZNER: Do you suggest alternatives if you're going to deny access to a support structure?
2595 MR. MALCOLMSON: Do we suggest alternatives to the permit seeker?
2596 VICE-CHAIRPERSON LAIZNER: Yes.
2597 MR. MALCOLMSON: If there was an available alternative, and it wasn't something that was within our plan, we would, I'm sure, suggest options.
2598 VICE-CHAIRPERSON LAIZNER: And what about the time it takes to get access to towers, for example?
2599 MR. RODIN: Yeah. We have a process for that. It's very ---
2600 VICE-CHAIRPERSON LAIZNER: And it's followed?
2601 MR. RODIN: --- well understood, the ISED process. I don't think ---
2602 VICE-CHAIRPERSON LAIZNER: Okay.
2603 MR. RODIN: --- anyone is really complaining about that. It's a complex thing. There are structures involved, engineers have to do structural analysis, but it seems to be working and we've -- haven't had any complaints.
2604 VICE-CHAIRPERSON LAIZNER: What's your experience in terms of getting access to municipal infrastructure?
2605 MR. GRAHAM: It obviously varies widely from project to project and municipality to municipality, but we have encountered cases of up to, you know, 2 years in negotiations with a municipality about accessing, you know, infrastructure required to deploy networks. And that's really the reason or the core reason why our -- we've proposed here, and elsewhere, that a preferable model to the consent model that we have today would be one based on notification.
2606 So there would be a prescribed notification that you -- a network builder would give to a municipality and they'd have an opportunity to object to the proposed work if they thought it interfered with the appropriate public use of the land, but otherwise, the project could proceed. And we think that would really speed up the timing.
2607 And it's a model that was proposed as a trial in the UK in 2012 with a 5‑year sunset, and at the end of the 5‑years the government actually chose not to sunset the legislation, so it took a step to extend the legislation because it had really expanded the pace of broadband build out.
2608 VICE-CHAIRPERSON LAIZNER: But is there an average time that you find it in your planning you plan in average amount of time to get access to municipal infrastructure, leaving aside, you know, a situation such as you've mentioned where it could take up to 2‑years?
2609 MR. GRAHAM: I don't know if Bruce has a comment, but I don't think across our -- the various projects that we're building that we have a sense of what an average timeline ---
2610 VICE-CHAIRPERSON LAIZNER: Okay.
2611 MR. GRAHAM: --- would be. And I think -- like I said, it varies also by municipality . So even if you isolated a type of project, the timeline can be very different between cities.
2612 VICE-CHAIRPERSON LAIZNER: And what are your views on the thoughts of some of the parties that, you know, they should get access on a first-come-first-serve basis to support structures?
2613 MR. GRAHAM: So we don't support that view for a number of reasons. One is, you know, there does need to be someone coordinating the access. So everything from issues around if it’s wireless attachments, issues around interference and Safety Code 6, and the placement of the device, or integrity of the structure issues.
2614 The other thing on support structures is the way that the process -- the Commission’s process is designed contemplates that the support structure owner is never forced to build new support structures, or to build them more quickly as a result of third-party use. And that’s the whole basis for the Commission’s tariff and mandate.
2615 And so a first come, first serve approach is just fundamentally inconsistent with that mandate.
2616 And then it has major impacts on the ability to plan a network build methodically. You could imagine the timelines and the complexity involved in rolling out fibre across an entire city, which is something we do as part of our business. And if, in the middle of that, someone could insert themselves onto one of our support structures once the network had already been designed, it would potentially force a redesign of the network. It’s going to increase the cost and slow down the pace of build out.
2617 VICE CHAIR LAIZNER: Some parties have suggested that you should track and document spare capacity to support structures. And I believe your position is that you don’t do that right now, you don’t have a future projects database, and then it would be expensive.
2618 And I’m just wondering if you could expand on the expense involved?
2619 MR. GRAHAM: Yeah, so the suggestion being that we would somehow create a database for all of our support structure, I think the key points to understand are the requests for access to support structures touch a very, very small number of the support structures in our network.
2620 So they may very -- they happen in every given region, but they apply to only a very small number of the support structures, so you’d be creating a database for the whole universe to deal with a very small number.
2621 VICE CHAIR LAIZNER: Could you deal with that small number? Are they the usual kind of thoughts, geographically?
2622 MR. GRAHAM: No, I don’t -- I don’t -- we’re not aware of any way that we could fulfill the purpose that the people requesting this are hoping to fulfill by just picking a few support structures. And then we’d be into a debate over whether we picked the right support structures and how do we know?
2623 And like I said, the requests do touch in every region. It’s just that they don’t touch every ---
2624 VICE CHAIR LAIZNER: All?
2625 MR. GRAHAM: --- single support ---
2626 VICE CHAIR LAIZNER: Right.
2627 MR. GRAHAM: --- structure within the region.
2628 And then just to make it really clear, so that’s one issue.
2629 The other issue is then the denials, as Rob said, are one percent of all the requests.
2630 So you have this big universe. You’ve got a very narrow universe that are the requests. You have one percent of that very narrow universe that are the denials. The denials for future use are a smaller percentage of that. And then the future use is ours and its third parties who have put in a permit application first. And then the impacts on availability from other municipal works and other construction projects change from day to day as project designs change, customer demands change.
2631 So there’d be this tens of millions of dollars effort to create this huge database for a narrow universe of issues.
2632 And then ---
2633 VICE CHAIR LAIZNER: Is that just ---
2634 MR. GRAHAM: --- it all going up.
2635 VICE CHAIR LAIZNER: --- a guesstimate? The tens of millions of dollars. Or have you, you know, actually kind of quantified it looking at it?
2636 MR. GRAHAM: It’s, like, ---
2637 VICE CHAIR LAIZNER: Or are you just big thinking?
2638 MR. GRAHAM: --- by the people who would do an educated estimate.
2639 VICE CHAIR LAIZNER: Okay. Just a bit of clean up here on my questions.
2640 I’m wondering if you can undertake to provide a concrete cost estimate in terms of the costs of implementing seamless roaming with regional roaming customers about the initial cost, and then the annual cost to maintain it?
2641 MR. MALCOLMSON: Yes, we could provide that.
2642 I would note, just on the point of seamless roaming, and we didn’t touch on it when you were questioning us on it, but this was requested by the new entrants in 2015, as you’ll recall.
2643 VICE CHAIR LAIZNER: Right.
2644 MR. MALCOLMSON: At that point ---
2645 VICE CHAIR LAIZNER: And it was not mandated.
2646 MR. MALCOLMSON: --- in time, it wasn’t mandated. And the reason ---
2647 VICE CHAIR LAIZNER: Right.
2648 MR. MALCOLMSON: --- it wasn’t mandated is because they didn’t provide evidence that convinced you that there was a need to mandate it.
2649 Similarly, until yesterday, when you invited Shaw, I guess, to submit evidence, there, to my knowledge, hadn’t been any evidence on the record justifying that type of mandate.
2650 So I just wanted to clarify that point.
2651 I presume that when Shaw submits its evidence, we’ll have an opportunity to respond to it, because it is an important issue.
2652 VICE CHAIR LAIZNER: And if it were required, in your view, would there have to be a revision to the mandated roaming rate?
2653 MR. MALCOLMSON: I think the answer is yes.
2654 VICE CHAIR LAIZNER: And so could you undertake to provide your view on what a revised rate would be?
2655 MR. MALCOLMSON: Yes, we could.
2656 VICE CHAIR LAIZNER: Great. Thank you.
2657 And the last question is, do you have data supporting your position on international price comparisons for spectrum?
2658 MR. BIBIC: Which aspect? The spectrum license fees?
2659 VICE CHAIR LAIZNER: The cost of spectrum.
2660 MR. BIBIC: Yes, we’ll put that.
2661 VICE CHAIR LAIZNER: And you can undertake to file that?
2662 MR. BIBIC: Yes.
2663 VICE CHAIR LAIZNER: Great.
2664 Those are all my questions, Mr. Chairman.
2665 Thank you very much.
2666 THE CHAIRPERSON: Thank you.
2667 I have just a couple of small questions.
2668 I was interested as you described the many advantages associated with the joint network build, you know, if it’s accelerated deploy, then lower cost to everyone. That was with one player.
2669 And I appreciate Mr. Bibic’s earlier explanation that a party needs to bring to the table, yeah, something upon which you can make a deal.
2670 But presumably, if you take Rogers for example, also a national player with network assets, that logic would prevail too.
2671 So if sharing with one other player doesn’t have an impact on competition but allows for efficient network build, wouldn’t it be even better if it were with three?
2672 And I guess I can extend the question to say, does that have any bearing on the roll out of 5G national?
2673 MR. GOOYER: So there are other examples of network sharing that Rogers participated in in Quebec with Videotron that, I think, Claire talked to earlier. It certainly accelerated Videotron’s network deployment in that province.
2674 And they did likewise with MTS in Manitoba, which also advanced, you know, their network in Manitoba.
2675 I don’t know if that quite answers the question?
2676 MR. BIBIC: I mean, an element of it is where we started from back in 2008 when we were moving to HSPA in order to catch up to the other player, who had a different technology.
2677 And now we’re in a position where, you know, that did allow us, you know, time to market -- well, time, did allow us to catch up and allow us -- allowed us to expand faster than we otherwise would have expanded.
2678 So you have to kind of appreciate the history of where we came from.
2679 Now you have, you know, when you’re thinking about the existing reciprocity agreement we have with the one player, you’re asking, you know, would it make sense to extend it to a third? Then you ask, okay, well what assets are brought to the table?
2680 In that case, we do cover more of the country than they do, we have complete overlap.
2681 And so in that case, the dynamic isn’t the same as it was in 2008.
2682 THE CHAIRPERSON: Fair enough. I understand. But what about for 5G? Is there any logic to that approach as you’re all being to build out 5G?
2683 MR. BIBIC: Again, it’s the allotment of differentiating amongst each other.
2684 We do differentiate our services at retail from Telus, despite the network reciprocity agreement. That is completely differentiated.
2685 THE CHAIRPRSON: It’s understood.
2686 MR. BIBIC: Yeah.
2687 THE CHAIRPERSON: I think my last question for you, Mr. Bibic, you made a comment early on in your responses to Commissioner Laizner about the undeniably good for consumers, I believe was the term you used, as the impact of the introduction of unlimited plans.
2688 When were they -- generally speaking, when did they come into the market in the U.S.?
2689 MS. GILLIES: Yeah, I think in terms of unlimited plans in the U.S., we saw them many years ago. I’d have to go back to get a specific date, but it was more than five years ago.
2690 THE CHAIRPERSON: And I guess the obvious question that comes to my mind is given they're undeniably good for consumers, they have -- you've had fast take-up, it's resulting in network expansion, increased data use, a whole bunch of goodies.
2691 MS. GILLIES: M'hm.
2692 THE CHAIRPERSON: Why did it take us so long to introduce them? What is -- what was the restraining factor then?
2693 MR. BIBIC: Well, there are -- my answer, when I said those exact words, there was a big, long second part to that answer, which is we have to contend with the growth and usage and the capacity investments required to keep up with that demand. So there is always, you know, the other side of it as well.
2694 And I would answer, like I mean this in the right way, but we are where we are. Where are where we are. Like whether or not the U.S. did it 5‑years ago, or, you know, 8‑years ago we didn't have regional competitors and now we do, and 4‑years ago we had a competitive market and now it's more competitive. We are where are where are.
2695 And where we are today is we have unlimited plans, we have device financing, we have introduced Lucky Mobile since -- in December 2017, we have low cost data plans. Why did we do that one? Because the Commission asked us to. There's a whole bunch of reasons. Some are market-based, some are regulatory, some impediments were costs, there's a whole bunch of reasons. But we are where we are, and it's a competitive market, and that competitive market is also, writ large, undeniably good for consumers.
2696 THE CHAIRPERSON: Thank you.
2697 Members? Do any other members have questions? Joanne? Commissioner Levy?
2698 COMMISSIONER LEVY: Thank you.
2699 I just have a couple of questions that go to your comments about the importance of differentiating yourself in the market.
2700 Throughout this proceeding, we've heard a lot about the fact that the Big 3 are the Big 3. What do you look at as the top one or two differentiating factors between Bell and -- versus Telus/Rogers?
2701 MS. GILLIES: I think I'll jump in on that one. You know, first and foremost the primary differentiator that we work for each and every single at Bell is our network. To provide the absolute best network quality that we can to Canadians. And I think regular studies show that Canadians actually in general experience much better network quality than the vast majority of the world.
2702 And so that is our primary focus and differentiator for the Bell brand. The best networks. Whether that's 5G, 4G, LTE‑Advanced.
2703 And then of course there's a variety of other reasons, but you know, if you look at consumer surveys over and over again, what is critical and important to them is that is the primary thing that people hold of importance.
2704 MR. BIBIC: I would -- I mean, I would just put a thought -- punctuation mark on the answer by so my –- probably network speed coverage, and of course, brand is an advantage. And mandated MVNO would mandate commonality on speed and coverage because the MVNO players would get access to our speed differentiation and our coverage.
2705 COMMISSIONER LEVY: And the other question I had went to your comments very early on about profitability. And then later on in the discussion with my colleague, there was some admission that the Canadian market isn't static, there will be population growth, there will be take-up of new devices and new opportunities to use data, and so forth, as time goes on.
2706 So what is to -- isn't there enough potential room for expansion in the system to allow both some new entrants, perhaps, in the way of entrants who might come in in an MVNO situation, as well as protecting some of the parameters that you feel are important to preserve your investment and your profitability?
2707 MR. BIBIC: Yeah. There is a constituency who will say, and they've said for years and years, look at the profits that Bell generates. And they absolute -- looks like a big number on the page.
2708 But my -- I'll give you an -- if it's $10 of profit, and you, of course, in the real world you can add a few zeroes to that, but if it's $10 of profit and we invest $5, there is $5 left over for the shareholder. Just -- I mean, this is simplistic, but just to highlight it.
2709 If as a result of a regulatory outcome the profit goes to 9, it's easy to say keep your 5 of investment and this 4 to shareholders. No. It can't even be 5 to shareholders tomorrow, it's got to be 6 to shareholders tomorrow because we have to grow the free cashflow to support the dividend growth.
2710 So if the profit goes to 9, the investment's got to be cut in order to keep, you know, free cashflow stable and grow.
2711 And just -- so a little story, if I may. During the transition last fall to me taking over officially as CEO on January 6th, I went and met with the largest shareholders of BCE - Toronto, New York, London, Frankfurt - and there was a consistent theme throughout those meetings, but one struck me in particular, and it was in Frankfurt.
2712 So this is a shareholder that held last fall $800 million of BCE shares, so it's a big shareholder. I probably hadn't even sat down before -- and after shaking hands around the table, and then the lead investor said, "Tell me why I should be investing in your country?" Then tell me -- I knew where he was going. And it was the regulatory risk that the investor base perceives was, you know, we had skipped a step. It wasn't even "Tell me why I should invest in Bell?" anymore, it was "Why should we invest in your country" given this, or -- so "Why should we invest in Bell?", "Why should we invest in your industry?", "Why should we even invest in your country?"
2713 That's kind of scary. And that's why I've said over and over again in the three-and‑a‑half hours we've had together that these decisions inevitably affect investment.
2714 Like I know what I have to do. I -- we have a lot of constituencies we have to serve, customer being the first, our communities, we take all this seriously. But ultimately, I've talked about shareholder a lot, and I know it comes across as, you know, here come the corporate suits talking about shareholder all the time. That's not what we think about all the time, but one of the things we have to deliver on is growing that free cashflow to deliver the dividend and to grow the dividend, and we will do it every single time.
2715 And we're gonna have to make some hard decisions at the end of the day to deliver on that. Investment's gonna have to be cut. We'll serve our customers, you know, in other ways, and we'll always make sure that community is at the forefront.
2716 But that's why it's really real. And when you sit in the chair and you have somebody say that your -- to you, you go "Oh Okay. This is serious".
2717 COMMISSIONER LEVY: So you don't feel that there is enough room for expansion (inaudible)?
2718 MR. BIBIC: No. It's -- we'll manage, but one of the ways we would manage is -- if there's a mandated MVNO, I'm not saying 4 billion goes to zero, but 4 billion goes to something significantly less, and that significantly less means something. So if Margaret's study says $500 million industry wide, less -- $500 million less invested industry wide each and every year, just to put a perspective on it, that's 250,000 fewer homes connected to fibre, country wide. I'm not just talking about Bell. Two‑hundred-and‑fifty-thousand (250,000). That's Gatineau, Belleville, Kingston, and add a couple of communities each and every year.
2719 It just means that things are slower or things don't get done.
2720 COMMISSIONER LEVY: Thank you.
2721 THE CHAIRPERSON: Commissioner Barin?
2722 COMMISSIONER BARIN: Thank you.
2723 So I'm going to ask you the MVNO question in a slightly different way.
2724 We heard you talk about the significant investments that Bell needs, and we also heard you say, Mr. Bibic, that duplication and infrastructure is a good thing. But the reality is that Bell benefits from a network reciprocity sharing agreement, and you can argue that the network sharing gives Bell and Telus a very big advantage over regional players that would technically have to build out their entire infrastructures.
2725 So Bell did not have to build out its -- the wireless network nationally, and in this respect network sharing agreement gives Bell a competitive advantage over regional players.
2726 Now, if we wanted to create a more competitive playing field, let's take it from that perspective, and allow regional players to benefit from the similar kinds of competitive advantage that Bell benefitted from, and specifically to not have them build out a hundred of their networks, and understanding that there's not an ability for everyone to have a network sharing agreement, because there are not enough of those to go around. So, from the perspective of having a more equitable competitive playing field between incumbents like Bell and the newer regional players, I'd like to hear what you have to say about a potential MVNO access policy that gives facilities-based regional players MVNO access to a percentage of their built-out coverage, so that they too can benefit from the kinds of advantages that Bell has benefitted from?
2727 MR. BIBIC: Well, the -- I disagree with the comment that there's not enough to go around because I don't know what it means, but I can create some theoretical examples. Eastlink, Shaw and Videotron could have a network sharing agreement. Rogers could have a network sharing agreement with any one of them; in fact, they have had network sharing agreements and still do with a couple of them. So, things can be in the marketplace, you can arrive at those solutions.
2728 On, you know, the perceived advantages, those advantages come through investments and network, and ultimately, that's what drives competition, and that's what we submit the Commission ought to support.
2729 So, you know, the regional operators have done a pretty good job to date and they're going to continue to do a good job, I'm sure, and they've done that by continuing to invest and catching up. Claire gave examples. You know, LTE went to LTE advanced and iPhone went iPhone. Those are -- Shaw's continuing to expand this network because they want to catch up and past us. And then when they get close, we want to make sure we invest more and differentiate ourselves. That's what we ought to want to support.
2730 Now, they don't cover the entirety of the country like we do, and part of it is choice. They likely don't want to. It's not in their long-range plans, while at the same time I'm sure they want to expand their coverage, and they're doing it. But in the meantime, the customers are not harmed, because Freedom has a customer base in Toronto, and a customer base in Calgary, and when that Calgary customer is travelling to Montreal, they get to roam on our network, and it's mandated by the Commission, and they get a mandated rate. So, there's no disadvantage there. Like, and they get the advantage of the best network if they were roam on us.
2731 So, there already been regulatory prescriptions put in place to assist the regional operators get better faster, and those are just some examples.
2732 MR. GRAHAM: If I might just add, two points that I think might help on this. So, one is we're talking about the network sharing agreements, like, it's sort of simply a matter of stitching together two providers, and we made the point earlier that you need reciprocity, but it's more than just you need a reciprocity of contributions, but the contributions need to be made voluntarily to align everyone's incentives in such a complex agreement. Because if it's -- you can't have it kind of both ways. You can't say, hey, you need a reciprocity of assets, but you're forced to be in the agreement no matter what, because then each party's incentive is to not contribute as much and just free ride the other party's contributions.
2733 So, it's really crucial to the functioning of such a complex agreement that they be voluntarily entered into, and you can exit them, and you can build outside them, and not share the benefits if you don't feel the counter-party is doing the same.
2734 And the other thing Mirko mentioned the domestic roaming that we have, but we've talked about it a couple times, but I think it's important to underline the impact that even that has on investment. So, even incidental usage of our network by a facilities-based carrier has reduced investment in really concrete ways that I think Martin can talk about.
2735 MR. DE GROOYER: Yeah, the mandated domestic roaming, certainly after the tariff rates were announced, you know, caused us to re-evaluate some investments we were making in coverage. You know, if you think about expanding coverage, you can do it for two reasons. You can add coverage in a town and therefore be able to compete for the subscribers in that town, or, you know, highway coverage to get to places that people want to get to from places where you already have a network.
2736 So, for us, it's a real advantage when we have better coverage in rural areas or vacation areas where people from larger cities tend to go. And we can market that advantage, that you can stay connected all the way to your cottage in the Gatineaus.
2737 But with mandated roaming, we had to share that advantage, and so it no longer was a reason to build, because along those highways there aren't people living there, and so you're not going to win subscribers there. And at the end of the day, if you -- you know, that coverage is extended to every other carrier, you don't have an advantage, so why build it.
2738 And so, there were key areas that we had to re-evaluate, you know, marginal coverage areas like that that we had to re-evaluate building out.
2739 And, you know, a few years ago we had to make the tough call to reduce some of the investment we made in Northern Ontario and parts of Northern Quebec because they weren't going to give us the payback on those investments; whereas, previously we would have believed that we would have won the subscribers that travelled that route a lot, and that would have given us, you know, a leg up versus others.
2740 So, you know, those mandated things, they do, in fact, impact those investment decisions we make on a day-to-day basis because the business case evaporates.
2741 COMMISSIONER BARIN: So, I understand that if the payback is not there you, you know, there are decisions that you would have made potentially to not expand the network, and that you did because you had access to a network sharing agreement. So, you are benefitting from a network that has this wider coverage, and I guess if I heard correctly, this type of network sharing agreement would be open, and is still an option for regional players.
2742 And my concern is, in the event that this is not the case, for the Commission to be able to find an alternative way to offer regional players the same benefits that you have through your sharing agreement. If it's not through sharing, it's through an MVNO type policy.
2743 MR. DE GOOYER: Well, so, the coverage is already available to all the carriers through mandated roaming. So, I think, you know, that -- as we kind of said, you know, that ship has sailed, but that is available to everybody as it is. The coverage is there. You don't need to have network sharing in order to provide access to a nationwide footprint.
2744 MR. BIBIC: Those aren't choices. The real choices are they can continue to expand their networks through building, which they've done a very good job of doing since 2008, and they can have their own discussions to align if it suits their mutual interests. There are multiple players there who are not in network sharing or network reciprocity agreements who could align. I'm not sure why the inevitable answer is we must mandate access to the Telus/Bell network reciprocity agreement. Because if that's done and it's, as Mark said, it's no longer a network reciprocity agreement. It's just the government is -- the CRTC deciding everyone's going to be on one network. Then you've lost competition at the network level, which is what we ought to encourage.
2745 COMMISSIONER BARIN: Okay. Thank you. I have one more question.
2746 The Quebec market was brought up several times as an example of a strong -- of a market where there is a strong regional competitor. And I believe, Ms. Gillies, you made the point that Videotron made Bell better, and it was in reference to I believe the competitive dynamic that resulted in lower prices for consumers and efficiencies for Bell.
2747 So, I -- can I take it then that you support incenting strong regional competitors in all regions of Canada that do not have one as one of the Commission's policy objectives?
2748 MR. BIBIC: The reason Claire indicated that regional competitors have made Bell better -- in fact, I would say they have made the entire industry better -- is because they've built their own networks, and they've made those networks better, and then we've continued to invest in order to stay ahead, keep pace, et cetera, and vice versa. That's why.
2749 And I know, again, there's -- there's -- you know, there's the other side of the debate that says do not believe the incumbents. They will always continue to invest. I hear that all the time. It's not the case.
2750 So, if the incentives are gone, there will be less investment, and there will be slower pace of deployment, and that's going to have a big impact on competition, and the values consumers get from our communication systems, and the values that enterprise it -- the value that enterprises get as well. So, that's really the assessment that needs to be made.
2751 We can say we'll nudge the regional competitors along faster. That’s going to have an impact. To a mandated MVNO, that’s going to have an impact. And then you’ve got to weigh the other side of the equation. How harmful will be that impact?
2752 And we’re squarely on this side of the debate.
2753 And to those who say, “We will continue to invest at the same time because we must do 5G and all these things,” I think I gave my answer to Commissioner Levy, we will make our trade offs. I assure you we will make our trade-offs.
2754 COMMISSIONER BARIN: Thank you.
2755 THE CHAIRPERSON: Commissioner MacDonald?
2756 COMMISSIONER MacDONALD: Good afternoon.
2757 Just one question, those providers that have flanker brands point to those brands as offering added competition in the market.
2758 But I want to jump back to your exchange earlier on with Vice Chair Laizner around affordability.
2759 And we have studies that show a large cross-section of Canadians that are price sensitive, that are out there looking for a lower cost plan, aren’t overly interested in moving to a flanker brand because there’s a perception that they -- that the flanker brands are lower in quality.
2760 Bell positions itself as a premium brand using taglines like “Best network,” “Canada’s fasted network,” “Most reliable network.” And I understand why you do that.
2761 I also fully understand why you wouldn’t want a Bell rep suggesting, “Okay. You want a low-cost plan? Why don’t you try Lucky?” And I understand why you wouldn’t want to brand Lucky Mobile as a Bell company.
2762 What I don’t understand, and I’m just -- I’ve been poking around the Lucky Mobile website, is why you seem to be -- unless I’ve missed it, seem to be totally silent on any level of network quality on that particular brand? There’s a coverage map, but there’s nothing else.
2763 And I think one could assume that that helps reinforce the perception that flanker brands are indeed lower quality.
2764 MS. GILLIES: I think, you know, again, I go back to the point that said our goal is to differentiate our three brands, such that we maximise our market coverage and our opportunity. We have different propositions for each consumer. Network is Bell. We talk about member benefits and affordability with Virgin, and then affordability with lower cost feeds at Lucky. So there’s always a trade off.
2765 I think, you know, if we go back to the number of consumers who are switching carriers each and every year, you know, and just if you look at the most recent holiday period and you look at what was the percentage of consumers who were choosing flanker brands like Virgin, versus Bell, versus Lucky, you know, you’ll see -- and it’s available in the public forum, consumers ask the question, “What’s your experience? What’s your experience? What’s your experience?”
2766 It’s how we market our brands. If we were to market all of our brands as having access to the best network, why would any consumer make trade offs? Why would -- all of your brands would eventually converge.
2767 And so I think, you know, it absolutely is our goal, and our marketing, branding, and positioning to appear clearly distinct and different.
2768 But I can assure you that there’s a tremendous amount of switching behaviour in the market.
2769 And if you were actually to go out into the community today, or into one of the retail outlets, they would talk to you about the quality of service.
2770 And as evidenced by the mix of consumers that are choosing the flanker brands, I think, you know, there is -- people understand and appreciate the trade offs that there are between the brands.
2771 MR. BIBIC: And I would -- I think we have a number of shared goals here. And I’m just reading the Chair’s opening remarks yesterday.
2772 So we want lower prices, prices that are trending lower. I think that’s fair.
2773 We want network expansion and coverage. I think we all want that as a country.
2774 We want the best quality, we want technological updates.
2775 And I want job creation, I’m sure policy leaders want job creation.
2776 And, yes, we want to completely align. We want to make sure that each segment of the market is well served. We’re aligned.
2777 And should we do a better job at that? Yeah, perhaps.
2778 Have we been doing a better job? Absolutely.
2779 And should we do a better job educating? I think we actually should be doing a better job educating.
2780 But there’s one thing, I think back to Claire’s answer to your question, you know, there was one element in your question, Commissioner MacDonald, which is some consumers are reluctant to move to a flanker brand because they want the lower price at the Bell quality.
2781 You know, those don’t fit. As long as we’re serving that market with a good quality product and meeting the needs, that’s the goal, not the lowest price at the Bell quality.
2782 We don’t say we want an Apple MacBook at a generic laptop price. No one ever says that.
2783 COMMISSIONER MacDONALD: And I wasn’t trying to suggest that it would make sense to, you know, position it as, you know, this is the Lucky price at Bell quality.
2784 But I would suggest that even customers that are very price sensitive, if not at the Bell quality, want some reassurance that there is a certain level of network quality when trying to make an informed decision about switching between yourselves or any of the providers that are out there.
2785 MR. BIBIC: Yeah, I get -- I mean, there’s a theme emerging around awareness and education.
2786 THE CHAIRPERSON: Thank you, Commissioner.
2788 MR. BOWLES: Thank you. I just have one question to ask, and I believe my colleague has a few additional questions.
2789 We’ve heard you speak to the substance of a need to mandate a low cost or occasional use, emergency use plan. Your position on that was rather clear.
2790 But I’m asking this question with a view to seeking your position on the appropriate framework or approach to adopt when considering potential de-forbearance in this area.
2791 So in the event that the Commission were to conclude that the record indicated that there was -- that the interest of at least a subset of consumers were not being sufficiently protected, can you comment on the appropriateness of the Commission reasserting its powers under 27(1) and/or section 25 on that basis, rather than on a more traditional market power assessment?
2792 MR. GRAHAM: So we don’t think it’s appropriate. And I would just read two quotes from previous Commission decisions on this.
2793 So in 2006-15, I think you indicated that to review a forbearance decision, you need evidence of a -- evidence such as:
2794 “…material reduction in the number of competitors offering service in a forborne market, a material increase in [incumbent] market share in that relevant market, […] or a material sustained increase in prices to customers in the forborne market.”
2795 I think it’s pretty obvious that you have the exact opposite of all three of those things in this case.
2796 And then in 2012-520, again:
2797 “…to re-establish rate regulation in a forborne market, evidence needs to […] demonstrate that the circumstances that justified the […] forbearance determinations are no longer present.”
2798 And again, as we’ve been through, I think it’s the opposite case in these circumstances.
2799 And there are good policy reasons for those decisions, and we think they continue to apply.
2800 MR. BOWLES: Thank you.
2801 MR. BALKOVEC: Good afternoon.
2802 One thing I was hoping we could have you file. I’ll direct you to your intervention on the 15th of May 2019 at page 62, Figure 11. It’s a Figure entitled “Average Capital Expenditure Per Subscriber, 2009 to 2018”.
2803 We’d ask if you could file the underlying data used to calculate those averages?
2804 MR. GRAHAM: Yeah, we’ll do that.
2805 MR. BALKOVEC: Okay. Thank you.
2806 And then finally, I just have a few questions on the voiceover LTE. Is that something that you support in your network currently?
2807 MR. RODIN: Yes, we do.
2808 MR. BALKOVEC: And is that a functionality that is extended to your domestic roaming customers?
2809 MR. RODIN: Not at this time, no.
2810 MR. BALKOVEC: Okay. And are there plans for it to be extended prior to the advance of the deadline for real-time text to 911 being implemented, which is 31 December of this year?
2811 MR. GRAHAM: I think we’ll have to take that as an undertaking.
2812 MR. BALKOVEC: Okay. That’s fine. Okay. That’s all my questions. Thank you.
2813 THE CHAIRPERSON: Thank you. Thank you very much for your submissions and your responses.
2814 I wish you a good afternoon.
2815 We’ll recess for one hour, resume at 2:05.
2816 Thank you.
--- Upon recessing at 1:05 p.m./
L’audience est suspendue à 13:05 p.m.
--- Upon resuming at 2:03 p.m. /
L'audience est reprise à 14h03
2817 THE SECRETARY: We will now hear the presentation of Cogeco Communications Inc.
2818 S'il vous plaît, vous présenter et présenter vos collègues, et vous avez 20 minutes pour votre présentation.
PRÉSENTATION / PRESENTATION
2819 Mme DORVAL: Merci, Madame la secrétaire. Monsieur le président, Madame la vice-présidente, Mesdames et Monsieur les conseillers, il me fait plaisir de vous présenter les membres du panel de Cogeco.
2820 Mon nom est Nathalie Dorval, vice-présidente, Affaires réglementaires et droit d'auteur de Cogeco Inc.
2821 À ma droite, Philippe Jetté, président et chef de la direction de Cogeco Inc. et de Cogeco Communications.
2822 À sa droite, Leonard Eichel, directeur principal, Affaires réglementaires Télécom.
2823 À ma gauche, Luc Noiseux, premier vice-président et chef de la direction technologique et de la stratégie, et à sa gauche, Marie Ginette Lepage, vice-présidente, Solutions sans fil et innovation.
2824 Directement derrière Marie Ginette, Charles Filiatrault, directeur principal, Ingénierie sans fil, et à sa droite, Marc Carrier, directeur principal, Initiatives stratégiques.
2825 À sa droite, Dr Tanveer Ahmed, associé et chef de file, Économie et Finance, Nordicity, à sa droite, Dr Reetika Rana, gestionnaire, Économie et Finance, Nordicity.
2826 À sa droite, Kseniya Veretelnik, directrice, Affaires réglementaires Cogeco, et à sa droite, Simon Desrochers, conseiller principal, Affaires réglementaires Cogeco.
2828 M. JETTÉ: Merci, et bon après-midi.
2829 Nous vous remercions de nous donner l'occasion de présenter le point de vue de Cogeco en cette audience publique portant sur l’examen des services sans fil mobiles.
2830 Cogeco est une entreprise de communications diversifiée basée à Montréal qui fournit les services de vidéo, d’internet et de téléphonie filaire au Canada et aux États-Unis.
2831 Par l’entremise de sa filiale Cogeco Connexion, ces services sont offerts en Ontario et au Québec à une clientèle résidentielle et commerciale. Cogeco n’offre pas encore de service sans fil mobile.
2832 Ce n'est pas un secret que les consommateurs canadiens continuent d'exprimer leur insatisfaction à l'égard des prix, du service et de l'accès du sans fil.
2833 Au cours de la dernière décennie, les Canadiens ont affirmé qu'ils souhaitaient voir plus de concurrence et un meilleur service sur le marché du sans fil.
2834 C'est pourquoi Cogeco a présenté une proposition qui fera exactement cela: accroître la concurrence dans le marché de détail, plus spécifiquement dans les plus petites communautés régionales, encourager les investissements continus dans les installations de télécommunications, requérir une intervention réglementaire limitée dans le marché de gros, et offrir plus de choix et une valeur améliorée aux consommateurs.
2835 Nous sommes ici aujourd'hui pour présenter les changements réglementaires spécifiques qui, selon nous, encourageront de nouveaux entrants sur le marché canadien des services sans fil et pour proposer les mesures que le Conseil devrait prendre afin d’en assurer une mise en œuvre efficace et pragmatique.
2836 Nous sommes heureux que le Conseil envisage de prendre des mesures pour répondre aux préoccupations des consommateurs en matière de services sans fil et nous vous félicitons d'avoir entrepris cette instance.
2837 Permettez-nous de commencer par définir le problème qui sous-tend le marché canadien tel que nous le voyons.
2838 L'intérêt public est mal desservi par la structure actuelle du marché où les prix sont élevés, les plus petites régions sont sous desservies, la pénétration et l’usage sont inférieurs à ce qu’ils pourraient être et la demande des consommateurs n'est pas comblée par l’effet seul des forces du marché.
2839 Ceci est confirmé par nos conversations soutenues avec les 790,000 abonnés que nous desservons aujourd’hui.
2840 Bien que certains puissent indiquer que les prix ont récemment baissé et que des forfaits illimités aient vu le jour dans le marché, détrompez-vous. Ces événements récents sont principalement dus à la crainte de réglementation et non à l’accroissement de la concurrence.
2841 La présente instance a mené au dépôt de nombreuses observations et nous aimerions aborder brièvement celles déposées par le Bureau de la concurrence, considérant les nombreux aspects de leur analyse qui sont entièrement partagés par Cogeco.
2842 Premièrement, nous souscrivons à leurs conclusions concernant la puissance commerciale des trois exploitants de réseaux mobiles nationaux, ou les "3 MNOs", dans les marchés des services sans fil de détail et de gros.
2843 Sur la base des chiffres de 2018, les trois MNOs détiennent 90,7 pour cent des parts de marché liées aux revenus et 89,2 pour cent de celles liées aux abonnés. Ces résultats sont demeurés quasi inchangés depuis les cinq dernières années.
2844 Deuxièmement, nous sommes d’accord avec le Bureau à l’effet que les obstacles à l'entrée sur le marché restent élevés. L'accès au spectre pour de nouveaux petits entrants régionaux n'est tout simplement pas possible.
2845 D’une part, il n'est pas rentable d’acquérir du spectre sur la base d'une structure d'enchères découpée par zones de niveau 2, et d’autre part, les bandes de fréquences requises pour développer un réseau sans fil moderne et pour offrir une expérience client de qualité sont insuffisantes ou tout simplement non disponibles.
2846 Troisièmement, nous sommes d’accord avec le Bureau qu’un certain niveau de coordination entre les trois MNOs existe et que, par conséquent, les prix élevés des offres sans fil actuelles entraînent une sous-consommation des biens et de services.
2847 Cogeco peut attester qu’un marché de gros des services sans fil au Canada est inexistant simplement parce que les trois MNOs veulent à tout prix éviter toute nouvelle concurrence.
2848 Enfin, nous convenons avec le Bureau que la mesure corrective à adopter doit assurer la continuité des investissements dans les infrastructures de télécommunications compte tenu des cycles rapides d’évolution technologiques.
2849 Toutefois, Cogeco croit aussi fermement que tous les Canadiens méritent de bénéficier des avantages de la concurrence, y compris ceux qui vivent à l'extérieur des centres urbains densément peuplés.
2850 À notre avis, la mesure corrective proposée par le Bureau n’apporte aucune réponse au manque de choix de services sans fil auquel sont confrontés les Canadiens vivant dans les plus petites collectivités régionales et au besoin de concurrence plus vive dans ces localités.
2851 En fin de compte, nous constatons que des régions entières du pays sont mal desservies en termes de choix de fournisseurs et de services sans fil où les prix sont souvent plus élevés que dans les zones urbaines plus peuplées.
2852 La solution proposée par le Bureau de la concurrence n’accorde peu ou pas de place aux plus petits opérateurs régionaux de télécommunications déjà dotés d'installations qui pourraient entrer sur le marché et faire une différence pour les nombreux Canadiens vivant dans ces petites communautés.
2854 MR. NOISEUX: Canada's varied geography and dispersed population density has always posed challenges to wireless network deployment.
2855 In such circumstances, reducing investments in network duplication and focussing it instead on the roll-out of networks in underserved areas represents a better balance between the need for investment in networks and that of increased competition.
2856 Our submission articulates this required balanced approach with the Hybrid MNO or HMNO proposal.
2857 The HMNO proposal is designed to solve the lack of wireless choice in smaller regions across Canada where the problem is especially acute. It uses the strength of regional facilities-based broadband providers already serving active clients in those regions by allowing them to add wireless offerings for their clients.
2858 Consumers who choose a regional provider like Cogeco for internet, video and land phone today, cannot also get mobile wireless plans from the same provider and are often limited to the three MNOs for their wireless plans.
2859 Under the HMNO proposal, facilities-based wireline and wireless broadband access providers would be granted regulated access to the three MNOs’ radio access networks, backhaul, and limited core functions, referred to, in this presentation, as “wholesale access”.
2860 HMNO is said to be hybrid because the operator will rely both on self-deployed facilities and on the three MNOs wholesale access facilities to provide wireless services.
2861 As such, it is a mix of infrastructure-based and service-based competition that is inherently flexible, depending on the serving area.
2862 To be eligible for Wholesale Access to the 3 MNOs facilities under this proposal, participants would have to meet the following robust set of specific and tangible criteria:
2863 a) Registration with the CRTC as a facilities-based carrier;
2864 b) have deployed and operate a broadband access facilities-based wireline or wireless network that is serving active clients; and
2865 c) demonstrate at all times continued investment in facilities as reported on an annual basis to the Commission.
2866 HMNO would only be permitted to sell wireless services to customers who reside within a Tier 4 service area where they operate.
2867 Finally, in our initial proposal, we also submitted that HMNO would be granted Wholesale Access to the 3 MNOs wireless networks in those same Tier 4 regions. This proposal inferred that when a client would be moving outside its Tier 4 residential area, the incidental roaming regime would kick in.
2868 We would like to pause for a moment on this last point. Cogeco looked at BCBA and Ice Wireless comments on this specific element of our proposal. Both submitted that using Wholesale Access of the 3 MNOs on a Tier 4 basis only would be complex to manage and impractical. BCBA suggested that Wholesale Access to the 3 MNOs’ networks be granted on a provincial basis instead and Cogeco supports this change to its initial proposal. For ease of reference, we have attached as Schedule 1, the HMNO proposal modified to account for this change. Our proposal to restrict the selling of wireless services within a Tier 4 service area remains unchanged.
2869 Now, with respect to investment, Cogeco announced last summer its plans to invest more than $1 billion over the next four years in the operation and expansion of its Canadian hybrid fibre coaxial cable network, in order to pursue its growth and to extend its regional high-speed Internet coverage currently serving 427 communities across Ontario and Québec.
2870 There should be no doubt about Cogeco’s willingness to invest up front in HMNO facilities and, once such an operation is up and running, to replicate the industry’s capital intensity benchmarks in its HMNO infrastructure.
2871 Let’s now turn to the unique benefits that one can expect from the HMNO proposal:
2872 First, it will leverage the convergence of wireline and wireless services, a trend that will only accelerate with the impending arrival of 5G networks. It will also ensure that each dollar invested by new entrants will be used to connect more customers across the country. Avoiding network duplication in urban centres and building networks for people who call these smaller communities home would make sure the investments go further and connect more Canadians. For Cogeco, this means concentrating on building within our footprint. This approach has the dual benefit of making business sense and fostering better service for our customers.
2873 The second key benefit of the HMNO proposal is that its disciplined approach to mandating Wholesale Access will prevent potential abuse that could actively harm investments. The Commission has received numerous submissions cautioning that a wide-open service-based approach to Wholesale Access could undermine investments. The HMNO proposal addresses these risks by requiring that HMNOs have existing facilities and homes passed (or homes covered) in each Tier 4 service area where they wish to sell the service and to benefit from mandated provincial Wholesale Access. This will result in accelerated investment and innovation to improve Canada’s telecommunication infrastructure.
2874 This brings us to the third key benefit of the HMNO proposal: it will jump-start competition in the wholesale wireless market by allowing an HMNO to choose one or many Wholesale Access service providers. Then, once competition is established, the large MNOs will have the opportunity to compete for the HMNO business, to earn a fair return on their capital investments and to continue to re-invest in their networks.
2875 Wholesale Access to the 3 MNOs’ networks is needed by smaller facilities-based players in order to provide quality mobile service that leverages their own existing but insufficient spectrum assets, with those of the 3 MNOs that are too often underused.
2876 Contrary to what its opponents might have you believe, the HMNO proposal will actually drive net new investments into Canada’s telecommunications networks. The exponential growth in consumer demand for data means that HMNOs will be under constant market pressure to minimize their reliance on mandated Wholesale Access and to invest in their own network infrastructure. The dynamic that will be created under this new proposal will ensure HMNOs continue to invest in their own facilities – which will, in turn, benefit consumers and the broader public.
2877 To summarize, the HMNO proposal will address key prohibitive barriers to entry into the mobile wireless market and create effective competition, thus increasing the product offerings and lowering prices for consumers. It has been carefully designed to ensure the sustainable entry of new facilities-based service providers into the wireless market. It would apply to a broad set of broadband providers (fixed, mobile and wireline), should they wish to take advantage of this regime.
2878 Mme DORVAL: Voici maintenant les étapes réglementaires qui permettront de concrétiser la proposition HMNO:
2879 En premier lieu : Mandater les 3 MNOs à fournir un Accès de gros provincial en faveur des HMNOs éligibles. Un tel accès à leur réseau serait fourni dans les provinces où les HMNOs desservent des clients actifs à l’intérieur d’une zone de niveau 4;
2880 En deuxième lieu : Tel que proposé par le Bureau de la concurrence, mettre à jour les tarifs d'itinérance afin qu’ils suivent mieux les tarifs de détail du marché pour des services similaires. Le CRTC devrait annuellement « vérifier la validité » des tarifs et les ajuster en conséquence. Le CRTC pourrait adopter un mécanisme d'ajustement semblable à celui mandaté par l'Union européenne;
2881 En troisième lieu : Mandater l’itinérance transparente des appels (ou « seamless handover ») afin de s’assurer de l’acheminement ininterrompu et sans détérioration de la communication entre les réseaux;
2882 En quatrième lieu : Une fois le régime HMNO rendu obligatoire, les parties négocieraient alors les tarifs applicables pour l'Accès de gros provincial dans des délais prédéterminés avec un processus d'arbitrage accéléré comme filet de sécurité réglementaire. Le CRTC devrait fournir des principes de négociation clairs dans son cadre réglementaire qui imposent une obligation aux 3 MNOs d’offrir un Accès de gros à un prix qui permet aux HMNOs d’offrir des produits compétitifs sur le marché de détail et de réaliser des marges positives. Le prix par gigaoctet devrait évoluer avec le temps en tenant compte de la réalité du marché des plans offerts sur le marché au détail sans fil.
2883 En dernier lieu : Évitez l’élimination prédéterminée du régime jusqu'à ce qu'un processus d'examen confirme qu'il y a suffisamment de concurrence fondée sur les installations dans le marché, perturbant les prix et services sur une base continue. L'accès au spectre ayant toujours constitué une barrière à l’entrée qui risque de perdurer, l'Accès de gros mandaté pourrait être une solution réglementaire à moyen ou même à long terme. Cela est particulièrement vrai en raison de la rareté du spectre, notamment dans les bandes de basses fréquences qui ne sont plus disponibles pour les petits opérateurs.
2884 Tous les éléments ci-dessus sont essentiels au succès de la proposition HMNO et, plus encore, à la qualité du service pour les Canadiens qui choisiront de plus petits fournisseurs régionaux pour leur solution sans fil.
2885 À cet effet, nous souhaitons porter à l’attention du Conseil que la proposition HMNO a déjà recueilli un large soutien. Près de 300 municipalités dans de plus petites régions, moins densément peuplées et mal desservies, ainsi que des associations de l’industrie représentant plus de 200 membres qui desservent principalement des collectivités rurales situées partout au Canada, ont formellement approuvé la proposition HMNO. Les dirigeants des gouvernements locaux comprennent que ce modèle a le potentiel de propulser le déploiement de nouvelles offres sans fil dans les zones rurales et en banlieues.
2886 Par exemple, au sein de son empreinte au Québec et en Ontario, Cogeco couvre 427 petites villes et municipalités régionales où vivent 3,9 millions de Canadiens. En tirant parti de son réseau filaire et de sa clientèle existants, Cogeco serait bien positionnée pour aider à accroître la concurrence et à offrir plus de choix de services sans fil à ces Canadiens.
2888 MR. JETTÉ: For our part, Cogeco is taking every responsible step to move forward with its wireless plan. We have hired an executive in charge of implementing wireless services and started ramping up a team; we have and continue to acquire spectrum; we have registered as a Wireless Carrier with the CRTC and have obtained our own mobile network code with the CNA; we have begun the deployment of wireless 3500 MHz spectrum with focused investments in fixed wireless services; and we are participating in every ISED consultation process to ensure future auctions are structured on smaller service tiers, thus lowering spectrum barriers for smaller regional players.
2889 Cogeco has been and continues to invest in wireless at a level that is proportionate to our size and economic means.
2890 In closing, we want to reiterate that the HMNO framework proposed in this proceeding represents a proportionate and limited regulatory response by the Commission in the current market and is consistent with both 2006 and 2019 Policy Directions to the CRTC.
2891 With the right regulatory framework, the Commission can create an environment that will build on Canada’s regional facilities-based success and allow companies like Cogeco that has invested billions of dollars in its network facilities over the years, to better connect Canadians. For smaller regional facilities-based providers, the HMNO proposal is the most effective option for success, balancing wholesale access, investment commitments, increased sustainable competition, and choice for Canadian consumers and businesses.
2892 It is a forward-looking policy, designed in a way that acknowledges and leverages today’s reality where wireline and wireless networks are converging. It will help accomplish the Canadian public policy goals by creating new wireless choices for consumers, driving down prices, and fostering innovation as well as enhanced network quality through investments.
2893 We submit to you that the HMNO is the best path forward for the Commission, for the Canadian wireless industry, and, most importantly, for Canadian consumers in all regions across the country. Cogeco and its peers are eager and ready to better serve existing and new customers, adding wireless offers to their portfolio while increasing choices of providers to Canadians across the country. The right time is now.
2894 We thank you for the opportunity to provide these comments and will be pleased to answer your questions.
2895 THE CHAIRPERSON: Merci beaucoup. Thank you. Thank you for your presentation.
2896 I’ll begin.
2897 I know in your opening remarks, you make several… you make reference to your ongoing efforts and movement towards wireless. You have spectrum currently, that’s 3500 spectrum? Is that correct, you have other spectrums besides 3500?
2898 MR. NOISEUX: Yes, we do. Marc can provide the details.
2899 MR. CARRIER: Yes, we have 2500 spectrum, we have some 2300 spectrum in two localities, and we have four 3500 -- 3500 licences in Eastern Quebec.
2900 THE CHAIRPERSON: Merci. Thank you.
2901 Vous pouvez répondre dans les deux langues, toujours.
2902 So maybe a good place to start is maybe looking backwards rather than forward for a moment and discuss broader business plans.
2903 Obviously, as a firm, Cogeco has publicly discussed its interest in being a wireless carrier for quite a number of years, so what has really stopped you as opposed to Vidéotron of Freedom or other entrants from having entered the market, whether it was through participating in previous auctions or through purchasing those who had participated in previous auctions?
2904 MR. JETTÉ: Yes. So what -- well, in short, the barrier to entry related to spectrum. The structure of the auction process prevented us to acquire spectrum at a reasonable cost. For example, to serve suburbs of Toronto, you -- we’re required to acquire the whole Toronto region and, in our case, to use only a small portion of it. That would have been a billion-dollar plus investment not to be used.
2905 The business case has always been challenging and the deployment of our net -- of our -- of wireless services but mobile services was challenged by also the lack of cooperation. We tried many, many times, we are certainly one of the files in other larger players sitting on a desk somewhere where we ---
2906 THE CHAIRPERSON: Well, we’ll -- we’ll get to that.
2907 MR. JETTÉ: Where ---
2908 THE CHAIRPERSON: It’s my next question.
2909 MR. JETTÉ: Where we asked collaboration, we’ve asked to enter in different kinds of relationships to share networks or to get access, but were always turned down immediately, there was no way to open a dialog with any large players. So access to spectrum and no collaboration from the industry.
2910 THE CHAIRPERSON: But continuing on the spectrum theme for a second, I mean, Freedom, as a current market participant, I guess, acquired its most important spectrum in the form of… from Wind. Other players such as Quebec or Videotron acquired spectrum not just in Quebec, but in other places -- Toronto, as I recall -- and then that was sold.
2911 So I understand that the auction design may have not have matched up your territory but weren’t there opportunities to make the investments that you’re talking about now in spectrum at an earlier point in time?
2912 MR. JETTÉ: Well, Cogeco grew as a company one -- like one step at a time, and we had to go along our economic means. So it was simply not possible, given the size we had in the last fifteen years as we ramped up our operations, to actually acquire a large squat of spectrum, to park it or to hope to use it in future days. So, we didn’t have the economic means to actually do that.
2913 THE CHAIRPERSON: D’accord. Merci.
2914 But you are now obtaining and continuing to obtain spectrum and, as you point out, you’re encouraging future licencing to be done in a manner that would better reflect your desire to serve perhaps less densely populated areas. What do you think is the potential for a new entrant to be able to acquire sufficient spectrum to launch as an effective competitor, probably not national, but subnational? What’s your view on that?
2915 MR. JETTÉ: So -- well, first, I’d like to say that our ambitions are to serve where we have a deployed network because the convergence of wireless and wireline is key -- is critical to the success of deploying a wireless operation. So now, where we have built networks, in some areas, it won’t be possible to acquire all the spectrum we need, so quantity of spectrum, or the right band of spectrum. We need low band, mid band and I-bands of spectrum.
2916 The different combination available will have us have some spectrum and be able to build in some small areas, and that's why the HMNO proposal is based on also leasing capacity from large players. In areas where there won't be any spectrum in the short term, we won't be able to build, so we will lease capacity. And over time, when we acquire spectrum, we will ramp up the network and eventually won't need to lease access to rounds of the three MNOs.
2917 THE CHAIRPERSON: Do you have a view about what kind of timeframe that looks like?
2918 MR. JETTÉ: Well ---
2919 THE CHAIRPERSON: And when the day will come when you are predominantly reliant on your own spectrum?
2920 MR. JETTÉ: I wish I have a more accurate response for you, but the three large MNOs took more than 35 years. They've launched service in July '85 in Canada. It took them a lot of time and iteration. There's also the aspect of technology. We are with -- at the fourth generation. The fifth generation is coming, so there's a lot of investment required to deploy the latest technology to take advantage of new services and the cost of benefit of technology. So, technology needs always a refresh.
2921 And the size of our network is very, very large. Just to give you an example -- well, in Ontario to -- and Quebec from Sarnia to Gaspé we serve a very large territory. Our network is almost 60,000 kilometres long. We serve in Ontario -- if I could give you some numbers --- 2,000 square kilometres, and in Quebec another 2,000 square kilometres. So, let's say we have 4,000 square kilometres of coverage to do. Toronto is only 600 kilometres. So, for a new player to start in a very dense urban centres, where there's a lot of population, a lot of revenue, and a much smaller footprint, it's faster.
2922 Our undertaking would need that we actually deploy a very significant large footprint, so it will take more time, it's more challenging, and with the different cycles of technology there's always a catch up to do, so it won't be fast.
2923 THE CHAIRPERSON: Understood. I regret to tell you, though, I know how long ago 1985 was. I think that's when I first went into government so.
2924 So then let's talk about the other way of acquiring access aside from spectrum. If you will, the next best thing to having your own network is using the network facilities of one of the established players. As you mentioned, you've had discussions seeking to negotiate an access arrangement of one kind or another to provide mobile wireless service. Can you tell me more about those negotiations, those processes?
2925 MR. JETTÉ: The ---
2926 THE CHAIRPERSON: Those who we've talked to up to this point just said no.
2927 MR. JETTÉ: Yes.
2928 THE CHAIRPERSON: So, I'm hoping you're not going to say no and you can give us a little more information.
2929 MR. JETTÉ: Well, I wish we could call them negotiations or even conversation. They're very polite. They listen to our questions. They take requests, but the answers are not coming back.
2930 So, we don't sense, and over time we've tried in multiple occasion. We've also previously filed with the Commission written documents of our efforts, ongoing efforts to establish conversation that would lead to any kind of commercial negotiated agreement, but the other parties are simply not responding in a way where -- conducive to a commercial agreement.
2931 THE CHAIRPERSON: Can I probe just a little further? Not responding, or not responding with terms that are acceptable to you. Is it really ---
2932 MR. JETTÉ: Well -- yeah.
2933 THE CHAIRPERSON: --- a we just listen and then say next meeting, next year, or ---
2934 MR. JETTÉ: Yeah.
2935 THE CHAIRPERSON: --- are they engaged in a process, but you're not close to an agreement?
2936 MR. JETTÉ: Well, we are not close to any agreement with any other -- with any of the three MNO. That's a certainty. We have to suggest different ideas as they don't have a template, they don't have a framework. They are not proposing anything. But we can't really move any conversation forward with a commercial agreement.
2937 THE CHAIRPERSON: But just, again, I -- if you can't provide details, I understand, but have your requests been as a full MVNO everywhere? Has it been as some other type of limited MVNO? Regionally limited, limited to rural areas? I'm just trying to get a sense of what you have tried to negotiate. And you might guess my follow-on question is going to be why do you think you haven't been able to make any progress?
2938 MS. LEPAGE: We have tried the numerous things. We have tried the full MVNO route. We were told no to this.
2939 Some things were presented to us. We were presented with the possibility of reselling the MNO product under the MNO name. We were also presented with the possibility of white labelling, but definitely nothing that would stir up competition, because if -- the way we were looking at this we would just be a new distribution channel for the MNOs.
2940 THE CHAIRPERSON: And to the second question, I guess perhaps you answered it implicitly, but is why do you think that the MNOs have been unwilling to enter into an agreement beyond the type that may have been offered?
2941 MS. LEPAGE: Well, from conversations that we've had, one of the assumptions that we can make is that there are some things in their rent sharing agreements that would prevent them to give us access to a MVNO agreement.
2942 THE CHAIRPERSON: Okay.
2943 MS. DORVAL: And if I may add, I mean, I think we heard a bit of the other side of the story this morning is that they would need a mutual interest to move forward with an agreement with a new entrant, and why would that be since it's just creating new competition. So, why would they move forward with that? So, I think that's part of the answer as well.
2944 THE CHAIRPERSON: Merci. Thank you.
2945 So, before I get into some questions about the specific model that you have proposed, maybe just a little bit about essentiality test.
2946 So, a number of parties in the proceeding have argued that the Commission needs to revisit its June 2015 essentiality determinations. Currently radio access is mandated on a national basis for wholesale roaming. Is the appropriate geographic market, in your view, for wholesale MVNO access also national, or do you see it as smaller?
2947 MS. DORVAL: I think we heard a lot about the geographic market, especially yesterday. The Competition Bureau did -- gave a broad view of it. They explained that, you know, it is where substitution occur.
2948 That being said, I don't think we will revisit this today in our answer, but as you said, this Commission is 7 2015, the geographic market was national at that time. Now we've heard the Competition Bureau saying it could be provincial, it could even be smaller cities. So, at that point on a practical perspective, what we think is that -- or, for example, HMNO model should be available nationally, but that HMNOs should be able to purchase it on a provincial basis.
2949 THE CHAIRPERSON: But in your view, in areas where carrier -- where the regional carriers, for example, have duplicated radio access network, does that decrease the likelihood of further entry? Is that going to be it? Will there -- in your view?
2950 MS. DORVAL: I think we heard a lot about that also.
2951 I think we’ve got to be careful with this new regional player that has entered the market.
2952 Yesterday I was listening to the Competition Bureau saying, for example, that in 2014, Videotron had 10 percent -- was covering with its wireless infrastructure, 10 percent of the Province of Quebec and that they had double that recently.
2953 So in their view, they would be around 20 percent today.
2954 And when we look at our footprint, which is in the Province of Quebec, for example, we see that they are covering 4.7 percent of our footprint.
2955 So what you see is that these numbers, I think, are skewed to more urban areas and not as much to less densely populated a region like where we operate.
2956 And I think, Luc, you ---
2957 MR. NOISEUX: Yeah, I think Nathalie was actually referring to market penetration in our footprint, not network coverage.
2958 THE CHAIRPERSON: So to your model, I guess the criticism or comments that I’ve seen for most parties is that under your proposal, only -- there would only be minimal targeted investment.
2959 One potential reading of your proposal is if you connect via wireline facilities to a single household in the Toronto Tier 4 area, you’d become eligible for MVNO access to millions, obviously, across the GTA.
2960 Is that an accurate description?
2961 MR. NOISEUX: Well I think there’s the duty to keep investing proportionality to revenues, future revenues. So we have not -- we have not provided the finer access criteria for the following reason, that there’s a need to invest and that those investments would need to be sustained over time.
2962 So there’s nothing wrong with a person in a small community starting his business and gaining access to the national network in order to support its product portfolio and then expanding from there.
2963 THE CHAIRPERSON: I understand, but just to be clear, that is correct though?
2964 MR. NOISEUX: It is correct.
2965 THE CHAIRPERSON: If you had access in one -- anywhere in the Toronto Tier 4, ---
2966 Mr. NOISEUX: Well I think we had a number of criteria. The first one was, obviously, was being registered as a facilities-based operator operating a network.
2967 I doubt that anyone would deploy a network and not put it to use.
2968 And the third one was the duty to continue investing.
2969 So I think, you know, between these three criteria, we believe that there is enough guidelines, if you will, or guardrails, to prevent for abuse of use of our proposal.
2970 THE CHAIRPERSON: And just, we’ll come back to some of the terms and conditions.
2971 I am just trying to balance the emphasis in your presentation on non-urban areas with this sort of obvious criticism that says, you know, that the proposal invites someone, or yourselves, to potentially invest a fairly limited amount in comparison to the existing players in order to get access to a very large urban market. Back to my example of you have the whole Toronto Tier 4 market.
2972 MR. JETTÉ: We have to look at this wireline and wireless networks together. So that would be my entry point in answering your question.
2973 There’s a lot of investments that are needed in wires to make a wireless network work.
2974 And we are committed. We have been building very large wired broadband networks.
2975 We will put that in combination to a future investment in wireless. All we’re missing, really, is the wireless layer where we need for the spectrum, and that’s in essence, our proposal, where we can get spectrum, we’ll eventually build. But it won’t happen very fast. We need time to do that and compliment our broadband wire lined networks.
2976 But where we cannot acquire spectrum, that’s where we need to lease and compliment, to actually build a product, a service that is compelling enough to be sold in the marketplace.
2977 THE CHAIRPERSON: Thank you.
2978 In your November comments, you provide an inverted U diagram and put forward that your proposal is geared to ensuring the market entry is controlled, you emphasized that again today in your opening remarks, so as not to really tip the balance or change the market in such a way as to decrease investment.
2979 You probably heard Mr. Bibic’s testimony and responses to us this morning.
2980 He obviously holds a very different view, suggests that any and all of the proposals, including yours, would have a fundamental impact on investment.
2981 I wonder if you could comment on that?
2982 MR. JETTÉ: Well, any investment is made on business case, strong business case. We need a lot of capital and fair returns on those capitals.
2983 We heard this morning a description, a business case base, where if there is -- they would not expand their network if they don’t have a positive business case, or if there is another area in a dense urban centre where it’s more profitable, that’s where the investment will be redirected.
2984 Our model contemplates more the regional builds, because that’s where we are, as many other regional operators in Canada.
2985 So if they scale down their level of investment in regions because they need more money for 5G in dense urban centres, investment will actually happen by the regional players if we can get a minimum access to get us started and deploy an operation.
2986 So investment will actually be shifted or be shifting from one network that is investing less to others that are investing to cover.
2987 And these regions are our bread and butter. So we will provide good services to Canadians.
2988 THE CHAIRPERSON: But would it be investment in wireless? Your investment is predominately in broadband. And if they’re not investing to extend their wireless networks, is their investment in wireless in those rural ---
2989 MR. JETTÉ: Yes, that’s ---
2990 THE CHAIRPERSON: --- or less densely populated areas?
2991 MR. JETTÉ: That’s what exactly I’m saying.
2992 So we will add the -- add to their existing coverage other sites to grow the coverage or to bring more wireless services to our own areas, the regional areas. And that’s -- these are the areas of Canada that are invested after the dense urban centres right now.
2993 So the money first goes for the big players in the large centers.
2994 We’ve heard Mr. de Gooyer this morning describe in corridors how they will not invest if they can’t get more subscribers.
2995 In this example, it would be actually our -- within our footprint and our interest to invest to make sure there’s good coverage in regional areas.
2996 THE CHAIRPERSON: Okay. Thank you for that clarification. I misunderstood your first response.
2997 But it does still raise the question that the investment in those rural areas is limited because the business case for investment is limited.
2998 Is there -- why is it better for you than for under the -- under your model to expand the wireless coverage than the national player?
2999 MR. JETTÉ: Well, first it’s the core of our business. These 3.9 million population or 1.7 million homes that we cover, that’s our footprint, that’s our core business.
3000 So we will bring overtime, proportionate to our economic means again, mobile services to these regions.
3001 It’s actually adding a product in our portfolio, a product that is being demanded by our existing customers. We provide video, Internet, and telephony today. Many customers would like, would love to acquire a mobile service from Cogeco, we simply cannot offer that today. We will in the future.
3002 THE CHAIRPERSON: Okay. Thank you. The 1.7 million homes, that's your coverage. What would be the split of that in terms of rural versus urban, or metropolitan areas?
3003 MR. JETTÉ: Well, we have some -- we can actually file the exact statistics, but we have some centres, like Hamilton, Oakville, Burlington, Trois-Rivières that are larger.
3004 THE CHAIRPERSON: Right.
3005 MR. JETTÉ: But on the 427 towns and communities that we serve, there are many, many, many others that are much smaller.
3006 THE CHAIRPERSON: No, I certainly understood that, and took note of your reference of the number of square kilometres served in both Québec and Ontario. But I was just trying to get a very ballpark sense of when you talk about those larger centres, do they make up a majority of your 1.7 million customers? It's okay if you don't have that handy. We can certainly take an undertaking to provide it to us.
3007 MS. DORVAL: I think we'll provide a -- the answer by an undertaking.
3008 THE CHAIRPERSON: Thank you.
3009 UNDERTAKING / ENGAGEMENT
3010 THE CHAIRPERSON: Staying on that logic of how you may be better positioned to expand service and meet the needs of your -- of customers, of Canadians in those less densely populated areas. Does the Bureau's model not more directly address the same challenge?
3011 MR. NOISEUX: So I think there's a lot of commonality between our model and the Bureau's model. There is a couple of areas where they defer. One of them is I believe the Bureau suggesting that access to the MNOs network would be tied to spectrum holdings.
3012 We do not find it logical to address a barrier to entry tied to spectrum by linking it with the requirement to hold that very spectrum. To us, if we are to overcome this barrier, we need to take a broader approach.
3013 And given that there is a general consensus around the fact that access networks are converging and that every operator needs to bring fibre deeper into their network to support the growing demand for bandwidth, that a broader approach that is technology agnostic is preferable. So that's Point No. 1.
3014 Point No. 2, where our model defers is to have a phase-out period. Given the challenges of acquiring the right mix of spectrum to remain competitive from a service offering and given the lack of predictability on the availability of spectrum, we do not believe that imposing from the get-go a phase-out period is the right direction.
3015 But other than that, I believe both models support investments and facilities, which is really at the heart of our proposal. So I think there is a lot of commonality between the two models.
3016 THE CHAIRPERSON: When you mention the phase-out period, is it the length of the phase-out period or any phase-out period?
3017 MR. NOISEUX: Well, you know, I think our position is let's -- you know, a future, a regulatory framework play out and then revisit it in 5‑years to see where we stand. But to try and predict what a proper phase-out period would be from the get‑go is not the suggested approach in our recommendation.
3018 THE CHAIRPERSON: Okay. Thank you. Now, you're suggesting that limiting mandated MVNO wholesale access that it should be, pardon me, limited to commercially negotiated rates, terms, and conditions backed by binding arbitration. You've heard us ask a number of parties, I'm sure by this point, this question.
3019 Don't you think, or do you think it will be challenging from an arbitration perspective if terms and conditions are included in the process? You have some experience with the Commission's current mediation and arbitration processes. I'm looking at Madam Dorval as I say that. If you layer in terms and conditions as well as price, do you think that's a workable approach?
3020 MS. DORVAL: We've given a lot of thoughts to that, and we -- first of all, in our Schedule 1 to our proposal, we already expressed what we felt was needed in terms of services. Now, in terms of terms and conditions, we thought it would be very helpful to have some kind of parameters that would frame those negotiations. And you're probably gonna see me come -- I'm not meaning necessarily something as big as a wireless wholesale code, but at least some parameters that would help frame those negotiations. And it seems to us, it would be, you know, in the final comments something that could be ask to participants as to what those parameters would be or could be.
3021 THE CHAIRPERSON: So not to put words in your mouth, you're thinking that the Commission might establish some broad terms and conditions, either in this process or in a following process?
3022 MS. DORVAL: I would definitely say in this process, hopefully.
3023 But you know, when we look at the broadcast side of the thing, you know, what we have is not perfect. There is no perfect world. But it's certainly helpful to be able to have some guidance in terms of what are the terms, or what -- in what range should the parties be looking to negotiate terms and conditions.
3024 THE CHAIRPERSON: But obviously, you do think it's possible to deal with both terms and conditions and rates in an arbitration process for these purposes?
3025 MS. DORVAL: Especially in a baseball-type of arbitration, or a FOA, where you pick one offer over the other. But again, it needs to be thought of, and well thought of, and I think it needs maybe a lot of expertise to do that. But I think it's something that's achievable.
3026 THE CHAIRPERSON: And on that, since you mentioned, you know, FOA or baseball sale arbitration, you've discussed several approaches, ISED's arbitration rules, Canadian Arbitration Association's process. Do you have a preference for one over the other, and if so, why?
3027 MS. DORVAL: No, we don't have a preference. Actually, the one we really know about is the Commission arbitration process, and we would be fine with the Commission acting as the arbitrator.
3028 THE CHAIRPERSON: And do you think it would be necessary to change our processes in any fundamental way in order to deal with this issue, or these issues?
3029 MS. DORVAL: I think I would like to give some thought to that. There is always a way that things can be improved. They are working, actually, as they are, so maybe my take on this would be maybe they could be improved but certainly they are working.
3030 THE CHAIRPERSON: I'd be happy to take that as an undertaking. To be clear, though, I'm not looking for suggestions for improvements on our current process, but how our current process might be improved if required to deal with terms and conditions and rates associated with any MVNO model.
3031 UNDERTAKING / ENGAGEMENT
3032 THE CHAIRPERSON: Not to close a door I opened.
3033 MR. NOISEUX: Yeah. I just wanted to go back and underscore one of Nathalie's comments. I think it's very important for the Commission to provide guidelines as to how these negotiations should be undertaken by both parties, okay, to avoid diverging positions from the get‑go. And as we -- if were are unable to come to terms, then I think these same guiding principles could be used in the arbitration process.
3034 So without any framework or guidance at a high-level, we feel that it might be difficult to have fruitful negotiations.
3035 THE CHAIRPERSON: Understood. But if you could give us some indication of what kinds of -- what ---
3036 MR. NOISEUX: Sure.
3037 THE CHAIRPERSON: --- types of guidelines might be helpful ---
3038 MR. NOISEUX: Yeah, yeah.
3039 THE CHAIRPERSON: --- that would be an example of an amendment to ---
3040 MR. NOISEUX: Yeah.
3041 THE CHAIRPERSON: --- or changes to our existing processes.
3042 MR. NOISEUX: Yeah. Well, I think at the highest level these would be successful on the basis that we could offer a competitive service and market it successfully. So I think that should underpin the guiding principles for negotiations between the MNOs and those who wish to take advantage of Wholesale Access. And then they can -- you know, we can derive from that a number of conditions, but at the highest level, I mean, if we want this to be -- to work, I think we need to start the negotiations on that premise.
3043 THE CHAIRPERSON: Thank you for that. That prompts me to go to your opening remarks on -- maybe we'll come back to some of the steps you outlined in paragraph 32 that what you just said mirrors in part what's in D or your fourth proposal or requirement where you say that there would be a duty to,
3044 "...offer Wholesale Access at a price that enables HMNOs to offer competitive products in the retail market and achieve positive margins."
3045 So, that sounds very clear and certain on the surface, but I imagine that can be complicated. A simple -- and I don't mean to be -- sound like I'm being difficult, but is that not an ever-changing challenge, an ever-changing objective? If you enter the market and your impact is indeed to stimulate greater price competition, and prices get reduced in the region, then your margin gets reduced if everything else stays the same. So, is this an ongoing process of making sure you have a sufficient margin to continue to be able to offer a competitive product?
3046 MR. NOISEUX: Yeah, you know, it certainly is, but I think there are commercial terms possible where the structure or the final price would be revisited on a periodical basis. That is actually required in a market where prices are declining at the pace that we're seeing in the industry.
3047 But now, these could be part -- should be part of the negotiation -- the negotiated structure, and I think going back to the basic principle of supporting a competitive product in the market, yes, those prices will need to be adjusted on a regular basis.
3048 THE CHAIRPERSON: Okay. Thank you.
3049 MS. DORVAL: If I may add, there are model that do exist, and we've looked a bit at it, in the European Union and Norway, I think, I believe, if ever you would like to hear more about that.
3050 MS. LEPAGE: And also, the fact that the market is more competitive is also an incentive for the HMNOs to deploy infrastructure, because if there is a margin squeeze, definitely investing into their own infrastructure is going to help get a better return on investment and a better business case.
3051 THE CHAIRPERSON: Thank you. Merci.
3052 Maybe before I leave that subject -- so we talked about your preferred approach being mediation, arbitration, I suppose your preferred approach would be an agreement. Other parties have proposed a retail minus approach, for example. In your view, what are the pros and cons of that, and if the Commission were to chose that approach, in your view, how would we deal with the retail rate and the markdown, given that -- just the complexity of pricing in the marketplace and the broad number of plans, different types of plans and so on?
3053 MS. DORVAL: Our preference would definitely be a negotiated solution.
3054 THE CHAIRPERSON: Understood. But it -- so you have no comments on the retail minus approach?
3055 MR. NOISEUX: Well, you know, I think going back to my previous comments, I think if we -- if the Commission frames this based on the principle that the beneficiaries of Wholesale Access need to be in a position to offer a marketable service, then I think the guiding principle kind of solves this without imposing the specifics of a retail minus approach; right? And that could be negotiated and revisited on the basis of a commercial agreement.
3056 Now, at least we have this as a backstop if we cannot come to terms as a guiding principle, again, when -- if we're forced to go to arbitration.
3057 THE CHAIRPERSON: Okay. Again, thank you.
3058 What do you think about using the wholesale roaming rights as an interim rate?
3059 MR. JETTÉ: Sorry, just to add on the previous, the -- there's a key factor that we should not lose sight of, the -- the fact that we actually could lease capacity from the three MNOs, that's another market dynamic that will actually entice people to negotiate in good faith and strike commercial deals. So, it's not just asking one player to play nice, but it's actually talking and wanting to establish multiple commercial agreements with the three MNOs and change them over time. If one is not a good deal, we will prefer the others, and this will also discipline the market that will lead to commercial negotiated, hopefully without too many needs for arbitration.
3060 THE CHAIRPERSON: But in your view, you would always have access to all three; is that correct?
3061 MR. JETTÉ: Correct. We -- that's what we would like is to obtain three negotiated agreements with the three MNOs.
3062 THE CHAIRPERSON: Is -- so, sorry, I don't think -- you added that point. I'm not sure if you answered. I apologise. I missed it. Your thoughts about using wholesale roaming rates as an interim rate. If you responded, I apologise.
3063 MR. NOISEUX: No, I did not respond to that. I don't think we even did.
3065 MR. NOISEUX: But, I mean, the current rates that we're seeing, and, you know, honestly, the speed at which it is possible, you know, to come to terms on new rates is not compatible with the dynamics of the market today. So, you know, based on that, we do not support using current rates as an entry point for wholesale wireless.
3066 THE CHAIRPERSON: And what do you propose as a starting point?
3067 MR. NOISEUX: Well, I think we've proposed -- we've basically proposed negotiated rates on the basis of a principle that is anchored in our ability to offer competitive services compared to what the MNOs are offering.
3068 THE CHAIRPERSON: I mean, I think the logic here is while you negotiate is there an interim rate and what basis would we use for it?
3069 MR. NOISEUX: Yeah, you know, no, I think again, we believe that commercially negotiated rates are the way to go. I'm not sure that mandating, you know, $13 per gig in the interim would do any good to this file.
3070 THE CHAIRPERSON: Okay. Thank you.
3071 MS. DORVAL: But I also believe, I think it was Xplornet yesterday that said that what they would see as being a good rate for the gigabytes is between 3 and $5. And when we look at what the market is today, and we see that for some of the rate plans it can go as low as 2 30 from a retail perspective, we believe that between 3 and $5 for the gigabyte would be a good interim rate to start with.
3072 THE CHAIRPERSON: Thank you.
3073 You've also proposed that wholesale MVNO access be contingent on the HMNO meeting network investment targets in order to continue to be eligible. You suggest that they be based on a five-year rolling average CAPEX. Can you propose any mechanism that would serve to ensure that the captured investments are above and beyond those that a service provider would nevertheless make in the normal course of business?
3074 MR. JETTÉ: Well, I think in the normal course of business, again, companies -- it needs to make a fair and reasonable return, and we tracked capital intensity ratio. I think that's the best metric where you can actually follow how players are investing, but it's also a key parameter in our business modelling and business cases to see how much we can actually afford in terms of capital investment to create a reasonable return in the end.
3075 So CI ratios are, to me, the best KPI to monitor and make sure that we are -- one is in line with the industry and it's in the interest of the HMNO model that actually players invest to reduce their costs and better their business case.
3076 But again, proportionate to their means, it should not be expected that one will actually deploy a huge capital amount that they don’t have upfront simply because they don’t have the money or they can't make a return on it.
3077 THE CHAIRPERSON: And under that model, is the investment tied to the areas where the MVNO access is mandated or would it be any national investment in facilities over the prescribed time period?
3078 M. JETTÉ: Well, first let me be clear that we don’t support a model where one would actually have one tower somewhere to operate in another province. So you really have to ---
3079 THE CHAIRPERSON: Understood, that's not what I ---
3080 M. JETTÉ: And our model is based on the principle of convergence, so you build networks, wireline and wireless, and we track the CI or the intensity of wireline and wireless separately. They can be reported because they are two different business case, two different products, and CI or capital intensity can be tracked separately.
3081 THE CHAIRPERSON: Understood, and I'm assuming that you that you are considering counting both wireline and wireless investment in your model, in your proposal.
3082 M. JETTÉ: Well, you already have financial reporting for the mobile industry that are standard. So any player would actually follow and report its finance according to finance standard reporting.
3083 So there's a piece of wireline technology in a mobile network that actually counts there, but all players would report their investment at the right place and not just mixing all together.
3084 I'm not suggesting one blended number to report capital but we can track wireline investment for broadband internet and also mobile separately.
3085 THE CHAIRPERSON: And I assume that your view is just, I mean, in terms of how we measure whether a company has met its threshold is through those filings. And what if they fail to meet them? What happens to -- do they lose access to -- you know, do they lose mandated MVNO access? Is there a penalty? Do you have a timeframe in mind in the event that circumstances are such that you don’t meet that particular target in the five-year timeframe or the rolling target?
3086 MS. DORVAL: So in our view, the Commission already has a set of tools in its toolbox. You could, you know, issue warning letters. You can issue administrative monetary penalties. You have mandatory orders which may be not as well suited for that but certainly enhance. So we definitely think that the Commission has the right measures in place to be able to deal with that.
3087 THE CHAIRPERSON: I guess I'm thinking more of how much free rein do we give a player if they don’t meet it initially. I accept that we have a number of tools at our disposal. I'm just wondering how much flexibility you believe there needs to be. You know, your specific proposal was a five-year rolling average CAPEX.
3088 So let's say in year four you fail to meet the target, is it you have a specific amount of time to true-up, including the next year, you know, make up for what was the shortfall in year four plus year five?
3089 I'm just trying to get a sense of what kind of flexibility you believe would be appropriate in such an environment.
3090 MS. DORVAL: Yeah. I think and just to start with it's I have difficulty to see in five years because there's still -- we don’t even have a regime or nothing to start with. So that's my first thing.
3091 We've said over a five-year period and we thought that once we know what that regime is going to be, there should be a review to be able to assess whether the regime has produced what the outcome it was planning -- it was planning to produce.
3092 Now in terms of a true-up, if we don’t get there the fourth year, maybe I think we'd like to take this one away and get back to you with an answer on that because originally our tool was really to have a review and see where we stand after five years, adjust and continue to see, you know, with fixed investment terms or commitments. But it was really a review that we thought of after the five-year period.
3093 THE CHAIRPERSON: Fair enough, but if you would accept the undertaking to provide information on what happens within the five-year period, if there is, not so much the enforcement tools -- I think you've answered that question fully -- but rather what, if any, flexibility might be required, and if so, how much?
3094 UNDERTAKING / ENGAGEMENT
3095 THE CHAIRPERSON: To change the subjects a little bit, in your comment, you cite the Nordicity report which says regarding the benefits of HMNOs, while the MNOs would lose 228,551 current subscribers, HMNOs would attract, I'll be brief, 1.4 - 1.45 million new subscribers, meaning that 1.6 million Canadians could exercise a new choice of mobile wireless providers that did not previously exist.
3096 Based on your understanding, is the study saying that HMNOs would increase penetration by 1.4 million that don’t currently have wireless service?
3097 MS. DORVAL: I think I will turn to Doctor Rana and Ahmed to answer that question.
3098 THE CHAIRPERSON: Sure, and I mean before you begin to answer, I'd be interested to know how you got to that number and a little more about the makeup of that subscriber base.
3099 DR. AHMED: So it's extrapolation of the Cogeco's business case getting into a HMNO wireless -- under HMNO framework for wireless business. So in Cogeco's territory, they expect to acquire some customers and because of the lower prices, we anticipate that there will be more subscription and they will also get some customers from the other operators, existing operators. And then we extrapolated that across Canada for all the different regions.
3100 THE CHAIRPERSON: So it's a mix of increased penetration and, if you will, turned customers or will increase at 1.4 million in your analysis?
3101 DR. AHMED: So there will be a net increase ---
3102 THE CHAIRPERSON: A net increase?
3103 DR. AHMED: Yeah, yeah, customer net increase.
3104 THE CHAIRPERSON: And that's extrapolated based on looking at across Canada and how do you look at outside of Cogeco territory?
3105 DR. AHMED: So for example, if Cogeco territory represents -- I'm just using hypothetical numbers -- one third of the Canadian subscriber base, then we just extrapolated that within entire Canada.
3106 THE CHAIRPERSON: Okay. So we don’t -- there's no specific area or other demographic characteristics associated with the increase. It's just extrapolated on the basis of ---
3107 DR. AHMED: Yeah, because we ---
3108 THE CHAIRPERSON: --- number of total customers in those areas.
3109 DR. AHMED: We did not have enough data to go into the specific areas and regions and, secondly, HMNO framework I think we believe that will allow other players also to get under this framework, so it will -- like the market will evolve. So it will be a similar trend in most of the other parts of Canada.
3110 THE CHAIRPERSON: I think you may have answered the following question, at least in part, but I'll ask it again so you can bring your response together.
3111 The Bureau's suggestion that regional disruptors should be granted time-limited access suggests -- is inconsistent with your approach, as you've said. There's a -- it wouldn't make sense or there's a disconnect between the two. And you've described I guess to me the challenges with getting enough spectrum absent your proposed model or some form of MVNO model. Can you just maybe elaborate a little bit about the Bureau's approach as compared to yours? You mentioned at the earlier that you saw two differences, but I'll just -- wouldn't mind asking you a second time the relevant advantages, disadvantages you see of yours versus the Bureaus.
3112 And then just so you can think about it for a second, I'll ask you about other MVNO models, but go ahead with the first part.
3113 MR. NOISEUX: I think we tried to use our experience as operators to propose a model that we thought could be implementable without too much complexity, and that would play out at least in a way that corresponds to our reading of the opportunity to procure what is required for full deployment.
3114 There's another reality, which is the business reality of, you know, basing investment decisions on business cases, as Philippe and others alluded to, which comes in the equation. So as, you know, I think these two considerations need to frame the proposal to make sure that it's implementable and that it plays out as expected in -- as it is deployed.
3115 THE CHAIRPERSON: And to my second part, so the question all regulators ask, what do you think of the other proposals? You've proposed specific limitations, but I would like to get your views on more general eligibility requirement for MVNO access. Is -- are there other proposals that you would like to comment on?
3116 MR. NOISEUX: Well, I think in general we are firm believers in facilities-based operations. We have, you know, a history of 60 years of operating networks. We believe that this is a long-term solution that remains the best.
3117 What we're really seeking to achieve here is lowering the barriers to entry, so that we can level, to some extent, the playing field with national operators who have market power.
3118 Now, if you consider the other proposals on the spectrum, I think there was a comment this morning that a full opening of the network would be quite disruptive and perhaps a little bit unpredictable in terms of market impact. So, this is not one that we support.
3119 And moving then on that spectrum, we -- you know, we believe our model strikes the right balance, the main reason being, again, technology convergence and opening up the proposal to a large enough array of size and types of operators that have in common the fact that they invest in their network and our facilities-based operators.
3120 Now, we find that the proposal from the Bureau is -- would be hard to implement, for the reasons that we stated. You know, number one is the go with the assumption that it is possible to acquire sufficient spectrum holdings in order to fully deploy in every region, which we don't find practical, looking at, you know, upcoming spectrum options. I mean, it's really hard to predict when proper spectrum will become available, and in what form, ahead of time.
3121 So, we disagree with their proposal because we don't believe that it's a practical constraint that the market would be enabled to meet in time.
3122 The other thing that we disagree with is restricting access to those holding spectrum alone. We think investments in fibre are equally qualified, you know, in support of 5G. I think there was a comment this morning that both are actually required with the densification of networks, and so we would not discriminate between the types of technologies that meet the criteria to access wholesale rates.
3123 THE CHAIRPERSON: In your proposal would -- you may have answered this in your submissions, and if you did, I apologise -- are you proposing that you would be permitted to sell wholesale RAN access to others?
3124 MS. LEGPAGE: This is not a priority for us, but definitely if this would be granted it would be nice to have because we believe that we would be able to help other smaller HMNOs to launch more quickly into the market. But one of the things that we feel is necessary is for us to have the operational flexibility to be able to use third parties such as example Syniverse for international roaming and be able to interconnect with the partner MNO.
3125 THE CHAIRPERSON: And if it were a broader MVNO, not your model, would you have the same view about that it would be desirable for MVNOs to be able to resell access?
3126 MS. LEPAGE: Well, since we would have the platforms, and, again, be able to help other MVNOs in that case to launch more quickly in the market, yes, we believe that this could be nice to have as well.
3127 THE CHAIRPERSON: And ---
3128 MR. JETTÉ: If I may ---
3129 THE CHAIRPERSON: Oh, yes.
3130 MR. JETTÉ: --- on this one, I think what we look at is actually to strike a balance between investment, between competition, between innovation, network quality, but also sustainability. And if we go full virtual only at the surface level, like, and a pure MVNO model, we're going to miss several of these five criteria. So, it's introducing quickly competition, but that competition could also disappear very quickly. It's not very sustainable. It's not building the infrastructure for Canadians that all Canadians deserve to have, so it's actually a balance of the five elements that we need to find here.
3131 And that's why we talked long and hard about our proposal. We call it hybrid. It's actually in the middle. I think it's striking this fair balance between the five elements of investment, competition, innovation, quality of networks, but also sustainability.
3132 THE CHAIRPERSON: Thank you. I understand. And when I ask questions, I understand your position in your preferred approach, but as my colleague experienced earlier, we like to ask about comments on even those proposals you don't necessarily support.
3133 MR. JETTÉ: Fully understand, and that's why I'm highlighting what's missing in the ---
3134 THE CHAIRPERSON: Understood.
3135 MR. JETTÉ: --- pure MVNO model.
3136 THE CHAIRPERSON: What about restrictions, for example, for machine-to-machine or Internet of things applications?
3137 MS. LEPAGE: Well, our proposal is -- well, it covers both our residential and business customers. And we believe that the -- like, both should be included.
3138 As for Internet of things and M2M, we believe that this is a growing market, and we don't see why they would be excluded.
3139 THE CHAIRPERSON: Thank you.
3140 Different kind of potential restriction, if you will, you may have heard us ask earlier that -- or have noted that some parties raised concerns about entry by large well capitalised companies, perhaps foreign players as MVNOs. So, in your view, is that a concern?
3141 MR. JETTÉ: Yeah, it's a concern for the same reason I just gave, investment, competition, innovation, quality and sustainability. We feel that we would miss -- like, we would trade -- for quick competition, we would reduce the other elements of that equation, and sustainability is not guaranteed investment, and that works are needed to fuel communications in Canada, and that won't be part of their model.
3142 THE CHAIRPERSON: Thank you. And do you have views about what might be the best way to address such a concern? Subscriber cap? A market cap? Any views in that regard?
3143 MS. DORVAL: First of all, we do think that our proposal addressed in part this issue because by requiring that you had active clients and a network in Canada to be eligible, well that takes care of a part of the issue. And we would not be opposed to a market cap.
3144 THE CHAIRPERSON: Understood. I was assuming, as I mentioned, there are other options besides your preferred approach. So it was just in that context. Do you have any specific suggestions as to what the preferred approach would be? Whether it would be a subscriber cap or a market cap or any other suggestion? If not, that's fine.
3145 MS. DORVAL: We don't have other suggestions, thanks.
3146 THE CHAIRPERSON: If we were -- if the Commission were to approve an MVNO model, not your hybrid approach, would you take advantage of it?
3147 MR. JETTÉ: I think we would certainly take advantage in a way where we could continue investment in wireline and wireless. And our business modelling would not necessarily change. We would concentrate on our existing territory, make the -- make Canadian benefits in the 427 communities.
3148 So we would look at that model and how we could actually bring to our operation a fourth product offering mobile to our existing and new customers in the 3.9 million footprint that we currently operate. So we would try to extract what's -- the part that would help us go to market, but still with an HMNO framework.
3149 THE CHAIRPERSON: Thank you. I probably should've asked this before when I was asking you about, not restrictions, but do your proposals apply to certain things. What about 5G? Does it need to be treated differently, the same?
3150 MR. NOISEUX: No. We think it should be treated on an equal footing. We would certainly want to actually contribute to the deployment of 5G leveraging our fibre networks across a very large area in Canada. So on that basis, we think that regulation should be technology agnostic, and have a impact across the generations of services and technologies that are used to implement the service.
3151 THE CHAIRPERSON: So you would oppose any restriction on access to 5G, even if your model were approved without that?
3152 MR. NOISEUX: That would be our position, yes.
3153 THE CHAIRPERSON: And you may or may not have a view on this. Who -- you're geographically focused, as you've described, but in the broader sense if the Commission were to mandate MVNOs to whom should it apply? Should it be the three national providers, or are there other candidates, sort to speak?
3154 MS. DORVAL: (Off mic) Our proposal contemplated that (inaudible) applied to the three ---
3155 THE CHAIRPERSON: Whoops. Sorry, it wasn't on from the beginning.
3156 MS. DORVAL: Our proposal contemplated that it be applied to the three MNOs.
3157 MS. LEPAGE: And the reason for that is because when customers are looking at choosing a provider they are of course looking at prices, but they are also looking at coverage. And currently there are only three players with national networks, and they are Bell, Rogers, and Telus.
3158 THE CHAIRPERSON: But there are some, for example, with a significant presence, SaskTel comes to mind, Tbaytel, and so on. Recognizing you're not proposing to operate in those territories, do you see them as different?
3159 MS. LEPAGE: Well, we looked at it really from our perspective, so that's why our proposal is to have the three MNOs be potential partners.
3160 THE CHAIRPERSON: Understood. Thank you. Just before I leave this and ask a couple of questions about -- more about retail markets. But on 5G, do you think Canada's lagging behind?
3161 MR. JETTÉ: No, I don't think we today are lagging from a technology point of view. I think we have a history of being a world leader in wireless.
3162 I think the industry has kind of plateaued a little bit right now. Some technology advancements are being made, and I think the large players the MNO in Canada are considering, but there is not enough competition to actually accelerate the pace. So they will bring what they want to bring at the pace of competition pushing them to do so. So we could go a little bit faster.
3163 But I'd like to add something on 5G. As generations moved us from 2G, 3G, 4G, and eventually 5G, the number of sites you need is exponential. So we could take an approach where we let the three MNOs deploy more sites, and actually a lot of more sites at the pace they propose, business case base, controlling the market dynamic in the way they've always done, or we could put at you's and ask regional players, like us and many others, to actually contribute in accelerating the ecosystem.
3164 We, with our broadband and wireline networks, can fuel and accelerate deployments of sites tremendously, and that's exactly at the core of our proposal as well. So that's why the notion -- there are two notions here: one that 5G needs wireline and wireless together; and the second notion, if we look in our past and history those that have deployed mobile operations only failed. So if you don't have a strategy to actually leverage wireline and wireless network together, you don't maximise the chance of success.
3165 So if we think of Public Mobile, of WIN, of Mobilicity, of Fido, Clearnet, they eventually all had to find a different exit or purchase or went bankrupt. Their mobile only model could have benefitted from a wireless -- from a wireline broadband operation. And that's something, interestingly, we found with Bell, with Telus, with Rogers, with SaskTel, with Eastlink, with Shaw, with Videtron, they have all taken advantage of converging wireline and wireless.
3166 In our case, we already have broadband wireline. We have a challenge on the spectrum side, but I think we have the elements for success if we can bring the two together.
3167 So a long answer, sorry, to your 5G questions, but I think we will be able -- we can accelerate the pace of 5G and that acceleration will actually be in leveraging wireline and wireless together.
3168 THE CHAIRPERSON: Thank you. Long answers are perfectly appropriate. They add to the record.
3169 Maybe shift a little bit to some retail market measures. You've probably, if you've been monitoring the proceeding, have heard us ask, there was a survey filed by the Province of British Columbia. Vast majority, 86 percent of respondents did not consider the cost of their wireless services to be reasonable. The view was echoed by many individuals who participated in various manners in our proceedings.
3170 In your view, what's the root of the concern about prices in Canada?
3171 MS. LEPAGE: Well, it is probably lack of competition. Because if you don't have enough competition, then there is not a lot of innovation at the retail market.
3172 And if there is more competition, definitely people are going to be more creative in terms of what they are going to put in market. And chances are that the consumers are going to benefit from it, and they’re going to benefit from lower prices.
3173 THE CHAIRPERSON: And in terms of affordability, what are we to do to ensure that there are low cost offers in the marketplace suitable for those on low or fixed income?
3174 MR. JETTÉ: So I think that’s also where competition is useful.
3175 When you have more players, and it was described this morning very well, in the sense that the costs are declining as a function of new technology being deployed.
3176 So if you have competitors in the marketplace that actually push you to innovate or to bring new technologies and lower your costs, your expenses, you can actually not only bring new features and new services to market, but you can also bring a lower price because you do have a lower cost.
3177 So competition is the only answer to a market that suffers with high prices.
3178 THE CHAIRPERSON: Sometimes governments and private sector go further.
3179 I’m sure you’re aware of the Connecting Families Initiative on the broadband side, ---
3180 MS. DORVAL: Yeah.
3181 THE CHAIRPERSON: --- where the carriers did come together and offer a service and then, working with government, have been able to come up with an approach that certainly addressed a problem with respect to the affordability of broadband for a segment of Canadians of limited means.
3182 Could that work on the wireless side?
3183 MR. JETTÉ: Well we -- as you know, we participate in the Connect Family program.
3184 We believe that Canadian companies operating in Canada need to work with communities, be close with their communities, invest, but also return to help communities.
3185 We have less fortunate people in our communities in Canada and I think it’s a duty of telecommunications as well to try in every means possible to elevate the wealth of Canada, but also in the communities we operate.
3186 So, yes, we would participate in a similar program on the wireless side.
3187 THE CHAIRPERSON: And do you think that it would require, I’ll call it encouragement, from the regulator or government? Or do you think industry could take care of this itself?
3188 MS. DORVAL: I do not see why it wouldn’t be -- we wouldn’t be able to move this forward, as we did with the Connecting Families program, on a voluntarily basis.
3189 THE CHAIRPERSON: Thank you. Maybe the last question for me.
3190 You probably heard our discussion with a number of parties about win-back.
3191 We had a discussion with Shaw yesterday and we had further a discussion with Bell today.
3192 Do you have any views about -- recognizing you’re not in that market space at the moment, do you have any comments with respect to the needs or concerns about win-back campaigns?
3193 MS. DORVAL: Well I think you’ve said it well. Because we are not currently a wireless operator, this is not a situation that we have lived.
3194 And but when we look at what Freedom was saying, for sure this is something that we are sensitive to, because if there are aggressive win-back techniques, maybe this is something that should be looked into.
3195 THE CHAIRPERSON: Thank you.
3196 Members, other questions?
3197 COMMISSIONER BARIN: Thank you. Thank you for your responses to the questions.
3198 I want to go back to a comment that you made at the beginning of the questioning.
3199 And it was to the extent that the introduction of the unlimited wireless plans were a response to the fear of regulation as opposed to a response to an increasingly competitive market, I believe that you had indicated that.
3200 Can you maybe expand on why you think that is the case?
3201 MS. DORVAL: I think that we’ve seen in the past that because of market power in Canada, advantages or benefit for consumers has been sometimes hard to get to. We’ve seen that the data only plans only came to birth because a regulator got into the question and forced it to happen.
3202 And this time around, it’s just I think we can see that there’s a timing issue where these plans are coming -- the unlimited plans are coming at a time that may make us feel a bit skeptical about the reason why they were implemented at that time.
3203 COMMISSIONER BARIN: Thank you.
3204 MR. JETTÉ: If I may add to this, even when we look at the MATRIX study, for example, you will find that -- the MATRIX study from the Competition Bureau, you will find that there are regular promotions in the marketplace and sometimes you have very good promotions, lowering the price per gigabyte.
3205 But the average price or the average cost on a monthly basis to the consumers are not really changing, on average.
3206 So they are directly influenced by market dynamics and local promotions, but these promotions have a start and an end date, and I don’t think that more aggressive promotions that we saw recently on the market are foreign to the audience in the hearings that we have today.
3207 So they sense the threat of competition coming and they wanted to showcase some good promotions.
3208 But all of these promotions have an end date and the average price to consumers are not really lowered.
3209 THE CHAIRPERSON: Merci.
3210 Counsel, any questions?
3211 MR. BOWLES: None. Thank you.
3212 THE CHAIRPERSON: Thank you. Thank you very much for your presentation, for your responses, and I wish you a good afternoon.
3213 We’ll take a 15-minute break, resume at 4:06.
3214 MS. DORVAL: Thank you.
--- Upon recessing at 3:52 p.m./
L’audience est suspendue à 15h52
--- Upon resuming at 4:07 p.m./
L’audience est reprise à 16h07
3215 THE CHAIRPERSON: Good afternoon.
3216 Madam Secretary?
3217 THE SECRETARY: Thank you.
3218 Welcome to the public hearing.
3219 We will now listen to the presentation from Tucows Inc.
3220 Please introduce yourself. You have 10 minutes.
PRESENTATION / PRÉSENTATION
3221 MR. NOSS: Thank you.
3222 I’m Elliot Noss and I am the CEO of Tucows.
3223 I apologize that, I tried to get people to stay with me, but I will be here alone.
3224 Tucows is a proudly Canadian company.
3225 We are the largest wholesaler of domain names in the world and the second largest domain name registrar overall. We’ve been in that business for 20 years.
3226 We offer fibre to the home internet services in multiple markets within the U.S., and of course, sadly. only in the U.S.
3227 And most relevant to this proceeding, we’ve been operating a top-rated MVNO, Ting Mobile, in the United States with hundreds of thousands of subscribers for more than eight years.
3228 Our domain registration business is our largest business.
3229 Our fiber to the home business is our fastest growing business, and the one with the most growth potential.
3230 Our MVNO is the least important of the three and the Canadian MVNO opportunity represents only a 10 per cent market increase for us potentially relative to the U.S. market. We share all this to say that I am here today as a Canadian, much like in 2014 when I appeared before the Commission on virtually the same matter, although with some variations of course.
3231 I am a Canadian who is tired of paying the highest prices in the world for mobile phone service and I am here as a Canadian with more MVNO experience on a day-to-day level than any other intervener that you will speak to in this process.
3232 Telecommunication services are infrastructure, just like water, electricity and roads. Think of telephone service provided over copper networks. From their onset, they were regulated infrastructure with rate of return economics.
3233 When we introduced mobile phone service, provided over the public resource of spectrum, it was for making phone calls and was considered a luxury. Today, it's primarily for using small computers like this that we still anachronistically call “phones” for consuming data. And it's for everyone. It is not a luxury.
3234 Lower-income Canadians need access to mobile data just like other Canadians, not for occasional use and not at lower data rates like 3G. In fact, lower-income Canadians are the most likely Canadians to not have a fixed internet connection at home, and therefore have a much higher reliance on this little computer to consume their data.
3235 Telecom is infrastructure and this leads me to my most heretical point. If telecom is infrastructure, and it is, then the desire for facilities-based competition is misplaced.
3236 We do not require facilities-based competition with any other infrastructure. In fact, it would seem absurd if we were talking about it in connection with water or electricity.
3237 We spent a lot of time this morning and into the early afternoon hearing about how Bell differentiated on the basis of their network quality. We heard it dozens and dozens of times throughout the proceeding. It was summarized as we compete on the basis of speed and coverage.
3238 This is infrastructure. Wouldn't it be great for all of us if they competed on the basis of price and service? Isn't that what would be appropriate when talking about infrastructure?
3239 We talk about in mobile telecom like this only because it was not viewed as infrastructure at the onset. Again, a luxury for making expensive phone calls.
3240 It is certainly true that the mobile incumbents have invested billions of dollars in buying spectrum, again a public good, and building out networks and they've done that well. But they have been handsomely rewarded for those investments already, over and over again.
3241 We note that the best example of the fiction of the necessity of facilities-based competition is right in this room, although not right now. Telus and Bell do not have national networks. They share one. Why? Because it would be economically inefficient for each of them to build the same infrastructure. They each built half and they share it.
3242 Let's not call this a hearing for MVNO, let's call it a hearing for network sharing. Maybe we'll have a totally different frame.
3243 Canada is shamefully known for having the highest wireless prices in the world, and as confirmed by the Competition Bureau’s intervention, our wireless carriers have net EBITDA margins that are also the highest of all the countries they studied. And we note that they do not do so with particularly lean operations.
3244 This is true in rural Canada and it is true in the biggest cities. While it may be nice to talk about the term disruptors in relation to some Canadian mobile competitors, whether you're in Ottawa or Gatineau or Toronto or the most remote parts of the country, you're paying the highest prices in the world.
3245 I am here first and foremost as a Canadian mobile phone customer and I have certainly not experienced disruption. But disruption is available. It's available with the mandated introduction of MVNOs.
3246 Everywhere in the world that MVNOs have been introduced, they have lowered prices, served niches like the unbanked and immigrant communities, and most importantly, and most obviously, raised the competitive bar for incumbents who were then required to actually compete.
3247 Every time one of the Commissioners poked on why prices had moved positively, the answer came down to competition. You've heard that from every intervener you've spoken to.
3248 Canada is one of the very few countries in the developed world without MVNOs. When we looked at the OACD, it's us and Turkey, as best we can tell.
3249 In most markets, with the U.S. as an example, MVNOs arise out of the competitive landscape. We are an MVNO in the U.S. We heard this morning a view of why we had MVNO in the U.S. That view, in my opinion, was fundamentally incorrect.
3250 It was because of market structure. In the U.S., you had a market structure of roughly 30/30, AT&T and Verizon, 15/15, Sprint and T-Mobile, and you also had with Sprint -- not a company with excess capacity. That's arguable. I'll differentiate that in a second, but you had a company that had a history of a wholesale practice in the fixed wireline business.
3251 The original Sprint network coming out of their long-distance competition was one of the biggest IP networks and they had a wholesale frame. They also had wholesale roots from their experience with Clearwire. So MVNO was in that market structure.
3252 Most countries in the world that have introduced MVNO have done so because of their market structure. And there was a very interesting discussion. Commissioner Laizner was asking about the differentiation between HHI and market shares or concentration ratios and why that might be used.
3253 The HHI is going to be lowest where you have an oligopoly. If you have three competitors at exactly 30 percent each and the rest of the market chopped up, what you have is the lowest HHI you could have for any way to split up 90 percent. That is math.
3254 So many countries have mandated MVNO, France, Ireland, India, Brazil, Thailand. To read some of the submissions in this hearing and guest editorials in national papers, one would think MVNOs are rare and mandated MVNOs even rarer. We are the exception and we are the ones, literally, paying the price every month, month after month.
3255 So the solution is right in front of us, but simply mandating MVNOs is not enough. We need two more things.
3256 First, the Commission needs to mandate the right kind of MVNOs. Second, the Commission needs to ensure prompt introduction of MVNOs and to enforce competitive standards and pricing.
3257 To make it easy for you, we will share how to do both.
3258 First, the right kind of MVNO. The Commission should introduce what the Competition Bureau calls broad MVNO access. I refer to this as software-based MVNO.
3259 This is not a mere reseller. In fact, in many ways, we do today as Ting Mobile do more than the MNOs we compete with.
3260 We do our own billing. We do our own rating. When we want to institute a new pricing plan or an innovation, let’s call it a disruption, we don't have to call Amdocs or another vendor and schedule a professional services engagement. We engineer it into our platform ourselves. That makes us more flexible and quicker to innovate.
3261 Now, I want to be clear about something else. If we are fortunate enough to have a positive outcome like this from this process, it's not going to be me who's rather old at this point, who's going to be doing this innovation, in my view. We might participate. We might have some entry into the market, but the real innovation is going to come from one of a number of groups of 20-something-year old engineers, who are going to be faster and quicker and smarter than all of the rest of us who will be trying to compete here. That's what needs to be unlocked.
3262 You know, technology companies from around the world are now looking to Canada for young engineering talent. Some of that talent has poked at the U.S. Some of it's been knocking on the door here, but that's what needs to be unlocked here.
3263 I fear our biggest hurdle in having the Commission see this point is the submission and presentation of the Competition Bureau. I want to note, I found their work extremely strong in diagnosing the problem. I did not agree with their proposed solution. Accordingly, I'll deal with their position in a bit of detail.
3264 The Competition Bureau makes three primary points in making their case for limited introduction of MVNO focused on existing facilities-based competitors.
3265 First, the need for significant CRTC oversight including MVNOs being less effective because of cost structure. That was kind of their first bucket of argument.
3266 The second was evidence of the success of MVNOs internationally is mixed.
3267 And third, mandated MVNO could have negative impact on the facilities-based wireless disruptors.
3268 I want to deal with each of these three points.
3269 The Competition Bureau is right. Mandated MVNO will require significant CRTC oversight. So will the policy espoused by the Competition Bureau. So did the roaming decision in 2015. I note that on the first day of this hearing dealing with MVNO we had two parties complaining about roaming rates and one about customer winbacks.
3270 The Competition Bureau is right. The incumbents will do everything they can to delay. They will produce study after study and technical hurdle after technical hurdle. They did so for sixteen years after the initial decision on third-party access to fixed Internet facilities. I was a part of that process before I got this job. I'm in my 24th year starting in April.
3271 If the Commission wants lower prices, they will need to engage in significant oversight no matter the decision. It is either that or the continuation of the world’s highest prices and the world’s most profitable mobile carriers.
3272 You heard it every time you poked. We will do only what we are forced to do.
3273 The Competition Bureau also talked of the challenges of cost structure. This is also true no matter the type of MVNO. Again, we can see this clearly in the comments already tabled on wholesale roaming rates. What the Competition Bureau could more accurately say though, is no matter what type of MVNO the Commission goes with, they will need to determine a fair wholesale price. This is unavoidable. This is something we at Ting know about from our experience in the U.S. market
3274 Importantly, the Competition Bureau only talked of cost of goods sold when talking about cost structure, but they should properly also consider operating expenses. Ting, and we expect many other MVNOs, are leaner and more efficient than incumbents. We can provide much more detail in this regard, but we believe that the operating expense advantage is significant and can be demonstrated.
3275 On the second point, we were unable to find mixed evidence of the success of MVNOs internationally, and if it's cited somewhere in the materials we apologize for missing it and would welcome it being called out. And I will say, there was a specific study reference. It's a study that I've read years ago. I've reread it. I did not see this mixed evidence and would love to speak to the Bureau about that. We have relationships with MVNOs and MNOs all over the world.
3276 We strongly believe the evidence is overwhelming that MVNOs are the source of both significant price competition and significant service innovation and cause MNOs to increase their competitive efforts. The clearest analogues to Canada would of course be the U.S., France, the UK and Australia and in all four, MVNOs have overwhelmingly contributed to the better outcomes in those markets. Australia might be the best example because it's as big as Canada. It has as low a population as Canada. Look at the pricing and look at the market share for MVNOs.
3277 Finally, the Competition Bureau fears that a broad MVNO mandate could harm the existing facilities-based competitors. This is fatally flawed as they seem to believe that these facilities-based competitors have already contributed significantly to the Canadian mobile
3278 market. These companies have essentially come just under the pricing umbrella of the most expensive MNOs in the world. Of course they have gained some customers. They are less expensive than the extremely expensive. This has not moved Canada’s place in the tables one bit, nor will it.
3279 I commented in detail on the mistake in focusing on facilities-based competition above. I will simply ask here that the CRTC not make the same mistake it did in 2015. In that decision, the CRTC tiptoed right up to the edge of introducing MVNOs. I remember reading that decision and I remember my excitement building, and building, and building to the conclusion, and I felt like I was missing pages. And instead, what that decision did was put its hopes on intending to aid facilities-based competitors. Within months, Wind was sold benefiting a small number of wealthy shareholders by hundreds of millions of dollars, and even a $10/month impact from MVNOs at that time would have saved Canadians over $15 billion dollars by now. Through my eyes, that is the cost of that decision.
3280 And you've heard a couple times, both in the Competition Bureau's and other dialogues, well, let's just try something else for another few years. When is enough, enough? Please, don't make the same mistake again. Please mandate software-based MVNOs.
3281 Secondly, we strongly urge the CRTC as part of their decision to create a fast track to a set of pricing and a technical implementation. We would be willing to confidentially provide the Commission with as much information as we are able to regarding wholesale pricing in the U.S. and other markets. We would also volunteer to help the commission with an initial technical implementation.
3282 We have tried facilities-based competition in mobile services since 2008. It has not worked. It's time to try the obvious solution that has worked all over the world.
3283 I look forward to your questions.
3284 THE CHAIRPERSON: Thank you very much for your submission.
3285 Commissioner Barin?
3286 COMMISSIONER BARIN: Thank you.
3287 Welcome, Mr. Noss.
3288 MR. NOSS: Thank you.
3289 COMMISSIONER BARIN: Thank you for your presentation. I have a few questions for you, and I think I'm going to start with your most heretical point on page one of your presentation.
3290 So, I guess your view is that there is already enough infrastructure in Canada such that we do not need to incent anymore buildouts. And so I would like your view on that and as well as whether you believe that the existing infrastructure provides enough capacity to enable a broad-based MVNO entry.
3291 MR. NOSS: Yeah, so two pieces there.
3292 I’m not absolute about that at all. I run and maintain networks myself. Networks maintain ongoing investment, and networks maintain ongoing expansion.
3293 Certainly there is significant growth in mobile data consumption. And we can have a longer discussion about 5G in particular.
3294 But what I would say is, the cost of maintaining and operating world class networks can be well covered off in a wholesale price.
3295 One of the things that telecoms around the world, mobile telecoms, have been saying since I’ve been in this business is, “Well, if we have to supply our networks, we can’t make enough profit.”
3296 There’s two things about that. It’s not a complete sentence in my view. What they’re really saying is, “Given our existing cost structures, we can’t make enough profit.”
3297 I can tell you that I don’t know a telecom in the world that efficiently does billing, that efficiently does customer service. And by the way, does customer service to a level that people enjoy.
3298 What we’re doing in the U.S. is providing customer service, which goes right through the software stack. You can’t provide great customer service without a great platform.
3299 We’re doing that with the highest levels of customer satisfaction, really in the world. Our net promoter scores are among the highest in -- our, as far as we know, the highest in the world in mobile phone service.
3300 Those other operating advantages -- we don’t think we’re special, we just think we’re not a telecom.
3301 Those other operating advantages would be benefited for from others who entered the market as well.
3302 We do think incumbent telecoms are strong at building networks and running them. And that would allow a focus.
3303 But you want to think about networks as three pieces. You have the capital that goes into building the network, you have the construction and maintenance of the network, and you have the service that runs on top of it.
3304 There are many examples. We have the electricity market, a great one, where it operates with a clear separation between those pieces.
3305 So I don’t think at all that it’s about just we have networks are good enough and we don’t have to keep working on them.
3306 But we don’t need a fourth and a fifth and a sixth. I don’t believe that accomplishes anything for us but providing a fourth or a fifth or a sixth water provider.
3307 And again, the existence proof for that is what Bell and Telus do already.
3308 COMMISSIONER BARIN: So you tried to enter the Canadian market as an MVNO. You mentioned that you were unable to pique the interest of the incumbent mobile carriers.
3309 Can you explain what your experience was and why it went nowhere?
3310 MR. NOSS: Well I can explain what my experience was, but I think they would have to explain why it went nowhere.
3311 And I would note that we spoke with two of the three. We did not speak with the third.
3312 I think the answer was the experience was saying as in another context, short and brutal.
3313 One gave us, you know, pretty clear sight to a no. The other had us jump through a hoop of filling out forms that included questions like, “Please anticipate your demand.” And we of course said, “Well what’s our price? And, you know, we’re happy to tell you what our demand was.” Well, you know, “We can’t tell you that.”
3314 I will say -- so those were just -- I mean, there was really nothing to them.
3315 I will say that once it was clear that this hearing was going to take place, one of the parties did reach out to us -- well, I reached out to them, and they said, “You know, if you want to show us what it might look like, you know, I’ll sort of take your submission.”
3316 But again, at that point it was rather late in the day.
3317 COMMISSIONER BARIN: So I understand negotiations didn’t get very far?
3318 MR. NOSS: No. There was not really, what I would call in any sense, a negotiation.
3319 COMMISSIONER BARIN: But did you propose a term?
3320 MR. NOSS: No.
3321 COMMISSIONER BARIN: Okay. All right. Maybe you can explain or give us -- tell us about your experience in the U.S., operating Ting as a U.S. MVNO? How did you enter the market? What was your trajectory? Did you -- are you serving a national ---
3322 MR. NOSS: Sure.
3323 COMMISSIONER BARIN: Do you have national coverage or do you have regional coverage?
3324 MR. NOSS: Yeah, so in the U.S., we entered the market -- our first contact with Sprint was in 2010. We -- that was in the summer of 2010, maybe late summer.
3325 By October of 2011, we launched the beta service.
3326 February of 2012, went live with general availability.
3327 That is -- that was, at that point, and still is, a national service on the Sprint network. So it’s available everywhere.
3328 You want to understand that with MVNOs, you have a fundamentally different cost equation than you do as an MNO.
3329 You know, the joke about mobile phone networks is, you know, the first call is $10 billion and the rest are free.
3330 When you’re an MVNO, you are paying by the sip. So we receive pricing that is per minute, per message, per meg.
3331 We know a fair bit about the history. We researched the history of the category before we got into it.
3332 In fact, in order to have my board greenlight the project, I had to explain to them why we wouldn’t be like a lot of the failed MVNOs in the kind of ’99 through 2001/2 time period where you had big companies like ESPN and Starwave, and Disney, and others who were sort of trying to launch a mobile phone service.
3333 Virgin in the U.S. came out of that and eventually was bought by Bell -- sorry, by Sprint.
3334 And so there was kind of this, you know, this scorched earth in this space.
3335 We had a particular perspective on it. you know, given that marginal cost structure, again, completely reversed from the MNOs, we have essentially usage-based pricing. It’s in buckets.
3336 So a lot of people would look at this, you know, if this -- if our package in the U.S. was available in Canada today, it would be looked at as lower income, affordable use, occasional use, all of these things, except it would be with 4G, no limitations, and much, much more flexibility.
3337 Our -- we have -- the trajectory was very fast. The ‘11/12/13/14 time frame.
3338 By 2015 or so, the market got a lot more competitive.
3339 When we entered the mobile phone market in that 2010/11 timeframe, my calculus was simple. There were massive net operating margins in the market. Verizon was in the mid 50s, AT&T was in the high 40s. That’s massive excess economic rent that looked like it could be competed away.
3340 By 2015 or so, the MNOs and the market generally had responded. There were other MVNOs.
3341 Sprint already owned Virgin and Boost. AT&T bought Cricket as a lower priced flanker brand. And T-Mobile bought MetroPCS.
3342 And a lot of the growth that you’ve seen in AT&T and T-Mobile over the last three or four years, as publicly reported, is actually in those flanker brands.
3343 And I would argue too, or suggest that those are true flanker brands, where there is real pricing differentiation between Metro and T-Mobile, Cricket and AT&T.
3344 If we had such a thing in Canada, I don’t think we would have quite the challenges or quite the high pricing we do now.
3345 So now we’ve been relatively flat for the last, I’d say, three or four years.
3346 In fact, our primary source of the little bit of growth we’ve had over that time period is picking up other MVNOs that were going out of business.
3347 Sometimes we bought them, sometimes they simply put them on our platform with -- in combination with their carrier partners. You know, maybe they owed the carriers money. The carriers liked them landing on our platform, they'd receive a high-level of service, but the important thing there is that wasn't a disaster scenario. The market took care of it when there were a lot of competitors, some of whom didn't do so well.
3348 COMMISSIONER BARIN: Thank you. So can you describe the MVNO model that you are operating right now? Is it more of a full MVNO where you have access only to the RAN, or is it more on the lighter side?
3349 MR. NOSS: Yeah. So ours is software-based, what I call software-based. In other words, we integrate with a -- an API that the carriers provide us. I would note that I believe all three of our carrier partners get that platform that we integrate with from billing providers who are established in the market, big companies. In other words, all an existing MNO would have to do is write a cheque to be able to offer exactly that same software bases.
3350 We have asked for greater facilities bases over the years. One of the ironies in the process that we see is that in the U.S. where we're negotiating commercially, we look at the greater facilities bases as something that's a benefit to us. Our carrier partners won't allow us to do that. And the reason is, for us, it gives us more control over our customers. Those could be our SIMs; we could move from supplier to supplier more easily. We could do more with pricing and some of the features that you can imbed in the devices, et cetera.
3351 So kind of the move from software-based MNO -- MVNO to more facilities-based is a benefit to the MVNO, not the MNO, and not the country, certainly.
3352 COMMISSIONER BARIN: So it's not by choice that you are (inaudible)?
3353 MR. NOSS: No. We would be -- we would have built our own core if we were allowed to. There are very -- I believe there's -- I believe only Sprint has allowed that, and I believe it's only in four specific cases, and each of them has their story.
3354 And then there's other bits of innovation. You know, you see Google Fi has a deal with both T‑Mobile and Sprint, this is all pre‑merger, of course, where they could do things like hop over networks, and have phones with two SIM slots in them. Those implementations have also not been available to us.
3355 COMMISSIONER BARIN: Now, you have MVNO agreements with Sprint, T‑Mobile ---
3356 MR. NOSS: Yes. And ---
3357 COMMISSIONER BARIN: --- Verizon?
3358 MR. NOSS: And now Verizon.
3359 COMMISSIONER BARIN: Right.
3360 MR. NOSS: So we no longer have an arrangement with T‑Mobile. We still offer service on their network through an MVNE, which is a mobile virtual network enabler.
3361 COMMISSIONER BARIN: I see. So am I to understand that the agreements do not prohibit you from reselling capacity to other MVNOs?
3362 MR. NOSS: They do. We -- so it's -- that's actually around brand more than anything else.
3363 COMMISSIONER BARIN: Okay.
3364 MR. NOSS: So we have -- I had mentioned right at the very beginning we're the largest domain name wholesaler in the world. One of the original premises was that we would sell on through these reseller partners. We could only do that if they were selling the Ting Mobile brand. So we couldn't allow them to have their own brands. You know -- and you would imagine, we have big customers like Shopify, Squarespace, Wix, so you know, you could imagine that some of them would like their own RAN.
3365 COMMISSIONER BARIN: Okay. So it's restricted to the team service?
3366 MR. NOSS: That's right.
3367 COMMISSIONER BARIN: And do they -- these agreements, do they restrict you in any way from competing with the host carrier? Sprint?
3368 MR. NOSS: One of the three has some nature of restriction; two of the three do not. The one that does is a threshold that limits us from basically targeting their customers specifically.
3369 COMMISSIONER BARIN: Okay.
3370 MR. NOSS: So if you were to put this in the context of, perhaps, you know, Bell became our MVNO partner, our supplier, our MNO supplier, they might say, you know, our market share is 34 percent, and you know, you can't add -- or there are financial penalties for adding more than, you know, a third of your customers from us, something like that.
3371 COMMISSIONER BARIN: I see. I was going to ask how those restrictions are actually ---
3372 MR. NOSS: Yeah. And it just becomes more expensive.
3373 COMMISSIONER BARIN: Okay. I see. So it's restrictions based on a number of new acquisitions if they happen to be from the host carrier's ---
3374 MR. NOSS: That's right.
3375 COMMISSIONER BARIN: --- existing base. Okay. I see. What about roaming? Do the MVNO agreements that you have include roaming?
3376 MR. NOSS: Yes, they do. And that's very important in the U.S. market in particular where you have Sprint and T‑Mobile. You know, I'm -- my number's now are going to be very rough and dirty because people will contest, you know, what coverage they have.
3377 We view it that, you know, each of Sprint and T‑Mobile covers 240-260 million of 320 million or so people in the U.S. Nobody contests that in North Dakota there's really only one network, so that roaming is important.
3378 And I would note, it's also a great place to call out a little bit of -- a little example, and I have a number of them, of where you get MVNO innovation. If you're on Sprint and you roam onto Verizon, who's their roaming partner, you pay extra.
3379 We looked at the preponderance of that, we looked at how often that happens, and we just baked into our price. We felt it was an area of customer dissatisfaction and we could take that on as an additional feature.
3380 And it's a small thing, but it's one of those small things that when it happens, you go visit your aunt in North Dakota for, you know, two weeks, and come back with a $240 bill, it matters. So it's just a great example of the type of thing that an MVNO is likely to do, but an MNO would not.
3381 COMMISSIONER BARIN: Okay. Now, right now your agreements are using the 4G and the LTE network. Do they contemplate the 5G network?
3382 MR. NOSS: Yes. So they contemplate it. Let me be more specific. It is actively part of our discussions. There is certainly no suggestion from any of our partners that as that becomes relevant, that, you know, they're gonna withhold it. And where you'll see that become relevant is when the device universe starts to mature into the next cycle. So that's probably not going to be an issue for 2 or 3‑years.
3383 COMMISSIONER BARIN: Thank you. Now earlier, you spoke about the target consumer for the Ting service being maybe the value conscience consumer. And we heard arguments over the course of the last two days that MVNOs in Canada would be targeting that type of consumer which happens to be the consumer of the regional competitors.
3384 Would this be your view as well that the regional competitors would be the ones from which an MVNO in Canada would gain most subscribers?
3385 MR. NOSS: My short answer would be no. We view our target market as a shrewd or savvy customer, you know, a frugal customer, as opposed -- so that's more about their orientation than their income level. Our demographics back that up.
3386 There's some disappointment in that for us. We do think that lower income consumers could take much more active measures to manage their data consumption and not need as expensive phone plans.
3387 I will note the U.S. has a much worse problem; I believe. I'm more familiar with the data in the U.S. around lack of home Internet. I think in -- if I have my numbers correct, in the African American/Latino communities, over 40 percent of households do not have home Internet.
3388 So there you're relying on mobile Internet which is just a terrible double whammy that's -- you know, that's a market structure problem that they have that I think that we don't. In our fixed business we're doing some very interesting things there, but that's separate.
3389 I think that what we see -- our average device pays us about $23 a month. That's U.S.
3390 COMMISSIONER BARIN: So you're suggesting that there is an untapped market in Canada?
3391 MR. NOSS: There's an untapped market, but what's important is -- I am just going to look up at the Panel of commissioners, and I'm comfortable that I would say your average data usage a month is comfortably below -- not Wi-Fi now, mobile -- comfortably below 2‑gigs, comfortably below. Our average, our mean is about 900 megs a month, so our customers do self select for that, but that's the mean. The median is about 270 megs a month.
3392 You would be shocked at the data around the distribution of data consumption. I am sure that many of you on the panel and in the audience -- well, there's not many of you here, but -- are paying a phone bill for a teenager whose consumption is 5, 8, even 10X what yours is. So, I think what you would see is the opportunity for the average Canadian to significantly lower their phone bill. And when 90 per cent of the market is with the 3 MNOs, again, it's just math. That's where the customers are going to come from.
3393 COMMISSIONER BARIN: We spoke a little bit about capacity earlier. You argued that in the U.S. MVNOs were able to more efficiently use the capacity than are the MNOs. Would you say that in Canada we have not seen MVNOs because capacity is already being used efficiently?
3394 MR. NOSS: Sorry, I was relating efficiency to operations, not to data usage. I mean, we haven't seen ---
3395 COMMISSIONER BARIN: Right.
3396 MR. NOSS: --- MVNOs in Canada because you -- this is a very cozy oligopoly with the highest prices and the highest profits in the world, and you have not yet forced them to do so. It's very simple.
3397 COMMISSIONER BARIN: You spoke about, or we spoke about the low-end consumer, the more price-sensitive consumers. When you consider an MVO (sic) model in Canada, are you considering business customers as well, or is it limited to the residential customer?
3398 MR. NOSS: I mean -- so, first of all, the concept of business customer has really changed in the last, let's say, five years. Again, if you go back to the onset of mobile phone service, and I think it's important to remember, here we are today, mobile phones -- you know, mobile networks, small computers on a data network as infrastructure, at their onset they were phones for infrequent use at a very expensive price. So, businesses that still supply their employees with phones are starting to become an anachronism.
3399 So, the short answer is, yes, but that's not that relevant anymore.
3400 COMMISSIONER BARIN: And how would you target these consumers? You spoke about price differentiation, product differentiation. Can you explain how you ---
3401 MR. NOSS: Sure.
3402 COMMISSIONER BARIN: --- would differentiate an MVNO from what is currently offered in the market?
3403 MR. NOSS: Sure. So, I think that, again, you know, I'd encourage you to look at our website and see the pricing. You have some -- I should note that, you know, a lot of our innovation and a lot of the innovation of a couple other MVNOs in the U.S. market really formed the basis for T-Mobile's whole un-carrier strategy. I think they did a great job of fast following, and had a much bigger megaphone than we did.
3404 But you see things like we don't have plans. We have rates. When you have a plan, you need to guess what you're going to use. And the way that you have to do that in Canada, you know, we heard about insurance this morning with unlimited. There's insurance in every single plan you choose in Canada, because what you don't want is that club over the head of overage, or the pain of having to change your plan.
3405 You know, now, oh, I've got to call my telecom. I'm going to have to reserve my Saturday morning, you know, and on you go.
3406 Rates instead of plans is a huge difference.
3407 Second big example there, we have only lowered our prices over the eight years we've been in business. We did it twice. We didn't do that with teasers, with specials that lasted 12 months and then came out of market. We just lowered the rates for every one of our customers.
3408 We sampled, and something like 90 per cent of our customers didn't know we lowered the rates. Many probably never even realised. Many didn't realise until they got their next bill. So, that's a fundamental difference.
3409 There's -- you know, I'm going to tell a great Canadian story, again, in the U.S. You know, some of you will remember that if you back a decade, you roamed outside the country as a Canadian mobile phone user, you paid heinous prices in the U.S. and everywhere else in the world. A small Canadian company out of Vancouver, a smart young entrepreneur, went and cut a U.S. MVNO deal, and started Roam Mobility. He had two or three years of great business, and then the -- first Rogers and then the other two, fast afterwards, copied him, and launched the whole Roam Like Home Thing. $5 in the U.S. a day, $10 everywhere.
3410 He was still less expensive, but it was close enough that the hassle of taking a SIM in and out really sort of put the breaks on his business. And it was flat. He was doing other things in technology. We actually bought that business and still operate it today, but primarily as part of a pre-paid thing. You know, we don't promote much in Canada, but that business had really come down. Once that was no longer a threat, 5 and 10 went to 7 and 12.
3411 So, what you see there is the cycle of innovation forcing MNOs to become more competitive. And once that threat's gone, back goes the price up.
3412 COMMISSIONER BARIN: So, I did go to your website, and I noted your monthly bill estimator, and I want to draw your attention to Exhibit 2, if you've had a chance to look at it. It was provided in the first day of the hearing, and it lists many of the plans that are currently offered ---
3413 MR. NOSS: I believe ---
3414 COMMISSIONER BARIN: --- by wireless operators.
3415 MR. NOSS: --- it's at the back of the room. Yeah, thank you. If somebody could run that over.
3416 COMMISSIONER BARIN: Essentially, it's a series of plans ranging ---
3417 MR. NOSS: Yeah.
3418 COMMISSIONER BARIN: --- in price from 5 to $15 that are ---
3419 MR. NOSS: Yeah, I did take a look at that.
3420 COMMISSIONER BARIN: --- currently available.
3421 MR. NOSS: Yeah.
3422 COMMISSIONER BARIN: Now, if Ting were to become an MVNO in Canada, are you confident that the rates that Ting would be offering to its occasional use customers would be competitive with what is currently offered by carriers?
3423 MR. NOSS: So, yes. And I want to -- see, I don't like the term "occasional use". You would be -- I mean, I'm going to encourage you and every Commissioner to estimate how many minutes you think you use on the phone now, and then check your actual usage on your bill. I think you'll be shocked at how low the minutes of usage are.
3424 The problem with the occasional use, or the lower income plans that are laid out here, are they either don't include data, or they include 3G data.
3425 We, again, are not limited. So, now imagine you have a phone. You use it how you use it. You have low-priced bills, but one month something happens. One month you have a relative who's in the hospital, and you're sitting in the hospital room for some number of weeks, et cetera. You would be amazed at the variation across 12 months in people's usage.
3426 So, the ability to spike your usage without being punitively dealt with for it is huge. So, yes, and I think the -- you know, the short answer is yes, and I think the -- a static look doesn't capture some of those very important subtleties. Variability of usage, real 4G data, the ability to take that up, you know, to whatever you need in a given period.
3427 COMMISSIONER BARIN: Thank you.
3428 I want to change gears a little bit. I wanted to ask you about your thoughts on the sprint T-Mobile merger from an MVNO perspective. Do you think this will reduce MVNO activity in the U.S.?
3429 MR. NOSS: We -- so, we have a fairly lengthy submission with the FCC on this. So, there are comments that are publicly available. We do think that -- so, Sprint was probably the most MVNO friendly of the Big 4. So, this cannot help but hurt someone. We will see, but the good news is that Verizon in the last couple years -- I mentioned before that T-Mobile bought Metro, AT&T bought Cricket. Verizon is taking the role of arms merchant rather than going out and buying another brand like that.
3430 And Verizon does have the best network in the U.S.
3431 And so I think that that merger, in isolation, will hurt the MVNO market.
3432 But I don’t know that the MVNO market overall is going to be worse. That will be because of Verizon’s kind of upswing as a supplier.
3433 COMMISSIONER BARIN: Thank you. Now flanker brands.
3434 The Canadian MVNOs own and operate several of these flanker brands.
3435 And your view is that they’re unlikely to be disruptive?
3436 MR. NOSS: Well they’re just still very expensive. That’s -- I -- there’s no other way to put it. I mean, they are simply still very expensive.
3437 COMMISSIONER BARIN: So it’s a price ---
3438 MR. NOSS: Yeah.
3439 COMMISSIONER BARIN: It’s a price point?
3440 MR. NOSS: Yeah.
3441 COMMISSIONER BARIN: Okay. You also argue that MVNOs, via the flanker brands, are being used to gather customer data and profiles and that these profiles are then being used to market aggressively to those customers to have them go into one of the flanker brands of the incumbents.
3442 You gave the example of customers of Bell’s prepaid MVNO brand Lucky being texted to join Virgin Mobile.
3443 Can you expand on that? Or do you have any ---
3444 MR. NOSS: I’m going to have to check that with my policy folks on that one.
3445 COMMISSIONER BARIN: Okay.
3446 MR. NOSS: Are you sure that’s our submission?
3447 COMMISSIONER BARIN: I believe it’s your submission.
3448 MR. NOSS: Yeah, I suspect you’re right. I’ll find out.
3449 COMMISSIONER BARIN: Anecdotal.
3450 MR. NOSS: Yes.
3451 COMMISSIONER BARIN: Okay.
3452 MR. NOSS: I’ll provide an undertaking to get to the bottom of that one and get you an answer.
3453 COMMISSIONER BARIN: Okay. Thank you.
3454 Now, in your view, is there anything wrong with customer’s needs being met through these flanker brands?
3455 MR. NOSS: Anything wrong with? No. Not on its face. No. Not structurally. I just don’t believe it will happen. There’s no incentive. In fact, there’s every disincentive.
3456 Look, one of the things that’s very important, that you heard over and over today, that I think was wrong as well, and once again is just math, you were told by Bell that they have two choices if there was an MVNO. They could cut operating expenses and jobs and, you know, all sorts of other terrible things over here, or they could spend less on networks.
3457 It is simply not true. There is an obvious third choice, and that is lower profits.
3458 We heard with more passion than I heard on any other point, how it is impossible to cut a dividend.
3459 I have a story about Frankfurt, New York, and Toronto as well.
3460 When I’m in Frankfurt seeing shareholders, they ask me why Canadian mobile phone prices are so high and why we’re not getting into that market.
3461 When I’m in New York recruiting employees, I have to warn them that when they come here, there are so many things that are great, but your telecom prices, those are going to be kind of ugly.
3462 And when I was in Toronto, coming here, I was on the phone with a reporter, clearly talking about telecom.
3463 My Lyft driver, when I got off the phone, said, “Oh, are you in telecom?” I said, “Yes.” He said, “What can you do about my mobile phone prices?”
3464 He proceeded to tell me how he was from Bulgaria, “I’ve come here in the last years, and when I go home, I pay $5 for a SIM card with eight gigs on it. I stay for a month, I can’t use the eight gigs. I come back here --” and then he told me his story about one had treated him terribly with a bait and switch that ended and that he left them and he went to the other one, and then they called him back and offered him, and he said, “Why didn’t you do that before I left?”
3465 I mean, it was just -- I didn’t have to do anything.
3466 So I’m going to tell you that you’re choosing between a shareholder in Frankfurt and 30 plus million Canadians as to where you weigh your scales.
3467 COMMISSIONER BARIN: Thank you. Now, you proposed that mandated MVNO access should be restricted to entities that do not have market power.
3468 And your position was that it would be justifiable in the public interest because it would allay concerns of the new entrants that are facilities-based.
3469 Could you maybe expand on which entities you believe have market power and where?
3470 MR. NOSS: You know, I thought about this a fair bit as -- yeah, we put it in our submissions. You see, we didn’t have a lot of supplemental.
3471 And in reading others, I’m not sure I feel as strongly about that. I know that what I was afraid of was people leveraging it. What we were afraid of was companies that could be really of concern, for reasons that I would understand to the MNOs, almost ruining it, ruining the program by leveraging it to detriment.
3472 And I’m not sure that I would make too much of that point at this point.
3473 COMMISSIONER BARIN: Okay. Is it fair to say that you would -- your position is that all of the three national carriers should be mandated to provide MVNO access?
3474 MR. NOSS: Yes.
3475 COMMISSIONER BARIN: Okay. Should the regional carriers be obliged to provide access?
3476 MR. NOSS: I don’t believe so. I would say to you that I would encourage them to, because I think it’s a great way to be more efficient in your operations and it’s a great way to reach segments that you might not otherwise.
3477 COMMISSIONER BARIN: Okay. I’m going to bring you back to just one more point of view that you had in your submission.
3478 You said that if there were more carriers offering wholesale MVNO services, that this would perhaps result in wholesale price competition as well.
3479 Is this your view as well?
3480 MR. NOSS: Absolutely. And my view is also that they’ll never do it.
3481 COMMISSIONER BARIN: Okay.
3482 MR. NOSS: I mean, you know, I wish to be as clear as I can.
3483 I don’t feel like you have any choice. You know, you haven’t asked me yet.
3484 Maybe Chairperson Scott, you know, you’ve been the one asking on this point a lot, around arbitration, mediation.
3485 I would say it would futile to even engage in a commercial negotiation. I don’t think they have any incentive to. I don’t think they would have any intention of reaching a good outcome.
3486 That’s why you hear us say very clearly that we think you have to start with a price.
3487 You know, they’ll dispute it, there’s no question about that. And maybe we end up in arbitration from there.
3488 By the way, I would really like to reinforce what I heard from the Cogeco team around a baseball style arbitration. I love that because it moves it from the evidence and who can buy the best expert and table, you know, by the pound study, to a real commercial situation. You’re put to your election and you’re forced to come to the table with your best.
3489 COMMISSIONER BARIN: Thank you. Now, hypothetically speaking, if we were to mandate wholesale MVNO access, and without going into too much detail, what would be your entry strategy into Canada?
3490 MR. NOSS: Yeah, our start point would be what we do already.
3491 There’s one element of our innovation that we haven’t talked about yet. And that is the fact that we have no retail presence, it’s online only. We were a direct consumer brand before that was sexy. And that has important implications for both your operating costs and your service delivery.
3492 In addition to that, we have the highest percentage, I’m pretty sure this is true, we believe it, we run it by all our carrier partners and nobody’s told us otherwise, the highest percentage of BYOD, Bring Your Own Device, of any significant player.
3493 So we’ve got a lot of online tools that make it easy for you to bring your device, get a SIM card and get started. There are a lot of other MVNOs that will use us for checking their devices or things like that. People will send their customers to us to sort of facilitate some of those BYOD processes.
3494 And it's very important to know, you know, we heard lots so far from multiple parties about the cost of devices. Devices have plateaued. If we're concerned about affordable phones for Canadians, for $139 today, you can get an excellent phone that will have the same specs as a top-end phone from maybe two or three years ago.
3495 In other words, it's probably close to the same specs as the phone that I'm still using with no end in sight.
3496 The secondary market for phones is light-years beyond where it was three and five years ago and that primary market particularly for non-iPhones is remarkable in terms of what's out there.
3497 COMMISSIONER BARIN: Now, if the MVNO access was not national but provincial or even by city, would this change anything in your strategy to enter the Canadian market?
3498 MR. NOSS: I think we would be much less likely to. You know, as is, it's 10 percent of our footprint. So we -- remember that what we then have to do is take energy away from adding customers to the existing service and spinning up a whole new service.
3499 I know that as Canadians, I mean there's so many people in our shop who are so eager to do it that we will. I couldn’t keep them back. But the smaller that got, the harder the decision becomes.
3500 COMMISSIONER BARIN: Okay. Thank you very much. Thank you for your views and answers to my questions. I don’t have any further questions.
3501 Maybe my colleagues have questions?
3502 THE CHAIRPERSON: I have a couple of quick questions for you. I think you called us old earlier when you talked about our average data -- data consumption ---
3503 MR. NOSS: No, no, myself. I was leading with myself.
3505 THE CHAIRPERSON: But I'll forgive you for that.
3506 One I should just mention for your information, if you're not aware, we use baseball-style arbitration as final offer arbitration at the Commission.
3507 MR. NOSS: That's great.
3508 THE CHAIRPERSON: Currently. Hearkening back to your first comments about infrastructure, it just seems to me in effect you're arguing for a monopoly. As you describe it as a utility, for example you said like electricity, well, in Quebec electricity generation, distribution is entirely a regulated monopoly and, yes, it provides relatively cheap rates. I don’t know about innovation.
3509 But I could easily take your arguments and say sounds like the plan is one network and then resale capacity.
3510 MR. NOSS: So I would answer that as follows. I think if we were to wipe the slate clean and start with telecom fresh today, that would be exactly what we should do. We should do what STOCAB did in Sweden in 1998 or nine, what Open Fibre is doing in the U.K. today.
3511 There are a number of examples of that around the world and, again, remember that that's exactly what we did with copper phone service. And I do want to be very clear I don’t have a way, nor do I believe you do, to get there from here. So I'm not advocating for that at all.
3512 I think that -- so I well understand as a student of telecom the various anachronisms that got us where we are today. Copper network is what it is. The next piece of infrastructure that has become today's telecom is the cable plant but that was an entertainment product. It had a regulatory overlay, franchise fees, build requirements, et cetera, but it was not infrastructure in the same way.
3513 If you look at the definition of infrastructure that speaks to necessity and economic growth, you know, my parents probably feel that away about cable TV but I wouldn't make that argument.
3514 So then you -- what we all do is we're fighting the last war where you had the cable infrastructure which was for entertainment, and then the mobile phone infrastructure that came along with the sort of different profiles that I've described a couple of times now. So we are where we are.
3515 But I must say, Chairperson, you tiptoed up there with 5G as well. Commissioner Barin went there as well and I was fascinated by Mr. Jetté's ideas around alternatives for 5G.
3516 You know, I want to bring you back to those comments. It's infrastructure. It should not be about speed and coverage. It should be about price and service. Speed and coverage, it's infrastructure. Think about running water. The only way to have better speed and coverage is to degrade it.
3517 Price and service is about the users of the infrastructure. So now we're all in the theory of second best and how do we get there from here.
3518 THE CHAIRPERSON: I'm not sure it is necessarily second best.
3519 MR. NOSS: Sorry, that's a specific reference to an economic theory.
3520 THE CHAIRPERSON: I'm familiar with that.
3521 MR. NOSS: Yeah, okay.
3522 THE CHAIRPERSON: I would note for example you used the U.K. example of Openreach.
3523 MR. NOSS: Yeah.
3524 THE CHAIRPERSON: It's not without consequences. They have adopted a wholesale model and my understanding is you say it's not about coverage but I believe fibre deployment is a challenge in the U.K. and they are behind than any other countries, including ourselves.
3525 So my suggestion is there are trade-offs here and your answer suggests that it's very simple. It will all happen. It will get built. It will cover everyone.
3526 MR. NOSS: I'm not. Strategy is simple, execution is hard. We have a lot of customers on the ground and I know people in the ISP business in the U.K. and they complain about that vigorously. You may know that Goldman just bought it. Goldman Sachs just bought that. We'll see. Maybe that will improve. There are also competitors there.
3527 I'm talking about the model and I like the STOCAB example better. You know, the situation with fibre in Sweden is fantastic. Coverage, price, competition, service levels. That's about execution. That's about a combination of a strategy for a network and a regulatory framework that worked.
3528 So I'm not -- you know, it is not -- good strategy without execution is never enough.
3529 THE CHAIRPERSON: Thank you.
3530 Members, Commissioner Levy?
3531 COMMISSIONER LEVY: Thank you so much. I'm very interested in your experience in the United States and I'd like to -- you know, you've talked about the big MNOs but the system does need investment. Infrastructure, no matter how we get there, requires investment.
3532 So how do you create the balance that spurs the kind of investment that's required?
3533 MR. NOSS: Yeah. So there's a couple levers. One, there will still be a competitive lever. You can do -- you could hand the pan over to me to design price and technical implementation and I couldn’t design a system that's going to take the market share from 90 percent down to 60 percent in the next 10 years. That just won't happen. There's too much heft already with the carriers.
3534 So in that framework, you still have a competitive dynamic. You know, unless they agree to degrade their networks together, in which case that will open up for some of the other physical infrastructure players to do 5G.
3535 And there's one very important thing about 5G that I'd like to say. The primary beneficiary of 5G is the MNO. It lowers operating costs. It makes operation of the network more efficient.
3536 In this regard, I'd really encourage you to look at what Rakuten is doing in Japan and what DISH in the U.S. is their now attempt to become the fourth carrier is doing. They're building next generation 5G networks that will be less expensive to build and significantly less expensive to run and manage.
3537 So that's one lever. It's competition which doesn't go away. The second is price. I'm not talking about doing this as a charity, I'm talking about a wholesale price that is profitable for the MNOs.
3538 COMMISSIONER LEVY: One last question. I'm more -- I'm interested in where you see the customers coming from. Because it strikes me that your experience in the United States is that you, and others in the States, have tended to find niches that the existing players either didn't bother with, couldn't find, were -- and -- or there is just some new thinking that you brought to the mix.
3539 So how would you see trying to transplant that kind of innovation and thinking in terms of who your customer is to a country the size of Canada where, you know, it's that 10 times smaller.
3540 MR. NOSS: Yeah. So one of the things I used to say a lot when, you know, we would be asked about, you know, "What's your niche?" "What's your target market?" My answer would be "Customers who want lower prices and better service". So that, to me, doesn't feel like a niche. That feels like the fat part of the market. Now, I do believe that with the right structure there will be a lot of innovation around niches.
3541 You know, companies like a mobile around the world, and all of the straight talk brands in the U.S., target very specific niches for immigrant and unbanked communities. Somebody's gonna do that here, if you let them. That won't be us. That's not our natural market. We bring nothing specific to it. But somebody will. And then there'll be another half a dozen that we can't even imagine.
3542 So I do want to encourage you sort of not to -- sort of not to limit yourself, or -- you know, with my imagination or any of ours, specifically. It's permission-less innovation.
3543 THE CHAIRPERSON: Commissioner MacDonald?
3544 COMMISSIONER MacDONALD: Good afternoon. Thank you for your presentation.
3545 I confess I don't yet know where we will land on any of the issues we've been discussing over the last couple of days, but I think we can agree that whatever framework may be put in place to enable MVNOs in the country needs to be structured in such a way that these new MVNOs are positioned for success. Because I don't think it's in anyone's interest to know whether their provider will be there the next day. And I take it the good, the bad, and the ugly with the Big 3, no one needs to worry that Bell is going bankrupt tomorrow.
3546 So if there is a flood of new potential MVNOs, like I said, we need to be sure that they're structured for success. So I'm wondering, can you give me an idea about the general profitability of MVNOs in the U.S. or in other markets?
3547 MR. NOSS: Yeah. I think it certainly varies. We're -- and so people -- MVNOs are not public, so there's not a lot, with the exception of us, and we do share a fair bit publicly. So what we know we know by anecdote and story and bouncing premises off of our carrier partners.
3548 And I would say that generally MVNOs are somewhat profitable. We're quite profitable on a net operating level. But we would love to trade some of our profitability for better pricing. Our problem is we need better pricing on our data rates, where it would make a difference for us, and that's not available to us right now.
3549 So I would say overall, MVNOs are -- the good ones, the efficient ones are profitable. Some are for certain not, kind are just kind of sort of struggling to get along, and some are just well-funded, and are acquisition placed.
3550 So the most important element there probably is remember that if an MVNO does go out of business, us, as an existence proved in the U.S., but those are customers that any of the MNOs can pick up at that point.
3551 COMMISSIONER MacDONALD: Thank you for the comments, specifically as they relate to you. Is your profitability available online? I tried to get onto your website, and I need to download an updated browser before I can do that. So is that information publicly available?
3552 MR. NOSS: I want to discuss browser compatibility after that. I don't know why that would be the case.
3553 So our overall profitability is available. Our -- a lot of our KPIs in mobile are available, if you go to the investor section. I think it's just investor.tucows.com.
3554 COMMISSIONER MacDONALD: Yeah.
3555 MR. NOSS: We don't do segment reporting, so that profitability is not. Information I've shared publicly is that we have gross margins in the high 50s, low 60 percent range, and we have strong net margins.
3556 COMMISSIONER MacDONALD: Okay. And just one final question. Because you said like in any other industries there are good MVNOs, there are bad MVNOs from a profitability ---
3557 MR. NOSS: Yes.
3558 COMMISSIONER MacDONALD: --- standpoint.
3559 You've acquired or merged with several, you said most of your growth as of late has come through acquisition.
3560 MR. NOSS: That's right.
3561 COMMISSIONER MacDONALD: Were those acquisitions prompted based on synergies that could be created, or were they money losing endeavours that you ended up just buying the customer base?
3562 MR. NOSS: Yeah. In all cases, they were MVNOs that failed. So it's five different situations. I want to say we -- you know, we would generally pay, just a bounty to the customers. We would make an arrangement. You'd have an entrepreneur who was going out of business, essentially, you know, or wanted to -- one case they wanted to get out of the business, in another case, they were -- in a couple of cases, they were just going out of business.
3563 In another couple of cases, we bought the customer base, but that's because those businesses had ideas that didn't work out. One was a freemium model, if you're familiar with that, and the other was kind of this philanthropic angle to it that didn't work out for them.
3564 But in each case, it was an orderly transition where typically the customer would come over and get a bit of a service credit from us so that they're, you know, kind of their landing was somewhat soft. And we would just do math to make that work, you know, with assumption that obviously get polished over time around what we were -- be likely to keep from the base.
3565 The carriers liked that because those customers were generally downmarket from what they would want, and it worked out for us, and the people going out of business.
3566 COMMISSIONER MacDONALD: Thank you. And just one final. I take your point that a lot of the information isn't publicly available ---
3567 MR. NOSS: Yeah.
3568 COMMISSIONER MacDONALD: --- on the MVNO market. But -- and I won't hold you this, but from the information that you've been able to glean from your conversations with other providers through your acquisition, what percentage of those MVNOs fall into the good, profitable, operator bucket, and those that are not able to be successful or are just hanging on?
3569 MR. NOSS: It's a good question. I'm going to say, so two things: One, it's particularly for one of the suppliers in the market, they have a relatively low barrier to entry. So I would call it -- I would call the U.S. MVNO market rather promiscuous, and it's probably comfortably, you know, more than half, somewhere between 50 to 60 percent work out, and the other, you know, kind of 30, 40, 50 percent don't.
3570 COMMISSIONER MacDONALD: Okay. Thank you. Promiscuous is not a word we often hear at Commission hearings, so that's where I'll leave it.
3571 MR. NOSS: You're welcome. Thank you.
3572 THE CHAIRPERSON: Counsel, any questions?
3573 Then I thank you very much. Thank you for your submissions and your fulsome responses. Have a good day.
3574 MR. NOSS: Thank you very much for having me.
3575 THE CHAIRPERSON: We will now recess for the day, resuming 9:00 a.m. tomorrow morning.
3576 Thank you, Madam Secretary.
--- Upon adjourning at 5:28 p.m.
La séance est levée à 17:28
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