ARCHIVED - Transcript - Hull, QC - 2001/10/09
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TRANSCRIPT OF PROCEEDINGS
FOR THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES DU
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
Price Cap Regulation and Related Issues, pursuant to
Telecom Public Notice CRTC 2001-37/
Révision des Prix Plafonds et Questions Connexes, conformément
à L'Avis public Télécom CRTC 2001-37
|HELD AT:||TENUE À:|
Centre de Conférences
|October 9, 2001||le 9 octobre 2001|
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès-verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.Canadian Radio-television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Price Cap Regulation and Related Issues, pursuant to
Telecom Public Notice CRTC 2001-37/
Révision des Prix Plafonds et Questions Connexes, conformément
à L'Avis public Télécom CRTC 2001-37
BEFORE / DEVANT:
|David Colville||Chairperson / Président|
|Ron Williams||Commissioner / Conseiller|
|Barbara Cram||Commissioner / Conseillère|
|Andrée Noël||Commissioner / Conseillère|
|Jean-Marc Demers||Commissioner / Conseiller|
|Stuart Langford||Commissioner / Conseiller|
|David McKendry||Commissioner / Conseiller|
ALSO PRESENT / AUSSI PRÉSENTS:
|Michel Spencer||Hearing Manager and Secretary / Gérant de l'audience et secrétaire|
|Legal Counsel / conseillères juridiques|
|HELD AT:||TENUE À:|
Centre de Conférences
|October 9, 2001||le 9 octobre 2001|
TABLE OF CONTENTS / TABLE DES MATIÈRES
PAGE / PARA NO.
SWORN: ROY BRUCKSHAW 1422 / 9097
EXAMINATION BY / INTERROGATOIRE PAR
The Companies 1422 / 9098
MKO 1423 / 9108
Commission Counsel 1486 / 9555
Commission 1493 / 9613
SWORN: MICHAEL R. PARK 1504 / 9684
SWORN: GEORGE J. HARITON 1504 / 9684
EXAMINATION BY/ INTERROGATOIRE PAR
The Companies 1504 / 9685
BCOAPO 1505 / 9699
ARC et al
Ms Lawson 1532 / 9889
ARC et al
Mr. Van Koughnett 1542 / 9958
Mr. Ryan 1602 / 10268
Mr. Engelhart 1679 / 10759LIST OF EXHIBITS / PIÈCES JUSTICATIVES
EXHIBIT NO. DESCRIPTION PAGE NO. / PARA NO.
THE COMPANIES-10 Response to an undertaking
from ARC et al, transcript
reference Volume No. 3,
page 667 1419 / 9081
THE COMPANIES-11 Response to an undertaking from
Commissioner Noël, Volume 4,
paragraph 6790 1419 / 9082
THE COMPANIES-12 CV of Mark Connors 1420 / 9083
THE COMPANIES-13 CV of Richard Stephen 1420 / 9084
THE COMPANIES-14 Response to undertaking
information requested by the
CRTC, transcript Volume 4,
paragraph 5490 1420 / 9085
THE COMPANIES-15 Response to undertaking
information requested by the
CRTC, transcript reference Volume
No. 4, paragraph 5491 1420 / 9086
THE COMPANIES-16 Response to undertaking
information requested by ARC
et al, transcript reference
Volume No. 3, paragraphs 4183
and 4200 1421 / 9087
CRTC-24 Letter dated 9 November, 2000
from Mr. Edmund Burry regarding
quality of service indicators,
third quarter results 2000 1421 / 9088
THE COMPANIES-18 CV of George J. Hariton 1600 / 10258
THE COMPANIES-19 CV of Michael J. Park 1600 / 10259
CRTC-25 Response to undertaking
information requested by
Commission counsel, Ms Moore,
transcript reference Volume 4,
paragraph 6500 1600 / 10260
ARC-7 Document entitled "Utility Segment
Returns on Common Equity,
1997 to 2001" 1601 / 10261LIST OF EXHIBITS / PIÈCES JUSTICATIVES
EXHIBIT NO. DESCRIPTION PAGE NO. / PARA NO.
ARC-8 Document entitled "Dollar Impacts
of ILEC Returns above 11%" 1601 / 10262
ARC-9 Document entitled "Residential
Service Quality, Penalty Free and
Penalty Ready" 1601 / 10263
BCOAPO-2 Bell Mobility, Our Agreement
With You 1601 / 10264
AT&T-11 Letter dated 13 July 2001 from
Mr. David Palmer regarding
split-rate base manual update
for 2000 1677 / 10755
AT&T-12 Decision CRTC 2001-238, residential
primary exchange service costs 1677 / 10755
AT&T-13 Decision 2001-238 versus Bell
proposal 1677 / 10755
AT&T-14 Letter dated March 16, 2000, from
Mr. Antecol regarding a PART VII
application concerning 800
Database query charges 1677 / 10755
AT&T-15 Letter dated 17th of April 2000
from Mrs. Muir regarding Part VII
application concerning 800 Database
query charges 1678 / 10755
AT&T-16 Order CRTC 2000-683 1678 / 10755
AT&T-17 Letter dated 2 February 2001 from
Mr. David Palmer regarding Telecom
Order 200-683, 800 Database query
charges 1678 / 10755
AT&T-18 Order CRTC 2001-500 1678 / 10755
CRTC-15A CRTC Revision to Table 8 of CRTC
Exhibit No. 15 1678 / 10755
ERRATA / ADDENDA
Page 1176, line 24 "were" s/b "we"
Page 1177, line 8 "ere" s/b "are"
Page 1181, line 17 delete "the"
Page 1183, line 23 "grant of" s/b "branch of"
Page 1194, line 14 "low-cost" s/b "below cost"
Page 1206, line 18 "of there" s/b "of -- there"
Page 1226, line 6 "costs" s/b "costs,"
Page 1262, line 24 "central" s/b "essential"
Page 1279, line 5 "uneconomic" s/b "economic"
Page 1302, line 8 "market" s/b "mark-up"
Page 1305, line 14 "at" s/b "as"
Page 1334, line 20 "invincible" s/b "invisible"
Page 1353, line 18 "but" s/b "But"
Page 1354, line 21 "cost" s/b "costing"
Page 1410, line 17 "desegregated" s/b "disaggregated"
Page 1414, line 8 "'Q' of 'S'" s/b "'q of s'"
Hull, Quebec / Hull (Québec)
--- Upon resuming on Tuesday, October 9, 2001 at 0900 /
L'audience reprend le mardi 9 octobre 2001 à 0900
9078 THE CHAIRPERSON: Good morning and welcome back to our proceeding. I hope you all had an enjoyable Thanksgiving weekend, even those who were forced to stay in Ottawa for the weekend.
9079 We will return to our proceeding now. Mr. Secretary, I think you have a few exhibits to attach numbers to.
9080 MR. SPENCER: Yes, I have eight exhibits, Mr. Chairman.
9081 The first document is a response to an undertaking from ARC et al, transcript reference Volume No. 3, page 667, which will be The Companies Exhibit No. 10.
EXHIBIT NO. THE COMPANIES-10:
Response to an undertaking from ARC et al, transcript reference Volume No. 3, page 667
9082 MR. SPENCER: Response to an undertaking from Commissioner Noël, Volume 4, paragraph 6790, will be The Companies Exhibit No. 11.
EXHIBIT NO. THE COMPANIES-11:
Response to an undertaking from Commissioner Noël, Volume 4, paragraph 6790
9083 MR. SPENCER: Mr. Connors' CV will be The Companies Exhibit No. 12.
EXHIBIT NO. THE COMPANIES-12: CV of Mark Connors
9084 MR. SPENCER: Mr. Stephen's CV will The Companies Exhibit No. 13.
EXHIBIT NO. THE COMPANIES-13: CV of Richard Stephen
9085 MR. SPENCER: Response to undertaking information requested by the CRTC, transcript Volume No. 4, paragraph 5490, will be Exhibit No. 14.
EXHIBIT NO. THE COMPANIES-14:
Response to undertaking information requested by the CRTC, transcript Volume 4, paragraph 5490
9086 MR. SPENCER: Response to undertaking information requested by the CRTC, transcript reference Volume No. 4, paragraph 5491, will be Exhibit 15.
EXHIBIT NO. THE COMPANIES-15:
Response to undertaking information requested by the CRTC, transcript reference Volume No. 4, paragraph 5491
9087 MR. SPENCER: Response to undertaking information requested by ARC et al, transcript reference Volume No. 3, paragraphs 4183 and 4200, will be Exhibit 16.
EXHIBIT NO. THE COMPANIES-16: Response to undertaking information requested by ARC et al, transcript reference Volume No. 3, paragraphs 4183 and 4200
9088 MR. SPENCER: Finally a letter dated 9 November, 2000 from Mr. Edmund Burry regarding quality of service indicators, third quarter results 2000 will be CRTC Exhibit No. 24.
EXHIBIT NO. CRTC-24: Letter dated 9 November, 2000 from Mr. Edmund Burry regarding quality of service indicators, third quarter results 2000
9089 MR. SPENCER: Thank you, Mr. Chairman.
9090 THE CHAIRPERSON: Thank you, Mr. Secretary.
9091 Any preliminary matters before we return to the next panel or portion of a panel?
9092 Then I guess it's over to you, Mr. Henry.
9093 MR. HENRY: Thank you, Mr. Chairman. I am pleased to introduce to you this morning The Companies' specific witness for MTS Communications Inc.
9094 Mr. Roy Bruckshaw, sitting closest to you, is Director of Regulatory Affairs for MTS and he is assisted in the back row by Mr. Bob Gowenlock, Mr. Nick Slonosky and Ms Judy Bodner again.
9095 Mr. Gowenlock and Mr. Slonosky are from MTS Regulatory Affairs. Mr. Farmer needs no introduction by this time. He is staying up there again for continuity with the overall Companies' proposal.
9096 Mr. Chairman, the CV of Mr. Bruckshaw, I think, was distributed last week. So perhaps, Mr. Secretary, the witness can be sworn in.
9097 MR. SPENCER: Thank you.
SWORN: ROY BRUCKSHAW
EXAMINATION / INTERROGATOIRE
9098 MR. HENRY: Mr. Bruckshaw, you are responsible for The Companies' specific evidence and interrogatory responses filed by MTS in this proceeding?
9099 MR. BRUCKSHAW: Yes, I am.
9100 MR. HENRY: And are they true, to the best of your knowledge and belief?
9101 MR. BRUCKSHAW: Yes, they are.
9102 MR. HENRY: Mr. Chairman, the witness is available from cross-examination.
9103 THE CHAIRPERSON: Thank you, Mr. Henry.
9104 Good morning, Mr. Bruckshaw. Welcome back.
9105 MR. BRUCKSHAW: Good morning, Mr. Chairman.
9106 THE CHAIRPERSON: There is lots of support for you here this morning.
9107 I turn the cross-examination over to Mr. Williams.
EXAMINATION / INTERROGATOIRE
9108 MR. WILLIAMS: Good morning, Mr. Chairman and Members of the Panel.
9109 Just for your information, although I don't intend to rely on it a great deal, you may want to have at hand the MTS Service Improvement Plan as well as the MTS-Companies specific interrogatories from May 31st, July 16th and September 13th, as well as Telesat interrogatories from September 13th 3600 and 3601.
9110 Mr. Bruckshaw, I am going to assume that you are sworn even though I noted that you were swearing with your left hand instead of your right hand.
9111 MR. BRUCKSHAW: Mr. Farmer pointed that out to me, Mr. Williams.
9112 MR. WILLIAMS: I hope that's symptomatic of how the rest of the cross-examination is going to go as well.
9113 I understand that you are a Director of Regulatory Affairs for MTS and that you have been so since 1996. Is that right?
9114 MR. BRUCKSHAW: Since 1995, yes.
9115 MR. WILLIAMS: And in that position you have had the opportunity to review the evidence and submissions of MKO in the local service pricing options proceeding, the high cost of service area proceeding in this proceeding as well. Is that right?
9116 MR. BRUCKSHAW: Correct.
9117 MR. WILLIAMS: And based upon that, as well as your vast experience in the industry -- apparently for 36 years -- that's where you derive your familiarity with the issues relating to MKO. Is that right?
9118 MR. BRUCKSHAW: That's correct.
9119 MR. WILLIAMS: Now, despite that vast experience, I am assuming that you don't speak Dene. Would I be right there?
9120 MR. BRUCKSHAW: Two words, Mr. Williams.
9121 MR. WILLIAMS: But you are aware, of course, that there are two Dene First Nations in Northern Manitoba, the Sayisi Dene and the Northlands Dene.
9122 MR. BRUCKSHAW: No, I am not.
9123 MR. WILLIAMS: Are you aware that for many of the MKO First Nations the first language is Cree?
9124 MR. BRUCKSHAW: Yes, I think I am.
9125 MR. WILLIAMS: And for other MKO First Nations the first language is Oji-Cree in the Island Lake area, for example?
9126 MR. BRUCKSHAW: I didn't know that.
9127 MR. WILLIAMS: And for other of the MKO First Nations were you aware that the first language is Saulteaux-Cree?
9128 MR. BRUCKSHAW: No.
9129 MR. WILLIAMS: I take it, though, that you are aware that in these communities the first language is not English and that indeed many Elders in those communities do not speak English.
9130 MR. BRUCKSHAW: That's correct.
9131 MR. WILLIAMS: I didn't hear you.
9132 MR. BRUCKSHAW: Yes, yes.
9133 MR. WILLIAMS: I take it you are also aware that in many of these First Nations the residents of these communities do not speak -- excuse me, do not read or write English fluently. Would that be your understanding as well?
9134 MR. BRUCKSHAW: I could certainly believe that.
9135 MR. WILLIAMS: I wonder if you have heard or if you are aware of the fact that compared to western culture the First Nation culture is much more of an oral tradition rather than a written tradition. Were you aware of that, sir?
9136 MR. BRUCKSHAW: Yes, I am aware of that.
9137 MR. WILLIAMS: In other words, it's not a "put it in writing" culture. You are aware of that.
9138 MR. BRUCKSHAW: Correct.
9139 MR. WILLIAMS: And so for the First Nations, they believe that their spoken word is just as valid, just as solemn, just as empirically sound as the written word. Would you agree with that?
9140 MR. BRUCKSHAW: Yes.
9141 MR. WILLIAMS: I take it, based upon your review of the MKO submissions over the last few years, that you are also aware that MKO represents about 33,000 First Nations people on reserve. Would that be right, sir?
9142 MR. BRUCKSHAW: Yes.
9143 MR. WILLIAMS: And that they also represent many thousands more off reserve. You would agree with that?
9144 MR. BRUCKSHAW: I would agree with that.
9145 MR. WILLIAMS: And you are aware of the fact that there is 26 First Nations affiliated with MKO. Correct?
9146 MR. BRUCKSHAW: Yes.
9147 MR. WILLIAMS: And that with these First Nations, whether they are served by satellite or not served by satellite, there are many similarities between these communities. Would you agree with that, sir?
9148 MR. BRUCKSHAW: Yes.
9149 MR. WILLIAMS: Many of them are isolated, and for many of them the first language in the community is not English. You would agree with that?
9150 MR. BRUCKSHAW: Yes, I am sure that is true.
9151 MR. WILLIAMS: I just want to turn to the history of the MKO involvement with MTS over the last five or six years. You are aware that MKO first appeared before this Commission in the local service pricing options proceeding, and they raised a concern about the quality of service in Northern Manitoba at that time, sir?
9152 MR. BRUCKSHAW: That was in Thompson.
9153 MR. WILLIAMS: No. I am actually referring to the hearing before that, the local service pricing options proceeding.
9154 MR. BRUCKSHAW: Okay, right.
9155 MR. WILLIAMS: And that was in 1996.
9156 MR. BRUCKSHAW: Yes.
9157 MR. WILLIAMS: You are nodding your head.
9158 MR. BRUCKSHAW: Yes, yes.
9159 MR. WILLIAMS: And shortly after that, MTS announced that it was changing the service to the satellite communities in Northern Manitoba. They were moving from the Spacetel Satellite Facilities to the Telephony Earth Station, TES system. Is that correct?
9160 MR. BRUCKSHAW: Correct.
9161 MR. WILLIAMS: And that would be in 1997?
9162 MR. BRUCKSHAW: Correct.
9163 MR. WILLIAMS: And the premise of the move to TES was that there would be better reliability, better voice quality, and the First Nations communities would have the ability to use high-speed fax, the satellite communities. Is that correct, sir?
9164 MR. BRUCKSHAW: Yes.
9165 MR. WILLIAMS: You are also aware that in the high-cost service area proceeding in 1998 and 1999 MKO again appeared before the Commission and said that despite the changes, the implementation of the TES satellite system, there continued to be enduring concerns about the quality of service in those communities.
9166 MR. BRUCKSHAW: Correct. Well, the comments, as I recall them in Thompson, they did indicate problems, but I don't recall the reference specifically being to the satellite communities. I think the reference was generally.
9167 MR. WILLIAMS: So you agree that the concerns identified were concerns universal to Northern Manitoba service?
9168 MR. BRUCKSHAW: Concerns have been expressed, yes.
9169 MR. WILLIAMS: Yes. And these are many of the same concerns that we are talking about today. Correct?
9170 MR. BRUCKSHAW: I am not sure of that, but I could look into that.
9171 MR. WILLIAMS: Many of the same concerns that we are certainly talking about in the course of this proceeding.
9172 MR. BRUCKSHAW: Yes.
9173 MR. WILLIAMS: I want to turn, Mr. Bruckshaw, to the corporation's objectives in developing its service improvement plan.
9174 Would you agree with me that it's fair to say that MTS' service improvement plan was aimed in part at addressing the lack of service quality in Northern Manitoba?
9175 MR. BRUCKSHAW: Yes, that's true.
9176 MR. WILLIAMS: From The Companies' perspective, the issue in northern remote areas, one of the issues was the adequacy of the existing facilities to support reliable service as well as access to the Internet. You would agree with that?
9177 MR. BRUCKSHAW: I would agree with that.
9178 MR. WILLIAMS: And the MTS service improvement plan was developed to address those concerns. Correct?
9179 MR. BRUCKSHAW: That's correct.
9180 MR. WILLIAMS: So one of the central concerns in developing this plan was to address perceived shortcomings in the adequacy of the existing facilities. Correct?
9181 MR. BRUCKSHAW: That was one of the reasons. The other reason was to provide more bandwidth in those communities so that they could have access to the Internet.
9182 MR. WILLIAMS: Thank you.
9183 I guess you would agree -- and you are familiar with the Bell submission -- that this kind of commitment to improving quality of service is consistent with the position that Bell has taken; in that Bell and Bell et al have taken the position that it is important to ensure that high-quality telecommunications services are available to all Canadians. That would be consistent with the Bell positions.
9184 MR. BRUCKSHAW: We would all agree with that, Mr. Williams.
9185 MR. WILLIAMS: And it would also be consistent with the position that the CRTC has taken in its high cost of service proceeding where it spoke of the challenge of providing a reasonable level of service, and in achieving that challenge the need to balance the objective of high-quality service with competitive issues. You would agree with that?
9186 MR. BRUCKSHAW: Generally, I suppose I would.
9187 MR. WILLIAMS: The question might not have been that precise, but I guess we can agree that the position taken by MTS and by Bell et al and by the CRTC is that underlying the issue of the basic service objective is the necessity of providing a reasonable quality of service. Is that not correct?
9188 MR. BRUCKSHAW: Correct.
9189 MR. WILLIAMS: And without that basic reasonable quality of service the achievement of the basic service objective, or BSO, was really more an achievement in theory than reality. You would agree with that?
9190 MR. BRUCKSHAW: I would agree that it's necessary.
9191 MR. WILLIAMS: I take it you would also agree with me, for example, that if a healthcare professional in a remote community is unable to access a hospital in Southern Manitoba for a period of a number of hours, that reality would be inconsistent with the objective of providing a high quality of service.
9192 MR. BRUCKSHAW: Well, that would depend on what the reason for that was. If the reason for that was because that healthcare provider was in a remote community and the facility went down and it was impossible to get in, for example, because of the weather and fix it, no, I wouldn't say that that was a commentary on quality of service.
9193 MR. WILLIAMS: You will agree with me that if there are enduring problems in terms of accessing southern communities, from the perspective of the remote communities this would not be consistent with the objective of high-quality service.
9194 MR. BRUCKSHAW: If that were true, I would agree with it.
9195 MR. BRUCKSHAW: I take it you would also agree with me that it's not unreasonable for these MKO communities to expect static-free, echo-free, readily available telecommunications services, both to the north and to southern communities. That's not an unreasonable objective in the course of this proceeding?
9196 MR. BRUCKSHAW: Correct.
9197 MR. WILLIAMS: Mr. Bruckshaw, I want to turn to the issue of consultations. I want to deal with this at a high level to start with, and then we will get into the specifics of the service improvement proposal, at a theoretical level. I just want to talk for a few minutes about reasons why a company such as MTS might see some advantages from engaging in consultations with stakeholders.
9198 Are you with me so far?
9199 MR. BRUCKSHAW: Yes, I am.
9200 MR. WILLIAMS: And you would agree with me that one of the theoretical advantages, both to the stakeholder and to the company from engaging in consultations would be that they could be confident that they had appropriately identify the problems that the stakeholders are experiencing.
9201 You would agree with that?
9202 MR. BRUCKSHAW: Yes.
9203 MR. WILLIAMS: And you would agree with me that another theoretical advantage of consultation is that it would enable MTS to be aware of the special needs, the special priorities, and the special circumstances of those communities. Correct?
9204 MR. BRUCKSHAW: Yes, I agree with that.
9205 MR. WILLIAMS: And another theoretical advantage of consultation would be that it would provide the stakeholders, the communities, the opportunity to consider proposed solutions and consider also whether those proposed solutions met their needs. You would agree with that?
9206 MR. BRUCKSHAW: To the extent that problems had been identified, yes.
9207 MR. WILLIAMS: Fair enough. And you would also agree that another potential theoretical advantage of consultation would be that if the stakeholders identified limitations in terms of The Companies' proposal, they could explore other options: for example, funding from the federal government or from the provincial government.
9208 That would be another theoretical advantage of consultation.
9209 MR. BRUCKSHAW: I suppose that's true.
9210 MR. WILLIAMS: And I guess still doing it at a higher level, you would agree with me that the level of consultation that might be required would depend to a certain degree on the circumstances and needs of the stakeholders. Different stakeholders would require a different level of consultation.
9211 MR. BRUCKSHAW: That's likely true.
9212 MR. WILLIAMS: I wonder if we can agree on a common definition of stakeholder, Mr. Bruckshaw. I take it we can conclude that in the context now of the service improve plan, stakeholders would include communities whose services will be affected by this proposal. You would agree with that?
9213 MR. BRUCKSHAW: Yes.
9214 MR. WILLIAMS: And other potential stakeholders would be those who might be expected to have some financial consequence as a result of this proposal, whether it's directly through being asked for a contribution or through increased rates. You would agree with that?
9215 MR. BRUCKSHAW: I am not sure who you are referring to, Mr. Williams. If it's the customers you are referring to in terms of increased rates, yes, I would agree.
9216 MR. WILLIAMS: And you would also agree that potential stakeholders would be communities who perhaps may have looked at the service improvement plan as a way to achieve the basic service objective, but are not being recognized or accommodated in the course of the service improvement plan.
9217 MR. BRUCKSHAW: I think you are going to have to be more specific there, Mr. Williams.
9218 MR. WILLIAMS: Fair enough, Mr. Bruckshaw. You would agree with me that another potential stakeholder would be communities that have not yet reached the basic service objective and were relying on the service improvement plan to help them to achieve that objective.
9219 MR. BRUCKSHAW: Are you referring to the satellite-based communities there?
9220 MR. WILLIAMS: Well, let's just take, for example, if a community doesn't have toll-free access to the Internet and was looking to the service improvement plan to provide that access, that certainly would be a potential stakeholder. Is that not correct?
9221 MR. BRUCKSHAW: I think that issue has been canvassed in a fair bit of detail in this proceeding. Our position is that it's not economically feasible to provide that in those communities that are served by satellite; that there are other options that are possible using other technologies. But it's not part of our plan to include that in this service improvement plan, mainly because it's not economic.
9222 MR. WILLIAMS: Thank you for that answer, Mr. Bruckshaw. My question was in terms of consultation and the definition of stakeholders.
9223 MR. BRUCKSHAW: Well --
9224 MR. WILLIAMS: And you would agree with me that those communities would fit the definition of stakeholders; that they would be communities that would be affected by this proposal, at least by their omission. Is that correct?
9225 MR. BRUCKSHAW: Yes.
9226 MR. WILLIAMS: You also agree with me that in the course of the high cost of service proceeding the CRTC indicated that its expectation was that incumbent local carriers should consult stakeholders prior to preparing their service improvement plan. Is that correct, Mr. Bruckshaw?
9227 MR. BRUCKSHAW: Well, that's true, but that's in relation to the service improvement plans that have been put forward by the other companies. As you know, Mr. Williams, our service improvement plan is considerably different than that of others.
9228 All we are simply doing there -- I say simply but it's going to take a $55 million expenditure. We are replacing the facilities that the communities served on the east side of Lake Winnipeg going up to Churchill -- we are replacing those microwave analog facilities with digital facilities.
9229 The issues related to those facilities are well known to MTS. They are certainly well known to the communities there. The communities have made presentations before the Commission, and they are also well known to the Commission.
9230 We are simply replacing the facility. To put it a different way, I don't think it would be necessary for us to go out and ask those communities whether they wanted to us to upgrade their facilities or not. I think that's apparent.
9231 And the functionality that we are going to accomplish by doing that is exactly the same as the functionality we have now. What we are hoping to achieve, of course, which we will achieve, will be better reliability and more bandwidth so that those communities can have access to the Internet and other data services.
9232 The point I am making is that there's a difference between that service improvement plan and a service improvement plan where you are providing service to unserved areas. As you know, we had an extensive program of that type in the late eighties and early nineties, and we did extensive consultation in all communities at that point. That's the difference between our service improvement plan and that of the other companies.
9233 MR. WILLIAMS: Thank you for that speech, Mr. Bruckshaw. Your evidence is, then, that you understand that the CRTC directed in the high cost of service proceedings that the other telcos were expected to consult with stakeholders, but that MTS was not.
9234 MR. BRUCKSHAW: No. I wouldn't be that categorical.
9235 MR. WILLIAMS: You can confirm that the MTS service improvement plan was filed with the CRTC on April 6 at which time it was also served on other interested parties, including counsel for MKO, sir.
9236 MR. BRUCKSHAW: Yes.
9237 MR. WILLIAMS: And speaking specifically with regard to that service improvement plan, can you confirm that MKO was not provided with a copy of that plan prior to the time that it was filed with the CRTC?
9238 MR. BRUCKSHAW: Prior to, no. You are probably right about that.
9239 MR. WILLIAMS: And again, speaking specifically with regards to the MTS service improvement plan, you can indicate that MTS did not ask MKO for its comments on specifics of the service improvement plan that was filed with the Commission.
9240 MR. BRUCKSHAW: Well, I think I have given my position on that, Mr. Williams. I don't think it was required.
9241 MR. WILLIAMS: So you confirm that MTS never presented this plan to the First Nation communities and never said to them: "Do you think we are addressing the needs in your communities?"
9242 MR. BRUCKSHAW: Mr. Williams, our service improvement plan doesn't come in different flavours. It's not "you can do some of it, or maybe not all of it, or more than we have offered". What we are simply doing is replacing the facility. I mean, you either do that or you don't do it.
9243 MR. WILLIAMS: Thank you, Mr. Bruckshaw. You indicated in your rather long answer a couple before that the issue -- you were satisfied that you appropriately identified the problems in the MKO community.
9244 My question to you is can you confirm that you did not present this service improvement plan to the MKO communities and did not ask the MKO communities whether they accepted The Companies' contention that they had properly identified the problems in these communities?
9245 MR. BRUCKSHAW: I can only repeat what I already said, Mr. Williams.
9246 MR. WILLIAMS: So from The Companies' perspective, providing that opportunity for the First Nation communities to review its service improvement plan, to comment on it and to offer potential options to amend that service improvement plan prior to its filing was both unnecessary and not meaningful.
9247 MR. BRUCKSHAW: To the extent that we were simply replacing a facility, yes, I would say that's my position.
9248 MR. WILLIAMS: Mr. Bruckshaw, I would like to turn to The Companies' objectives in developing this service improvement plan and, more specifically, the assumptions that it was operating under.
9249 With your permission, I would like to speak specifically about the MKO communities and divide them into the communities that were served by satellite and those that were not served by satellite. Is that fair enough?
9250 MR. BRUCKSHAW: Absolutely.
9251 MR. WILLIAMS: As we have already gone over, I think The Companies' perception or assumption in terms of the problems in the communities that were not served by satellite, the non-satellite communities, was that the two issues were related (a) to the lack of toll-free access to the Internet and (b) to the underlying concern with the adequacy of the existing facilities. Would that be fair?
9252 MR. BRUCKSHAW: Yes, that would be fair.
9253 MR. WILLIAMS: And in terms of the satellite communities, the position or the assumption by MTS was that the real issue was the lack of toll-free access to the Internet. Would that also be fair?
9254 MR. BRUCKSHAW: I am sure that's an issue for those communities, yes.
9255 MR. WILLIAMS: I am asking you about yours.
9256 MR. BRUCKSHAW: As you yourself pointed out, back in 1997, 1998, they received digital satellite service. So they don't have the bandwidth restrictions that the other communities have. For example, they do have the capacity to send faxes. They do have the capacity to get on the Internet as well, but they don't have toll-free access.
9257 MR. WILLIAMS: So, speaking again of the satellite communities, The Companies' assumption was that quality of service as opposed to toll-free access to the Internet was not really an issue for those communities. Is that correct?
9258 MR. BRUCKSHAW: That's true, that's true.
9259 MR. WILLIAMS: And The Companies' position in fact was that it was already delivering a reasonable quality of service to these satellite communities. Fair enough?
9260 MR. BRUCKSHAW: Yes.
9261 MR. WILLIAMS: Mr. Bruckshaw, I want to refer you, to elaborate on this theme a little bit more, to interrogatories posed by MKO to MTS, and specifically MKO No. 4 and MKO No. 2.
9262 MR. BRUCKSHAW: Sure.
9263 MR. WILLIAMS: Mr. Chairman, for the panel, those interrogatories properly described are MTS(MKO)26Jun01-2 and 4.
9264 Do you have those, Mr. Bruckshaw?
9265 MR. BRUCKSHAW: Yes.
9266 THE CHAIRPERSON: No. 4 and No. 2, Mr. Williams?
9267 MR. WILLIAMS: That's right, sir.
9268 Again, just referring to MKO-4, first of all, and specifically to the issue of echo on the telephone lines, I wonder if I could refer you to page 2 of 2 of MTS(MKO)-4, the second last sentence.
9269 Specifically MTS' evidence at that point in time was that the circuits on the satellite system are equipped with echo cancellers that eliminate the problem of echo with service to the satellite communities.
9270 So in The Companies' point of view, there was not a problem with echo in the satellite communities at that point in time, sir.
9271 MR. BRUCKSHAW: Correct.
9272 MR. WILLIAMS: And moving back to CRTC -- actually I will stay on that one just for one second, No. 4.
9273 The Companies' position as well was that --
9274 THE CHAIRPERSON: Did you say No. 4, Mr. Williams?
9275 MR. WILLIAMS: Yes.
9276 THE CHAIRPERSON: All right.
9277 MR. WILLIAMS: The Companies' position as well in terms of service to the satellite communities was that there was not a problem in terms of delay or data transmission for these communities. Is that not correct?
9278 MR. BRUCKSHAW: Well, it's not a problem, but they are characteristic of satellite service. Because of the propagation delay, there is a delay there, but the delay does not affect the transmission of data.
9279 MR. WILLIAMS: So The Companies' evidence and its assumption was that there were no problems with data transmission for the satellite communities --
9280 MR. BRUCKSHAW: Correct.
9281 MR. WILLIAMS: -- they had the service improvement plans.
9282 MR. BRUCKSHAW: Correct.
9283 MR. WILLIAMS: And turning now to MTS(MKO)-2, it would also be fair to say that The Companies' position was that there was not a problem with disconnected or blocked calls emanating from these MTS satellite communities in that the service -- the facilities serving the satellite communities in northern Manitoba currently meet the P.01 standard.
9284 Is that fair, Mr. Bruckshaw?
9285 MR. BRUCKSHAW: That's correct.
9286 MR. WILLIAMS: So The Companies' assumption in developing this service improvement plan was there was not a problem with echo in these communities, there was not a problem with blocked calls and there was not a problem with data transmission. Fair enough?
9287 MR. BRUCKSHAW: That's correct.
9288 MR. WILLIAMS: So The Companies' basic position or assumptions going in were that there were problems with the existing facilities in the non-satellite communities, but that those would be solved by the service improvement plan. And in terms of the basic service objective for the satellite communities, the issue was totally related to the lack of toll-free access to the Internet. And The Companies' position, which I don't need you to elaborate on, was that it was too expensive to provide that service to the communities.
9289 MR. BRUCKSHAW: Well, uneconomic. Yes.
9290 MR. WILLIAMS: Mr. Bruckshaw, I am going to be referring you to a couple of other interrogatories, which are the September 13th interrogatories, CRTC(MTS)-3600 and CRTC(Telesat)-3600 and 3601.
9291 MR. BRUCKSHAW: Go ahead, Mr. Williams.
9292 MR. WILLIAMS: Thank you, Mr. Bruckshaw.
9293 I want, with specific reference to the satellite communities, look at how your assumptions panned out in terms of quality of service. But before doing so, I guess there is one other assumption that I may have forgotten.
9294 At the time you developed your service improvement plan, it would be correct to say that The Companies' assumption was that the MKO satellite communities were being served by the Anik E-1 satellite. Is that correct?
9295 MR. BRUCKSHAW: That is correct.
9296 MR. WILLIAMS: And in reviewing your interrogatory responses, both the May interrogatory responses as well as the July interrogatory responses, the company, at that point in time, was again operating under the assumption that its communities were being served by the Anik E-1 satellite. Is that correct?
9297 MR. BRUCKSHAW: Yes. During the year this year, Mr. Williams, the service was moved from the Anik E-1 to the Anik E-2.
9298 MR. WILLIAMS: And it was actually moved from Anik E-1 to Anik E-2, I believe -- it's not on the record yet, but it was moved approximately in March of the year 2000.
9299 MR. BRUCKSHAW: Something like that, yes.
9300 MR. WILLIAMS: But in developing both your service improvement plan and your May 31st interrogatories and the July 16th interrogatory responses, The Companies' evidence was that it was being served by the Anik E-1 satellite. Is that correct, sir?
9301 MR. BRUCKSHAW: Well, to digital satellite service.
9302 MR. WILLIAMS: Was that right, sir, that your assumption at that point in time was that you are being served by Anik E-1?
9303 MR. BRUCKSHAW: I am sure that is correct, yes.
9304 MR. WILLIAMS: I wonder if you could turn now, Mr. Bruckshaw, to the interrogatory Telesat(CRTC)-3600.
9305 Do you have it, Mr. Bruckshaw?
9306 MR. BRUCKSHAW: Yes, go ahead.
9307 MR. WILLIAMS: I am referring to Telesat's response to question a), and specifically the underlined heading under "Echo and Noise", which is about page 3 of that interrogatory. Do you have that, sir?
9308 MR. BRUCKSHAW: Yes.
9309 MR. WILLIAMS: My understanding is that The Companies' assumption going into this proceeding and in developing its service improvement plan was that these communities did not have a problem with echo because echo cancellers had eliminated that problem; correct? We have dealt with that before.
9310 MR. BRUCKSHAW: That's what they are intended to do.
9311 MR. WILLIAMS: In looking at Telesat's analysis of the problems being experienced by the satellite communities, the first problem that they identify and which is related to echo and noise problems these communities are suffering is that it was determined that the echo and noise problems occurred because of improper earth station alignment. Is that correct, sir?
9312 MR. BRUCKSHAW: That's what it says.
9313 MR. WILLIAMS: And in developing its service improvement plan, MTS wasn't aware (a) of the fact that there were echo problems or (b) of the fact that it was due to improper alignment. Is that correct?
9314 MR. BRUCKSHAW: Mr. Williams, the nature of the problem here isn't something that you would deal with in a service improvement plan. What we are talking about is a technical problem.
9315 The service improvement plan is a fundamental change in the way you are providing service. There is no fundamental change required here. This was simply a technical problem because of the satellites being parked in a slightly different position and the requirement for the earth stations to be realigned.
9316 So no, I wouldn't agree that anything related to that should be included in the service improvement plan.
9317 MR. WILLIAMS: The question was, Mr. Bruckshaw, that you weren't even aware that there was an echo and satellite problem in these communities. Is that not correct?
9318 MR. BRUCKSHAW: Telesat had reparked the satellite. They felt that that move would be transparent to the customer, and for a period of time we didn't know about it.
9319 MR. WILLIAMS: You also weren't aware that there were problems with the Gateway site which terminates or originates all calls destined for the North, which were also leading to these problems. Is that not correct, sir?
9320 MR. BRUCKSHAW: I am sure you are correct about that, Mr. Williams.
9321 MR. WILLIAMS: That Is Telesat's evidence, is it not?
9322 MR. BRUCKSHAW: Yes, fine. Sure.
9323 MR. WILLIAMS: And the fact is that there were also problems with the Brochet remote that the company was also not aware of. Is that not correct, sir?
9324 MR. BRUCKSHAW: Which specific problems are you referring to?
9325 MR. WILLIAMS: What is referred to in this interrogatory, Mr. Bruckshaw; the fact that MTS site has RF power swings at plus or minus 5dB. Is that not correct, sir?
9326 MR. BRUCKSHAW: Yes.
9327 MR. WILLIAMS: TELUS' expectation was of course that, with these corrections, the problems in terms of echo would be solved. Is that not correct, sir?
9328 MR. BRUCKSHAW: Yes, the service would be brought up to specification.
9329 MR. WILLIAMS: I want to turn to the issue just briefly of line blockage. Again this is covered in the Telesat interrogatory, another two pages along in terms of blockage, Mr. Bruckshaw.
9330 As you recall the evidence of MTS to MKO, it was that the facilities serving the satellite communities in northern Manitoba currently meet the P.01 standard and that there wasn't a problem with line blockage.
9331 Could you confirm for me that Telesat identified problems with some of the remote sites in the fact that they exceeded the recommended satellite blockage specification, sir?
9332 MR. BRUCKSHAW: Could you point me to the exact words?
9333 MR. WILLIAMS: Yes. Under the word "blockage" the first paragraph, the second sentence.
9334 MR. BRUCKSHAW: That's what it seems to say.
9335 MR. WILLIAMS: So, Telesat identified a blockage issue or a disconnection issue that MTS wasn't aware of at the time that it was presenting its evidence to the Commission. Is that correct?
9336 MR. BRUCKSHAW: It can happen, Mr. Williams, that from time to time there is growth in communities that may go unobserved and that traffic studies are required just to make sure that in fact the blockage requirement in any community is up to specification. This may have been the case there.
9337 MR. WILLIAMS: But this was an issue again that MTS was not aware of. Is that not correct?
9338 MR. BRUCKSHAW: Right, but this is not a service improvement plan issue, Mr. Williams. This is a provisioning issue.
9339 MR. WILLIAMS: We will get to that, Mr. Bruckshaw.
9340 I want to turn now to the -- again just going back one page under the heading "Poor Fax Service". MTS' evidence, as we went over previously, was that there was not a problem in terms of data transmission to the MKO communities. Is that not correct, sir?
9341 MR. BRUCKSHAW: That is true. That is correct.
9342 MR. WILLIAMS: But you can indicate, based upon the Telesat response, that they identified problems in terms of fax service, both with respect to the single-hop service, the north-south transmissions, as well as with regard to the double-hop services fax transmissions from one northern community to another community. Is that not right, sir?
9343 MR. BRUCKSHAW: Well, the same problems may persist with double-hopped. They are suggesting that the problem should be resolved. I am not sure what it is you are referring to there.
9344 MR. WILLIAMS: The first point I am referring to, Mr. Bruckshaw, is that they identified problems and those problems related both to single-hop transmissions and to double-hop transmissions. Is that not correct?
9345 MR. BRUCKSHAW: These would be all related to the realignments. I mean, realignments can cause a number of problems.
9346 MR. WILLIAMS: And your evidence is that the only problem in terms of fax transmission to the satellite communities was the issue of the realignment. Is that correct, Mr. Bruckshaw?
9347 MR. BRUCKSHAW: We haven't established, Mr. Williams, whether in fact there even is a problem. I have answered quite a number of questions but we haven't really got down to talking about exactly what is going on in those communities. I would be happy to do that.
9348 MR. WILLIAMS: Let us stick to my cross-examination, okay, Mr. Bruckshaw?
9349 MR. BRUCKSHAW: Sure.
9350 MR. WILLIAMS: One of the points that Telesat makes -- and it is in the first paragraph under "Poor Fax Services" -- is that problems may persist with any double-hopped fax transmissions due to transmission delay. Is that not correct, sir?
9351 MR. BRUCKSHAW: That is true. But there are very, very few double-hopped calls that are being made in those communities, about 3 per cent perhaps.
9352 MR. WILLIAMS: So, your evidence is that the MTS does not consider it a serious problem that MKO First Nations are not able to communicate directly with each other in northern Manitoba through fax. Is that what you are suggesting?
9353 MR. BRUCKSHAW: Based on the nature of the traffic that comes in and out of there, 97 per cent of the traffic doesn't go that way. So, I think I would agree that 97 per cent of the traffic is single-hopped and doesn't have a problem.
9354 MR. WILLIAMS: And you will agree that there is evidence on the record in this proceeding that one of the experiences of MKO communities is that they actually have to fax twice. They have to fax down to Thompson, for example, and then back up to another MKO community because they are not able to fax directly to other northern communities. You would agree with that?
9355 MR. BRUCKSHAW: I am not sure specifically what part of the evidence you are referring to.
9356 MR. WILLIAMS: I am referring to the evidence of Mr. Smith, filed on August 20th, page 10. Would you accept that subject to check or would you like to review it, Mr. Bruckshaw?
9357 MR. BRUCKSHAW: I would like to review it.
9358 Sir, could you direct me to the --
9359 MR. WILLIAMS: Yes. It's under the heading "Fax Service", Mr. Bruckshaw. It's about ten pages in.
9360 MR. BRUCKSHAW: We may not even be in the right document, Mr. Williams. Which one are you referring to?
9361 MR. WILLIAMS: This is the evidence of Mr. Smith filed on August 20th.
9362 MR. BRUCKSHAW: Sorry. There are page numbers, Mr. Williams. Can you give me one?
9363 MR. WILLIAMS: It's about ten pages in. The heading at the top of the page is "Fax Service".
9364 MR. BRUCKSHAW: But there are page numbers at the bottom.
9365 MR. WILLIAMS: I don't seem to have page numbers on my copy, Mr. Bruckshaw.
9366 MR. BRUCKSHAW: I think I have it. Yes, I have read it.
9367 MR. WILLIAMS: Mr. Bruckshaw, you are indicating that the traffic levels for intra-North faxes are quite low, and I will suggest to you that one of the problems or one of the reasons for the fact that these transmissions or the traffic is fairly low is that it is quite difficult to do and that in many cases First Nation communities actually have to double fax the document to make sure it gets through.
9368 MR. BRUCKSHAW: No, I didn't say that. What I said was that 97 per cent of calling, be it fax or be it voice, that is originated in those communities is one-hopped. The simple fact that it is two-hopped doesn't necessarily mean that there will be a problem. It's theoretically possible that there will be a problem.
9369 MR. WILLIAMS: Well, let's follow that through though, Mr. Bruckshaw. Is it The Companies' position that if there is only three per cent of the traffic volume going between communities, it is not important to address the problem?
9370 MR. BRUCKSHAW: No, that is not The Companies' position. Again, we are down to a matter of economics.
9371 MR. WILLIAMS: You are aware of the fact that Telesat says that these double-hopped transmissions can be corrected if their network was converted from star topology to a meshed topology. Is that right?
9372 MR. BRUCKSHAW: Yes, absolutely.
9373 MR. WILLIAMS: And you are also aware that other telcos served by Telesat actually do that? Is that also correct?
9374 MR. BRUCKSHAW: I am sure that is true and those companies would be SaskTel and TELUS.
9375 MR. WILLIAMS: I will take your word for that.
9376 So this is a problem that could be corrected by MTS if it wished to. You would agree with that?
9377 MR. BRUCKSHAW: There is an additional cost related to that in terms of the billing. The billing would have to be done by Telesat; and, yes, the answer is yes.
9378 MR. WILLIAMS: And it's also a problem that in the course of filing its evidence or interrogatory responses in this proceeding the company just wasn't aware of it. Is that correct?
9379 In other words, Mr. Bruckshaw, in The Companies' evidence --
9380 MR. BRUCKSHAW: Well, we are certainly aware that double-hopped traffic did exist.
9381 MR. WILLIAMS: But The Companies' evidence was that there was not a problem in terms of fax transmission?
9382 MR. BRUCKSHAW: Well, as I say, it's a matter of economics.
9383 MR. WILLIAMS: Mr. Bruckshaw, I wonder if I could turn you to the Interrogatory Response MTS 3600.
9384 Do you have that?
9385 MR. BRUCKSHAW: Yes, go ahead.
9386 MR. WILLIAMS: Would you agree with me that the thrust of this response was that to the extent that any service problems in terms of fax problems, echo or delay or disconnections -- to the extent that any of those problems had been identified in the MKO communities, this interrogatory suggests that they have already been solved?
9387 Would you agree with that, Mr. Bruckshaw?
9388 MR. BRUCKSHAW: Well, when the MKO filed its evidence, its first evidence, and indicated problems in those communities we did extensive testing and realignment on those facilities and we did our own surveys, if you want to call them that, with customers and identified that some of the problems that were being identified in the MKO submission in fact did exist.
9389 As I say, we did extensive RF realignment. We worked with Telesat, we made test calls and we sent test faxes and the system appeared to be working. So that is the essence of our answer.
9390 MR. WILLIAMS: Yes, and just to refer to your answer at the bottom of I believe page 2 of 7, under sub (b), in the fourth paragraph you refer to recent upgrades undertaken by MTS. You take the position that the upgrades already implemented have addressed the difficulties previously identified by MKO. Is that correct?
9391 MR. BRUCKSHAW: Yes.
9392 MR. WILLIAMS: You also just spoke recently of the testing that took place and Telesat undertook to try and address these issues. I want to refer you to the issue of noise specifically and examine how you tested for the issue of noise.
9393 If I understand it correctly, noise can be caused anywhere, whether from the phone itself to the switch, as well as in the path to the satellite uplink. Is that correct?
9394 MR. BRUCKSHAW: Yes, that is correct.
9395 MR. WILLIAMS: So any loose connection, any loose ground, moisture or corrosion, can cause noise. Correct?
9396 MR. BRUCKSHAW: Yes.
9397 MR. WILLIAMS: In assessing the problem of noise I take it that the company checked to see that the circuits from the switch to the satellite were noise free. Is that correct?
9398 MR. BRUCKSHAW: Well, what we did is what I have already explained to you that we did once we got the initial submission from the MKO.
9399 When we got your supplemental submission about a week or so ago, I have to tell you I was somewhat surprised that there appeared to still be a problem there. So we called every school and every nursing station in every one of those communities and we sent test faxes to figure out, to determine, whether or not we still had a problem there.
9400 It did appear as though we did have a problem of some kind, although it wasn't exactly clear what it might be. I have to tell you that all the test faxes that we sent were sent successfully.
9401 So what we did actually was a crew tried to get into Pukatawagen last Wednesday and weren't able to get in because of the weather. They couldn't fly. But they did get in on Thursday. They did a thorough test of that site right down to the channel unit level and worked with Telesat and determined in fact that our system is clear. There was no problem with our system at Pukatawagen.
9402 So what they did was they went to the nursing station to engage a customer in the process and they also went out to the community and talked with people in the community.
9403 What they found in Pukatawagen at least was that there were problems with blocked calls there, but it seemed to be an administrative problem at the nursing station that call blocking had been put on some of the toll trunks and only certain persons are authorized to make long distance calls.
9404 There was a problem with the way they were using the PBX as well in terms of transferring calls. Calls were being dropped. So that appeared to be the problem there.
9405 When we went out into the community, we discovered that quite a few people had been buying low-quality refurbished telephones that were creating a lot of noise and static. So at least in Pukatawagen our system tested clear and the problem doesn't appear to be in our system. It is at the customer equipment end.
9406 Now, I am not suggesting to you that we are going to find that in every single site that we are going to, but I am going to tell you that we are going to visit every single one of those sites. In fact, we are going to do Shamattawa to Tadoulie Lake this week and by the end of the month we are going to go to every single community. We are going to go to every single nursing station and we are going to talk to residents in those communities, and we are going to determine what the problem is.
9407 The problem that we had in talking with our customers is the same as, I believe, the problem that Mr. Smith had when he did your survey; that you tend to get anecdotal evidence and it is no fault of the customer. It is just human nature.
9408 If you take your car in to get fixed at a car repair shop, any auto mechanic will tell you that they have a hard time figuring out exactly from the customer in many cases what the nature of the problem is.
9409 But at best we have a technical problem here, Mr. Williams. We don't have a problem that would be dealt with through a service improvement plan. Digital satellite service is a proven service. It is a technology that does work.
9410 So we may have a technical problem here. We may have a problem with simply customer education, but we are going to address that. As I say, we are going to go into every community. We are going to have that done by the end of the month.
9411 MR. WILLIAMS: When you say every community, do you mean all 26 MKO First Nations, sir?
9412 MR. BRUCKSHAW: I mean every satellite-based community. That is what we are talking about is the satellite-based communities.
9413 MR. WILLIAMS: So there are no plans to do similar diagnostic analysis of the other 20 MKO communities?
9414 MR. BRUCKSHAW: Well, we can discuss the analog radio sites.
9415 With respect to the analog radio sites the situation there is quite different. The fact is that the quality of voice grade service that customers have off those microwave radios is actually very good. The system is getting old and the reliability could be better. It has narrow bandwidth and data transmission is certainly an issue.
9416 I can tell you that about a week or so ago we were talking to Lynn Lake, which is a remote community. You wouldn't know you were talking to Lynn Lake. It sounded like you were talking next door.
9417 So the quality of voice grade service that those communities get is very good. But the problems related with that system are well known and will be fixed through our service improvement plan when we convert those sites to digital.
9418 Our service improvement plan, while it rolls out over 10 years, I can tell you that we front ended the analog radio replacement and within the first two years of the program 95 per cent of MKO communities will have access to digital service.
9419 MR. WILLIAMS: Mr. Bruckshaw, moving --
9420 MR. BRUCKSHAW: I don't want to belabour the point, but all I am saying is that the issues related to satellite-based communities are not the same as the issues related to the communities that are served off the analog radio.
9421 MR. WILLIAMS: Just going back to the satellite communities, Mr. Bruckshaw, The Companies' initial position was that there wasn't a problem and then it's --
9422 MR. BRUCKSHAW: We were unaware of a problem, yes.
9423 MR. WILLIAMS: You were unaware of the problem.
9424 MR. BRUCKSHAW: Yes, absolutely.
9425 MR. WILLIAMS: Then secondly, in your 3600 Interrogatory Response you suggested the problem was solved.
9426 MR. BRUCKSHAW: As I say, we had made test calls and test faxes and we had worked with Telesat; and the system appeared to be working, yes.
9427 As I have indicated, we still don't know at this stage at least what the nature of the problem may be, and we won't know until we have visited every single community.
9428 MR. WILLIAMS: The problem may be in the phone, it may be in the customer's home, it may be in the distribution.
9429 MR. BRUCKSHAW: Absolutely.
9430 MR. WILLIAMS: And you are just not aware of that problem.
9431 MR. BRUCKSHAW: We may even have some problems in our system.
9432 MR. WILLIAMS: You can understand from my client's perspective that when they were told (a) that there wasn't a problem, (b) that the problem was solved and then, (c) that the company will be solving the problem before the end of the month, that they approached that with a bit of incredulity.
9433 MR. BRUCKSHAW: Well, as I say, we haven't determined exactly what the nature of the problem is at this stage but we are certainly working on it.
9434 MR. WILLIAMS: You mentioned as well one of the difficulties that you face or the corporation faced is the anecdotal evidence that it receives from the communities. I take it you would agree with me that, in the absence of direct complaints from the communities, MTS experiences problems in identifying concerns, isolating them and solving them. Would that be correct, sir?
9435 MR. BRUCKSHAW: Yes, that is correct. We depend on hearing from our customers if they have problems, absolutely.
9436 MR. WILLIAMS: And the fact that MTS wasn't aware either of the existence or the nature or the extent of these problems suggests that there has been a communication breakdown between the satellite communities and the corporation. You would agree with that?
9437 MR. BRUCKSHAW: I don't know that I could agree with that at this stage, Mr. Williams.
9438 MR. WILLIAMS: Would you agree with me that you have mentioned yourself that one of the problems from the communities is that there is an absence of complaints, and MTS in its evidence, at Interrogatory Response 3600, has said that it is going to go out to those communities and talk to them about the complaints process?
9439 MR. BRUCKSHAW: Absolutely, because in some cases there appears to be a problem and in other cases people say the service is fine. So we have to go out and evaluate for ourselves exactly what is going on out there. As I say, we are certainly planning on doing that, and we are going to engage our customers in that process.
9440 MR. WILLIAMS: But just going back to the complaints process itself, certainly it is the case, is it not, that the company relies upon the complaints process and in this case the complaints process did not work to identify the problems. So in effect MTS was unaware of the problems. Is that not correct?
9441 MR. BRUCKSHAW: We had no customer complaints that would indicate that we had a problem. I will agree with that much.
9442 MR. WILLIAMS: I would suggest to you that --
9443 MR. BRUCKSHAW: I don't know that there was a breakdown in the process is what I am saying.
9444 MR. WILLIAMS: I will suggest to you that one of the reasons that you may not have had complaints is because of the cultural gap we spoke about previously between the MKO communities and the corporation itself.
9445 MR. BRUCKSHAW: Fair enough, Mr. Williams.
9446 MR. WILLIAMS: I would take it that you would agree with me that one of the problems probably in those communities is that (a) they don't know they can complain or (b) they don't think that a complaint will resolve anything with the corporation. You would agree with me that that is one possible explanation for the lack of complaints?
9447 MR. BRUCKSHAW: It is certainly possible. I wouldn't agree with the second one, though.
9448 MR. WILLIAMS: We are talking about the community's perception of MTS, Mr. Bruckshaw.
9449 I would suggest to you as well that the complaint process as it is currently structured may not be as accessible to those for whom English is not the first language or who do not speak and write English fluently. You would agree with me on that?
9450 MR. BRUCKSHAW: Yes.
9451 MR. WILLIAMS: Would you also agree with me that given the potential limitations we have identified with the complaint process in the satellite communities, it is possible that similar concerns could also extend to the non-satellite communities?
9452 MR. BRUCKSHAW: That is possible.
9453 MR. WILLIAMS: To the extent that the complaint process isn't appropriately identifying the problem for MTS, MTS is handicapped in identifying problems in the communities and isolating those problems in the communities. You would agree with that?
9454 MR. BRUCKSHAW: To the extent that that may be true.
9455 MR. WILLIAMS: Now, in terms of the non-satellite communities, you have suggested that problems will be eliminated by upgrading the analog microwave facilities and the assumption that the corporation is making in terms of that suggestion is that there is no problem in the distribution plant in these non-satellite communities. Is that correct?
9456 MR. BRUCKSHAW: I am not sure I understand your question. From time to time there are problems in the distribution plant. Is it endemic or is there some enormous problem there? No, my position would be that there isn't.
9457 MR. WILLIAMS: That position is based in part upon the lack of complaints that MTS has received from these communities?
9458 MR. BRUCKSHAW: I don't know that I could agree with that, Mr. Williams. I simply don't know.
9459 MR. WILLIAMS: So your assumption though is that there are no problems, no endemic problems in the distribution plant. Is that correct?
9460 MR. BRUCKSHAW: Not that we are aware of.
9461 MR. WILLIAMS: Of course, in terms of the communities served by subscriber radio, the non-satellite communities, your assumption is as well that there are no endemic problems in the radio link between the out station and the central station. Is that correct, sir?
9462 MR. BRUCKSHAW: You are talking about the analog radios there, Mr. Williams?
9463 MR. WILLIAMS: Yes, I am.
9464 MR. BRUCKSHAW: Well, it's an aging system and we know that it requires replacement. When it's running, it provides very good service, albeit it doesn't have the bandwidth for data transmission.
9465 But it does go down occasionally. Those communities are extremely remote and it does take time for us to get it back up. But that situation won't change even when the digital radio is in there. I mean the digital radio won't make those communities any less remote than they are.
9466 The problem that we have in getting systems back in communities like that is that we have to fly in. So first of all, we are limited to the availability of aircraft and weather.
9467 The other problem that we have is that the field service technicians, when they go in, have to take an educated guess at what the problem may be because we are not rolling in a truck so we can't take every conceivable part. We may get there and find that we guessed wrong, so we would have to make a second trip. We may get there and find out that the system is back up and running simply on its own. So now we have to start switching cards. We will switch cards and then see if the problem follows the switch.
9468 But those kinds of problems do take time in remote communities.
9469 MR. WILLIAMS: Mr. Bruckshaw, MTS indicated in its Interrogatory Response 3600 that it intends direct communications with the communities to ensure that customers are aware of methods to contact MTS should any problem arise.
9470 Can you indicate whether MTS has sought the advice of MKO on how best to communicate with the First Nation communities?
9471 MR. BRUCKSHAW: No, we haven't done that.
9472 MR. WILLIAMS: I am going to turn, Mr. Bruckshaw, briefly to the options that MTS considered in presenting its service improvement plan for the non-satellite communities. Just in terms of the service improvement plan itself I will refer you to page 8 of 14. That would be paragraph 21, I believe.
9473 I think you have referred to this before, but in terms of the analog microwave systems it is fair to say that MTS was experiencing problems maintaining and repairing these facilities in the years leading up to the presentation of its service improvement plan, sir.
9474 MR. BRUCKSHAW: We have system outages that have to be repaired.
9475 MR. WILLIAMS: In fact these systems are manufacturer discontinued --
9476 MR. BRUCKSHAW: That is correct.
9477 MR. WILLIAMS: -- and MTS also lacks trained personnel in terms of maintaining these radios?
9478 MR. BRUCKSHAW: That is becoming more difficult.
9479 MR. WILLIAMS: My understanding is that you chose to replace these analog facilities with digital radio facilities, which besides being easier to maintain also had the capacity to support data transmissions at higher speeds. Is that correct?
9480 MR. BRUCKSHAW: That is correct.
9481 MR. WILLIAMS: Now, the provisioning that MTS is putting in place through the microwave radio facilities will only facilitate low-speed Internet access. Would that be correct, sir?
9482 MR. BRUCKSHAW: That is correct.
9483 MR. WILLIAMS: My understanding is that you chose the digital radio facilities, that approach, because the cost was substantially lower than the other option you considered, which was fibre optic facilities or FOTS. Is that correct, Mr. Bruckshaw?
9484 MR. BRUCKSHAW: Technically, fibre optics is an alternative. What we are talking about here though, Mr. Williams, is a facility that goes from the Berens River on the southeast basin of Lake Winnipeg all the way through to Churchill. That distance is approximately the same as from Ottawa to Halifax. It's in the Canadian shield. There isn't a road anywhere in there and fibre optics is simply not economically feasible in that area. It's rocks and lakes.
9485 MR. WILLIAMS: Thank you, Mr. Bruckshaw. Let's accept that for the moment.
9486 Let's leave aside the issue of costs. You will agree with me that the fibre optic solution as opposed to the digital microwave radio facility has a number of advantages leaving aside the question of costs. Would that be fair?
9487 MR. BRUCKSHAW: Yes.
9488 MR. WILLIAMS: I take it you would agree that leaving aside the question of costs from the perspective of the MKO communities who might experience a change in service, fibre optics would be the preferred solution. You would agree with that?
9489 MR. BRUCKSHAW: Yes, I could agree with that.
9490 MR. WILLIAMS: You could confirm that in developing its SIP, MTS never sought the input of the MKO First Nation communities in considering the relative merits of the microwave radio option versus the fibre optics option. Would that be correct?
9491 MR. BRUCKSHAW: Mr. Williams, fibre optics is simply not economic in that part of the province.
9492 MR. WILLIAMS: Well, in fact --
9493 MR. BRUCKSHAW: I mean, even the digital radio system is $55 million. Fibre optics would probably easily double that. That is a guess, but it would be substantially more expensive.
9494 MR. WILLIAMS: Which leads me to my next question, Mr. Bruckshaw, but just to confirm: MTS never consulted with MKO on those options.
9495 MR. BRUCKSHAW: No, we did not.
9496 MR. WILLIAMS: MTS never consulted with or suggested to MKO that they might be interested in pursuing alternative sources of financing or funding for a fibre optic solution. Is that correct?
9497 MR. BRUCKSHAW: No, we didn't.
9498 MR. WILLIAMS: For example, MTS never suggested to MKO that they might approach the federal government or the provincial government in order to obtain alternative sources of funding. You will agree with that?
9499 MR. BRUCKSHAW: Yes, I will.
9500 MR. WILLIAMS: Yet, the position that The Companies took in the high cost of service proceeding is that communities should explore alternative sources of funding. That is also correct?
9501 MR. BRUCKSHAW: Yes.
9502 MR. WILLIAMS: But MTS never communicated this option to the MKO communities or gave them an opportunity to approach alternative sources of funding, which might have made the FOTS solution financially viable from The Companies' perspective?
9503 MR. BRUCKSHAW: MTS made the assumption that the funding for this service improvement plan would be born by the company. Yes, that is what we did.
9504 MR. WILLIAMS: But that is certainly one of the Commission's goals in the high cost of service proceeding one of the purposes underlying consultation was to look at alternative sources of funding. You will agree with me on that?
9505 MR. BRUCKSHAW: I can't recall whether that was one of the Commission's objectives or not. We are talking about alternative forms of funding from federal or provincial governments. We are talking about trying to get an upgraded facility into these communities in some sort of real time. The funding from government agencies usually takes a very long time, if you can get it at all. I mean, that is our proposal, Mr. Williams.
9506 MR. WILLIAMS: It is a proposal, which due to the absence of consultation, never gave the MKO communities an opportunity to explore these options in a timely fashion. Is that not correct, Mr. Bruckshaw?
9507 MR. BRUCKSHAW: I don't think I would characterize it like that. But it's not one of the issues that was explored, no.
9508 MR. WILLIAMS: I want to refer you, if I may, to Telesat 3601.
9509 MR. BRUCKSHAW: You have to recall and remember, Mr. Williams, that our objective here is to meet the basic service objective. That is what we are doing.
9510 What you are talking about, I believe, is providing high speed access to the Internet in those communities. That is what fibre optics will do, and that has been pursued in the Broadband Task Force Report. That is a completely different issue than what we have here.
9511 What we are trying to do is to meet the basic service objective, and that is what our plan does.
9512 Extra funding, if it's high-speed access to the Internet that you are talking about, that I am sure is the next issue. But that is not the issue in this proceeding, and it's not the issue with respect to the basic service objective. So that is what we are trying to do.
9513 The company has proposed to fund that facility improvement on its own in order to meet the basic service objective. So I don't know that consultation that you are referring to is required there. In fact, I would take the position that consultation wasn't necessary.
9514 MR. WILLIAMS: That is certainly evident from the results of your service improvement plan, Mr. Bruckshaw.
9515 MR. BRUCKSHAW: Well, I am not sure what that means, Mr. Williams.
9516 MR. WILLIAMS: I guess we will get into that in final argument.
9517 I do want to refer you to Telesat 3601, and on my electronically reproduced copy it's --
9518 MR. BRUCKSHAW: Excuse me, Mr. Williams, just let me make one more point.
9519 The other objective in meeting the basic service objective though from the Commission was that we should use the least cost solution and digital radio is the least cost solution there.
9520 Sorry. Go ahead.
9521 MR. WILLIAMS: I am referring you to Telesat 3601 and if you would turn to -- do you have that, Mr. Bruckshaw?
9522 MR. BRUCKSHAW: Go ahead.
9523 MR. WILLIAMS: I would refer you to what on my copy is the second page, and you will see that there are the four numbers bracketed. I want to refer you to the paragraph under those four bracketed numbers starting with "Under this MOU agreement ..."
9524 Do you have that, Mr. Bruckshaw?
9525 MR. BRUCKSHAW: Yes.
9526 MR. WILLIAMS: Just referring you to this paragraph, can you confirm that in the course of developing its plan regarding high-speed access for the MKO communities Telesat is providing technical experience in the area of system design, and in a number of other areas, while the AFN is providing information directionally to desired community models specifications, traffic flow and applications.
9527 Do you see that, Mr. Bruckshaw?
9528 MR. BRUCKSHAW: Yes.
9529 MR. WILLIAMS: And you can also see two paragraphs down where Telesat and AFN -- there is a reference that there will be a proposal to the federal government for funding for this project. Do you see that, Mr. Bruckshaw?
9530 That's two paragraphs below.
9531 MR. BRUCKSHAW: Yes.
9532 MR. WILLIAMS: I am not suggesting that MTS should be following some sort of Telesat approach, Mr. Bruckshaw, but I take it you would agree with me that involving First Nations as a partner, as a stakeholder, is a part of a process that is much more likely to result in a positive result than ignoring First Nations or leaving them out in the cold.
9533 MR. BRUCKSHAW: Well, I don't think we are talking about ignoring First Nations or leaving them out in the cold. What we are talking about here again is the provision of high-speed Internet service.
9534 MR. WILLIAMS: I am just using this as an example, Mr. Bruckshaw. I suggest to you that in achieving the basic service objective MTS is much more likely to have a successful result if it involves and engages First Nations rather than ignoring them. You would agree with me?
9535 MR. BRUCKSHAW: I don't think First Nations are being ignored here, Mr. Williams. As I explained earlier, we are replacing a facility here with basically the same functionality they had before except they will have better reliability and they will have wider bandwidth.
9536 Our service improvement plan is not like the service improvement plans of the other companies that have filed them in this proceeding.
9537 MR. WILLIAMS: Mr. Bruckshaw, in its final argument MKO will be recommending that the CRTC defer implementation or approval of the service improvement plan pending proper consultation with the MKO communities about their needs and about alternatives to meet their needs.
9538 I wonder if the company would be, or you would be, prepared to undertake to take that proposal back to your management and ask them whether they would join with MKO in recommending that the service improvement proposal be deferred until full consultations have taken place with Manitoba First Nations.
9539 MR. BRUCKSHAW: What I hear you saying, Mr. Williams, is that it may be that those communities would prefer some sort of joint funding relationship, shall we say, in order to provide high-speed access into those communities and that they would like to engage MTS in that discussion since we had a plan of replacing the analog radio with digital.
9540 I am certainly prepared to take that proposal back.
9541 I am not making a commitment here, but I am certainly prepared to take the proposal back. Absolutely.
9542 MR. WILLIAMS: Mr. Bruckshaw, just in closing, you are familiar with Section 7(b) of the Telecommunications Act, the reference to providing -- and I had better grab it before I misquote it.
9543 The objective of the Telecommunications Act to:
"Render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada." (As read)
9544 Are you familiar with that provision?
9545 MR. BRUCKSHAW: That's correct.
9546 MR. WILLIAMS: And to the best of your knowledge, in terms of that objective it doesn't say "except for remote First Nations". Is that correct?
9547 It contemplates making these services available to all parts of Canada. Is that correct?
9548 MR. BRUCKSHAW: Yes, it does.
9549 MR. WILLIAMS: And so it doesn't say that providing high-quality affordable service to 99 per cent of Canada is adequate. This objectives contemplates providing that service to both rural areas in all regions of Canada. Is that correct?
9550 MR. BRUCKSHAW: That's correct and that is what MTS has offered to do.
9551 MR. WILLIAMS: Mr. Chairman, it's break time and subject to review my notes I believe those are all my questions.
9552 THE CHAIRPERSON: Thank you, Mr. Williams. I am not sure it is break time yet.
9553 MR. WILLIAMS: Well, I don't think I have any more questions. I was just leaving myself a little out in case I did.
9554 THE CHAIRPERSON: That's fine. I don't believe there are any other parties who wish to cross-examine Mr. Bruckshaw for MTS. So with that we will turn to Commission counsel Moore.
EXAMINATION / INTERROGATOIRE
9555 MS MOORE: Thank you, Mr. Chairman.
9556 I believe I only have five to ten minutes of questions.
9557 I would ask you to turn to the CRTC Exhibit No. 15, which is a series of eight tables titled "Months Below Quality of Service Standards".
9558 MR. BRUCKSHAW: Right. Yes, I have it.
9559 MS MOORE: If you turn to Table 2, this summarizes monthly results for MTS.
9560 MR. BRUCKSHAW: Yes, I have it.
9561 MS MOORE: Did you have a chance to look it over yet, or are you seeing it for the first time?
9562 MR. BRUCKSHAW: No, I have looked it over.
9563 MS MOORE: Just a few general comments first. It seems from the table that in the year 1999 all of the indicators except for 2.2(b) either had misses or were not reported.
9564 MR. BRUCKSHAW: That's correct.
9565 MS MOORE: And in the year 2000 it appears that MTS missed eight of the indicators that are reflected on the table.
9566 MR. BRUCKSHAW: I am sorry. I am not sure which number you are referring to.
9567 MS MOORE: In the year 2000 --
9568 MR. BRUCKSHAW: Yes.
9569 MS MOORE: -- it appears that on eight of the indicators there MTS had misses.
9570 MR. BRUCKSHAW: Oh, eight numbers.
9571 MS MOORE: Yes.
9572 MR. BRUCKSHAW: Yes, yes.
9573 MS MOORE: And then finally, in the year 2001, for the period January to August, six of the indicators were missed.
9574 MR. BRUCKSHAW: Yes.
9575 MS MOORE: I would just like to discuss a few details a little bit further. In particular I would like to start with Indicator 1.3(b).
9576 I note that in Decision 2000-24 this indicator is described as "Held Orders per Hundred Network Access Service Inward Movement Rural". That decision describes this as the number of outstanding requests for NAS which were not met on the due date because of facility shortages expressed as percentage of hundred NAS inward movement.
9577 MR. BRUCKSHAW: Correct.
9578 MS MOORE: And so in other words this indicator reflects a customer's inability to have a service provisioned within the month in which the due date was established.
9579 MR. BRUCKSHAW: That's correct.
9580 MS MOORE: Could you elaborate for us why this indicator was missed in the year 2000 and also for seven months of this year, please?
9581 MR. BRUCKSHAW: There are two reasons for that. The first reason is that I believe we were counting wrong, first of all. There are customers that request service, and we get into sort of a process with them in terms of construction charges and we agree -- these would be customers that have, let's say, long loops or are outside of service areas. We reach agreement with the customer in terms of what extra charges might be and they accept them.
9582 That process can take place, let's say, in December, but of course we can't start construction until the frost is out of the ground in the spring.
9583 So really while that service is waiting to go in, it isn't really a held order in the true sense that it's not being done for some reason because we are not making technical people available or whatever. It's simply because we can't get in there until let's say April, until the frost is out of the ground. So I think there were some problems with the way we were counting held orders.
9584 But in addition to that, we simply took our eye off the ball there too. We fixed that and those held orders are now back in band and I expect them to stay there.
9585 MS MOORE: You indicated that you realize that you were perhaps counting them incorrectly.
9586 MR. BRUCKSHAW: Yes.
9587 MS MOORE: Would that be the case for all of the misses that were reported this year, for example, or a certain percentage?
9588 MR. BRUCKSHAW: In the other categories you mean, or within that category?
9589 MS MOORE: Within that category.
9590 MR. BRUCKSHAW: There were some held orders earlier this year because we didn't have facilities in place. Those have been put in place. So that would be part of the reason why the held orders are coming in band.
9591 MS MOORE: Thank you.
9592 Now I would like to turn to Indicators 1.5 and 2.5. These are "Access to Business Office" and "Access to Repair Bureau".
9593 MR. BRUCKSHAW: Right.
9594 MS MOORE: Starting with 1998 it appears that MTS missed Indicator 1.5 five months out of the twelve in that year, and Indicator 2.5 it appears would have been missed 14 times from 1998 to the year 2000, and once again this year.
9595 MR. BRUCKSHAW: Correct, yes.
9596 MS MOORE: So again, could you please outline what the difficulties have been in meeting these two indicators, and could you also outline what actions have been, or will be, taken by MTS to meet the minimum standard on a going forward basis?
9597 MR. BRUCKSHAW: I think part of the problem there, for some of the period at least, was the strike that we had I believe in 1999. There was a VETA program too where we did lose staff. We have since hired 26 additional people. So we expect to see that stay in band.
9598 MS MOORE: And the labour dispute that you mentioned, that was in 1999, if I am not mistaken.
9599 MR. BRUCKSHAW: Yes, yes.
9600 MS MOORE: So for this year, for example, it was a lack of staff that would be the primary reason?
9601 MR. BRUCKSHAW: Correct.
9602 MS MOORE: Now, I would like to turn to a discussion of Indicators 2.2 and 2.6. I note that for a certain period of time the Commission did accept combined reporting of those indicators, but as you are probably aware in Decision 2001-217, the Commission directed The Companies to begin reporting those indicators separately as of the third quarter report of 2001. I believe that third quarter report would be due in mid-November.
9603 So could you indicate whether MTS will be in a position to report those indicators on a separate basis as of that third quarter report that is due shortly?
9604 MR. BRUCKSHAW: We will have to undertake to get you an answer on that.
9605 MS MOORE: Okay. So you will undertake to inform us by the end of this phase of the hearing as to whether you --
9606 MR. BRUCKSHAW: Yes, absolutely.
9607 MS MOORE: Okay. And just one final question, going back to our discussion of Indicator 1.3(b) where you had indicated that there was some difficulty in counting that correctly, could you undertake to provide for the year 2000 and 2001 what your revised reporting would have been on the basis of a correct understanding of that indicator?
9608 MR. BRUCKSHAW: Yes, I can do that.
9609 MS MOORE: Thank you.
9610 Those are my questions, Mr. Chairman.
9611 THE CHAIRPERSON: Thank you, counsel Moore.
9612 Commissioner Cram.
9613 COMMISSIONER CRAM: Thank you, Mr. Chairman.
9614 There is one thing that I noticed and it really isn't a problem necessarily with MTS, Mr. Bruckshaw. It's what I noticed on all of the SIPs that were filed by all the parties -- and forgive me, I am not an engineer, and that may have something to do with it. Once I start seeing letters and technology, whatever, my eyes start to glaze.
9615 But it appeared to me there was no cooperation or no discussion between any ILEC about perhaps sharing technology or sharing some of the costs.
9616 I look at SaskTel, what they are talking about, which is the -- there is a satellite that is north of 64 and the coverage would extend across Canada if it's fairly heavy in capital. But trust me, I don't know necessarily the reliability or anything. It would make sense to me that the ILECs would attempt to get together perhaps to share the cost of some technology that would really cost more than you could afford.
9617 Do I understand, Mr. Farmer and Mr. Bruckshaw, that that wasn't done?
9618 COMMISSIONER CRAM: Oh, north of 54, I am informed by Commissioner Williams.
9619 MR. BRUCKSHAW: I think we both agree that neither of us have an answer, but I just want to be clear on your question in terms of sharing technology.
9620 COMMISSIONER CRAM: Well, if you talked with SaskTel or Bell and said: Look, we have to serve so many thousand people north of 54 and we can use this, you know, some sort of satellite technology or we can use a cheaper kind of technology.
9621 MR. BRUCKSHAW: I see.
9622 COMMISSIONER CRAM: But per person we would be able to -- per capita we would be able to get a better service if we shared some upgraded technology and shared the capital costs of that.
9623 MR. BRUCKSHAW: Right.
9624 COMMISSIONER CRAM: I take it that that wasn't considered or done.
9625 MR. BRUCKSHAW: My answer to that would be -- and maybe Mr. Farmer has something more to say. But my answer to that would be that -- I mean my understanding of the technologies that are available, the costs per community, for example, for satellite are very much based on the earth station costs and the costs that are actually in that community, and that sharing some sort of common technology in that case wouldn't be an advantage.
9626 In terms of the communities that are on the east side of Manitoba that Mr. Williams and I were talking about, again they are quite remote and sharing technologies there. There are no communities that are kind of close by where, in my view, that would be possible.
9627 COMMISSIONER CRAM: So all I have done is shown my ignorance. I am sorry. Unless, Mr. Farmer, do you have anything to add?
9628 MR. FARMER: Well, now you are showing my ignorance, Commissioner.
9629 I don't have anything to add. What Mr. Bruckshaw says sounds plausible, but I am really only speculating. We could look into it further to see whether it would be feasible to be able to share these costs, but I think Mr. Bruckshaw has already indicated some sound reasons why that may not be the case.
9630 COMMISSIONER CRAM: You have answered my question, though. Nobody looked into it, in any event.
9631 And I may be the one who is out to lunch. Thank you.
9632 Thank you, Mr. Chairman.
9633 THE CHAIRPERSON: It's okay, Commissioner Cram. We can forgive you for not being an engineer -- we engineers.
9634 Commissioner Demers.
9635 CONSEILLER DEMERS: Merci, Monsieur le Président.
9636 I was interested, deeply interested, in the questioning on the quality of service indicators. Do I have to gather from the tables you have commented on that they are not reflecting MTS operations today? The quality of service that MTS is providing is not reflected in the tables that we were referred to.
9637 MR. BRUCKSHAW: Well, Commissioner Demers, the tables take us to August of 2001. It doesn't tell us exactly where we are today, that's correct, in terms of this next quarter.
9638 COMMISSIONER DEMERS: You have made comments on the ones we have and referred to solutions that were found, or at least an analysis that was done on some of the indicators which would make me understand that maybe in some cases they include problems that have been solved. But your answer doesn't, of course, satisfy me because you say you are not sure where you are at at the moment.
9639 At least my understanding of these indicators is that they are important to you, and of course they are important to us and they are important to your subscribers, to your customers. Can you comment on my preoccupations here?
9640 MR. BRUCKSHAW: Well, in terms of the held orders -- and that was the one where we were out of band -- I am aware that they are in band. They will be in band in our next report. The months that we have, the most current months that we have, indicate that they are in band and we are tracking in band in all of the other indicators as well.
9641 COMMISSIONER DEMERS: And these indicators for MTS are important?
9642 MR. BRUCKSHAW: Absolutely.
9643 COMMISSIONER DEMERS: All of them?
9644 MR. BRUCKSHAW: Yes.
9645 COMMISSIONER DEMERS: On another point that was raised by counsel, do you usually consult communities in the south when you are making important improvements in service?
9646 MR. BRUCKSHAW: Well, sometimes we do. Certainly when we are making important improvements I would say we do. An example I would give is we had a program called Service of the Future that we introduced in the late eighties and early nineties where we greatly expanded our community calling areas, our EAS areas.
9647 We provided single line service, digital switching, and so on. We did extensive consultation with communities at that time, primarily around the issue of EAS. If you are going to have an EAS program that really suits your customers, it has to take into account what their community of interest is and you can sort of never get it right because there are always going to be some customers that aren't going to have the access that they are looking for. But you want to satisfy as many as possible.
9648 That was an example where we did consult, but I mean there are other times when we put improvements in and we won't do it, so it's kind of a judgement thing.
9649 COMMISSIONER DEMERS: I understand that for EAS that would be part of your general tariffs you had to do it, would you?
9650 MR. BRUCKSHAW: If we changed the tariff, yes.
9651 COMMISSIONER DEMERS: Okay.
9652 MR. BRUCKSHAW: But that's a program that you really do want to get right for the customer. It's not something that we can just come up with on our own, sort of sitting in our offices. You really have to go out and engage the customer in that process.
9653 COMMISSIONER DEMERS: Thank you.
9654 Just on one other point. You have at the beginning of cross-examination indicated that customer complaints were an important way of identifying problems. I imagine that in areas served by digital switching and fibre optics you are relying on technical surveys. The techniques help you.
9655 It's my understanding anyway that when it's digitized, the machine itself will find the problems before they are perceived by the customers. Is that correct?
9656 MR. BRUCKSHAW: I feel like Commissioner Cram here, Commissioner Demers. I know that we do have monitoring equipment that tests the quality of service and the Bit rates, if I can put it like that. But I don't know. I am not familiar today with the extent to which our network services people do that. I know it is done.
9657 COMMISSIONER DEMERS: But in the areas where MKO questioned you, I understand that you rely nearly all the time on customer complaints.
9658 MR. BRUCKSHAW: We rely heavily on that. That's true.
9659 COMMISSIONER DEMERS: And does MTS make a survey or keep tabs on complaints that were solved? I am not necessarily referring to those who come to the Commission, but do you have a system in place where you know when a complaint came in and where a solution was found?
9660 MR. BRUCKSHAW: Yes, we do that, Commissioner Demers.
9661 COMMISSIONER DEMERS: Thank you.
9662 Merci, Monsieur le Président.
9663 THE CHAIRPERSON: Thank you, Commissioner Demers.
9664 I was actually going to ask a question similar in vein to the last one that Commissioner Demers posed. Over the years, I have been invited by various telephone companies, cable companies and new entrants to visit their network operation centres where usually you can see a nice big map on the wall lit up and where the company can track not only systems being out, but degraded service. I presume MTS has a network operation centre which you operate to monitor your own network.
9665 Would the facilities that serve the MKO that Mr. Williams was questioning you about not be included in your network operations, operations such that you would know yourself whether the service is either out or being degraded and not have to depend on complaints in order to be able to know whether there is a problem?
9666 MR. BRUCKSHAW: Yes, yes. The satellite services are included in that PNOC operation.
9667 THE CHAIRPERSON: Then why is it that you would depend so much on complaints in order to be able to determine whether the service has been degraded or is out?
9668 MR. BRUCKSHAW: Well, if the problem, let's say, is related to the customer's loop or let's say ahead of the switch, I don't think our system would identify that. So we would depend on customer complaints there.
9669 The nature of these problems that we are looking into right now in the satellite communities, I am not sure exactly at this stage what it is, but it's apparent that we do need to go in there and find out whether it's a combination of things.
9670 So you are quite right. The monitoring equipment does sort of keep track of whether the facility is up and working, but we do have to go in from time to time and do alignments. It won't give you all of the signal levels that you would get if you would go in and actually line up the facilities.
9671 THE CHAIRPERSON: I am just wondering whether this suggests that there should be improvements at the networks operation centre in terms of the facilities that serve these communities as well.
9672 MR. BRUCKSHAW: That could be, Commissioner Colville. That is possible.
9673 THE CHAIRPERSON: Thank you very much. I think those are all the questions then for MTS and you, Mr. Bruckshaw.
9674 So that concludes the questioning for Panel 3A.
9675 We will take our break now for 15 minutes and resume with Panel 3. So we will adjourn for 15 minutes.
--- Upon recessing at 1050 / Suspension à 1050
--- Upon resuming at 1105 / Reprise à 1105
9676 THE CHAIRPERSON: We will return to our proceeding now and turn to The Companies' Panel 3.
9677 Mr. Henry.
9678 MR. HENRY: Thank you, Mr. Chairman.
9679 The Companies' next panel -- which you will notice is not included, Mr. Farmer -- is here to deal with issues relating to retail quality of service, financial results, operations and productivity, and any Bell Canada specific interrogatories that deal with those topics.
9680 Sitting closest to you is Michael R. Park, who is currently Vice-President, Finance, for Bell Canada, and he is assisted in the back row by Mr. Richard Pagé, who is Director of Methods and Concepts.
9681 Sitting next to Mr. Park is Mr. George Hariton, who is currently a consultant in telecommunications, economics and regulation, and he is well known to the Commission, having appeared in many past proceedings, having worked for the Commission many, many years ago.
9682 Mr. Hariton is assisted by Ms Bodner in the back row.
9683 The CVs of these witnesses are in the 20th of September letter, attachment 2.
9684 Perhaps, Mr. Secretary, they could be sworn in.
SWORN: MICHAEL R. PARK
SWORN: GEORGE J. HARITON
EXAMINATION / INTERROGATOIRE
9685 MR. HENRY: Mr. Park, Mr. Hariton, you are responsible for section 6.6 and section 9 of The Companies' evidence dated May 31st.
9686 MR. PARK: Yes.
9687 MR. HARITON: That is correct.
9688 MR. HENRY: And the interrogatory set out in attachment 2 to The Companies' letter of the 20th of September?
9689 MR. PARK: That is correct.
9690 MR. HARITON: That is correct.
9691 MR. HENRY: And is that evidence and those interrogatory responses true, to the best of your knowledge and belief?
9692 MR. PARK: Yes, they are.
9693 MR. HARITON: Yes, they are.
9694 MR. HENRY: Mr. Chairman, the witnesses are available for cross-examination.
9695 THE CHAIRPERSON: Thank you, Mr. Henry.
9696 Welcome, gentlemen, to our proceeding. Welcome back, Mr. Hariton.
9697 MR. HARITON: Thank you, sir.
9698 THE CHAIRPERSON: And I believe the first party to cross-examine is BCOAPO, Ms MacDonald.
EXAMINATION / INTERROGATOIRE
9699 MS MacDONALD: I am going to be asking you a series of questions this morning about what has come to be known as the consumer bill of rights. You will find that within your evidence, in your section 9. Paragraph 9.9 discusses it briefly.
9700 Do you have that?
9701 MR. PARK: I have it.
9702 MS MacDONALD: It would be fair to say that the concept to have a consumer bill of rights is a new concept for Bell and for The Companies?
9703 MR. PARK: The label is certainly new. Whether all the concepts that are underlie it are new, I would say that many of the things we already do would constitute a customer bill of rights as it is now labelled.
9704 MS MacDONALD: I am sorry, the last part is many of the things that you do -- I didn't hear the last bit.
9705 MR. PARK: Would conform to what we would now call a customer bill of rights.
9706 MS MacDONALD: You have gone through some of that in your interrogatory responses. Specifically your answer to the CRTC 4500 series, that is the most detailed response to, as you say, where you might find elements of a customer bill of rights?
9707 MR. PARK: That is correct.
9708 MS MacDONALD: Would you agree with me that the concept of having the customer bill of rights, or some similar documents, as a stand-alone document is a new concept to the company?
9709 MR. PARK: Yes, it is.
9710 MS MacDONALD: And that is a new concept to customers as well, at least for landline telephone service?
9711 MR. PARK: I would say yes, it has emerged in the last short period.
9712 MS MacDONALD: The actual service, if I can call it that, is like a contract between you and your customers. In fact, it is not like a contract; it really is a contract.
9713 MR. PARK: It is, in a certain way, an understanding between the company and the customer in terms of what obligations are on both sides.
9714 MS MacDONALD: But other than the telephone book itself, there is not a separate document handed out to consumers?
9715 MR. PARK: That is correct.
9716 MS MacDONALD: And some companies do actually provide separate contracts or separate documents for their customers, for some of their services?
9717 MR. PARK: Yes, they do.
9718 MS MacDONALD: For example, I provided a copy to you this morning of such a document that Bell provides for their wireless, for their cell phone customers. My copy is yellow, your copy will be white, and it just says "Our Agreement With You".
9719 MR. PARK: That is correct, I have it.
9720 MS MacDONALD: So that is a different system that we have in place for your cell customers and for your customers for your landline?
9721 MR. PARK: That is true. And I don't know frankly if this document that has been handed out -- how it is actually given to customers and how binding it is, if you will, on those customers. But I take it as given that it is agreement with customers given by Mobility to its customers. As I say, I don't know how it is distributed to them.
9722 MS MacDONALD: I actually don't know how it is distributed either, but what it does do is it sets out some of the information that would be important from a customer perspective, for example, on what the rules are, what to do about deposits, and we can go through the list here.
9723 Essentially, these are some of the things that would be important for the customer and it is on one piece of paper.
9724 MR. PARK: Very much so, yes.
9725 MS MacDONALD: Would you agree with me that the need for something like a one-page document really might have arisen -- or one of the reasons might have arisen because of moving towards competition. You have a different a world, where instead of a monopoly where there is only one game in town, so there might not be as much of a need for a contract, to one where you are moving to competitors and you have different service options and different contracts with your customer, and you might actually have to have something written down so that the customers know what their obligations are for that service?
9726 MR. PARK: I don't think it necessarily has to do with whether we are in a monopoly or a competitive environment. In fact, this kind of agreement could have existed before. There is nothing preventing it, in some sense, from that happening. So, I don't necessarily view it as being driven by competition per se.
9727 MS MacDONALD: I would be interested to know why there would be, from your perspective, a one-page document that outlines the contract for cell phone services whereas traditionally the contract between the customer and the monopoly provider was set out in the telephone book.
9728 Can you give me any idea of the thoughts that led to having a document like this?
9729 MR. PARK: I can't speak for Bell Mobility and their motivation but I think it is just a long-standing thing that, as customers who receive the White Pages and the information contained in the front section of the phone book, I guess we view that as a way we have always traditionally communicated with our customers and we haven't evolved it to this new way.
9730 MS MacDONALD: The document that I am showing you, this might be one way to have customers' rights and responsibilities put into one place, whether it is one page or several pages. Another way might be to have something called a consumer bill of rights or some such variant to that name.
9731 Would you agree with that?
9732 MR. PARK: That is correct.
9733 MS MacDONALD: Do you have any objection in principle to the concept of all customers' rights and responsibilities or something called a consumer bill of rights being in one place so that the customer would know they had one document to go to?
9734 MR. PARK: Conceptually and in principle, we would have no disagreement with what you are saying. In fact, you would put in several places in terms of the phonebook, on the web and these kinds of things, so that customers could access it easily.
9735 MS MacDONALD: So, you would agree with me that having the information in one place would be really important from the perspective of the customers. They know that they could go to that one place and determine all their rights and responsibilities?
9736 MR. PARK: Yes.
9737 MS MacDONALD: And you would also agree that it is in the customers' best interest to have that access to that information easily accessible to them so that they know what their contract is. You would agree with that?
9738 MR. PARK: Yes. In fact, that is why the phonebook is something that isn't kind of thrown away, if you will, and is resident in the home all year round; whereas these types of agreements, when you purchase a phone, you may lose them or discard them quickly thereafter.
9739 So that is why we think the phonebook is a primary vehicle for that and would be useful in that regard.
9740 MS MacDONALD: You would also agree that if the -- let's take a look at your answer that you have everything already in the phonebook. So, from your perspective -- I am going to come back to that point.
9741 You have said that what is available to the customers is all in the phonebook, and you have actually provided an example in the response 4500 from the CRTC. I would like you to turn to that.
9742 So, it is the CRTC 4500 series of questions.
9743 MR. PARK: I have it.
9744 MS MacDONALD: When I refer to page numbers, you have a fax, a very small fax -- I think it is a fax from London. It has the date and then it has the page. That is the page number that I will use, because that is the only page number that there would be there. So, when I refer to a page, that is the page number I am going to use.
9745 MR. PARK: That is correct. I think if you have a colour version, it is the same page and pagination of the book itself.
9746 MS MacDONALD: You have been saying that basically the customers' rights and responsibilities are set out in the phonebook. So, the example that you have given here includes both French and English, and it is a total of 58 pages long.
9747 MR. PARK: That is correct.
9748 MS MacDONALD: Now of course all 58 pages aren't all rights and responsibilities or contractual terms for consumers, are they?
9749 MR. PARK: No, they are not.
9750 MS MacDONALD: For example, some of them will include things like how to use Bell services, area codes, how to make a long-distance phone call, various topics of that nature.
9751 MR. PARK: Yes, and most importantly at the front, how to contact us in case of emergency situations, that kind of thing.
9752 MS MacDONALD: You have provided a contents page, and that is at page 3.
9753 MR. PARK: That is correct.
9754 MS MacDONALD: That sets out various headings, the first one being "How To Reach Us", the second being "Finding a Number", the third being "Special Calls", then "Bell Touch Services", "General terms", "Privacy" and then "Terms of service".
9755 MR. PARK: Correct.
9756 MS MacDONALD: In the interrogatory response to the CRTC, at 4500(c), you were asked in paragraph (b) to provide a definition of a consumer bill of rights.
9757 Pardon me, I would like to look at (a), which is to provide comments on the proposal.
9758 At page 2 of your 7, you go through the London Directory White Pages that I have just referred you to, and you have various topics outlined there and basically where that is set out.
9759 You link Ms Alexander's evidence and you say where that information on those topics would be found in this London example that you have given us.
9760 MR. PARK: That is correct. That is, in fact, what the interrogatory was asking, is how to relate the two pieces of evidence together. That is why we outlined the topics in this sequence and then obviously cross-referenced the phone book in that way.
9761 MS MacDONALD: And if I could look at the first one, the first one that you have is customer's initiation of service. In your response you say: "See page 5, Bell Customer Service Centre for information on how to reach a customer representative by telephone, screen phone services and by the Internet", and there is also an address if they would like to write in.
9762 If I turn to page 5 that is pretty much what is there. You phone Bell. If you want to initiate service, you phone Bell.
9763 MR. PARK: That's correct.
9764 MS MacDONALD: In the terms of service which are at page 36 of the handout, the London example that you have given us -- pardon me, page 35 -- article 3 discusses an obligation to serve. I am sure you are familiar with the obligation to serve that Bell has to provide.
9765 This document, the article 3, that is not referenced anywhere on page 5, is it, that Bell actually has an obligation to serve under certain circumstances?
9766 MR. PARK: That's correct.
9767 MS MacDONALD: As well, article 3 when you read it, links down -- well, it doesn't link down specifically but it talks about, in article 3(c), that you don't have to provide service if the applicant does not provide a reasonable deposit or alternative.
9768 That would also link to article 7, wouldn't it?
9769 MR. PARK: Yes, that's true.
9770 MS MacDONALD: And in article 7 that talks about reasonable deposits and alternatives. So you have to read these two in combination?
9771 MR. PARK: That's correct.
9772 MS MacDONALD: That information isn't listed on page 5, is it?
9773 MR. PARK: That's correct.
9774 MS MacDONALD: So a customer who wanted to get telephone service wouldn't actually know that there was an obligation to serve if they read page 5. They would have to read page 35 and find it within article 3?
9775 MR. PARK: That's correct, or once they -- obviously, once they phone they can find out the same information.
9776 MS MacDONALD: So the information is there but they have to phone Bell. They have to look at page 5 -- and that was your evidence; look at page 5 in order to initiate that and that would just lead them to phone Bell, or they would have to know that page 35 also talked about an obligation to serve?
9777 MR. PARK: That's correct.
9778 MS MacDONALD: And how to go about making sure that obligation is met?
9779 MR. PARK: Yes.
9780 MS MacDONALD: You would agree with me that it is important for people to know that Bell has an obligation to serve its customers and to provide telephone service?
9781 MS MacDONALD: Yes.
9782 In article 3 and article 7 -- I am looking at this from the perspective of low income persons, so a person who is on disability or a person on a fixed income such as old age pensioners. When you are looking at 3 and 7, you would have to read those two in conjunction in order to determine whether or not they have to give a deposit. Would you agree with that?
9783 MR. PARK: Yes.
9784 MS MacDONALD: Because the deposit is only required under certain, particular circumstances that are set out in article 7. And that is article 7(a)(b) and (c)?
9785 MR. PARK: Correct.
9786 MS MacDONALD: It is a pretty important feature, you would agree with me, for low income consumers that they know first that there is an obligation to serve and, second, under what circumstances they would have to give a deposit? You would agree with that?
9787 MR. PARK: Yes.
9788 MS MacDONALD: I am from B.C. and in my province persons who are on disability benefits, because they obviously have been disabled and can't work, and people that are on welfare or income assistance, are not able to obtain deposits from the government in order to get telephone service. I am not sure if that is the case here.
9789 You would agree that for those people who are of low income and are not able to get a deposit, it would be really important for them to know under what circumstances that they have to provide a deposit? You would agree with that?
9790 MR. PARK: Yes.
9791 MS MacDONALD: So it is important for them to know that they can arrange an alternative for that deposit, and that is set out in 7.2?
9792 MR. PARK: That's correct. They can spread their deposit, their installation payments, out over several months.
9793 MS MacDONALD: Okay. So again, we are looking at this linkage between the obligation to serve and then the deposits in order to actually get service.
9794 It sets out in article 7.4 that the deposit is three months including long distance. How is that estimated for someone who hasn't had phone service before?
9795 MR. PARK: I don't know.
9796 MS MacDONALD: If you don't know, it would be fair to assume as well that a customer reading through this phonebook in order to determine if they are able to get a telephone, because this is the only thing that is in front of them, they wouldn't be able to determine that either. They would have to phone Bell?
9797 MR. PARK: Well, they would have more knowledge of their own calling patterns than I would have, so they would have some sense of that. But beyond that, you are right, they would have to phone the company.
9798 MS MacDONALD: You said the person might have a knowledge of their own calling habits. What if this person decided that they didn't use long distance? Would they be able to get call blocking? Are you aware whether they would be able to get call blocking so they wouldn't have long distance access on their telephone?
9799 MR. PARK: Both the company and the customer can initiate call blocking.
9800 MS MacDONALD: That's also provided in your introductory telephone book. It says that actually on page 17 in that book.
9801 MR. PARK: Yes.
9802 MS MacDONALD: That that is a service that Bell provides.
9803 MR. PARK: Correct.
9804 MS MacDONALD: So for a person looking at initiating customer, that might be one of the questions that they might have when you look at 7 point -- when article 7 discusses having three months of service including long distance, it would be important for people to know that they could get long distance toll blocking which would reduce the amount of deposit that they would have to make.
9805 MR. PARK: That's correct.
9806 MS MacDONALD: But that information is provided on page 17?
9807 MR. PARK: That's correct.
9808 MS MacDONALD: And when you go to page 17 it has the toll restriction, and it basically describes the service; that they can put that on their telephone. But it doesn't say anything about whether or not that would reduce the amount of deposit required by the customer.
9809 MR. PARK: That's correct.
9810 MS MacDONALD: So they would have to phone Bell?
9811 MR. PARK: That's correct.
9812 MS MacDONALD: How does a person who provides the deposit get their deposit back?
9813 MR. PARK: I don't know.
9814 MS MacDONALD: Okay. In article 7.4 it discusses -- pardon me, in article 7.7 it discusses that Bell must review the continued appropriateness of deposits and alternative arrangements at six-month intervals. And when service is terminated or the conditions which originally justified them are no longer present, Bell must promptly refund the deposit with interest and return the guarantee or other written undertaking, retaining only any amount owed by the customer.
9815 MR. PARK: That's correct. I mean, just in the answer to my first one, I thought it was the form of the repayment and not this article. I didn't mean to confuse the issue.
9816 MS MacDONALD: So there is information in the phonebook that tells a person that has to give a deposit -- so you guys keep their money and they don't have any access to it. But they know they could get it back in six months if they read article 7.7.
9817 MR. PARK: That's correct.
9818 MS MacDONALD: On the terms and service.
9819 MR. PARK: Right.
9820 MS MacDONALD: Now, while you are keeping their money, this person might be interested in whether or not you are going to pay them any interest on a deposit. You have their deposit. They want to know when am I going to get it back and are you going to give me any interest on it. Where is that provided?
9821 MR. PARK: Again, it's in the terms of service as opposed to any place else.
9822 MS MacDONALD: As opposed to any place else?
9823 MR. PARK: In terms of the front of the phonebook.
9824 MS MacDONALD: It is actually set out in 7.5 where it says:
"Deposits earn interest in accordance with the formula set out in the applicable provisions of Bell tariffs." (As read)
9825 MR. PARK: Right.
9826 MS MacDONALD: Unfortunately, that doesn't really tell a person what kind of interest rate they are paying. So again, the alternative is to phone Bell?
9827 MR. PARK: Correct.
9828 MS MacDONALD: There is one other place where it talks about the interest and that's on page 31. So if you flip back to that page under "General Information", under "Billing" on the one side and then on the right-hand side they have various columns. One of the column titles is "Interest on Deposits".
9829 It states that they will be paid at the savings account rate at the Bank of Montreal. So again, they would have to phone Bell?
9830 MR. PARK: Right, in order to find it here or phone the Bank of Montreal.
9831 MS MacDONALD: Or phone the Bank of Montreal.
9832 Again looking at the low income person, one of the first things they will look at is whether there is an obligation just to serve them -- well, there is an obligation to serve them, but how they would get that service.
9833 They would also want to look at the connection fees.
9834 It doesn't say in the phonebook how much that connection fee is.
9835 MR. PARK: I don't believe so.
9836 MS MacDONALD: I can tell you that I didn't find it within the phonebook, the pages that you had provided to me.
9837 Again, does it say anywhere that the connection fees change depending upon where you reside in the province; for example, a rural area as opposed to an urban area?
9838 MR. PARK: I don't believe so.
9839 MS MacDONALD: I can tell you I didn't find that information there as well.
9840 You are aware that customers can pay for the connection fees by an instalment plan? You are aware of that?
9841 MR. PARK: Correct.
9842 MS MacDONALD: And where would you find that information in the telephone book?
9843 MR. PARK: I don't know.
9844 MS MacDONALD: If I can get you to turn to page 31 under "General Information" --
9845 MR. PARK: Sorry, we had it a minute ago.
9846 MS MacDONALD: On the right-hand column you have the instalment payment plan and it says that:
"All residential customers have the option of spreading payments associated with service connection fees over a period of up to six months and a late payment charge will apply." (As read)
9847 Does that tell the customer whether or not the instalment payment plan will also apply to the deposit that might be required of them if they don't have any credit history or a satisfactory credit history?
9848 MR. PARK: No, it doesn't say anything about that.
9849 MS MacDONALD: As well, it talks about a late payment charge. Are you aware whether that late payment charge is stipulated anywhere in the 58 pages that you have given us from --
9850 MR. PARK: It does not, to my knowledge.
9851 MS MacDONALD: So if a customer wants to know that they want to pay by instalment, and they might want to pay both the connection fee as well as any required deposit by instalment, they would have to phone Bell?
9852 MR. PARK: That's correct.
9853 MS MacDONALD: And they would also have to phone Bell to determine what their late payment charge would be for that?
9854 MR. PARK: Correct.
9855 MS MacDONALD: So from a perspective of a low income person that might have many questions about what obligation the telephone company had to provide them service, which is a very important thing you would agree, they would have to look at various pages that we have gone through here in order to determine -- specifically we went through pages 35, 31 and 5. But in the end most roads seem to lead to phoning back to Bell because the information is just not there.
9856 MR. PARK: That is correct as it's portrayed. I think the terms of service -- and they are long-standing terms of service here that have been, I know, debated word by word in forums such as this in the past -- are really in those legalese terms, which is, I guess, the point of this.
9857 I think by moving to some of the documents that we talked about earlier is probably a better approach here so that they don't have to navigate their way around to understand those things that we just discussed.
9858 MS MacDONALD: Yes, that is pretty much my point.
9859 I have had some other examples and essentially it does involve the same type of exercise going from the Table of Contents in order to find what topic it might be under and freezing in fear if you find out its under the Terms of Service because it is written in legalese, and going between the pages and eventually finding out that you are probably going to have to phone Bell because the answer just isn't there or the answer isn't clear.
9860 I know that that is kind of a longwinded question, but would you agree that that is essentially the problem that we have with the current way that the Bell company -- well, Bell and most of the companies, but Bell specifically -- is looking at giving information to the customer about the contract for services that they have?
9861 MR. PARK: I agree. The elements are there. It's just how to put them all together in an easy way, a user friendly way, if you like, so the customer can actually find the information that we just discussed.
9862 MS MacDONALD: I won't belabour the point and go through my other examples. I will note that when I went through the 4500 answer to (A) and the list of topics that by my review -- and it's subject to check -- you can agree with me that in order to find the information that was contained on there one would have to look at pages 4, 5, 6, 7, 8, 9, 10, 11, 17, 31, 32, 33, 34, 35, 36 and 37, all covering various topic headings in order to find the particular information that you have laid out in answer to your 4500(c).
9863 Would you agree with that subject to check?
9864 MR. PARK: Yes, subject to check, and if they required all of that information at once.
9865 MS MacDONALD: They probably wouldn't require it all at once. But my point is that the topics laid out in 4500(c) were all various elements of a contract between a customer and the telephone company.
9866 MR. PARK: Right. That is the way it was structured.
9867 MS MacDONALD: You have referred back to this one page document and you were looking at -- I am not going to get exactly what you said right -- putting it all in one place so that there wouldn't be cross-referencing back and forth.
9868 Can you give me your thoughts on it? It sounded as if you had given some thought to it since the time of the actual filing of the evidence to now. I am hearing something a little different from your evidence, and I am wondering if you can tell me what the thinking is in terms of putting it in one place?
9869 MR. PARK: Well, I think conceptually we agree with the notion of having customers understand their rights and also communicating easily what our obligations are. In my view, in reading a lot of the evidence on this record, some of the minutes of the Bill Management Committee as an example, I think this -- certainly if the Commission were to direct us to do this, we would have no trouble in constructing, if you will, a very simple, easy to use bill of rights. It's been done in other jurisdictions and I can see some value in that. That is really why I see my own thinking has evolved, as well as the position of the company.
9870 MS MacDONALD: Now, you mentioned the Bill Management Tool Committee. Is that the appropriate place to deal with this matter? Is that your thinking?
9871 MR. PARK: I think a forum where many parties can contribute is a useful way to do it and do it in a more collaborative way. So it's not Bell Canada and then out to the parties, back to Bell Canada. I think it's more of a cooperative thing so that we can gain a variety of perspectives quickly in arriving at a fairly useful bill of rights for customers.
9872 It may be that committee or another one, but it would have a make-up with the right constituents, if you will, to do it.
9873 MS MacDONALD: The reason that your thinking has evolved on this, would it be fair to say, is because you realize that this service of providing a plain language and providing all the rights and responsibilities in one place is really a measure of good customer service?
9874 MR. PARK: I think it has value for customers and value for us as well in that relationship.
9875 MS MacDONALD: Turning to 4500, your page 7 of 7 -- so this is the CRTC Response.
9876 MR. PARK: I have it.
9877 MS MacDONALD: The last paragraph there states that:
"If the Commission were to mandate changes to The Companies' billing practices, then The Companies should be compensated for any associated costs through an exogenous factor." (As read)
9878 Given that you have agreed with me that having the customer rights and responsibilities set out in one place is essentially good customer service, I wonder if you can tell me why The Companies should be compensated through an exogenous factor for it?
9879 MR. PARK: I think here we were -- we were not contemplating here small changes. I think, as many people know, telco billing systems have been considered the Achilles' heel of our Companies from time to time.
9880 So it is a little bit of a defensive statement, but all to say that if there is significant changes, I mean very significant changes, we would have to do a lot of coding of the billing system and recoding of the billing system and that we would want some consideration of the cost of doing that.
9881 But it wasn't meant to -- we didn't have a scenario in mind or anything of that sort. It was really just protecting that kind of outcome. But if it is just a small thing, we weren't really looking for discrete relief for that, if you will.
9882 MS MacDONALD: So would it be fair to say that asking for an exogenous factor associated with these costs is a bit premature?
9883 MR. PARK: I would say that, yes, because we haven't done any -- we have no set scenario on the table and we have done no cost study associated with it.
9884 MS MacDONALD: Mr. Chairman, the reasonable responses of this panel has meant there is no necessity for my belabouring my point through flipping through the telephone book. I am actually finished with this panel.
9885 THE CHAIRPERSON: Thank you, Ms MacDonald.
9886 So I believe the next party, then, is ARC et al.
9887 MS LAWSON: Thank you, Mr. Chairman.
9888 Mr. Van Koughnett and I will be conducting this cross-examination as a team. I will ask my questions first.
EXAMINATION / INTERROGATOIRE
9889 MS LAWSON: Good morning, Commissioners, panel members.
9890 MR. PARK: Good morning.
9891 MR. HARITON: Good morning.
9892 MS LAWSON: I would like to start by referring to ARC et al's submissions in this proceeding and in particular to the Tod Matwichuk evidence. I wonder if you could turn to page 8 of that evidence where there is a table entitled "Utility Segment RACE" which stands for "Returns on Average Common Equity".
9893 Have you got that, gentlemen?
9894 The numbers in this table were taken from The Companies' responses to Interrogatory CRTC 405. First of all, are these numbers accurate based on that interrogatory response? Have you noticed any inaccuracies?
9895 MR. PARK: I haven't noticed any inaccuracies. I haven't checked them exactly but I can say the Bell numbers are correct.
9896 MS LAWSON: So subject to check the numbers are correct?
9897 MR. PARK: Yes, they are correct.
9898 MS LAWSON: You would agree with me that as this table shows, Bell's utility segment returns have been consistently above the 11 per cent set by the Commission in Decision 98-2 throughout the price cap regime?
9899 MR. PARK: That is correct.
9900 MS LAWSON: The Aliant and MTS results have been in a similar range as Bell's?
9901 MR. PARK: Correct.
9902 MS LAWSON: I would like to refer to a one-page document I have passed around and I have provided to your counsel, gentlemen, in advance. It's a bar chart entitled "Utility Segment Returns on Common Equity (RACE), 1997-2001". All it has done is taken these numbers and put them in the form of a bar chart, which has years on the horizontal axis and then each company is in a different shade of grey.
9903 Now, 1997 is the year that the Commission set the 11 per cent as a reasonable return for going in rates. Is that correct?
9904 MR. PARK: That is correct.
9905 MS LAWSON: You would agree, as this chart shows, that what we see here is a trend of increasing returns on equity for The Companies' utility segments?
9906 MR. PARK: That is correct.
9907 MS LAWSON: Would you agree with me that for Aliant -- unfortunately the only figures for Aliant as a whole are for the year 2000 and 2001. Would you agree with me that for the years 1998 and 1999 if we had a figure for the four constituent members of Aliant, we would see an upward trending rate of return up toward the figure in 2000 and then again in 2001?
9908 MR. PARK: Yes.
9909 MS LAWSON: Do you think, gentlemen, that the 11 per cent established by the Commission in Decision 98-2 -- do you think the Commission intended its price cap plan to result in utility segment earnings by the ILECs, by all the ILECs, of well over 11 per cent during the price cap term?
9910 MR. HARITON: Ms Lawson, the price cap plan as it was set in Decision 97-9 was in terms of a productivity target or a productivity offset target rather than in terms of a rate of return, as I understand it.
9911 As I understand it, the rate of return was used in 1997 to calculate the rates which would apply January 1, 1998. After that, the plan operated without regard to earnings but rather with regard to productivity targets.
9912 MS LAWSON: Mr. Hariton, if the Commission or anyone else wanted to establish for whatever reason an appropriate rate of return for Bell or The Companies generally in 2001, what would that be, in your view?
9913 MR. HARITON: Well, Ms Lawson, two points. First of all, I don't think that a rate of return for 2001 should be part of the design or setting of the regulatory mechanism going forward for reasons which have been discussed at length by Mr. Nicholson and others in this process.
9914 The second thing, as to the proper rate of return for 2001, I note that the Commission has put that aside to a separate proceeding. I would merely say at this point that there are a lot of factors going into setting an appropriate rate of return. That's quite a complex exercise, one which, in my experience, takes many days of hearing time and many pages of hearing evidence. I think it would be foolhardy of me to give you an opinion off the top of my head.
9915 MS LAWSON: We haven't done that analysis, neither you nor me -- nor the Commission presumably.
9916 MR. HARITON: That's my understanding.
9917 MS LAWSON: Is there any chance, in your view, that such an analysis would result in an appropriate rate of return on equity for Aliant of over 17 per cent in 2001?
9918 MR. HARITON: Ms Lawson, you are asking me to speculate. I haven't done an analysis and I don't know where these rates of return have come out.
9919 MS LAWSON: Okay.
9920 MR. HARITON: The other thing I should mention is circumstances have changed. There would be a number of factors that would have to be taken in now that were not taken in in 1997. So we are talking about a different analysis as well.
9921 MS LAWSON: Mr. Hariton, would you agree with me that if the idea behind the price cap regime, or one of the ideas behind it, was that across the industry telcos would be making rates of return in the 11 per cent range on average, something must have gone wrong because that's not the way it turned out?
9922 MR. HARITON: I would disagree with your suggestion, Ms Lawson. There are many factors that have been in play over the last four years. I suspect we will get into some of them later one, but one of the things I note -- and again I would echo Mr. Nicholson on this -- is that the economy has done particularly well over the last four years up to 2000 and that a lot of industries have been doing well over that time.
9923 At the same time, I would argue that the price cap regime as it was designed back in 1996 -- or 1997, I should say -- contemplated the possibility of companies making higher returns as well as the possibility of companies making lower returns.
9924 So just looking at the trend in earnings, while interesting in itself, does not to my mind mean that the price cap regime has in any way gone wrong, if I can use those words in parentheses.
9925 MS LAWSON: I understand The Companies' views in that respect.
9926 I have passed around another one-page document that I would ask you to pull up, which is entitled "Dollar Impacts of ILEC Returns above 11%".
9927 MR. PARK: We have it.
9928 MS LAWSON: First of all, we clearly disagree on the relevance of the 11 per cent after the going in rates in 1998. But just looking at the calculations, if one is simply making a calculation of what the difference between the actual returns and the 11 per cent cashes out into in terms of consumer rates, would you agree that the calculations there are reasonably accurate?
9929 MR. PARK: I think the numbers in the chart are accurate. I think, in your favour, the $1.66 excess rate per month, which is the Bell number in 2000 on the far right, what you have done is taken a net income number and translated it into a revenue number without tax affecting it, if you will. So it shouldn't in fact be grossed up to a revenue requirement number so that it can be stated in revenue terms.
9930 By implication of all that, it would roughly be around $2.77 per month. So the math works, if you will.
9931 All I am saying is the numbers on the far right are not in revenue requirement terms or in net income terms and should be grossed up.
9932 MS LAWSON: Thank you for that.
9933 I am going to ask you to just take a hypothetical. If we were operating under rate base rate of return in 2001, or 2000 say, and the Commission were doing a 2001 test year application and the Commission determined that for the year 2001 the appropriate rate of return for Bell was 11 per cent, you would agree that we would be looking at rate decreases.
9934 MR. PARK: Correct.
9935 MS LAWSON: Okay.
9936 MR. PARK: With all those caveats, that's correct.
9937 MS LAWSON: I am going to move on. I just have a few questions on the issue of productivity and in particular the issue of the stretch factor. I assume that's Mr. Hariton.
9938 MR. HARITON: Yes, Ms Lawson.
9939 MS LAWSON: Mr. Hariton, I understand The Companies take the position that the 1 per cent stretch factor imbedded in the 4.5 per cent productivity offset should be removed. Correct?
9940 MR. HARITON: That's correct.
9941 MS LAWSON: And that is because it's your position that all of the imbedded inefficiencies resulting from rate base rate of return have been removed.
9942 MR. HARITON: I have to be a little bit careful here, Ms Lawson. The proposal put forward by The Companies is based on historical average of the productivity gains over the last 13 years. The last few years of those in fact were under rate base rate of return so that you will find that, to the extent that the stretch factor was at work, some of that will be picked up simply by using the historic average that includes those years.
9943 So, in fact, you do have a stretch factor in the proposal.
9944 MS LAWSON: Okay.
9945 MR. HARITON: Not as much as the 1 per cent; roughly about 0.3.
9946 MS LAWSON: 0.3, okay.
9947 MR. HARITON: But that is actually in there.
9948 MS LAWSON: So you are acknowledging that -- are you acknowledging -- I guess I should ask you the question. Taking that position that there is an implicit stretch factor in your proposal, are you acknowledging then that there are still imbedded inefficiencies in The Companies as a result of decades of rate base rate of return regulation and that there are still some to be removed in future years?
9949 MR. HARITON: No, I wouldn't position it as decades of old inefficiencies that need to be removed. What I would say is that under price cap regulation what you get are better incentives and better flexibilities moving forward, and those better incentives and better flexibilities will likely lead to some increase in productivity over what you might have seen under rate base rate of return regime.
9950 However, the large part of that increase will be, as you say, in the first couple of years where you will have the opportunity to initiate a lot of things and to make a lot of changes which you might not have had before under rate base of return.
9951 So I think what we see is a one-time increase in, I would say, the level rather than the rate of productivity and then there will be a new path established. It might be a little bit higher than the old path in terms of tendency, but again a lot of the gains will have been obtained in the first four years.
9952 MS LAWSON: A lot, but not all.
9953 MR. HARITON: If I had thought that all of the gains have been captured in the first four years and that there were none left, I would have recommended to Bell to decrease the 3.5 by 0.3 per cent down to 3.2 to reflect what was the historic trend.
9954 MS LAWSON: So your view of what is in there in terms of inefficiencies attributable to rate base rate of return amount to 0.3 per cent in terms of the productivity factor?
9955 MR. HARITON: It's a hard number to quantify, Ms Lawson, because I have not seen any hard evidence on what that number might be in other jurisdictions. However, it seems reasonable to think that the number is going to decline over time. How quickly? 0.3 seems a reasonable number to me.
9956 MS LAWSON: Thank you.
9957 Those were my questions, Mr. Hariton. I will pass the microphone over to Mr. Van Koughnett now.
EXAMINATION / INTERROGATOIRE
9958 MR. Van KOUGHNETT: Thank you, Mr. Chairman.
9959 Gentlemen, can we turn to quality of service, please. Let's begin with chapter 9 of your evidence at page 113. Just to review, if you will permit me, I will read the entire paragraph 9-3:
"Under the current mechanism for dealing with quality of service the Commission is able to closely monitor The Companies' service quality through the filing by The Companies of quarterly reports on quality of service indicators. If The Companies do not meet Commission-approved service standards for a particular indicator for a prolonged period, defined as either three consecutive months or seven out of twelve consecutive months, The Companies must report to the Commission with respect to that indicator on a monthly rather than on a quarterly basis and continue to do so until such time as quality meets or exceeds the standard for three consecutive months. In these so-called exception reports, The Companies must provide the Commission with an explanation of the cause of service quality degradation along with an action plan describing how they intend to rectify and prevent the situation from recurring". (As read)
9960 Now, the lion's share of that paragraph could have been written as far back as 1982, couldn't it, because this is really the process of 82-13, but for the seven out of twelve months.
9961 MR. PARK: That's correct.
9962 MR. Van KOUGHNETT: Now, in a sense this is both a substantive and a process paragraph because one is dealing with the substance of quality of service indicators, but then at the same time one is sort of suggesting that there is lots that the Commission can do. And it sort of calls up the interrogatory response that suggested that the Commission has a plethora of powers for dealing with quality of service indicators that was discussed with the previous panel.
9963 Can you help me with what happens at the end of the process that is set out in detail, and correctly, I am sure, in 9-3. What happens next after the action plan?
9964 Let's assume the worst case scenario, that there is a significant service quality degradation, therefore, after the three-month reporting -- suddenly there is monthly reporting and there is an exception report and the company provides the Commission with an explanation of the cause and, of course, you have all seen those, an action plan. What happens next after the period, the end of 9-3?
9965 MR. PARK: The company either executes or does not execute the action plan so the indicator either goes back into acceptable performance, or not. Beyond that, historically there has been no other large amount of action by the Commission or any other kind of follow up reporting, if you will. That's kind of the extent of it.
9966 In rate base rate of return times -- because you did mention it went all the way back -- this obviously was then addressed in the revenue requirement proceedings that went on. So that is kind of the one pendulum.
9967 What is going on here, of course, is trying to swig the pendulum back the other way a little bit by putting in place our rebate plan to in fact put a little more teeth behind it. Really that's what this paragraph does; it teases up the fact that we need to put some more balance in it and have a rebate plan. So there is a little more teeth in it and it's not just monitoring for monitoring's sake.
9968 MR. Van KOUGHNETT: Thank you.
9969 Now, paragraph 9-4 says:
"It has been suggested that price regulation provides insufficient incentives to the regulated firms to maintain high-quality service standards. On the contrary, in an increasingly competitive environment it is in The Companies' best interests to provide customers with consistently high service quality. If a customer is dissatisfied with the basic local service of one of The Companies, then that customer will be more likely to turn to a competitor for the provision of other more competitive services such as Internet, long distance, or cellular service even if alternative sources of local service are not available." (As read)
9970 I read that paragraph as stating that there is no need -- it's almost like the TELUS evidence -- for the Commission to address further quality of service concerns, and I take comfort in that assessment by virtue of the next paragraph, the next sentence:
"However, as a component of their overall proposal for the new regulatory regime, and in order to address the potential perception that there is inadequate assurance that service quality will be maintained, The Companies propose a residential service quality guarantee". (As read)
9971 Mr. Park, are you going one step further? Are you saying that it's not enough to leave the regime as it is now and the company has decided that the residential service quality guarantee is in fact required or desirable?
9972 MR. PARK: I think there are layers here in terms of incentives. The first one is in the indicator itself, the actual quality of service indicator itself. What I mean by that is typically if you miss certain indicators, it actually costs you more to miss. Let me take a real example.
9973 If you do not repair a customer's line in a timely fashion, they call you back. So in a certain sense, it actually costs you more just to miss the indicator.
9974 The second layer is this layer addressed in paragraph 9-4 which says that if customers are dissatisfied with you for basic local, they are less likely to take other services from you and that becomes increasingly important as our revenues on that side of the ledger become a greater proportion of our total revenues.
9975 I think that is a large incentive for us. I think you will see that at least in Bell we have improved our quality of service in the last year. There are almost no misses there. It's that kind of driver which is really incenting us to do that.
9976 I think the last layer, which is this extra assurance, if you will, is our proposal for the guarantee. These work in concert. It's difficult to see one without the other. That's the way we have constructed our evidence here.
9977 MR. Van KOUGHNETT: Thank you.
9978 Let's turn to AT&T's evidence at page 24 for a moment, please. Do you have that?
9979 MR. PARK: I have it.
9980 MR. Van KOUGHNETT: At 3-33 it reads:
"The absence of competition has also resulted in a degradation of service quality during the period of price caps. Since the inception of the regime in 1998, the ILECs have been required to report their service quality results on a monthly basis pursuant to 97-16. As the table below demonstrates, the level of service provided to customers during the first three years of the current price cap regime has been extremely poor. The following table provides the results for the years 1998 to 2000 with respect to the indicators reported. The numbers below each column signify the number of times in months that a performance level was not met for one of the key indicators and disclose that even as of 2000 the percentage of misses was as high as 44 per cent." (As read)
9981 Mr. Park, can I just be breathtakingly pedantic and also read footnote 28 that appears there:
"All companies experienced persistent problems in meeting Commission standards. For indicators 1.5, Access to the Business Office, and 2.5, Access to the Repair Bureau, most companies had continuing problems throughout the three-year period. Furthermore, it would appear that service quality in general did not improve under price caps but experienced some deterioration in 2000 relative to 1998." (As read)
9982 If one flips the page and looks at the numbers set out in Table 3-5, one sees the number of misses. Now, those are the individual months. My first question, I guess, is: Do you agree with the numbers that have been transposed by AT&T here generally, subject to check, because I haven't done the homework?
9983 MR. PARK: Subject to check, yes.
9984 MR. Van KOUGHNETT: And do you agree with the nature of the editorial component, the 3-33 in footnote 28?
9985 MR. PARK: Well, I guess a couple of comments. One is in 3-33 it seems to indicate the absence of competition. I am not sure that's the causal reason for the degradation in fact. There are many other reasons which don't have as much to do with that as it indicates here.
9986 I would say that for our call centre operations, which are really the business office and access to repair, I think we have struggled with getting these indicators back on track. We are not particularly proud of our previous record here.
9987 I think all of The Companies have made some substantive steps to improve these indicators and I am not sure it's this competition point that is really driving it home.
9988 MR. Van KOUGHNETT: Fair comment. Perhaps I shouldn't have read that first sentence. But the rest seems substantially correct to you.
9989 MR. PARK: That's correct.
9990 MR. Van KOUGHNETT: Now, in the last -- is it the case that the company has responded to this hearing and that's why one notices an improvement over the last 12 months in some of the quality of service indicators? Is that what you suggested to me a couple of minutes ago?
9991 MR. PARK: No, not at all. I think it has more to do with many, many other factors, including a lot of hiring, a lot of system changes, recalling that 1999 was a year where a lot of system changes took place in our organization because of the year 2K. That caused some services misses.
9992 I think we had a bit of a hangover effect of our non-management incentive packages for people leaving and that did us some damage. I think in hindsight we shouldn't have been as severe with those packages, in other words exiting of employees.
9993 It really came down to management's view that we were not giving good service, certainly at the tail end of 1999 and then we started to really put full court press on to start improving it. Now, it takes a little while to do that.
9994 It's not instantaneous to recognize you have a serious situation and improve it, but we did in early 2000 really start to put a lot of senior management attention on it, hire the amount of people we needed, started to train them. I think now we are starting to see the benefits of that.
9995 I don't believe it had this sort of anticipatory effect of this hearing. I don't think that was conscious in people's minds at the time. I think it was just the fact that we were not giving as good a service as we would have liked to.
9996 MR. Van KOUGHNETT: Can we now look to The Companies(CRTC)-503 to explore the methodology of what happens to that raw data from AT&T's table, if you will.
9997 In CRTC-503, attachment 1 at page 2, the missed months that AT&T sets out in its raw data, if I can call it that, get massaged, if you will, under The Companies' proposal through what is nicely set out in your example at attachment 1, page 2 of 11. It is only, for example, when one has three missed months analogous to reporting requirements of the current quality of service regime that a penalty kicks in.
9998 So in a sense The Companies' proposed guarantee acts as a buffer to limit the number of instances where the company is penalized. Have I got it right?
9999 MR. PARK: One of the principles we are operating on in this proposal is that we have a penalty only occur or triggered, if you will, because of a persistent problem.
10000 One of the things we had in mind here is not to -- in any one month there could be bad weather, there could be other events that really could trigger a mess, but aren't persistent problems, and really we don't believe that that's the way to view this. The problem should be persistent before any notion of a penalty kicks in.
10001 MR. Van KOUGHNETT: If we could hold that for a second and take a look at 1503 that expands further, The Companies(CRTC)-1503, attachment A, revised.
10002 Here you have calculated the request of the Commission, the penalties using the methodology in the proposed guarantee.
10003 MR. PARK: That's correct.
10004 MR. Van KOUGHNETT: And each of The Companies set out at pages 1, 2 and 3 of 3 would have suffered penalties as a result of the quality of service that they have provided over the years in question.
10005 MR. PARK: That is correct. In 1503 in the attachment we apply the methodology or the proposal, if you will, the method of calculating the penalty, and we have displayed the results in 1503.
10006 MR. Van KOUGHNETT: And so in essence the very fact that a penalty would have had to have been paid does undercut the notion set out in chapter 9 of the evidence, that there is no need for the Commission to supplement competitive pressures.
10007 MR. PARK: No. I don't think that was the intent of 1503. I think the intent of 1503 was to give some sense of scoping. I don't think it was meant to counteract that one incentive off our competitive revenues being there. That incentive will be there whether penalties are paid or not.
10008 I don't think that this interrog was meant to replace that. I think it was just to illustrate had we had this over those years what kind of penalties would be paid. I don't think it had any other intent.
10009 MR. Van KOUGHNETT: But you would agree with me that at the very least the Commission should be concerned about the level of service quality that flows from the methodology in the guarantee since it so closely parallels the quality of service decisions.
10010 MR. PARK: Oh, absolutely. You are right.
10011 MR. Van KOUGHNETT: So we are not very far apart in terms of the desirability of a mechanism such as the guarantee as an important component of this hearing.
10012 MR. PARK: Correct.
10013 MR. Van KOUGHNETT: Let's look further at the trigger mechanism, because you mentioned that a couple of minutes ago. Here if we can look at 1503, attachment 1, page 3 -- I am sorry, it's 1503, page 3.
10014 In the original company proposal, of course, there was the need for three consecutive months which is in a sense the lion's share of what we have been talking about so far. Here in the first full paragraph, non-indented paragraph if you will, at 1503, page 3, The Companies state:
"While The Companies have not proposed in their residential service quality guarantee that an indicator would also be in penalty-ready state if an indicator were below standard for seven out of twelve consecutive months, The Companies would not be opposed to the inclusion of this requirement." (As read)
10015 MR. PARK: That's correct.
10016 MR. Van KOUGHNETT: Now, that's because it flows also from the 97-16 decision, I guess.
10017 MR. PARK: Right, and that's one of our principles, to use the established Commission company standards and indicators that we already have to manage this plan. That's kind of one of our fundamental principles, if you will.
10018 It made sense for us to also put the seven out of twelve constraints in as well. If I think back historically, I can't recall if it has ever kicked in. But I am sure it has once or twice. It's not one that is very prevalent in the historical data.
10019 MR. Van KOUGHNETT: Just out of curiosity, why was this not built into the original 503?
10020 MR. PARK: I think it was just a slight oversight. I don't think there was anything other than that.
10021 MR. Van KOUGHNETT: I was wondering if it had something to do with The Companies' own criteria. The Companies in approaching this question, of course, established its own criteria or, in any event. The way the answer is set out, criteria are established first for the RSQ guarantee.
10022 They are reproduced in the first two pages of 1503, so we don't have to turn back to chapter 9. At page 2 the first full paragraph on the page relates to this topic, I think, under the heading "2":
"Penalties should apply for a period in which persistent problems exist and should continue to apply until the problem has been corrected for a prolonged period." (As read)
10023 So it's very consistent with the methodology in 503. Does seven out of twelve months satisfy that criterion very cleanly?
10024 MR. PARK: A little less cleanly I would say. I think in the indicators that we looked at in 503 -- it's a little bit more logical and cleaner, if you will, that a problem exists, continues to exist and the penalties will apply until it clears. Seven out of twelve isn't as natural from that concept point of view, so it doesn't fit as cleanly with that principle.
10025 MR. Van KOUGHNETT: Can we explore this question in a pictorial manner? Last week I handed to you, through your counsel, a picture that looks like this.
10026 I think it would help if we went back to what I think is excellent text at 503, attachment 1, page 2 of 11, where of course the first three, (a), (b) and (c), as I noted in the footnote, actually come from, and let's walk though The Companies' proposed methodology in terms of the trigger mechanism.
10027 Of course, under 503, we hadn't yet introduced the seven out of 12. So, (a), (b) and (c) take one nicely through penalty-free/penalty-ready. If I have it straight -- well, let me read it, the first new paragraph on 503.
"In the case of Indicator A, no penalties would be assessed. Although Indicator A remained in a penalty-ready state in April, May and June, that is because of failing three consecutive months, January, February and March, it became penalty-free in July by virtue of having met the standard of the three previous consecutive ones." (As read)
10028 By contrast, Indicator B, penalties would be assessed for five months: January, February, March, because May missed. Correct?
10029 MR. PARK: Correct.
10030 MR. Van KOUGHNETT: May and July and only after the August, September, October, three check marks, does one go back to penalty-free status?
10031 MR. PARK: Right. The August, September and October are evidence of the correction and therefore no more penalty is attributed.
10032 MR. Van KOUGHNETT: And in the case of Indicator C, penalties would be assessed for seven months: January, February, March, May, July, September, November. That is because, after missing for January, February and March, there weren't the three consecutive winners again, so the company gets dinged retroactively in effect for January, February, March and then never achieves three check marks again?
10033 MR. PARK: Right. And therefore is, in fact, even at the year end still in penalty mode.
10034 MR. Van KOUGHNETT: In Indicator E, which I made up, not The Companies, I have seven Xs in there. So, that is an example of the seven out of 12, which was introduced for the first time by the company in that portion of 1503. In Indicator E, the company would be penalized for all seven of those months, I take it, under the methodology introduced in 1503, so to speak?
10035 MR. PARK: Yes, the seven out of 12 constraints would add January and March to the three-month rule, if you will.
10036 MR. Van KOUGHNETT: Fair enough. Now, what about Indicator D?
10037 In Indicator D, it is every second month is the way I have posited the example. So, it doesn't meet the seven out of 12. What would be the penalty there?
10038 MR. PARK: First of all, there is no penalty there. But this one, while theoretically correct, in practice is almost impossible to hit.
10039 In other words, to exhibit this kind of pattern, you would have to miss and meet the indicator by a very small percentage to even actually do that in real life.
10040 If I look back at our history, we in fact don't see that kind of on-and-off-again pattern. You can't sort of, I think as Mr. Taylor said, dial in resources that easily. And if you could, you wouldn't be missing much on your dial.
10041 So Indicator D, in my mind, while theoretically possible, I acknowledge that, is really practically not on.
10042 In fact, with our rebate plan here, that is probably one of the ones that would be eliminated first because you would be so close to missing/not missing every month, that one you would probably make sure you would get and probably wouldn't miss a whole lot, because you would be so close to missing and not missing to actually get that kind of pattern.
10043 MR. Van KOUGHNETT: Now, Indicator F, I stole from the AT&T proposal, as I am sure you were able to infer over the last five days. Their suggestion, as you recall, is that three Xs in a series of 12, three missed months in a year, would be enough to trigger a penalty.
10044 When I am looking at Indicator F, I think that the Commission should be concerned. Do you think that the Commission should not be concerned?
10045 MR. PARK: That is right because we don't see any evidence of a persistent problem. In fact, the three Xs may be not related and they may, in fact, be due to things outside of The Companies' control.
10046 So that is sort of the notion that we had behind the principles that we have used in establishing this framework.
10047 MR. Van KOUGHNETT: I understand the front end of your answer. But the last part, though, that isn't a fair comment, is it, because things that are outside The Companies' control don't result in Xs anyway? That is part of the RSQ guarantee proposal in 503, is it not?
10048 MR. PARK: That is true, you have a mess. But the point is that it is something that requires company action to correct. Or is it just something that happens and the next month is automatically improved?
10049 In other words, the idea of the plan here is to provide good service and to provide the motivation to provide good service. So if in May we had a tremendous amount of rain, I am not entirely sure that that is evidence of a persistent problem that requires a penalty. That is why I am suggesting that part of my answer.
10050 MR. Van KOUGHNETT: Thank you. One technical point relates to 1504. Can we go there, please?
10051 This is The Companies(CRTC)-1504 revised supplemental, and I would just like you to help us for a minute on the relationship between attachment A and attachment B, if you will.
10052 Just to make like easy, I picked one specific number, and of course I picked the biggest one.
10053 So on the last page, which is attachment B, if one looks to the penalty that would have been paid under the hypothetical that the Rhode Island regime were applied to The Companies, as hypothetically requested by the CRTC in this interrogatory, we have a penalty of $10,490,000 in respect of year 1999, which is the worst on the page. That is the only reason I took it, just as an example that leaps out of mind.
10054 MR. PARK: That is correct.
10055 MR. Van KOUGHNETT: If I understand it correctly, the methodology for developing that penalty amount is set out in the text of the interrogatory response 1504, and a key dimension to that, if you will, is shown in attachment A where the company has set out a table that indicates an important aspect arithmetically of the way The Companies have chosen to apply the Rhode Island plan.
10056 So far so good?
10057 MR. PARK: That is correct.
10058 MR. Van KOUGHNETT: For example, when one looks to the performance standard column, the third column on that table so to speak, those are the Commission standards. Right?
10059 MR. PARK: That is correct.
10060 MR. Van KOUGHNETT: But where the company chose to give itself two points and one point and zero point, that is The Companies' methodology. Right?
10061 MR. PARK: That's a judgment we made on The Companies looking at the Rhode Island plan and seeing how to apply it to these indicators. That is a judgment we made to come up with a like scoring model, if you will, as they would in Rhode Island.
10062 MR. Van KOUGHNETT: And the only point I wanted to get at here is that if one looks at that number of $10,490,000, one might say that that's a number that is in a right ball park.
10063 But actually that number doesn't necessarily relate to what actually would be paid in Rhode Island; that is just the way in which The Companies calculated it as an example.
10064 MR. PARK: That is correct. We had to make some assumptions and assessments in developing a model like Rhode Island. Clearly, Rhode Island had a different set of problems than we did and applied their model a little bit differently. So, we tried to use the concept of their model, if you will, and apply it to our indicators.
10065 But you are right, in the Rhode Island model, it is, as we explained in the interrogatory, a little bit different than here. We have adapted --
10066 MR. Van KOUGHNETT: Yes, in particular, I guess, the one -- just to drive the point home, the two points and one point is a notion we have never had in this Commission, where there are in a sense two standards, two different performance standards, two different performance benchmarks for each indicator.
10067 MR. PARK: There are certainly thresholds in this plan, and you accumulate points depending on how well you do according to those thresholds. So in essence, those thresholds become de facto standards to score the points.
10068 MR. Van KOUGHNETT: And you can actually make up for one slightly poorer indicator with one slightly better?
10069 MR. PARK: And the nature of the aggregation in the Rhode Island is right; that you add up all the points, and if you make your month overall, obviously goods things can offset bad things.
10070 And you are right, that is one of the attributes of that plan.
10071 MR. Van KOUGHNETT: If I can just drive the point home one more time then, if we keep in our mind's eye that number, $10,490,000 for 1999 for Bell Canada, and then we flip back to 1503, The Companies' proposal, one would find for 1999 in 1503, attachment A, revised page 1 for Bell, $12,212,000.
10072 Once again, that is a number which the company has put forward, but the fact that the $10,490,000 is close to the $12,212,000 doesn't tell the Commissioners that this is the ballpark for plans that are out there working today. It tells you that the company has done its homework as is required by the CRTC and produced the responses to these interrogatories.
10073 MR. PARK: Right. They are simulations; they weren't comparisons of other jurisdictions.
10074 THE CHAIRPERSON: Mr. Van Koughnett, I will be wanting to take our lunch break.
10075 MR. Van KOUGHNETT: I forgot about the twelve thirty. I was going to try and be responsive in advance, Mr. Chairman.
10076 Actually, though, this would be an excellent place to break, honestly.
10077 THE CHAIRPERSON: We will take our lunch break now and reconvene at 2:00 p.m.
--- Upon recessing at 1233 / Suspension à 1233
--- Upon resuming at 1400 / Reprise à 1400
10078 THE CHAIRPERSON: Order, please.
10079 Ladies and gentlemen, we will return to our proceeding now. Before we do, are there any preliminary matters? No.
10080 So we will return to cross-examination of Messrs. Hariton and Park by Mr. Van Koughnett.
10081 MR. Van KOUGHNETT: Thank you, Mr. Chairman.
10082 Mr. Park, we broke for lunch at a point which I think turns out to have been perfect for me, I hope for you as well. And since I would like to move on to what I think is the most important single area -- I hope you will agree with me -- in the entire quality of service component to this case, if I can put it that way, and that is the issue of quantum.
10083 I think, Mr. Park, you were in the room when I discussed with Mr. Taylor the subject of the guarantee factor?
10084 MR. PARK: I wasn't in the room but I did hear it.
10085 MR. Van KOUGHNETT: Good. Can I just refresh your memory by turning to Volume 5 of the transcript at page 1211.
10086 There is one portion I would like to ask you to comment on. It begins at paragraph 7607. It is a long discussion but I think this is the essence of it. I said:
"How does one determine the quantum -- and I agree with you, what you want is the exactly correct incentive. How does one define -- what did you mean by 'exactly correct incentive'?
DR. TAYLOR: Just the obvious. I have this view..."
10087 This is you, Mr. Park.
"I have this view, this picture of the folks back at Bell Canada headquarters, the great big dial in the office, and they can choose to set service quality by moving that dial anywhere from 0 to 100, where 100 is meeting both the Commission standards, whatever they are, and market standards. I envision the incentives to be -- perfect incentives to be those that induce Bell Canada pursuing its own self-interest to keep the dial at 100."
10088 You would not disagree with the notion that Dr. Taylor is admittedly somewhat facetiously putting forward there, would you?
10089 MR. PARK: It is notionally correct that incentives will induce behaviour, although in practice it is quite a bit more difficult to do what he is suggesting.
10090 MR. Van KOUGHNETT: And would you agree with me before you go on -- because I appreciate that is a leading answer -- that this is the most important issue, by far the most important issue, concerning quality of service?
10091 MR. PARK: Yes, it's one of the most important issues, yes.
10092 MR. Van KOUGHNETT: Now, could you couch your remarks, which I am sure you are keen to make, in the context of the response to CRTC 1503 at page 6 where -- I'm only doing this to lead you, and I hope to introduce your words properly -- the first new paragraph is to me the most important dimension of the quality of service evidence that the company gives, where you state:
"Any service quality guarantee must balance the objective of on the one hand providing sufficient incentive to attain the quality standards with, on the other hand, the objective of ensuring that the penalty is not so large or punitive as to provide incentives for the company to over provision the network and operational processes in an attempt to avoid the penalty." (As read)
10093 Over to you.
10094 Is that the right lead in for your -- MR. PARK: I'm not sure what the question is. Let me ask you that.
10095 MR. Van KOUGHNETT: Okay. Let me start. That sentence to me sets out clearly the conflicting goals or the balance that must be obtained, and I think the sentence does a beautiful job.
10096 Now, let me tell you my problem with the paragraph. The next sentence is one bookend explained in further detail or emphasized for the benefit of the Commission:
"Penalties that are too large would result in inefficient provisioning practices and effectively raise the de facto quality standard."
10097 Here is my question. Isn't it the case that there should be yet another sentence, yet a third sentence, added on to that paragraph? If one is going to set out the test, the balance, and then state one bookend, shouldn't there be another bookend, and that bookend would read something like this: Penalties that are too small would accord to the company an incentive to pay the penalty as part of the cost of doing business rather than meet the quality standards?
10098 MR. PARK: I agree that there are bookends. The key here with the penalty is, in my view, it is the bookend that we put in our evidence that is the important one or the one that we are most concerned about, if you will. Obviously, when we start to translate these targets within our company, and in order to avoid the penalty and assuming the incentive is right, we in fact raise the standard and could raise it by quite a bit and in doing so create the inefficient practices that we mention here, in essence the old notion of the gold plating argument that we have been through before.
10099 So this is the bookend in my view that really makes the most sense. I don't take away from, and I obviously acknowledge that there is the other one which is just pay the penalty and miss your indicators, although that suffers from loss of business in other sectors and all those things that we talked about this morning.
10100 So it's not really, in my view, enforced as much as this one.
10101 MR. Van KOUGHNETT: Although, as you very kindly said it in some detail, The Companies' practices during the first price cap period did permit significant falling off the wagon in quality of service standards for in essence the very reasons that the Commission stated they could in the last price cap decision: mainly, in cutting people you cut too many people and had to hire them back in order to have the right balance and so on. It's exactly what the Commission was specifying.
10102 MR. PARK: I think in Bell's case, first of all, we improve the indicators without the penalty. If you add on the penalty, I think that's exactly where we are trying to go. We are trying to get that balance so that the pendulum doesn't swing too far the wrong way. I think in making this proposal we have demonstrated that.
10103 You notice in the U.S. jurisdictions the telcos don't make these proposals. They respond to them but they don't make them. We are trying to be a little proactive here, and I think that's why this is quite relevant. We want to get the incentive right, obviously.
10104 MR. Van KOUGHNETT: But just to be clear, you don't actually disagree with my add-on sentence? You are just stating that of course from The Companies' point of view, the one bookend is more important than the other bookend; but that from the Commission's point of view, presumably both bookends are equally important?
10105 MR. PARK: They are equally important, but I guess our objective is to deliver quality of service. That's really the objective. It is for customers, not for the company or the Commission per se. It's just to deliver good quality of service.
10106 MR. Van KOUGHNETT: Can we turn to the issue of auditing.
10107 Way back when I was at the Commission there was auditing of several dimensions of The Companies' practices. Is there any auditing that goes on any more by Commission staff?
10108 MR. PARK: There are currently no formal audits of quality of service indicators.
10109 MR. Van KOUGHNETT: Have you given some thought -- I raised this with Mr. Taylor, of course. Have you given some thought to the balance between the benefit and costs of audits either by an external audit firm or Commission staff of quality of service indications if there are big bucks riding on it?
10110 MR. PARK: I think our position was stated in one of the deficiency rounds where we did indicate we would not be adverse to preparing manuals and having the quality of service indicators and the underlying processes audited, if that is deemed necessary.
10111 The cost of an audit, I don't know. It's not insignificant, but it's not the end of the world, I guess, either. If you take a model -- auditing of Phase 3, as an example, would have been for Bell around a half a million dollars to put it in some context. So that's the kind of range of dollars we are talking about.
10112 Auditing gives some more assurance, and I don't think we are adverse to having an audit.
10113 MR. Van KOUGHNETT: Can we talk about a cap? Can you turn please to The Companies(CallNet)-905, Revised Supplemental I have. Supplemental, it is. I lied.
10114 Can we start at page 1? Here at the top of page 1, CallNet is asking the company concerning 503. And to set the stage, if you will permit me, I will read the question:
"The monthly penalty for each indicator is five cents times the number of year end residential NAS for the previous year. This penalty is assessed on all countable months, as explained previously. The total annual penalty payable is considered to be
(1) the lesser of the sum of penalty amounts for each indicator or,
(2) 1.5 per cent of the annual revenues for residence basic exchange service for the previous year." (As read)
10115 So CallNet asked that The Companies will provide for each company 1.5 per cent of the annual revenues, and they are set out at the bottom there of page 1. The text reads:
"If the residential service quality guarantees were to apply to the year 2001, the maximum penalty payable would be 1.5 per cent of residence basic exchange service revenues for the year 2000. This amount will be as follows for each of the companies." (As read)
10116 Let's focus on Bell because that's the one that you and I know best. $27.5 million sounds like a lot, doesn't it? It's more than I am making for this case, for example. But what does that translate into on The Companies' rate of return on average common equity for a year, in rough terms?
10117 MR. PARK: It would be about 0.3 of a per cent of the rate of return.
10118 MR. Van KOUGHNETT: Now, from the point of view of a residential subscriber, if I pay $25 a month in Ottawa, which is more or less right from my residential primary exchange service, I guess I am paying $300 a year to Bell Canada for that primary exchange service. So that would be $4.50 per year rebate, wouldn't it, in the sense that if it is 1.5 per cent of residence basic exchange revenues for the company, by the time you break it out per subscriber you are still at 1.5 per cent, aren't you?
10119 MR. PARK: Correct.
10120 MR. Van KOUGHNETT: So the most I could get under The Companies' proposal, under The Companies' guaranteed proposal -- the most I could get as a rebate would be a line item of $4.50 that would come out in, I guess, February of the subsequent year for poor service quality, regardless of how poor the service quality was in the year in question?
10121 MR. PARK: That's right, that's the maximum.
10122 MR. Van KOUGHNETT: Why is it that it makes sense to have a cap? Isn't it the case that, as I discussed with Dr. Taylor, even though we have abandoned rate base rate of return it is still the case that just and reasonable rates are predicated on certain quality of service standards? That hasn't gone away, has it?
10123 MR. PARK: No.
10124 MR. Van KOUGHNETT: So that, you know, the rate of $25 that I pay notionally, in the Commission's eyes at least, relates to a whole host of quality of service indicators and the standards being met in all of those.
10125 I am not suggesting that this is likely to happen, but if the quality of service goes to hell in a hand basket on a whole variety of those indicators, wouldn't it follow that just and reasonable rates would sort of track their way down with diminishing quality of service in those indicators?
10126 MR. PARK: Well, I think the design here, the $27.5 million, is trying to more get the right incentives so that we deliver on quality of service. Obviously, when it translates down, it only translates down to a certain number per month. But the idea here is to get the $27.5 million right so the correct incentive is there and then, obviously, the payment method flows from that.
10127 If you look at service improvement plans around, that is a significant amount of money relative to that, and that's kind of notionally why that number is there.
10128 If the number is increased, obviously there is more incentive. But then we are back to the balancing argument again: Are we over provisioning and are we de facto increasing these standards?
10129 So that's the judgment, the rationale if you will, for us to pick this $27.5 million.
10130 MR. Van KOUGHNETT: Just follow through with me and you will see, I think, the source of my concern.
10131 Can you just look for a moment at 503 again, The Companies(CRTC)-503, attachment 1, starting at page 5.
10132 So here I am a residential --
10133 MR. PARK: Sorry, what is your reference again? I apologize.
10134 MR. Van KOUGHNETT: Sorry, it is The Companies(CRTC)-503, attachment 1, starting at page 5 of 11. It's called appendix A as well as attachment 1 at this point.
10135 MR. PARK: Okay.
10136 MR. Van KOUGHNETT: So here I am a residential subscriber in Ottawa and I am noticing problems in my provisioning interval, installation appointments met, held orders per 100 NAS inward movement, access to business office, on time activation of PICs, out of service troubles cleared within 24 hours, repair appointments met, initial customer trouble reports per 100 NAS, access to repair bureau, dial tone delay, directory accuracy, access to directory assistance and directory assistance accuracy and the most I can expect is four-fifty.
10137 MR. PARK: That is correct. That is how we have laid it out.
10138 MR. Van KOUGHNETT: I think this is a separate issue from setting the quantum or this is a corollary issue to setting the quantum. How can it possibly be the case that it would be cheaper for the company to meet all of these indicators than to pay the four-fifty. It's just not intuitively possible. I haven't crunched the math.
10139 But you would agree, based on all your years being responsible for the construction program -- you would expect that it would be much cheaper for the company in this worst case scenario, which I am not suggesting is likely to happen, to pay me four-fifty than to meet all of these quality of service standards, wouldn't it be?
10140 MR. PARK: I guess we just don't agree because we would also forfeit potentially -- if we were really down that road, we would forfeit a lot of other revenues from a lot of other services and products. Again, this is the dialogue we have had earlier.
10141 It is not just this one incentive. It's an incentive on top of some of the forgone revenue from other competitive services, because customers don't view it in the same way as the regulatory framework would suggest.
10142 So it's not just that we would lose the $27 million, obviously. We would also lose a lot of revenues in a lot of other places and that is really, as well, a fairly large incentive.
10143 MR. Van KOUGHNETT: But just from the point of view of sheer crystal clear logic, I don't see the logic of having a cap.
10144 MR. PARK: It's just in our view just to stick the pin in, if you will, as to the kind of incentive we are talking about. That is the only logic that we have really provided here. We have not proposed an open-ended plan from that point of view.
10145 MR. Van KOUGHNETT: Thank you.
10146 I think, Dr. Hariton, it's your turn. Would you be so kind as to turn to The Companies(CRTC)105.
10147 MR. HARITON: Yes, Mr. Van Koughnett.
10148 MR. Van KOUGHNETT: I'm on Attachment 1, Abridged Supplemental, at page 6 of 11 under the heading "Copper Feeder Working Fill Factor".
"The Park studies for 1988 to 1997, inclusive, used a working fill factor of slightly higher than the 2001 value because of a different methodology. The Park studies for 1998 to 2000, inclusive, used fill-at relief rather than average working fill as the measure of the copper feeder working fill. These reflect changes in methodology rather than productivity or input price changes.
Accordingly, the residence primary exchange service unit costs were adjusted for each of the years 1998 to 2000, inclusive, to reflect the use of the 2001 average working fill for copper feeder." (As read)
10149 You are very familiar with this issue, aren't you, from past proceedings, Dr. Hariton?
10150 MR. HARITON: I have some familiarity with it, yes, Mr. Van Koughnett.
10151 MR. Van KOUGHNETT: Now, I think we can do two at once, if you will permit me, Dr. Hariton, because I think it is exactly analogous.
10152 Under copper distribution working fill factor, the text is analogous.
"The Park studies for 1998 to 2000, inclusive, used fill-at relief rather than average working fill as the measure of the copper distribution working fill. This reflects a change in methodology rather than productivity or input price changes. Accordingly, the residence primary exchange service unit costs were adjusted for each of the years 1998 to 2000, inclusive, to reflect the use of an average working fill for copper distribution." (As read)
10153 So the issue is the same.
10154 Now, just to set the stage, Dr. Hariton, you will agree with me that average working fill for both copper feeder and copper distribution is a lower value than fill-at relief?
10155 MR. HARITON: That is correct.
10156 MR. Van KOUGHNETT: And within the --
10157 MR. HARITON: I'm sorry. Let me go back on that. I spoke too soon.
10158 For feeder that is certainly true. But distribution plant, which is relieved relatively rarely, there is some question in my mind as to what the meaning of fill-at relief actually is.
10159 By that I mean, Mr. Van Koughnett, in most cases distribution plant will be laid with the objective of not having to relieve it again. As a result, when you talk of fill-at relief, the planner or the provisioner is putting in plant without necessarily having in mind a number at which time he is going to relieve that plant.
10160 MR. Van KOUGHNETT: Now, the purpose of the Park study as I understand it is to take a look at best company practices, best technology, growth technology, best possible -- most modern company practices. That is the way one approaches a Park study. Right?
10161 MR. HARITON: That is correct.
10162 MR. Van KOUGHNETT: So if one never relieves copper distribution, why does it say the Park studies for 1998 to 2000, inclusive, used fill-at relief?
10163 MR. HARITON: That is an interesting question, Mr. Van Koughnett, and one which one would have to go back and talk to the people who did the studies. My understanding though is that Bell Canada had done studies from 1988 up to, I guess, it's 1997 using working fill for distribution plant, moved to fill-at relief for those two years and then moved back.
10164 Now, the thing is that for most of the plant in your network where relief does happen -- here I am thinking of switching plant, I'm thinking of transmission, transport facilities and so on -- fill-at relief is the proper concept to use.
10165 You have a fixed facility with a certain capacity. As the traffic you put over that facility grows, you will have to relieve it at some point, and the planning of that facility does take into account the fill-at relief. So you know that once utilization hits say 90 per cent you will not wait until it's 100 per cent used; you will relieve it before then.
10166 So the fill-at relief is the utilization at which point you decide to add capacity, put in a new piece of plant, whatever. That process works very well for switching. It works well for transmission. It works for feeder to some degree. When you get down to distribution, distribution is put in place, as I understand it, with very little intent to relieve it. In other words, you go in and you put in as much as you think you are going to need for the foreseeable future.
10167 And I can go into reasons for why you do that if you wish.
10168 MR. Van KOUGHNETT: Within the Park study, isn't it the case that using lower values in fill factors will lead to higher calculated costs?
10169 MR. HARITON: Yes, that is -- I hesitate to use the word "tautology" because Dr. Taylor has said it had no content. I think it does have some content.
10170 But it follows quite readily that if you increase the working fill factor -- sorry, if you decrease the working fill factor, in your words, you would increase the cost, yes.
10171 MR. Van KOUGHNETT: So the impact of replacing the fill-at relief values with average working fill values for the period 1988 to 2000 for copper feeder and for the period 1998 to 2000 for distribution is to increase the resulting Park cost results?
10172 MR. HARITON: No, I don't think so. What you are suggesting is going the other way. What Bell originally used from 1988 to 1997, if I have the year right, was working fill, and that was the right thing to use. For the years 1998 to 2000 they used fill-at relief for the distribution, copper distribution and then went back. They realized that in fact that implied reaching fills that were not going to be reached in practice and went back.
10173 May I say at the same time that there was also a decision, 2001-238, by the Commission which said: Hey, let's use working fill as the number. And that triggered a review of what was being done.
10174 What you are getting is -- I prefer to go through provisioning guidelines and do things of that sort and also to go see what provisioning is in the field.
10175 What you are getting is provisioning in the field is running roughly, from my conversations, at two pairs, two working pairs per dwelling unit. That would suggest a distribution factor of about 50 per cent.
10176 My understanding is that is what Bell is using in its studies and that is what Bell used in its studies way back in 1988.
10177 MR. Van KOUGHNETT: I thought, when I read the paragraph on "Copper Feeder Working Fill Factor," that what you were going to tell me, Dr. Hariton, is that in order to get a meaningful time series you have to ensure that the methodology for each of the years in question is correct -- is the same, not correct.
10178 When I see the word "accordingly" at the bottom of page 6 of 11, which is about to tell me the bottom line, doesn't that word "accordingly" mean that to achieve consistency -- because where we are headed here is to the time series shown twice, once in Table 1 at page 2 of 11 and the second time in Table 2 at page 11 of 11. Those numbers have to be comparable. Isn't that all that is at stake?
10179 The changes weren't made for the reasons you suggest. The changes were made simply in order to have -- this not a trick question, Dr. Hariton -- in order to have a time series with a consistent methodology, weren't they?
10180 MR. HARITON: Yes, Mr. Van Koughnett, but there are two different aspects to it. You are quite right. You have to have a consistent methodology over time. One has some years where you use average working fill or you have some years which use fill-at relief.
10181 One could make the series consistent in one of two ways. One could either use fill-at relief for every year or one could use average working fill for every year. We have chosen to use average working fill for every year.
10182 I interpreted your question as one of: Why did you make one choice rather than the other? I hadn't realized you were asking perhaps a preliminary question which was: Why did you make any adjustment at all?
10183 MR. Van KOUGHNETT: If you had your druthers, you would use fill-at relief?
10184 MR. HARITON: No. If I had my druthers, I would use average working fill throughout for this category of plant.
10185 MR. Van KOUGHNETT: Can you help me by looking at The Companies(GT)-19.
10186 MR. HARITON: Shall I leave this one open, Mr. Van Koughnett? Are you coming back to it?
10187 MR. Van KOUGHNETT: Maybe.
10188 MR. HARITON: All right. Yes, I have it, Mr. Van Koughnett.
10189 MR. Van KOUGHNETT: I admit to you I'm more interested in the question than the answer. Halfway down the first page --
10190 MR. HARITON: That is always a dangerous thing, Mr. Van Koughnett.
10191 MR. Van KOUGHNETT: Halfway down page 1, relating to the Public Notice 2000-27 proceeding, which is the one to which you referred a moment ago, I think, it was indicated for Bell that:
"Outside plant costs are down significantly. The most significant driver of the cost decrease was a change in provisioning practices between 1997 and 2000 which caused an increase in the value for the long-run of prospective fill and a decrease in outside plant costs." (As read)
10192 Now, the word "prospective" there, that means fill-at relief, doesn't it? That doesn't mean average fill.
10193 MR. HARITON: No, Mr. Van Koughnett, prospective means going forward. What is actually being done, what is actually happening going forward. It can be either fill-at relief or working fill depending upon the actual provision that is going on.
10194 MR. Van KOUGHNETT: Fair comment. But in this case which did the company mean?
10195 MR. HARITON: I'm sorry. Can you repeat your question?
10196 MR. Van KOUGHNETT: Well, in the 2000-27 proceeding, the company filed comments and the company filed reply comments. I have them in my kit bag if I can find them. I am just asking you to confirm for me that the company stated very definitively that it preferred fill-at relief?
10197 MR. HARITON: That may well be. I would go back though and say there are two different things which we need to separate out. One of the things is the methodology which is being used which is fill-at relief or working fill. The other is the actual fill factor that is being used, if you will.
10198 What is important is not whether you are using fill-at relief or working fill or whatever, but rather what the provision practice says and also, and even more importantly, what the provisioners are doing out in the field.
10199 So if you are going to look at growth root, growth technology, what you have to do is you have to look at your costs based on what provisioners are actually doing.
10200 So the others are attempts to explain, to put principles around what the provisioners are doing. But what is ultimately important is what the provisioners are actually putting in place in the way of resources.
10201 Do you want me to try that a different way to help you?
10202 MR. Van KOUGHNETT: If one is doing growth root, growth technology, I just simply cannot understand how one can possibly use anything other than fill-at relief, because the provisioning at the margin is by definition fill-at relief. That might be a tautology.
10203 MR. HARITON: Unfortunately not. Let me give you the example. We have been talking theoretical terms. Let me try to become very concrete.
10204 If I am going to provision a brand new subdivision and I am going to be a provisioner and saying: I know I have 50 dwellings in the subdivision. How many pairs of copper distribution cables should I put in place?
10205 That is something which is a decision that the provisioner has to make. Through his mind he is not thinking fill-at relief or working fill or anything else. He is thinking: I have 25 homes. I have to serve those 25 homes. How many pairs am I going to put into place?
10206 That is what the growth root, growth technology should capture. What is the provisioner going to do?
10207 There may be a confusion here, Mr. Van Koughnett, from the fact that the provisioning practice as written changed in 1998, and it may be this that is giving you difficulty. I don't know. Would you like me to explain that to you?
10208 MR. Van KOUGHNETT: Let's try one more.
10209 MR. HARITON: Fine.
10210 MR. Van KOUGHNETT: Concerning copper feeder, the first sentence reads:
"Park's studies for 1988 to 1997 used a working fill factor slightly higher than the 2001 value because of a different methodology". (As read)
10211 That would be to lower costs.
10212 MR. HARITON: That's correct. Well, the methodology in itself may or may not lead to lower costs. In this case it did.
10213 MR. Van KOUGHNETT: In the last sentence that begins with "Accordingly", we see that the residences' primary exchange service unit costs were adjusted for each of the years 1988 to 2000, inclusive, to reflect the use of the 2001 average working fill for copper feeder. So the 2001 methodology was selected.
10214 MR. HARITON: Yes.
10215 MR. Van KOUGHNETT: Which leads to higher costs as a result. Mathematically, it leads to higher costs as a result of the study.
10216 MR. HARITON: The use of a working fill rather than a fill-at relief will lead to a consistent series which is based on a cost which is higher than if you used -- the reason I am hesitating, and I don't mean to be very difficult here, Mr. Van Koughnett. But for a copper distribution plant it's not clear to me that fill-at relief has a well-defined meaning. As we mentioned at the beginning of our conversation here, copper distribution is designed not to be relieved.
10217 Therefore, the meaning of the phrase "fill-at relief for copper distribution" is not clear to me.
10218 MR. Van KOUGHNETT: Let's go to 102.
10219 MR. HARITON: By all means.
10220 MR. Van KOUGHNETT: So I am talking The Companies(CRTC)-102, attachment 1.
10221 I am giving up, Dr. Hariton.
10222 MR. HARITON: Well, is there anything else I can do to help you understand?
10223 MR. Van KOUGHNETT: You can buy me a beer after the hearing.
10224 MR. HARITON: I would be delighted.
10225 THE CHAIRPERSON: Mr. Hariton, the hearing is long enough without answering questions that weren't asked.
--- Laughter / Rires
10226 MR. HARITON: Sorry, Mr. Chairman.
10227 MR. Van KOUGHNETT: All right. I am sorry for that, Mr. Chairman. I will try to make this one more efficient.
10228 102, attachment 1. I have the abridged version, of course, the update. Page 2 of 18, under the heading "Aggregation of Output and Aggregation of Input":
"Firms typically produce several distinct services and use a variety of inputs to produce these services. To compute total output growth, the growth rate reach services estimated, and these growth rates are then aggregated using [unpronounceable] revenue weights as show in equation 3". (As read)
10229 Are you with me?
10230 MR. HARITON: I believe the word is "Turnquist".
10231 MR. Van KOUGHNETT: Thank you.
10232 MR. HARITON: You are welcome.
10233 MR. Van KOUGHNETT: You once told me that, actually, off transcript and I forgot.
10234 Does the aggregate output on which the TFP estimate is based include DSL services?
10235 MR. HARITON: Aggregate TFP?
10236 MR. Van KOUGHNETT: Yes.
10237 MR. HARITON: Yes. It includes all of the services produced by Bell Canada non-consolidated.
10238 MR. Van KOUGHNETT: Does that include Sympatico?
10239 MR. HARITON: I believe not. I believe Sympatico is being produced through -- the acronym is BAC, and I am sure it stands for something.
10240 MR. Van KOUGHNETT: So just to confirm, at page 5 of 18, of attachment 1, "Abridged Update", this is what --
10241 MR. HARITON: Let me just check to make sure my answer is correct.
10242 MR. HARITON: Yes, go ahead, Mr. Van Koughnett.
10243 MR. Van KOUGHNETT: It doesn't appear under "Other". It's not there. Right?
10244 MR. HARITON: Under 5, you will find the ADSL component under the "Other" category, I believe.
10245 MR. Van KOUGHNETT: So it does include Sympatico after all?
10246 MR. HARITON: Well, it depends on how you classify Sympatico. If you are talking about the portal and so on and so forth, the answer is no; but if you are talking about an access service, the answer is access service like an ADSL access service is provided. If you are looking at dial-up Internet, then that's not. But EDSL would be.
10247 MR. Van KOUGHNETT: No, high speed.
10248 MR. HARITON: High speed, yes.
10249 MR. Van KOUGHNETT: So my point is answered then. You are saying the increased productivity coming from deploying copper for high speed is included.
10250 MR. HARITON: The copper and the high-speed access are both included, yes.
10251 MR. Van KOUGHNETT: Thank you.
10252 Those are my questions. Thank you, gentlemen. Thank you, Mr. Chairman.
10253 THE CHAIRPERSON: Thank you, Mr. Van Koughnett.
10254 So I guess we will not expect a cost award from PIAC for $27.5 million to cover your fees.
--- Laughter / Rires
10255 MR. Van KOUGHNETT: I think it would be more like five cents, Mr. Chairman.
10256 THE CHAIRPERSON: Mr. Secretary, can we have numbers then for the various exhibits that have been used for the last three.
10257 MR. SPENCER: Thank you, Mr. Chairman.
10258 The first document, Mr. Hariton's CV, will be introduced as The Companies Exhibit No. 18.
EXHIBIT NO. THE COMPANIES-18: CV of George J. Hariton
10259 MR. SPENCER: Mr. Park's CV will be The Companies Exhibit No. 19.
EXHIBIT NO. THE COMPANIES-19: CV of Michael J. Park
10260 MR. SPENCER: We also have a response to undertaking information requested by Commission counsel, Ms Moore, transcript reference Volume 4, paragraph 6500, which will be CRTC Exhibit No. 25.
EXHIBIT NO. CRTC-25: Response to undertaking information requested by Commission counsel, Ms Moore, transcript reference Volume 4, paragraph 6500
10261 MR. SPENCER: Utility segment returns on common equity, 1997 to 2001, will be ARC et al Exhibit No. 7.
EXHIBIT NO. ARC ET AL-7: Document entitled "Utility Segment Returns on Common Equity, 1997 to 2001"
10262 MR. SPENCER: Dollar impacts of ILEC returns above 11 per cent, ARC et al Exhibit No. 8.
EXHIBIT NO. ARC ET AL-8: Document entitled "Dollar Impacts of ILEC Returns above 11%"
10263 MR. SPENCER: Residential service quality, penalty-free and penalty-ready, ARC et al Exhibit No. 9.
EXHIBIT NO. ARC ET AL-9: Document entitled "Residential Service Quality, Penalty Free and Penalty Ready"
10264 MR. SPENCER: Bell Mobility, Our Agreement With You, BCOAPO Exhibit No. 2.
EXHIBIT NO. BCOAPO-2: Bell Mobility, Our Agreement With You
10265 MR. SPENCER: Thank you, Mr. Chairman.
10266 THE CHAIRPERSON: Thank you, Mr. Secretary.
10267 So we will turn to the next party now to cross-examine. I believe that's AT&T, Mr. Ryan.
EXAMINATION / INTERROGATOIRE
10268 MR. RYAN: Thank you, Mr. Chairman.
10269 Good afternoon, gentlemen.
10270 MR. HARITON: Good afternoon, Mr. Ryan.
10271 MR. RYAN: Gentlemen, as far as AT&T is concerned, perhaps the single most important issue in this proceeding is how much AT&T and other competitors should pay for the use of Bell Canada facilities and the facilities indeed of the other telephone companies.
10272 If you have been following the proceeding up until now, as I am sure you have, and reviewed AT&T's evidence, you will recall that to determine the cost Bell incurs in providing those facilities to AT&T, AT&T has suggested that the Commission look at how much it would cost AT&T to carry that traffic, the traffic now being carried over Bell's network, over AT&T's own network if AT&T were in a position to carry that traffic itself; in effect, to use AT&T's cost of carrying that traffic as a proxy for Bell's costs. That's AT&T's proposal.
10273 Dr. Taylor, when I cross-examined him, stated a clear preference, as you might be aware, for use of Phase 2 costing methodology to calculate Bell's costs in those circumstances.
10274 I said to Dr. Taylor when we got to that point of the cross-examination that I would be returning to Phase 2 and its applicability in the circumstances, and that's a subject to which I would like to turn now.
10275 Gentlemen, we have heard several mentions of Phase 2 in this proceeding and perhaps a few mentions of Phase 3. Perhaps you would start by reminding us what the key differences between Phase 2 and Phase 3 are from a costing methodology perspective.
10276 MR. HARITON: Let me try that, Mr. Ryan, simply because being older than Mr. Park I have been around longer.
10277 Phase 2 is a methodology which is intended to produce estimates of what we call economic costs, which are costs causal to a service or to an activity or to a facility, and which by their nature are incremental, prospective and look at a multi-year horizon.
10278 By contrast, Phase 3 costs are an attempt to disaggregate the financial statements, in this case the regulatory financial statements, of each company into a number of subcategories to see what the net income would be for each of those categories and indeed the investment base.
10279 MR. RYAN: So if I understand you correctly, one of the differences between Phase 2 and Phase 3 is that Phase 3 deals with the actual historic costs of the company, costs that have actually been incurred, and Phase 2 looks instead at projections of what costs will be in the future, given a certain scenario such as the introduction of a new service.
10280 MR. HARITON: That's correct.
10281 MR. RYAN: And there are some very detailed rules, are there not, Mr. Hariton, that dictate how costs are to be assigned for Phase 3 purposes between these various categories that you have referred to?
10282 MR. HARITON: I am reminded of discussions I have had with you in the past, Mr. Ryan. They are indeed detailed.
10283 MR. RYAN: And the Commission, in fact, set out guidelines for the production of these rules in a decision applicable to each of the telephone companies.
10284 MR. HARITON: There have been a number of decisions starting in 1985 and going forward. That's correct.
10285 MR. RYAN: And these guidelines that the Commission issued as a result of Phase 3 of the cost inquiry that first examined the question of how to account for these costs -- these guidelines, I wanted to bring them here to have them available to us, Mr. Hariton. I was told that the guidelines alone that the Commission issued were in excess of 100 pages.
10286 Would that accord with your memory of the guidelines?
10287 MR. HARITON: I wouldn't be surprised.
10288 MR. RYAN: And the guidelines themselves directed the telephone companies to produce what is called a Phase 3 costing manual.
10289 MR. HARITON: That's correct.
10290 MR. RYAN: Is the Phase 3 costing manual a considerable document itself?
10291 MR. HARITON: The manual itself is considerable, yes.
10292 MR. RYAN: My recollection from one of the earlier discussions you have already alluded to, Mr. Hariton, is that the costing manual at that time, which would be a few years ago now, was about three volumes in size, three binders?
10293 MR. HARITON: Probably. I don't remember the exact size, but that sounds about right.
10294 MR. RYAN: The first document I would like to refer you to this afternoon is the document I have labelled No. 25. What I understand this to be is an extract from the Phase 3 manual.
10295 In effect, the company filed, as I understand it, on 13 July 2001, an update to its approved -- it's referred to here as an SRB manual, split rate base manual. It's essentially the same manual as I have referred to as a Phase 3 manual, Mr. Hariton. Is that right?
10296 MR. HARITON: It appears to be. It appears to be an update to that manual.
10297 MR. RYAN: I thought it would be instructive just to take a glance at the index to that document. I think we have essentially agreed that the manual itself is a very large one. I note that the index itself runs to virtually nine pages.
10298 MR. HARITON: It seems to be so.
10299 MR. RYAN: And this particular document, No. 25, I have reproduced as part of that only part of the attachment to the letter dated 13 July 2001. Just looking at the index on page 1 of 1, I checked off the sections that I have reproduced as part of document 25. It includes the introduction section 4.0 and section 4.2. Are you with me there?
10300 MR. HARITON: Yes.
10301 MR. RYAN: I have for convenience numbered these pages in the lower right hand corner, Mr. Hariton. I thought we could perhaps just flip to page 19.
10302 MR. HARITON: I have that, Mr. Ryan.
10303 MR. RYAN: This is an extract from the manual as updated pursuant to the covering letter, which pertains to section 4.2, plan and provisioning of the network.
10304 MR. HARITON: Yes.
10305 MR. RYAN: I thought you could first of all look at the second entry on that page, for provisioning of access facilities.
10306 MR. HARITON: Yes, Mr. Ryan.
10307 MR. RYAN: Perhaps you could tell me what that entry there, provisioning -- access facilities, tells us.
10308 MR. HARITON: Mr. Ryan, give me a minute to read this.
10309 MR. RYAN: Yes.
10310 MR. HARITON: I haven't read these for a number of years, as you can imagine.
10311 MR. HARITON: This appears to cover the assignment directly to the utility segment of a number of activities which are required for providing access and there is a list of these activities.
10312 MR. RYAN: So we see under the description then a list of particular activities that are undertaken by the company and under methodology essentially the instruction that all costs related to those activities are to be assigned directly to the utility segment for costing purposes.
10313 MR. HARITON: That's correct. You should remember -- and I am sure you do -- that Phase 3 basically is a way of starting from the books of the company and going account by account and essentially allocating the dollars in each account to either the utility segment or the "other" segment, and indeed at one time I believe it was eight categories.
10314 MR. RYAN: We are now down to two. Right?
10315 MR. HARITON: I believe we are down to three, which then get reduced to two.
10316 MR. RYAN: If we look immediately above that, we have another instruction or another rule, if I can put it that way, I take it for the allocation of costs for the provisioning of transport.
10317 MR. HARITON: Certainly that's what the header says, and the description seems to be in line with that.
10318 MR. RYAN: And looking at the description, this rule tells us how activity relating to the design and management of provisioning the transport component of the network, it goes on to say, "which interconnects switching centres, both local and toll" is to be allocated.
10319 MR. HARITON: That's correct.
10320 MR. RYAN: And in this case how are these costs to be allocated, Mr. Hariton?
10321 MR. HARITON: Well, the methodology says:
"These expenses are assigned to the segments based on a composite ratio of the plant in service by transport asset building blocks by segment."
10322 MR. RYAN: So some of these costs would go to one segment, some of them would go to another segment according to that.
10323 MR. HARITON: That would be my interpretation. Again I caution you I haven't been involved in these studies for approximately three to four years.
10324 MR. RYAN: We can agree on this much though without getting too much into the fine print. The Phase 3 manual, the guidelines, the decision of this Commission in Phase 3, set out a very elaborate, very intricate system for the costing of telecommunications services and your allocation of those costs between service categories.
10325 MR. HARITON: Yes. The only nuance I would bring is it was an interplay between the Commission directives, the drafting of manuals by The Companies, the receipt of the manuals by the Commission and then back again. It was an attractive process, I would put to you.
10326 MR. RYAN: Nothing like the guidelines I have referred to, nothing like the Phase 3 manual exists in the case of Phase 2, though. Is that not so?
10327 MR. HARITON: There are the following things in Phase 2 that I could point to. One, of course, is the original decision in 1979. There are manuals that have been submitted to the Commission. The latest one, I believe, of those manuals was in 1986 in the case of Bell. I don't know about the other companies.
10328 There are also a number of economic study guidelines which are very detailed papers or, if you will, sections of manuals supplementing that manual. There are a number of other guidelines which do exist to my -- I don't know whether the Commission has ever examined those or not, but there have been detailed guidelines drawn up.
10329 MR. RYAN: You would agree with me there is nothing that is comprehensive in the case of Phase 2, is there, as there is in the case of Phase 3 in terms of these manuals; nothing as comprehensive or as detailed as the guidelines?
10330 MR. HARITON: I would have to compare the guidelines. My recollection of the economic study guidelines is that they are voluminous and take up several binders.
10331 MR. RYAN: I think we have had occasion to look at those in the past. Is that right, Mr. Heritan, the Phase 2 manual?
10332 MR. HARITON: I'm not aware of that, Mr. Ryan. It may well be. I don't think we have discussed it together if that's what you mean, which is perhaps my loss.
10333 The point I would like to make is that these are detailed guidelines which have taken a lot of work over a number of years as well. I don't know what the current status of them is. Of course, I have been away from that as well for a number of years.
10334 If the suggestion is that in some way they are less detailed than the Phase 3 manual, I think you must remember that they were drawn up for different purposes. The Phase 3 manual was very explicitly drawn up in my mind as a document which could be audited and, indeed, as you know, Phase 3 was subject to actually three levels of audit, as I recall.
10335 One was an internal audit by the telephone companies themselves; secondly, an audit by the telephone companies' external auditor; and, thirdly, an audit by the Commission's auditor who was yet again independently appointed. So there were three levels of audit, if I may put it that way.
10336 MR. RYAN: Sir, I am referring now to Phase 3.
10337 MR. HARITON: I am certainly referring to Phase 3. So what you have in your mind is a manual which at least in part is aimed at the auditor and providing an audit trail that the auditor can follow.
10338 The Phase 2 materials were not built with that same purpose in mind and, therefore, although they may not be as voluminous in certain places, they probably cover more ground, if I can put it that way.
10339 The other thing which I should remind you, Mr. Ryan, before I leave a false impression is that as far as what we call functional operating expenses in the jargon, which means essentially non-capital related expenses as a shorthand, these days are being based on an activity-based costing method or system which Bell Canada, in the case of Bell, has put in place which has its own very elaborate manuals and set of tools and so on.
10340 Again, while I am not aware that the activity-based costing is audited -- I will let Mr. Parks speak to that -- I will say that the results of activity-based costing is used in setting targets for various managers and business units in the company and that the results, therefore, of that costing are subject to intense scrutiny by the people themselves. After all, their bonuses depend on the results.
10341 It leads to a lot of scrutiny. As a result, I would have a lot of confidence in the costs, the activity-based costs that are produced as part of that product and which as a by-product are using Phase 2 costs.
10342 MR. RYAN: ABC, or activity-based costing that you referred to, that's a company-developed methodology as opposed to a Commission-prescribed one. Is that not so?
10343 MR. HARITON: That is correct, although again the Commission has been made aware in interrogatory responses over the years that the system was developed and that it was being contemplated; it was developed, implemented and that the results were being used. So I don't think it's a surprise.
10344 Again, I would emphasize for our purposes here that even though it was being used in a different manner, i.e. for internal management rather than for audit purposes, it is no less detailed and no less precise. Indeed, I would say it is probably superior because there are many incentives in place to make sure the results are right.
10345 MR. RYAN: The nature of the incentives that exist as they relate to Phase 2 costing -- the nature of the incentives to get things right and get things wrong is one of the things that preoccupy us at AT&T, so it's something that I think we will follow up on here before we are finished.
10346 You referred to the 1986 manual that was produced in connection with Phase 2.
10347 MR. HARITON: Yes.
10348 MR. RYAN: That would be the last time that manual was produced by Bell.
10349 MR. HARITON: In that form. However, different pieces of Phase 2 have been under scrutiny in different proceedings almost continuously since 1986. So although you haven't had a new manual as such, you have had large portions of it being reviewed.
10350 To give you an example, I believe back in 1995 -- in fact it was Public Notice 95-19. I believe it was 95-19 or 95-21. It undertook an investigation into the details of Phase 2. At that time a lot of methodological discussion took place. A lot of material was put on the record.
10351 While the Commission to my knowledge never produced a definitive decision in that proceeding itself, it did use the material put in front of it in that proceeding to draw conclusions in a variety of proceedings and results.
10352 That process very much governs what we are doing today. So I would say that although the formal manual goes back to 1986, through public notices like 95-19 and the accompanying material that was produced and reviewed by the Commission, it has been kept fairly well up to date.
10353 MR. RYAN: Well, let's look at one of these Phase 2 studies if we may. I would ask you to turn to the following interrogatory response: Companies(CRTC)25September01-4201. That would have been filed last week, I believe.
10354 MR. HARITON: Just give me a moment, Mr. Ryan.
10355 MR. RYAN: Mr. Chairman, that's Companies(CRTC)25September01-4201.
10356 MR. HARITON: Yes, Mr. Ryan.
10357 MR. RYAN: I direct you specifically, please, to attachment 4 and then page 5 of 14. That's 4201, attachment 4, page 5 of 14.
10358 You will see, if we are all at the same place, a title page for a Phase 2 study "Phase 2 cost study in support of local transit tariff".
10359 MR. HARITON: I have that.
10360 MR. RYAN: And this would be -- perhaps you can tell us, Mr. Hariton. This would be a Phase 2 study of --
10361 MR. HARITON: Of local transit. That's what it says.
10362 MR. RYAN: Maybe that will --
10363 MR. HARITON: I hope that wasn't a trick question, Mr. Ryan.
10364 MR. RYAN: I thought you might offer a little bit of elaboration as to what sort Of service this study covered.
10365 MR. HARITON: I believe the study itself describes the service at page 3 of the attachment, which is page 7 of attachment 4. We have a lot of attachments here.
10366 The first paragraph says, under "Purpose of Service":
"The proposed service provides competitive local exchange carriers with the option to deliver their local exchange traffic to other CLECs via The Companies' network. The traffic originates and terminates in the same company's local exchange or in the company's exchanges within a single EAS area." (As read)
10367 MR. RYAN: Could we go to page 9 of 14?
10368 The person or persons who conducted this study amongst this effort to arrive at the cost of providing the service that you have just described had to look at, for instance, demand information, which we see under item 4.3 on that page.
10369 MR. HARITON: That's correct.
10370 MR. RYAN: And the author of the study says that an annual forecast of the number of DS zeros required in each company was developed based on the anticipated CLEC activity within each company territory. And there follows a series of figures.
10371 Now, this would be information that the person or persons who did this study would generate for themselves. Is that not right?
10372 MR. HARITON: Yes, it would have been generated internally. I assume it would have been generated in consultation with whatever forecasts were known from the demands made by the CLECs.
10373 As you know, the CLECs have to provide forecasts some time in advance and those would have been taken into account. But certainly, the marketing people in Bell would have had ultimate responsibility for producing these forecasts.
10374 MR. RYAN: They, in effect, would have to sit back, gather what information they thought was relevant to this issue and make a judgment as to what the relevant demand for the service would be as part of the effort of determining the cost for the service.
10375 MR. HARITON: That's correct. They would have done that in the context of the entire market and how they saw the market evolving. That's correct.
10376 MR. RYAN: That's a sort of determination that one would never have to make in the context of a Phase 3 analysis, is that not right, Mr. Hariton? I will go on a bit, if I may.
10377 For one, we are talking about actual costs in the case of Phase 3, not perspective costs which are inherently less certain, and we also have a very detailed set of prescriptions as to how costs are to be dealt with in the case of Phase 3; that is, how they are to be allocated, as we saw in document 25, between various services and service categories?
10378 MR. HARITON: I think I would disagree in part with you, Mr. Ryan.
10379 Some years ago, when Phase 3 was the Commission's main regulatory tool, if I can call it that, for looking at a broad variety of services, it was quite often used in terms of a forward test year or even sometimes two years in advance. At that point, you were still in forecast mode. You were forecasting your costs and you were also forecasting the relative usage for different pieces of shared plant. So, at that point, you still had to have forecasts to find out how you would do your allocation.
10380 Admittedly, you were only forecasting one or two years in advance rather than three or four years in advance. But you still had the problem of forecasts, absolutely.
10381 MR. RYAN: Three or four, or in the case of Phase 2 studies, frequently seven or ten years even.
10382 MR. HARITON: Depending on the study life. Let me come back to the -- well, go ahead, Mr. Ryan.
10383 MR. RYAN: Let's attach a question to the beginning of the answer you were about to give.
10384 MR. HARITON: Fine.
10385 MR. RYAN: Come back to 4.3. I suggest to you -- I am not sure where we came out on this -- that the task The Companies is undertaking is quite a different one in preparing a Phase 2 study than when it's conducting a Phase 3 analysis, and it's of necessity making judgments about the future that take us into a much different realm than we are in when we are talking about allocation of known costs under Phase 3.
10386 MR. HARITON: Again, with the caveat I put on it that the costs in Phase 3 are not always known because we may be looking to the future. Let me say yes, that Phase 2 costs are prospective costs and therefore do depend in part on how you see the future progressing. And that does include -- the major element of forecast is indeed the demand.
10387 Now, the idea that demand forecasts are in some way arbitrary or cannot be checked for reasonableness, and so on, is one I would reject. Forecasting, although it is in large part an art, is also in part a science. One can at least look at what has gone into the forecast as inputs. One can judge the reasonableness of the assumptions and one can look at those forecasts relative to forecasts of other demand variables and tests for reasonableness in that way.
10388 That said, to my knowledge, I have yet to see a Phase 2 study audited in the same way a Phase 3 study has been audited. I think, though, that an audit for Phase 2 studies could certainly be designed and could be carried out. So if your suggestion is that Phase 2 is different from Phase 3, I would agree and I would say that it would require a different audit process. But I would not agree if your suggestion is that it cannot be audited.
10389 MR. RYAN: Let's look at the bottom of page 9 of 14, these last two paragraphs here. The authors of the study talk about the sort of costs that have been included as part of this study.
10390 You would agree with me, looking through that list, that again an informed judgment, but a judgment nonetheless, needs to be made about the sorts of costs that need to be included and, of course by extension, the sorts of costs that ought to be excluded in arriving at a proper estimate of the costs going forward for a service such as this one, local transit.
10391 MR. HARITON: I think here we are on much more solid ground in the sense that for many services there are either provisioning practices that exist beforehand or that have to be drawn up. In other words, when you are going to put in a service, you have to have a fairly good idea, a fairly explicit idea of what it is you have to do to put that service in.
10392 Now, it is true that different companies may implement a service in different ways. But that is true for any activity. Different companies may implement them differently. But again, it is verifiable that this is the way the service is going to be provisioned and that is subject to tests of reasonableness as well.
10393 Quite often, when you have a brand new service, Mr. Ryan, you have equipment manufacturers who will provide you with equipment in the case of a new service that will help you provide that service and they often give you very detailed guidelines as to how the service is going to be implemented. So again there is quite a bit of guidance out there.
10394 MR. RYAN: If we take a look at the last two lines on that page, we see for instance an assumption that the author has made, it says:
"It is assumed that 50 per cent of the transit trunks forecast to be required for local transiting will incur imbalance charges." (As read)
10395 I am not entirely sure what "imbalance charges" are, and I don't know that we need to go into it. But this is an example of the sort of judgment the author of this sort of study would have to make in determining what costs ought to be included or excluded in arriving at a final cost for a service.
10396 MR. HARITON: We are back to, I believe, a forecast of demand and whether the demand for traffic originating with the ILEC and terminating with the CLEC is going to be larger than the demand for traffic going the other way. So we are back to the idea of the need for forecast of demand both ways and the consequences from there.
10397 I think if one has agreed on what the demand is, then the rest of the provisioning follows in a fairly non-controversial way. The controversy is much more in the demand forecast.
10398 But again, I would tell you the following. Unless we can get some handle on demand going forward, if we keep on looking at the past for a new service, you are not going to get anywhere because you have never had that service before and this was a new service. So you had to have a forecast of demand for it. And in general, you want to be able to provision and to look at what you are going to need to provision over a number of years.
10399 If you look at just one year at a time, it can be severely misleading. You can have a very large capital inflow in one year which would throw off your financial statements significantly. So that's why you want to look forward. You want to look forward for a number of years and if you do that, you have to forecast the demand. No choice.
10400 MR. RYAN: I accept that, Mr. Hariton, no choice. To put it another way, uncertainly is inherent in this sort of process.
10401 MR. HARITON: I have yet to see a forecast which is not uncertain to some degree.
10402 MR. RYAN: One attribute that Phase 3 has that Phase 2 doesn't have -- and you have already alluded to this, if I understood you correctly -- is that Phase 3 costs are reconcilable with the audited financial statements of the company. Phase 2 costs are not, are they?
10403 MR. HARITON: Certainly by the very nature Phase 2 costs are not reconcilable to the audited financial statements of the company. I believe though that -- although I have not yet seen it done, I believe that a company's construction program going forward could provide a guide to the reasonableness of the Phase 2 costs.
10404 Let me put some qualifications on that, because you would have to look at capital expenditures over a number of years and it will only help you on the capital side. Now, on the other side, I have to say that my understanding of the activity-based costing method which is on the FOE, functional operating expense -- I wince every time I say that -- those are in fact reconciled to The Companies' books through their relevant accounts at some point. In other words, they are beefed up to see whether they do match The Companies' books.
10405 So in that sense, yes, they do balance with the audited books. It's on the capital side where -- sorry, I will finish in just a second -- where we do have a series of capital injections over time that the books don't reflect that; that they reflect net book values and things of that sort.
10406 MR. RYAN: I will just make sure I understand you, Mr. Hariton. You said "in that sense", Phase 2 or A, B, C results -- I am not sure what you were speaking of -- are reconcilable to the books of the company.
10407 MR. HARITON: Yes.
10408 MR. RYAN: I was talking about reconciliation. I am not sure if it's the same thing. Correct me if you want.
10409 I was talking about reconciliation to the financial statements of the company. You are not suggesting that Phase 2 is reconcilable to the financial statements of the company, are you?
10410 MR. HARITON: No. The capital portion of Phase 2 is not reconcilable to the financial results.
10411 MR. RYAN: That means in total, it's not reconcilable.
10412 MR. HARITON: In total, it's not reconcilable. However, I did want to add that portions of many of the cost elements that go into Phase 2 can be reconciled.
10413 MR. RYAN: If we can reconcile only certain elements of something to the books of the company, it follows, as a matter of logic, that we can't reconcile the total.
10414 MR. HARITON: Absolutely true, Mr. Ryan. I was looking forward to seeing how we can lay an audit term.
10415 MR. RYAN: Now, Phase 3 was deliberately designed so that it could be reconciled to the books of the company as a sort of check, isn't it so, on the validity of the Phase 3 results? If they reconcile with the books of the company, the way the system was designed that they should, then we knew at least at the macro level that everything was in order.
10416 MR. HARITON: We knew at the macro level that the Phase 3 results reconciled to the books of the company. Whether that made the results any more useful is not clear to me.
10417 I must tell you, Mr. Ryan, I was involved in the development of Phase 3 and you are quite right, reconciling to the books was a major consideration of the method that was chosen.
10418 MR. RYAN: Just by its nature and not through any fault of the process or certainly any fault of the company, just by the nature of the process because we are talking about perspective costs, incremental costs in Phase 2, we don't have that type of assurance.
10419 MR. HARITON: We do not reconcile to the books of the company. On the other hand, I would say to you, Mr. Ryan, in my opinion, the costs we are producing to establish prices for individual services should not be based on historic book costs. That would be the wrong thing to do. It would be costs which do not reflect either the type of decision making you would normally see in a competitive market or costs that would reflect the best use of society's resources, or indeed it would not even allow you to detect cross-subsidies were they to occur.
10420 They would not allow you to detect anti-competitive behaviour. They would not allow you to achieve the goals which -- as I read the Commission's decisions -- the costing is being put to. So if you were to use Phase 3 costs, while that would be interesting exercise, I suppose, I cannot imagine what you would use the costs for.
10421 MR. RYAN: Just so we are clear on this, Mr. Hariton, I don't want you to be mislead. We are in total agreement that incremental costs are the costs that should be used for the purposes we are talking about. I think the difference between us is how we arrive at a measurement of those costs.
10422 MR. HARITON: Well, let me come back, Mr. Ryan. I have noticed over the years of reading decisions, especially from the United States but from other places as well, that there is a habit of confounding the word "incremental" and "prospective" and "fully distributed" and "historic".
10423 You can have combinations of either of those, and when we are talking about incremental, I hope you agree with me that we are talking about incremental prospective and not incremental embedded.
10424 MR. RYAN: We can agree on that as well, Mr. Hariton.
10425 MR. HARITON: Good.
10426 MR. RYAN: In what circumstances do you perform a Phase 2 study, Mr. Hariton?
10427 MR. HARITON: Well, I haven't performed one for a number of years, Mr. Ryan, as you can imagine. But normally Phase 2 studies have been -- when I was there in charge of these things, they were produced under a number of scenarios. The usual scenario was that somebody in the marketing family either wanted to introduce a new service or wanted to change an aspect of an existing service, whether it be price or something else, and wanted to know whether in fact this would contribute to shareholder value or detract from it.
10428 There would be other instances where a Phase 2 study would be produced, for example, in capital spending. If you wanted to go and spend $10 million on some new technology or some new equipment, it was incumbent upon you to show that the money was spent wisely and that would be a Phase 2 study.
10429 Finally, Phase 2 was also used in a number of situations to justify to the regulator, the Commission in that case, that your prices were either (a) not anti-competitive by being compensatory or that (b) there were certain imbalances in your rates which really needed correction and that you proposed to correct.
10430 Those are the three principal uses of Phase 2 that I recall.
10431 MR. RYAN: While you were in charge of this aspect of The Companies' affairs, Mr. Hariton, did you ever sit down and do a comprehensive set of Phase 2 studies for a given year across the full range of your services?
10432 MR. HARITON: No, because we never had the resources. What we did do annually was three different Phase 2 studies or approximations thereof. We would do one for residential basic service, we would do one for business basic service and we would do one for toll services. These were important to us, not just in and of themselves but also in some cases as building blocks for other services.
10433 MR. RYAN: So the studies that you have available to you for costing purposes, I presume then, vary by date and vary by vintage?
10434 MR. HARITON: That is correct. They were done as requested.
10435 MR. RYAN: Could we go next to one of your responses to a CallNet interrogatory, please. That would be The Companies(CallNet)26June2001-205.
10436 MR. HARITON: I believe I have that, Mr. Ryan, as long as others do.
10437 MR. RYAN: If we are on the same page, Mr. Hariton, in this interrogatory response you provide a table at the bottom of the page which shows the year in which the most recent cost studies were performed for a list of services that CallNet had provided in the interrogatory which appears immediately above?
10438 MR. HARITON: That is right, Mr. Ryan.
10439 MR. RYAN: So following up on the discussion we were just having then, what we see is, for instance, looking at the last line on the page, the last time that a Phase 2 study was performed by Bell Canada or Aliant or MTS for PIC charges was in 1995.
10440 So just so we are clear on this, there is not a 1996 study or 1997 study or 1998 study, et cetera?
10441 MR. HARITON: That is my interpretation, Mr. Ryan.
10442 MR. RYAN: Would you agree with me that there is a general tendency where telecommunications products and services are concerned for the costs of providing those services and products to decline over time?
10443 MR. HARITON: There is a general tendency for costs to decline. That is not necessarily true for every service, Mr. Ryan. Some do actually increase.
10444 MR. RYAN: I am talking about general tendency.
10445 MR. HARITON: Yes, as a general tendency, you are quite right.
10446 MR. RYAN: So if one takes the range of The Companies' services, and more particularly the services used by competitors, there is a good possibility where any individual product or service is concerned that a current Phase 2 study would yield lower costs than an older Phase 2 study if that is the only one available to the company?
10447 MR. HARITON: There is a general tendency for costs to come down. I would caution you on this, though: that the cost decline may or may not actually be all that significant. By that, let me give you an example of what I mean.
10448 Suppose that I have a new service which requires certain adjuncts -- an adjunct is a piece of equipment, a computer basically that I put next to my switch -- and it requires a certain software. So I go out there and I buy the adjunct and I buy the software at the beginning of the study. I have planned my adjunct and software so they don't need relief. They are going to be there for the duration, for the five years, or whatever I am studying.
10449 There is likely going to be not much point in going back and restudying that because I have the same adjunct and the same software.
10450 Now, some of my operating expenses around it may have changed, mostly down; in some cases, up. I may be marketing the service a lot harder than I had anticipated, so it could actually go up.
10451 But if there have been no significant changes to the nature of the service, likely the change is not going to be very large and I might not put that as a top priority in my list of things to restudy.
10452 MR. RYAN: When you say likely the change is not going to be very large, that is a heroic assumption, isn't it, if you haven't done a study to test that theory?
10453 MR. HARITON: Well, I don't think it's a heroic assumption, Mr. Ryan. It very much depends upon the nature of the study and the nature of the resources involved in providing that service.
10454 If it's a service that is changing rapidly -- such as, for example, at one time long distance was changing very rapidly because we were moving off some transmission facilities on to others -- that might trigger a suggestion that I should restudy it maybe every two years.
10455 If it's something which is long lasting and where I don't see much change happening -- although in theory I should study everything every year, but I don't have the resources -- I prioritize that as being towards the bottom of my pile.
10456 MR. RYAN: But, Mr. Hariton, you don't, as a matter of course, revisit these studies unless there is a specific requirement imposed by the Commission or as a result of some initiative in your marketing department, for example to do so.
10457 MR. HARITON: That is correct. The resources just aren't there. That is correct.
10458 MR. RYAN: So these studies can be of whatever age. If there has been no particular reason to revisit them, the prices determined pursuant to those studies remain in effect, essentially unchallenged?
10459 MR. HARITON: That is correct, although again I would add to this that studies typically are for a number of years, building assumptions for a number of years. So they assume that the price will actually stay in place for a number of years.
10460 MR. RYAN: You talked about the cost side of things and you referred to the specific example of an adjunct you were using in conjunction with your switch.
10461 MR. HARITON: Right.
10462 MR. RYAN: That is the cost element of one of these studies. It is also possible that the demand for a service that is the subject of a Phase 2 study could change considerably over a period of time.
10463 MR. HARITON: That is correct.
10464 MR. RYAN: That would also have a significant impact on the results of the study, wouldn't it?
10465 MR. HARITON: In the case we are talking about where you have an adjunct which has enough capacity for quite a bit of demand, then indeed changes in demand would result in changes in unit costs. That might not be true for another service where the resource is more use sensitive.
10466 MR. RYAN: It all depends on the service.
10467 MR. HARITON: That is right.
10468 MR. RYAN: It all depends on the fluctuations in demand.
10469 MR. HARITON: Yes, that is correct.
10470 MR. RYAN: All of these things we were able to foresee with more or less certainty or uncertainty when we actually undertook the study looking forward three, four, five or ten years?
10471 MR. HARITON: Yes, Mr. Ryan.
10472 MR. RYAN: Could we go next -- let me catch up with you here, Mr. Hariton. One second.
10473 MR. HARITON: It is usually the other way around, Mr. Ryan.
10474 MR. RYAN: Let's go next, please, to The Companies(AT&T)26June-204.
10475 MR. HARITON: I have that, Mr. Ryan.
10476 MR. RYAN: This touches on the subject we have just been discussing, Mr. Hariton. It might be useful to look at in conjunction with the discussion we have just been having. In part (b) --
10477 MR. HARITON: Should I take out the other interrogatory again, Mr. Ryan?
10478 MR. RYAN: I don't think so.
10479 MR. HARITON: Okay.
10480 MR. RYAN: In part (b), AT&T asked you to explain the basis on which the company determines whether it is necessary to update the Phase 2 cost study associated with services contained within the current competitor service basket and also to indicate the frequency with which Phase 2 costing results for each of the competitor's services is reviewed.
10481 In the second paragraph of the response you tell us something, not surprisingly, very similar to what we have just heard. The Companies undertake Phase 2 studies in the course of proceedings initiated by Part VII applications.
10482 A Part VII application, Mr. Hariton, would be typically a challenge by a competitor to a rate for a specific service?
10483 MR. HARITON: In this context, yes.
10484 MR. RYAN: In the company goes on to say in the course of the proceeding initiated by Public Notice 2000-2.
10485 Then you give a list on the next page of the Phase 2 cost studies that you have conducted for services in the competitor service basket in a recent period of time.
10486 Looking at the Bell Canada number, for instance, ten Phase 2 cost studies were conducted. You will confirm for me then will you, Mr. Hariton, that none of those Phase 2 studies were conducted at the initiative of the company. They were all conducted either at the initiative of a competitor through a Part VII application or some similar process or as a result of a Commission-instigated inquiry?
10487 MR. HARITON: I don't have that knowledge here, Mr. Ryan. I will certainly check. If it's not true, I will get back to you; if not, I will accept it.
10488 MR. RYAN: All right. Thank you.
10489 Have you ever done a Phase 2 study, Mr. Hariton -- has the company ever done a Phase 2 study of which you are aware just to check how actual experience has tracked with the assumptions you have made in a Phase 2 study?
10490 MR. HARITON: I'm sorry. When you say to do --
10491 MR. RYAN: Did you ever just do a Phase 2 study to check on the quality of the initial Phase 2 study you did and to test whether reality has conformed, more or less, with the assumptions that you made in that first Phase 2 study?
10492 MR. HARITON: Well, we have done annual studies on three basic services as we have discussed.
10493 MR. RYAN: Those are the three you mentioned earlier.
10494 MR. HARITON: That is correct.
10495 MR. RYAN: Those would be --
10496 MR. HARITON: Let me just go back. The reason I am hesitating is when you say to check on the assumptions, I am not sure that I would say the assumptions one by one. What we will do is we will go back and we will do another study, because we think that perhaps something has changed and that the original assumptions are no longer valid.
10497 To give you an example, service charges, which was done I think once in 1993. A few years later it looked as if things had changed, and I believe we went back and redid the study.
10498 At that time we found that yes, there were differences from the first study as expected. Did we actually check the assumptions one by one? That I don't know.
10499 MR. RYAN: In that particular case, the motive for undertaking the study wasn't just to test the validity of your original assumptions; it was as part of a proposal to increase the rates for increased service charges, wasn't it?
10500 MR. HARITON: That is correct. But indeed we didn't -- well, your question was do we ever go back. The answer is yes. We go back for a number of reasons, usually for some kind of action.
10501 I have to say, Mr. Ryan, that usually we have so many requests for cost studies on which an action depends that it's all we can do to handle them.
10502 MR. RYAN: Okay. Fair enough.
10503 Could we go next, Mr. Hariton --
10504 Mr. Chairman, is this a convenient time for the Commission to take a break?
10505 THE CHAIRPERSON: It would be.
10506 MR. RYAN: Thank you.
10507 THE CHAIRPERSON: Thank you, Mr. Ryan.
10508 We will take our afternoon break now and reconvene in 15 minutes.
--- Upon recessing at 1535 / Suspension à 1535
--- Upon resuming at 1550 / Reprise à 1550
10509 THE CHAIRPERSON: Order, ladies and gentlemen. We return to our proceeding now and cross-examination of Messrs. Hariton and Park by Mr. Ryan.
10510 MR. RYAN: Thank you, Mr. Chairman.
10511 Gentlemen, could we go to document 14, please, of those that I passed out to you, and that is a copy of Decision CRTC 2001-238. I would like to look at this decision and a few others of the Commission's recent Phase 2 decisions in the time that we have left to us.
10512 You will recall, I think gentlemen, that I already looked at this document with Mr. Talbot.
10513 Just to recap, if I may -- and correct me if your understanding is different -- this decision was the result of an investigation by the Commission into the cost of providing local loops, and this was done as part of a proceeding that was more generally focused on establishing band structures and identifying high cost serving areas.
10514 MR. HARITON: That's my understanding.
10515 MR. RYAN: And where loop rates were concerned -- and I think we got this far with Mr. Talbot -- the Commission found that the cost of providing loops were lower than had previously been supposed and the Commission lowered loop rates accordingly.
10516 MR. HARITON: That's what the decision did, yes.
10517 MR. RYAN: Can you tell me, Mr. Hariton, what the average percentage change in loop rates that occurred as a result of Decision 2001-238 would have been?
10518 MR. HARITON: Not offhand. Let me see if Mr. Park --
10519 MR. PARK: No.
10520 MR. HARITON: Sorry, we don't have that number.
10521 MR. RYAN: No? Could you --
10522 MR. HARITON: We could undertake to find it for you, if you want.
10523 MR. RYAN: That would be helpful, or you could provide me and/or the revenue impact on the company, if that changed, ordered by the Commission.
10524 MR. HARITON: Yes, I believe so.
10525 MR. RYAN: Okay. You don't have that information today.
10526 MR. HARITON: No, I'm sorry.
10527 MR. RYAN: The proceeding that resulted in Decision 2001-238 -- again I think we got this far with Mr. Talbot -- was the result of a proceeding that had commenced some 14 months previously, looking at paragraph 1 of the decision specifically on 18 of February, 2000.
10528 Are you still with me, Mr. Hariton?
10529 MR. HARITON: I am still with you, Mr. Ryan.
10530 MR. RYAN: Were you involved in that proceeding?
10531 MR. HARITON: No, I wasn't unfortunately. I was otherwise occupied.
10532 MR. RYAN: My understanding is that the record of that proceeding was very extensive. Do you have any information on that?
10533 MR. HARITON: That's my understanding as well.
10534 MR. RYAN: And amongst the various steps taken in the proceeding, for instance, there was initially -- this was a Commission-initiated proceeding -- a call for submissions by the telephone companies. There was then a series interrogatories and interrogatory responses; there was a deficiency process; and then there was the filing of comments and reply comments by the various parties involved. There was at least those steps, I think.
10535 MR. HARITON: Yes, that's correct.
10536 MR. RYAN: Now, did Bell feel that it had a fair hearing of its case?
10537 MR. HARITON: On this issue, I am not sure I can adequately speak for Bell. I know that normally that kind of a proceeding is considered a fair hearing. The reason I hesitate, Mr. Ryan, is I am aware that there are at least two Reviews and Varies going on right now which suggest to me that while there was certainly a very extensive proceeding, some of the parties at least don't seem to agree with the outcome.
10538 MR. RYAN: So dissatisfied with the result, but --
10539 MR. HARITON: Well, I don't know. I would have to go back and read the Reviews and Varies. It may well be that on TELUS' part at least they may be challenging some elements were there wasn't in their view enough evidence. In fact, I think from my own point of view I would say there was not enough evidence on certain points from what I can see, and I am thinking in particular on a part of the decision dealing with functional operating expenses and maintenance expenses in the calculations where the Commission capped the amount of expense that was allowed.
10540 Reading through the decision, which I did do, I wasn't completely clear on the basis on which that was done.
10541 MR. RYAN: Okay. Let's go next to The Companies' interrogatory response to The Companies(CRTC)27 April 2001-700. That was delivered on 13 August, 2000.
10542 MR. HARITON: I believe you said that it was delivered on 13 August, 2000, Mr. Ryan. I think you meant 2001.
10543 MR. RYAN: You are quite right. And this interrogatory -- I am looking at paragraph (a) of the question -- the company was asked to provide in a format similar to some information that had been provided in the proceeding that led to the decision we have just been looking at, the subsidy requirement for 2002 for each high-cost band. Are you with me there?
10544 MR. HARITON: Yes, although -- just a second, Mr. Ryan.
10545 MR. HARITON: Yes, go ahead, Mr. Ryan.
10546 MR. RYAN: The Commission -- it seemed, I suppose, a simple enough question when it was asked, but it turns out, I think it's fair to say, that the answer wasn't quite so simple at all.
10547 Effectively, am I right in saying that Bell took the opportunity to provide considerably different information concerning the cost that it incurred in providing the loops in question than had been before the Commission in the proceeding that led to 2001-238?
10548 Is that correct?
10549 MR. HARITON: Yes. I think you are referring to what is labelled here as "Scenario 3".
10550 MR. RYAN: Right.
10551 MR. HARITON: And the Scenario 3 costs were based on updated loop information. By loop information, I mean the composition and make-up of loops.
10552 MR. RYAN: Well, let's take it step by step here. Now, I know your pagination is going to be slightly different than mine because I have only the abridged response here, but I am looking at page 3 of 9 and the heading "Scenario 1".
10553 MR. HARITON: I see that.
10554 MR. RYAN: And here in effect, under Scenario 1, the company sets out essentially the rates, as the text just before indicates, that were ordered to be implemented by the Commission in 2001-238.
10555 MR. HARITON: That's correct. Of course, you will have noticed that that's 2001-238-2.
10556 MR. RYAN: Right.
10557 MR. HARITON: The Commission itself revised the rates that it established.
10558 MR. RYAN: Right. That's Scenario 1, and as you have already indicated the company went on to postulate two further scenarios as part of its response to the Commission's question.
10559 In Scenario 2 we see that the company explains that it tried to replicate the Scenario 1 figures that were produced by the Commission; and then having done so, it then modified the cost information provided earlier to reflect certain items that are identified in the five dashes that follow.
10560 So the company talks about reclassification of wire centres, talks about changes to accounting plant lives, to working fill factors, and to capital unit costs, amongst other things. So that's the first set of changes that the company proposed to the data that effectively had been before the Commission the proceeding that led to 2001-238.
10561 MR. HARITON: That's correct. It was an attempt to replicate the numbers using all the assumptions in the decision.
10562 MR. RYAN: And then introducing the modifications that I have just referred to.
10563 MR. HARITON: Well, some of those modifications had actually been requested by the Commission. For example, wire centre reclassifications was something which we had been asked to do. The use of 98-2 lives was indeed what Decision 2001-238 had done. The use of national uniform average working fill factors was also a result of Decision 2001-238. The exclusion of cost increase factors is necessary because you are looking at a subsidy calculation to which you will be applying -- in the case of some of the companies at least are proposing to apply "I" minus "X".
10564 Finally, the expense restrictions for maintenance and functional operating expenses we have already mentioned was part of Decision 2001-238.
10565 MR. RYAN: In any event, those changes, I think you will agree with me, are relatively modest in comparison, at least in terms of financial impact, with the changes that the company introduced in Scenario 3 which, in my case, starts on the next page.
10566 MR. HARITON: Scenario 3, yes, would be one page over for me; but fair enough.
10567 MR. RYAN: And in Scenario 3 what the company explains it has done is it has overlaid on Scenario 2 what it refers to as a major update of its loop characterization which was initiated last year. That would be in 2000.
10568 MR. HARITON: That's correct.
10569 MR. RYAN: And the company explains that it last analyzed its loop make-up in 1981.
10570 MR. HARITON: That's my understanding.
10571 MR. RYAN: That is part of the difficulties as it were. Could you identify for us more accurately when the work required to generate these new numbers that we find popping up in Scenario 3 actually commenced?
10572 MR. HARITON: My understanding is it was a process, quite an intricate process -- and let me go through the main elements for you. I was involved in some of them.
10573 MR. RYAN: I am looking for a timeline, first of all.
10574 MR. HARITON: Yes, that's what I am doing.
10575 MR. RYAN: Yes, okay.
10576 MR. HARITON: That's what I was going to do for you.
10577 As you say the loop, the original loop sample was performed in 1981. By I would say 1991 or 1992 it was recognized that the loop sample was out of date and we did update the loop links, but to update loop make-up would have required a large study.
10578 At that time, we knew that the company was planning an automated database. In the occurrence, it actually came about under the name of IMAP. But at the time of 1991 or 1992 we knew that this was one of the planned projects that was being talked about.
10579 Given that there were a lot of things we needed to do on the costing side, we decided that we could wait for the mechanized records; rather than starting to pull out the actual blueprints, the paper-based records one by one, use a ruler and measure them that way.
10580 1992 was also a time when Stentor was being organized. You may remember Stentor -- some of us do -- and there was a lot of negotiation as to exactly who would do what and we were going on on transfer pricing at the time.
10581 So the other aspect was informal conversations which I, among others, had with plan people to adjust to that. There hadn't been that much change in the loop make-up and we could perhaps go another year or two without doing this survey.
10582 In the occurrence, the IMAP project itself was delayed several times due to funding requirements, and even though the costing people had put together a special unit to work with the IMAP people and used the information to update loop make-up as it turned out, there was no IMAP to work with.
10583 At about the same time, you should recognize that toll competition came and we were quite busy doing a lot of studies of toll services, both for internal decision making, which was very important, and also for regulatory filings of different kinds. We had a variety of things. So the effort was really concentrated on that.
10584 The other thing that happened about that time was we had a major improvement in our functional operating expenses. We talked about that earlier as well. We were able to piggyback on an internal system called activity-based costing to improve those.
10585 So while the loop make-up in itself was always on the to do list, it was waiting for the IMAP to come on stream.
10586 Now, as it turns out when IMAP did come on stream there was a great push to do studies of data services which were also brand new. And so it was a question of priorities.
10587 As I understand it, because nobody expected great changes due to loop make-up, it didn't get the priority that say studying data services, and so on, did.
10588 Eventually, it did get to the top of the list. The study was done starting in 2000. I believe the first numbers came out in the spring of 2001. At that point, I believe to everybody's surprise, there was quite a change.
10589 MR. RYAN: Well, let me give you a slightly different and shorter version of the history on this point. You say in the second sentence of Scenario 3, as appears in my response to this interrogatory:
"Bell Canada just completed a major update of its loop characterization which was initiated last year."
10590 That would be in 2000. Is that right, last year?
10591 MR. HARITON: The costing study, as I understand it, was initiated in 2000. Right.
10592 MR. RYAN: The proceeding that led to Decision 2001-238 was initiated in February of 2000. Correct?
10593 MR. HARITON: That's my understanding.
10594 MR. RYAN: So effectively this study was being undertaken in parallel with the proceeding that led to decision 2001-238.
10595 MR. HARITON: I would have to get the exact dates, Mr. Ryan. I believe it was started some time after that proceeding started.
10596 MR. RYAN: Okay. That makes sense to me. Nowhere during the course of the proceeding that led to the decision that's represented by document 14 was anything ever said on the record about the existence of this ongoing work that was directed at precisely the subject matter of the issue before the Commission. Is that correct?
10597 MR. HARITON: That's my understanding.
10598 MR. RYAN: In retrospect, was that a regrettable decision of the company, not to tell the Commission that that was under way?
10599 MR. HARITON: In retrospect, it was regrettable.
10600 MR. RYAN: Now, some people might suggest that the results of that study that was being undertaken paralleled with the proceeding might never have seen the light of day if the numbers had come out differently than apparently they did.
10601 MR. HARITON: I can assure you that they would have seen the light of day if only because I wanted to see the results of those numbers just to complete certain unit cost trends and we would have used them --
10602 MR. RYAN: When I say the light of day, I mean the light of day shining over there at Mr. Colville's desk.
10603 MR. HARITON: Yes. We understand each other, Mr. Ryan.
10604 MR. RYAN: Yes.
10605 MR. HARITON: As part of my assignment for Bell, I needed to know what the trend in unit costs was, and I assure you that it didn't matter which way it's going to come out, I was going to present it. And I was going to present it as best I could.
10606 MR. RYAN: You can understand people thinking differently given the fact that the existence of this work was effectively not revealed to the Commission during the course of the proceeding.
10607 MR. HARITON: It was an unfortunate oversight. I think it should have been communicated. I understand the reason it wasn't communicated was nobody expected that magnitude of an impact and, indeed, there are other improvements that happen from time to time, new data comes on board.
10608 Usually they don't make a big difference. They get rolled into the next study. In this case you are quite right. All I can say is nobody expected the change to be this large, far from it.
10609 MR. RYAN: Just to be clear, when you say nobody expected the impact to be that great, are we talking about the impact of the study or the impact of the decision?
10610 MR. HARITON: No. Let me ask you what you meant by that: the impact of the loop make-up study?
10611 MR. RYAN: When you say nobody expected the impact to be that great, are you saying nobody expected the impact of the study to result in numbers as significant as --
10612 MR. HARITON: That's correct.
10613 MR. RYAN: -- you portray, or nobody was expecting the Commission's decision to be as significant as it was.
10614 MR. HARITON: I don't know what expectations were with regard to the expectations as to the outcome of the decision. I will say that as regards the study of loop make-up characteristics, nobody expected that large an impact. Certainly I didn't, but I can't speak for everybody.
10615 Everybody I talked to was surprised by the magnitude of it.
10616 MR. RYAN: Can we go next to document 32, please. That's a one-page document. It looks like that, Mr. Hariton.
10617 MR. HARITON: I have that.
10618 MR. RYAN: Perhaps I could just offer a few words by way of explanation. This document has been prepared by AT&T Canada. You see loop rates for the year 2002 under two scenarios at the chart at the top of the page.
10619 First, you see the rates as prescribed in 2001-238 or, as you correctly point out, more accurately 2001-238-2. These correspond to Scenario 1 in your interrogatory response.
10620 MR. HARITON: That's correct.
10621 MR. RYAN: And then we see in the next line "proposed" and these rates correspond to Scenario 3 in your interrogatory response. Is that right?
10622 MR. HARITON: That seems correct.
10623 MR. RYAN: And in the third line we see the percentage difference that would result if your changes were introduced in preference to the rates prescribed in Decision 2001-238. Those changes vary from 1 per cent in the case of band G to 73 per cent in the case of band E. In the case of band A, they amount to 13 per cent.
10624 MR. HARITON: Subject to check, Mr. Ryan, I accept your numbers.
10625 MR. RYAN: And when we look at the table at the bottom of the page, this measures the impact on Bell's total subsidy requirement under the scenarios we just looked at.
10626 In the case of Scenario 1, the impact on Bell's total subsidy requirement was $53 million. In the case of the proposed rates, the impact on the subsidy requirement is $248 million for a net change under The Companies' proposal of $195 million.
10627 MR. HARITON: Yes, Mr. Ryan. I assume you have done the arithmetic correctly.
10628 MR. RYAN: Okay.
10629 MR. HARITON: Or I can do it right here. Yes.
10630 MR. RYAN: Thank you. Can we go next to document 27, please. We move on to a different Phase 2 decision by the Commission.
10631 MR. HARITON: I'm sorry, you will have to give me just one minute, Mr. Ryan.
10632 MR. RYAN: Yes, I will.
10633 Document 27, for the assistance of those people looking for it, is a letter dated March 16, 2000, sent by AT&T Canada to the Commission. It's effectively, as it says in the subject line, a Part VII application.
10634 MR. HARITON: Yes, Mr. Ryan.
10635 MR. RYAN: And this particular Part VII application, which was made last year, challenged The Companies' charges for 800 database query charges.
10636 MR. HARITON: Yes, Mr. Ryan. You were kind enough to provide this last night and I looked at it.
10637 MR. RYAN: Could you briefly remind us what an 800 database query is.
10638 MR. HARITON: You are stretching my technical knowledge here. My understanding of a database query is that when one dials an 800 number, somebody dials an 800 number, that of course is not the number one is really dialling.
10639 That has to be translated into an actual number somewhere in some exchange. What the 800 database allows you to do is it allows you to take the 800 number and it allows you to go and match what the actual number is and, therefore, it allows you to go and route the call to destination.
10640 MR. RYAN: So when an AT&T customer makes an 800 call, AT&T has an arrangement with you whereby there is a dip into your 800 database so that AT&T can obtain the routing information that allows the completion of that call somewhere in the telephone network. Is that right?
10641 MR. HARITON: Yes. My understanding is that AT&T stores its 800 numbers in the same partition, the same database, as Bell and other companies and uses that database to complete its 800 calls, as you said.
10642 MR. RYAN: And when AT&T has to resort to the Bell database for the information it requires, Bell first of all makes that information available pursuant to earlier Commission decisions but also predictably levies a charge for that.
10643 MR. HARITON: That's correct. I have often wondered whether AT&T and other carriers might not be able to put up their own 800 database, but clearly they have chosen not to and they use the Bell database.
10644 MR. RYAN: I have had occasion to say at other times in this proceeding that is a different day's work, Mr. Hariton.
10645 MR. HARITON: Indeed, Mr. Ryan.
10646 MR. RYAN: We are talking here about the charges that are actually being levied for the use that is actually being made of the database currently. If you recall this application, AT&T complained that the charges for database queries were double what they ought to be.
10647 MR. HARITON: That, as I read it, is the substance of AT&T's application.
10648 MR. RYAN: And if we look at paragraph 6 of that document, at the second sentence in that paragraph, AT&T in particular took issue with the demand forecast that was included in the original Phase 2 study that was the source of the rates and argued that demand was materially higher than had originally been projected and, therefore, the unit costs should be lower than in fact they were stated to be.
10649 MR. HARITON: Yes.
10650 MR. RYAN: And we talked a little bit about that before the break, if I recall, about where demand is higher than anticipated, there can be an impact on unit costs and potentially resulting in an overstatement of the charges for the relevant service.
10651 MR. HARITON: That's correct, Mr. Ryan. We did say that depending on the nature of the service and the facilities that certainly could happen.
10652 MR. RYAN: And we go to document No. 28 next, please.
10653 Document 28 is also in the form of a letter, this one on The Companies' letterhead, dated 17 April 2000.
10654 Do you recognize this, Mr. Hariton, as The Companies' response to the AT&T application that we have just referred to as document No. 27?
10655 MR. HARITON: That's correct.
10656 MR. RYAN: If we go to paragraph 6 of document 28, we see what The Companies' answer to AT&T's allegation was. In the second sentence of paragraph 6 of document 28 The Companies say, referring to decision 97-6:
"In this decision the Commission specified that the rates for the disaggregated network services, including 800 carrier identification, should be determined on an all-carriers' approach using a seven year study period and include a 25 per cent mark-up." (As read)
10657 Are you with me?
10658 MR. HARITON: Yes.
10659 MR. RYAN: Effectively a seven year Phase 2 study.
10660 MR. HARITON: I'm sorry, setting --
10661 MR. RYAN: Effectively what the company was saying is we were asked to do a seven-year Phase 2 study and that's what we did.
10662 MR. HARITON: Correct.
10663 MR. RYAN: Can we go next to document 29, please. Document 29 is Order CRTC 2000-683 dated 26 July 2000. Have you got a copy of that, Mr. Hariton?
10664 MR. HARITON: I do indeed.
10665 MR. RYAN: And if we look at paragraph 8, what the Commission tells us is that having reviewed the comments submitted by the parties, including presumably documents 27 and 28, the Commission was of the view that AT&T had raised sufficient questions about the appropriateness of the current 800 database query charge that a new cost study is warranted.
10666 MR. HARITON: Yes.
10667 MR. RYAN: And in paragraph 11, because of those concerns what the Commission effectively did was render the rates for 800 database query interim --
10668 MR. HARITON: That's correct.
10669 MR. RYAN: -- effective that date.
10670 Could we go next to your response to Companies(CRTC)25September02-4201. That's an interrogatory we looked at before, but I want to look at a different part of it this time.
10671 MR. RYAN: I am flipping around here, Mr. Hariton, because I think this was a large interrogatory response. I am not sure I know how to direct people to the point in the record where the document actually is. Just bear with me for a moment.
10672 It's actually Attachment 2 of that response, so The Companies(CRTC)-4201, Attachment 2, page 1 of 8. It's pursuant to that letter to the Commission that the company filed its updated cost study as it was directed to do in the document we have just looked at.
10673 MR. HARITON: I am sorry, I haven't read this letter yet. Just give me a moment, Mr. Ryan
10674 MR. RYAN: Yes, do take a moment.
10675 MR. HARITON: Yes, I have had a chance to read the covering letter, Mr. Ryan.
10676 MR. RYAN: You can acknowledge that this is the letter that covered the revised cost study that was submitted pursuant to Order 2000-683?
10677 MR. HARITON: This is what the letter shows, that's correct.
10678 MR. RYAN: Look at paragraph 4 of the letter, if you would, and there The Companies say:
"Attachment 2, which I am not proposing to turn to, illustrates that AT&T's assessment of demand increases, while exaggerated, was directionally correct with actual aggregate demand over the period 1996 to 1999 exceeding forecasts by some 37 per cent." (As read)
10679 Is that correct?
10680 MR. HARITON: That's correct.
10681 MR. RYAN: And then, in paragraph 5, The Companies go on to say that:
"As a result, actual expenditures required to support the service have also differed from the original estimates, not only in magnitude but also in their timing over the live of the service and in their composition as between capital and expense. While actual required capital was 66 per cent in excess of forecast, actual expense was three and a half times as high as originally expected. Overall aggregate expenditures for the same 1996 to 1999 period were up 110 per cent, a difference much greater than the 37-per-cent increase in demand." (As read)
10682 So what we see here, if I understand correctly -- and no offence to anybody at the company intended -- but the initial analysis of demand was wildly pessimistic in comparison with what actually occurred, and the estimates of expenditures were equally wide of the mark?
10683 MR. HARITON: Both the demand and the expenses were underestimated, if that's what you mean, Mr. Ryan, yes.
10684 MR. RYAN: The next step in the proceeding -- by the way, we have attached as Attachment 1 to the letter. That is page 3 of 8, if I can put it that way, of Attachment 2, immediately following the letter in the record.
10685 MR. HARITON: I am sorry, are you turning to a different document, Mr. Ryan?
10686 MR. RYAN: It's one of these documents that has various labels on it, but I think the easiest thing to do is if you have the interrogatory responses, just turn the page. We actually have attached to the letter the cost study.
10687 MR. HARITON: Yes. This is a labelled Attachment 1, abridged, page 105.
10688 MR. RYAN: Exactly. Cost study for 8XX Carrier Identification and response to order CRTC 2000-683.
10689 MR. HARITON: Yes, I have that.
10690 MR. RYAN: This is the cost study that was produced in response to the Commission's directive.
10691 I make the simple point here and ask you to acknowledge that in the abridged version that has been produced to us in this proceeding and indeed in the proceeding that concerned the 800 Database query charges, all of the relevant demand information and cost information was withheld by the company and indeed, on page 5 of 5, all of the details of the relevant costs were also withheld?
10692 MR. HARITON: That's correct, Mr. Ryan.
10693 MR. RYAN: That's according to standard operating procedure effectively, isn't it?
10694 MR. HARITON: Yes. I was going to turn you to paragraph 7 of the covering letter which makes the usual confidentiality claim.
10695 MR. RYAN: Right. And understandably, the Commission has typically upheld such confidentiality claims where sensitive cost information such as this is asked for, or called for, as part of the study that is being produced to the other parties?
10696 MR. HARITON: I believe the Commission weighs fairly carefully the public interest in disclosing the information versus the harm that may be done by its disclosure and comes to a decision in each case.
10697 MR. RYAN: Can we go next to document 30, please?
10698 Document 30 is another letter that forms part of the record of the 800 Database query charges proceeding and the attachments to it, pages 2 to 27, in the lower-hand corner, constitute the responses of The Companies to interrogatories put to them by the Commission. Is that correct?
10699 MR. HARITON: That's correct, Mr. Ryan.
10700 MR. RYAN: Without dwelling on the details, because the questions are exceedingly long and the answers are exceedingly long and get into some very arcane points of costing to do with cash flows for expense and capital, you will confirm for me that the abridged version, which is what I have available to me, systematically excludes all of the relevant cost information that was provided to the Commission?
10701 MR. HARITON: That's correct, Mr. Ryan. Again, we have the usual confidentiality issue.
10702 MR. RYAN: That's true for both the interrogatory responses we have there. There are two of them.
10703 MR. HARITON: Yes, Mr. Ryan.
10704 MR. RYAN: Could we go next to document 31? Document 31 is the Commission's final decision in the proceeding. It's a copy of order CRTC 2000-500, dated 29 June 2001.
10705 MR. HARITON: That's correct.
10706 MR. RYAN: Can you tell us, Mr. Hariton, what the Commission's decision in this proceeding was?
10707 MR. HARITON: The decision's date, I believe it's at paragraph -- I will find the paragraph in a minute, Mr. Ryan.
10708 MR. RYAN: Effectively, the --
10709 MR. HARITON: I am sorry, I am still looking for the conclusion. They reduced the rates, if that's what you mean. That's quite right.
10710 MR. RYAN: Effectively, AT&T's original complaint was upheld?
10711 MR. HARITON: That's correct.
10712 MR. RYAN: And the database query charges were reduced by 50 per cent?
10713 MR. HARITON: It looks like 50 per cent.
10714 MR. RYAN: Well, it says --
10715 MR. HARITON: I am just looking for the numbers, Mr. Ryan.
10716 MR. RYAN: Fair enough. Paragraph 21.
10717 MR. HARITON: There they are in paragraph 21, yes. So, we see the number going from 6331 to 3259, which is not exactly 50 per cent but is pretty close.
10718 MR. RYAN: Yes. And at the same time, the Commission ordered The Companies to refund to AT&T and other parties the excess amounts that have been paid since the date of the interim order 2000-683 up to the time of the final order that we have in front of us now?
10719 MR. HARITON: That's correct. Of course, that's the entire purpose of making rates interim so that they can be adjusted given the final decision.
10720 MR. RYAN: And the note that the Commission recites in paragraphs 7 and 8, some of the same information that we just referred to in the context of our review of documents 27 and 28, that is the inaccuracy of the original demand forecast that went into the Phase 2 study and the resultant inaccuracy of many of the expense items that were included in it?
10721 MR. HARITON: Yes, 7 and 8 recite the statements made by AT&T Canada. It does not follow that the Commission makes them its own.
10722 MR. RYAN: Fair inference that the evidence that was put before them was the basis for the decision that was actually rendered?
10723 MR. HARITON: The Commission does give its reasons at paragraph 14 and onwards.
10724 MR. RYAN: Right. Let me suggest to you, in line with some of the earlier discussion we have had, Mr. Hariton, that one of the great weaknesses of the Phase 2 approach to costing is that there is no mechanism for tracking costs to see if the forecasts actually correspond with the actuals, and that we are dependent in cases such as this on a party realizing that something is a miss and coming forward with an application to look for relief.
10725 There's nothing in-built into the system that corrects for such difficulties, is there?
10726 MR. HARITON: That's correct, Mr. Ryan. On the other hand, I think this is a good example of the fact that it's open to any party to say: Hey, something has changed and we should do a new study.
10727 So to my mind, this is not necessarily a weakness. This is, on the contrary, an illustration of an avenue that was explicitly built into decision -- I forget if it was 97-9 or 97-8, one of those two decisions, which said explicitly that any party may come forward and say that they believed that costs have changed.
10728 MR. RYAN: We don't have the assistance of the company in circumstances like that, though, do we, because you don't undertake revisits to these studies on a periodic basis to determine whether the costs have actually transpired to be what they were expected to be at the time the initial rates were set?
10729 MR. HARITON: I am not aware of a mechanism that would automatically do that. I believe that services like this are important enough that either the company or the users would tend to keep an eye on what's going on.
10730 MR. RYAN: Another example of the same problem would be the decision we previously referred to, I suggest, 2001-238, where the company was off in the back room doing another Phase 2 study of the very matter that was before the Commission in that proceeding. We didn't have any reason to know that the company was engaged in that study or to have any insight into the results that were being produced until they were actually tabled?
10731 MR. HARITON: The study which was being done in the back room was not, in fact, a Phase 2 study, Mr. Ryan; it was updating the database and fit into the Phase 2 study. I know that sounds like quibble but it's not.
10732 The database, once updated, becomes no new database and it gets used for studies using those local loops.
10733 I think you are inferring that there was something in some way dishonest about what was going on.
10734 MR. RYAN: No.
10735 MR. HARITON: I don't think so. What was happening was there was an update of information which some would say was long overdue, but it was being done. And once the information became available, it became built into the studies from that point onward.
10736 MR. RYAN: We will refer to your evidence on that point but let me just be perfectly clear to you and to the Commission on this point. I am not suggesting anybody was dishonest either in that proceeding or in any other proceeding. I have never had any occasion to suspect that of Bell Canada or any of the other companies.
10737 MR. HARITON: Thank you.
10738 MR. RYAN: I can say that unequivocally. But I do suggest to you, Mr. Hariton, that what's at the root of this is a systemic failure in the way the costing process works, particularly as it relates to Phase 2, which calls into question the reliability of Phase 2 as a basis for the costing of services that are used by competitors and for which, of course -- these services are the life blood of the competitors and the costs are of extreme importance to them and their financial survival. That's what I am concerned about.
10739 MR. HARITON: I understand your concern. I disagree with you, Mr. Ryan, very strongly, I think, in the following sense.
10740 It is open to the competitors at any time to challenge de existing costs and to have a new study done. As you can see, if the new study supports that the costs have changed, the Commission quite rightly has no reluctance in changing the price, as it should. As the new cost information is made available, then indeed the prices should change.
10741 MR. RYAN: Those are all my questions. Thank you, Mr. Chairman.
10742 THE CHAIRPERSON: Thank you, Mr. Ryan.
10743 MR. RYAN: Thank you, Mr. Hariton. Thank you, Mr. Park.
10744 THE CHAIRPERSON: Mr. Secretary.
10745 MR. SPENCER: Thank you, Mr. Chairman. We have a few documents to be entered as exhibits.
10746 The first document is a letter dated 13 July 2001 from Mr. David Palmer regarding split-rate base manual update for 2000. This will be entered as AT&T Exhibit No. 11.
10747 Decision CRTC 2001-238 will be AT&T Exhibit No. 12.
10748 Residential primary exchange service costs, Decision 2001-238 versus Bell proposal, AT&T Exhibit No. 13.
10749 Letter dated March 16, 2000, from Mr. Antecol regarding a PART VII application concerning 800 Database query charges, AT&T Exhibit No. 14.
10750 Letter dated 17th of April 2000 from Mrs. Muir regarding Part VII application concerning 800 Database query charges will be AT&T Exhibit No. 15.
10751 Order CRTC 2000-683 will be AT&T Exhibit No. 16.
10752 Letter dated 2 February 2001 from Mr. David Palmer regarding Telecom Order 200-683, 800 Database query charges will be AT&T Exhibit No. 17.
10753 Order CRTC 2001-500 AT&T, Exhibit No. 18.
10754 And finally, CRTC Revision to Table 8 of CRTC Exhibit No. 15 will be entered as CRTC Exhibit 15A.
10755 Thank you.
EXHIBIT NO. AT&T-11: Letter dated 13 July 2001 from Mr. David Palmer regarding split-rate base manual update for 2000
EXHIBIT NO. AT&T-12: Decision CRTC 2001-238, residential primary exchange service costs
EXHIBIT NO. AT&T-13: Decision 2001-238 versus Bell proposal
EXHIBIT NO. AT&T-14: Letter dated March 16, 2000, from Mr. Antecol regarding a PART VII application concerning 800 Database query charges
EXHIBIT NO. AT&T-15: Letter dated 17th of April 2000 from Mrs. Muir regarding Part VII application concerning 800 Database query charges
EXHIBIT NO. AT&T-16: Order CRTC 2000-683
EXHIBIT NO. AT&T-17: Letter dated 2 February 2001 from Mr. David Palmer regarding Telecom Order 200-683, 800 Database query charges
EXHIBIT NO. AT&T-18: Order CRTC 2001-500
EXHIBIT NO. CRTC-15A: CRTC Revision to Table 8 of CRTC Exhibit No. 15
10756 THE CHAIRPERSON: Thank you, Mr. Secretary.
10757 I understand the next party to cross-examine this Panel is RCI.
10758 Mr. Engelhart.
EXAMINATION / INTERROGATOIRE
10759 MR. ENGELHART: Thank you, Mr. Chairman.
10760 Good afternoon, Mr. Hariton, Mr. Park.
10761 MR. HARITON: Good afternoon, Mr. Engelhart.
10762 MR. PARK: Good afternoon.
10763 MR. ENGELHART: When I was talking with Mr. Farmer we reviewed the basic structure of the current price cap formula which works on the basis of increases at the rate of inflation minus a productivity factor or "X" factor and I want to ask you some questions about the way that "X" factor is calculated.
10764 Would I be correct that under the current price cap system the total factor productivity method was used to calculate the "X" factor -- that was done in Decision 97-9 -- and that Bell is proposing in this proceeding to use a marginal cost or unit cost methodology to calculate the productivity number?
10765 MR. HARITON: That is correct, Mr. Engelhart.
10766 MR. ENGELHART: As I understand it, the total factor productivity method asks the question: How do the total costs of all of the factors of production used by the whole company change over time? Is that a fair characterization?
10767 MR. HARITON: Not quite, Mr. Engelhart.
10768 The total factor productivity method essentially looks at all of the outputs in quantity terms produced by the company, looks at all of the inputs, again in quantity terms, used by the company, divides the former by the latter, produces an index and then looks at changes in that index over time.
10769 MR. ENGELHART: Right.
10770 MR. HARITON: Whereas -- sorry, I should answer -- whereas unit cost trends look at just that. Unit cost trends typically would not take into account things like changes in output, for example, new services and things of that sort.
10771 MR. ENGELHART: So the total factor productivity method, the one used in Decision 97-9, looks at the whole company and the unit cost method that you are proposing in this proceeding focuses just on primary exchange services.
10772 Is that right?
10773 MR. HARITON: Let me put that into just a little broader context.
10774 The unit cost method will look at whatever service or groups of services you are planning to apply your "X" factor, to use the jargon, to and will look at unit cost trends for those services. In the case of The Companies, they are proposing to look at a residential PES, a primary exchange service, so therefore it would be unit cost trends in a residential primary exchange service. That is correct.
10775 MR. ENGELHART: So the total factor productivity method looks, as you said, at all of the outputs and all of the inputs, and the unit cost method looks at the change in unit costs for one particular group of services, in this case primary exchange service -- residential primary exchange service?
10776 MR. HARITON: Yes. Yes. Again, just a small qualification.
10777 The Companies' proposal is actually limited to a residential primary exchange service in high-cost serving areas. We didn't have a unit cost trend for high-cost serving areas so we used one for a residential service more generally.
10778 Again, as we said somewhere in 105, if you were to look at high-cost serving areas I believe that the unit cost trend would, in fact, be less favourable even than we are suggesting and indeed could be different.
10779 MR. ENGELHART: Could you have a look, please, at the Rogers' evidence at pages 29 to 32?
10780 MR. HARITON: Just a minute, Mr. Engelhart.
10781 MR. ENGELHART: In particular at page 31 of the RCI evidence.
10782 MR. HARITON: Yes, I have that, Mr. Engelhart.
10783 MR. ENGELHART: There, as you can see, we have taken the current methodology, the methodology used in Decision 97-9, and we have updated the data and arrived at a total target productivity offset of 4.3 per cent.
10784 I don't know if you have had an opportunity to review page 31, but could you tell us in your view whether this calculation of 4.3 per cent is an appropriate calculation given its objective, which is using the same methodology that was used in Decision 97-9?
10785 MR. HARITON: Yes. Well, first of all if I may just point out an arithmetical problem which I suspect is due to an ambiguity in our evidence, your minus 0.5 should really be a plus 0.5 at line 4. In other words, the input price differential goes the other way.
10786 I agree that when we gave you a number for input price differential -- I forget which interrogatory it was, but fortunately you have footnoted it for me -- it was ambiguous which way it went and unfortunately you interpreted it the wrong way.
10787 So the number at the bottom, just arithmetically speaking, should be 5.3, not 4.3.
10788 Okay. Now starting with that, what you have here is a historic company-wide TFP gain of 5.0. Again let me preface the rest of my answer by saying that I don't think TFP is the right thing to use. But putting that aside for the purpose of discussion, the 5.0 would be the right company-wide productivity gain to use.
10789 I would disagree with the consumer productivity dividend. I discussed that briefly with Ms Lawson earlier today. Therefore I would still use a 5.0 on the third line.
10790 I would then go to expected economy-wide productivity gain. I believe you are using a number which goes back to 1962. I would use a number going from 1988 to the year 2000 and that would give me a minus, I believe, it's 0.7.
10791 Then for the fourth line, as I said, again I believe you are going back to 1962. I would use a number going back to 1988 and therefore I would get a plus 0.4. If I have done that right, I should get a 4.7 at the end of the day.
10792 Does that help?
10793 MR. ENGELHART: Yes, thank you very much.
10794 So your calculation, then, takes us to 4.7?
10795 MR. HARITON: That is correct. Again, as I say, I wouldn't use this approach, but that is what the approach would give it.
10796 MR. ENGELHART: Right. Now, let's turn for a moment to the approach that you do prefer, which is the method involving unit costs.
10797 As I understand the unit cost method that you have applied, you have calculated those changes in unit costs using your new loop study, the one that you have just been talking about with Mr. Ryan. My understanding of the Commission's letter of Thursday, September 28th is that the new loop study is to be excluded from this proceeding.
10798 If you could turn for a moment to The Companies(CRTC)4100, in particular page 2.
10799 MR. HARITON: Yes, Mr. Ryan. Goodness, I got into the habit.
10800 Yes, Mr. Engelhart.
10801 MR. ENGELHART: I have been called much worse things than that, even today.
--- Laughter / Rires
10802 MR. ENGELHART: Am I correct, then, that if we exclude the new loop study you arrive at a productivity estimate of 5.1 per cent?
10803 MR. HARITON: That is correct.
10804 MR. ENGELHART: So given that the Commission has directed that the new loop study should be excluded from this proceeding, are you still advocating that your marginal cost method is the right one?
10805 MR. HARITON: Well, Mr. Engelhart, the Commission in its -- and again I hate to interpret Commission decisions but in this case I have to -- in the decision which said that a new loop make up should not be considered, my impression is that they were talking about subsidy calculations and loop rates.
10806 Whether that was what was meant or not, I have to tell you that if I'm going to produce an "X" factor I have to produce it on the best information I have. To my knowledge trends in unit costs have not been discussed before and therefore I feel no procedural qualms about putting forward the best evidence that I have in my possession.
10807 The best evidence I have in my possession leads to an "X" factor that is lower than that, and indeed it is the 3.5 which I believe I discussed with Ms Lawson at the beginning of the -- it seems like a long time ago, Mr. Engelhart.
10808 MR. ENGELHART: Right. Well, let's have a look, then, at the two different methods and at your method.
10809 Both of these methods, would you agree with me, sir, involve predicting the future by looking at the past. So we look at a historical time series of total factor productivity numbers on the one hand and we average them and we say, "Well, that is really what we think total factor productivity will be in the future." Similarly your method looks at changes in unit cost and asks -- and then does a similar averaging and says, "Well, that is what we think the changes in unit costs will be in the future."
10810 Is that correct?
10811 MR. HARITON: Essentially that is correct. To the degree one would have very specific information about coming events, one might try to incorporate those in. But by and large we have found that forecasts, as discussed with Mr. Ryan, tend to be uncertain at best and projecting a historic time trend seems to be the most appropriate thing to do.
10812 MR. ENGELHART: So let's just have a look at the way that that was done for the total factor productivity method.
10813 If you could refer please to The Companies(CRTC)102 page 3 of 8.
10814 MR. HARITON: Yes, I have that, Mr. Engelhart.
10815 MR. ENGELHART: I'm looking at the column "Bell Canada".
10816 So we have taken an average from 1998 to 2000 and the average is 5 per cent. That "5" is the first number in the RCI evidence that calculates the TFP. So that's how we start that calculation, by averaging the numbers from 1988 to 2000.
10817 Is that right?
10818 MR. HARITON: That's correct.
10819 MR. ENGELHART: Then let's have a look at the same sort of thing for your marginal cost method. We will find that at The Companies(CRTC)105, Attachment 1, page 11 of 11. If you could refer to that, please.
10820 MR. HARITON: That is Table 2. That's correct.
10821 MR. ENGELHART: Yes, Table 2. Just to review, these numbers that we have here, these unit costs numbers, as I understand it what you have done is you have taken Park studies or Phase 2 studies and you have looked at the way that those costs change from year to year.
10822 You take a Park study in 1988, in 1989, in 1990, you look at how those numbers change and then, because the methodology has changed from study to study, you have gone back through and smoothed out those differences by recalculating them using consistent methodologies from study to study.
10823 Is that how we got to that column of numbers on the right-hand side of page 11 of 11?
10824 MR. HARITON: That's correct.
10825 MR. ENGELHART: Then when we take that average, we see at the very bottom of the page it says "average per cent annual unit cost change minus 1.2 per cent". Then, for reasons that are immediately apparent to mathematicians but not totally transparent to the rest of us, you add the inflation rate to that, which in this case was 2.3 per cent and 1.2 plus 2.3 equals the 3.5 per cent productivity estimate that you have come up with.
10826 Is that right?
10827 MR. HARITON: That's correct.
10828 MR. ENGELHART: When we take the average of the TFP numbers as we saw in The Companies(CRTC)102 or the average of the marginal cost numbers that we see in Companies(CRTC)105, would you agree with me that we are averaging some numbers that are from the pre-price cap era, the rate of return era, and we are taking some numbers from the price cap era and we are averaging them all together.
10829 Is that right?
10830 MR. HARITON: That's correct, Mr. Engelhart, and, of course, that is the right thing to do.
10831 MR. ENGELHART: Okay. We have heard a lot from Mr. Nicholson and other members of the various Bell panels, and indeed in your evidence, to the effect that one of the great things about price caps compared to earnings sharing or compared to rate of return is that it gives The Companies a much greater incentive to be productive.
10832 Is that right?
10833 MR. HARITON: They have certainly said that there is a greater incentive to be productive.
10834 MR. ENGELHART: So theory would predict that the time period between 1998 and 2001 should have higher productivity numbers than the time period from 1988 to 1997.
10835 Is that right?
10836 MR. HARITON: All other things being equal, Mr. Engelhart.
10837 I would point out to you that there are a number of factors that influence productivity gains. Well, there are several ways of going in at this, but let me just list them for you and we can expand on them if you want.
10838 Clearly, where you are in the business cycle is extremely important. As you know, the last couple of years has been a time of economy booming and there is no guarantee the economy will continue booming in the next couple of years. I can certainly expand on that if you want, because I think this is an extremely important point.
10839 We should also talk about the nature of competition for the products we are talking about. We should talk about the mix and output and how it is changing, because certain products -- growth in certain products will lead to different gains in productivity than others.
10840 We need to also talk about the underlying technology and how it is evolving and, of course you are quite right, the type of regulation is at play.
10841 But again, my list here has at least five factors and I would be happy to expand on each one in turn if you want.
10842 MR. ENGELHART: Well, let's have a look at the data and then we will see how your factors come into play.
10843 Let's have a look first -- back to 102, page 3 of 8 again, if we might. There we see the column called "Bell Canada". That is an average of all the productivity numbers.
10844 Would you agree with me, subject to check, that the average of the numbers from 1988 to 1997 is 4.3 per cent and the average from 1998 to 2000 is 7 per cent?
10845 MR. HARITON: Subject to check, I will work with those numbers.
10846 MR. ENGELHART: So whether it is due to the price cap period or a combination of the greater incentives provided by the price cap system and, as you say, these other factors, the total factor productivity method seemed to show a fairly marked increase during the price cap era. Productivity went from 4.3 per cent to 7 per cent.
10847 Isn't that right?
10848 MR. HARITON: The earlier 4.3 per cent hides also a lot of fluctuations. Looking at the page I can see 7 per cent in 1989, for example.
10849 But the important thing here, Mr. Engelhart, is that what we have done by looking at 1988 to 2000 is we have looked at one full business cycle. In measuring productivity, there is general agreement that looking at productivity over a short time period can be extremely misleading, that one has to look at it over a whole business cycle.
10850 Indeed, if you were to look at -- you may be aware if you are doing this calculation that Statistics Canada also measures multifactor productivity is what they call it. When they report their annual update they do not in fact report a yearly number for multifactor productivity.
10851 The latest report, which is May of 2001, reported it as the average for 1988 to 2000, in recognition of the fact that looking at short periods can be extremely misleading.
10852 There is a general agreement in the literature that productivity, whether it be labour productivity, total factor productivity or whatever you want to call it, is pro-cyclical. Pro-cyclical is economic jargon for saying that when the economy is doing well productivity is doing well and when the economy is doing badly productivity is doing badly.
10853 This in fact is exaggerated for the telecommunications industry because certain of the outputs that are use sensitive. I am thinking here of data services and I am thinking of long distance voice services, services where you tend to be able to use fixed facilities to get a lot more traffic over them. This goes back to the conversation I had with Mr. Ryan in sort of a brief way.
10854 In general though, you have switches, you have cables, you have trunks and it is relatively little extra resources to use them more as your traffic goes up.
10855 Now, it turns out that your traffic is particularly increasing in times of economic prosperity and it tends to take a dive in periods of economic weakness.
10856 That's just one. There are other explanations as well, which include the nature of the mix of output.
10857 What you have to recognize, Mr. Engelhart, is that the years 1998 to 2000 were marked by extremely rapid growth in toll and in data services. Some would say the data services are not going to grow that fast again. We have seen Internet busts.
10858 As far as the toll is concerned, some say that once you have given away a lot of free minutes, $20 a month for evening calling, it is going to be hard to drop your prices much more and you need a lot more calling.
10859 These are factors which make the years 1998 to 2000 stand out. I would not use them as a benchmark for anything by themselves. I would certainly look at a trend from 1988 to 2000 which, as I say, covers an entire business cycle.
10860 Over to you.
10861 MR. ENGELHART: Well, Mr. Chairman, it's five o'clock, which is the customary time for our break. I think Mr. Hariton and I have covered at least one cycle. If this is an appropriate time for a break, I will continue tomorrow.
10862 THE CHAIRPERSON: Thank you, Mr. Engelhart. We will do that. We will continue with the cross-examination of Mr. Hariton by Mr. Engelhart tomorrow.
10863 Are there any other matters anyone wishes to bring to the attention of the Members before we adjourn for the day?
10864 Mr. Lowe.
10865 MR. LOWE: Mr. Chairman, by my reckoning we have about three or four hours until the TELUS panels would be up. We circulated a letter today, it is dated October 9. It describes this three-panel approach that we have decided to move to. We would put up a separate quality of service panel.
10866 The early indications are there are about two to three hours of cross-examination for that panel.
10867 Again, I just put this forward to counsel to think about, that we put our quality of service panel up tomorrow afternoon. Maybe we could get them up and down and then move to our main Panel 1 on Thursday, the 11th, and then move on from there.
10868 I don't think we need to do anything about it now, but I invite counsel to have a discussion about it after we adjourn.
10869 THE CHAIRPERSON: Thank you, Mr. Lowe.
10870 I could turn to other parties now if anybody wished to make a comment. Perhaps people would like to think about it and if anybody has any comments or concerns perhaps they could raise them in the morning and we will deal with it at that time.
10871 Thank you, Mr. Lowe.
10872 Anybody else? No.
10873 Thank you very much then.
10874 We will adjourn for the day and reconvene at 9:00 a.m. tomorrow morning.
--- Whereupon the hearing adjourned at 1705, to resume
on Wednesday, October 10, 2001, at 0900 /
L'audience est ajournée à 1705, pour reprendre le
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