ARCHIVED - Transcript - Hull, QC - 2001/10/10
This page has been archived on the Web
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Providing Content in Canada's Official Languages
Please note that the Official Languages Act requires that government publications be available in both official languages.
In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is transcribed in either of the official languages, depending on the language spoken by the participant at the hearing.
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 10, 2001||le 10 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 10, 2001||le 10 octobre 2001|
TABLE OF CONTENTS / TABLE DES MATIÈRES
|PAGE / PARA NO.|
|PREVIOUSLY SWORN: MICHAEL R. PARK||1715 / 10963|
|PREVIOUSLY SWORN: GEORGE J. HARITON||1715 / 10963|
|EXAMINATION BY / INTERROGATOIRE PAR|
|1715 / 10964|
|Commission Counsel||1751 / 11155|
|Commission||1776 / 11296|
|SWORN: THOMAS J. GILLETTE||1809 / 11492|
|EXAMINATION BY / INTERROGATOIRE PAR|
|1809 / 11493|
|1810 / 11508|
GT Group Telecom
|1851 / 11860|
|1900 / 12271|
|Commission Counsel||1926 / 12489|
|Commission||1929 / 12507|
|SWORN: DENNIS WEISMAN||1934 / 12543|
|SWORN: MARK KOLESAR||1934 / 12543|
|SWORN: SAARON SHUYA||1934 / 12543|
|SWORN: DON TOWNER||1934 / 12543|
|EXAMINATION BY / INTERROGATOIRE PAR|
|1934 / 12545|
|1936 / 12569|
LIST OF EXHIBITS / PIÈCES JUSTICATIVES
|EXHIBIT NO.||DESCRIPTION||PAGE / PARA NO.|
Table entitled Bell
Canada X-factor Using
Phase II Costs
|1750 / 11150|
|THE COMPANIES-17||Mr. Bruckshaw's CV||1750 / 11150|
|THE COMPANIES-21||Response to undertaking requested by Ms Moore, Transcript Reference Volume 4, paragraph 6174||1897 / 12257|
|THE COMPANIES-22||Response to undertaking requested by Rogers Communications Inc., Transcript Reference Volume 3, paragraphs 4748 to 4749||1897 / 12258|
|THE COMPANIES-23||Response to undertaking requested by Commissioner Langford, Transcript Reference Volume 4, paragraph 7172||1898 / 12259|
|THE COMPANIES-24||Response to undertaking requested by Commission Counsel, Ms Moore, Transcript Reference Volume 4, paragraph 6621||1898 / 12260|
|THE COMPANIES-25||CV of Thomas J. Gillette||1898 / 12261|
|THE COMPANIES-26||Response to undertaking requested by ARC et all, Transcript Reference Volume 3, paragraphs 4138, 4140 and 4144||1898 / 12262|
|CRTC-25||Annual adjustments||1899 / 12263|
|GT GROUP TELECOM-8||Telecom Order CRTC 99-972||1899 / 12264|
|GT GROUP TELECOM-9||Order CRTC 2000-964||1899 / 12265|
|GT GROUP TELECOM-10||Order CRTC 2001-68||1899 / 12266|
entitled, "UBS Warburg,
October 9, 2001"
|1926 / 12486|
ERRATA / ADDENDA
Page ii "Wayne Gauder" s/b "Wayne Gaudet"
Page 29 "MR. GAUDER" s/b "MR. GAUDET"
Page 29 "Wayne Gauder" s/b "Wayne Gaudet"
Page iii AT&T-3 description s/b "Bell Canada
percent return on average common
equity 1995 to 2000"
Page 446 AT&T-3 description s/b "Bell Canada
percent return on average common
equity 1995 to 2000"
Page iii "BELL CANADA-8" s/b "THE COMPANIES-8"
Page iii "BELL CANADA-9" s/b "THE COMPANIES-9"
Page 1266 "BELL CANADA-8" s/b "THE COMPANIES-8"
Page 1266 "BELL CANADA-9" s/b "THE COMPANIES-9"
Page iv AT&T-12 description s/b "Decision
Page iv AT&T-13 description s/b "Residential
Primary Exchange Service Costs:
Decision 2001-238 versus Bell Proposal
Page 1422, line 9 "Bodner" s/b "Bodnar"
Page 1443, line 3 "The Companies" s/b "the company's"
Page 1444, line 4 "The Companies" s/b "the company's"
ERRATA / ADDENDA
Page 1444, line 4 "The Companies" s/b "the company's"
Page 1445, line 10 "The Companies" s/b "the company's"
Page 1445, line 12 "The Companies" s/b "the company's"
Page 1446, line 10 "The Companies" s/b "the company's"
Page 1446, line 20 "The Companies" s/b "the company's"
Page 1447, line 2 "The Companies" s/b "the company's"
Page 1447, line 9 "The Companies" s/b "the company's"
Page 1447, line 17 "The Companies" s/b "the company's"
Page 1448, line 14 "The Companies" s/b "the company's"
Page 1450, line 9 "The Companies" s/b "the company's"
Page 1452, line 23 "Telus" s/b "Telesat"
Page 1459, line 4 "The Companies" s/b "the company's"
Page 1459, line 10 "The Companies" s/b "the company's"
Page 1460, line 11 "The Companies" s/b "the company's"
Page 1460, line 15 "The Companies" s/b "the company's"
Page 1464, line 19 "Tadoulie" s/b "Tadoule"
Page 1467, line 9 "The Companies" s/b "the company's"
Page 1478, line 17 "The Companies" s/b "the company's"
Page 1478, line 25 "The Companies" s/b "the company's"
Page 1491, line 8 "VETA" s/b "VTIP"
Page 1677 AT&T-12 description s/b "Decision
Page 1677 AT&T-13 description s/b "Residential
Primary Exchange Service Costs:
Decision 2001-238 versus Bell Proposal
Hull, Quebec / Hull (Québec)
--- Upon resuming on Wednesday, October 10, 2001
at 0900 / L'audience reprend le mercredi 10 octobre
2001 à 0900
10875 THE CHAIRPERSON: Order please, ladies and gentlemen. We will return to our proceeding now.
10876 Before we turn to the cross-examination of Messrs. Park and Hariton, are there any preliminary matters, Mr. Henry?
10877 MR. HENRY: Yes, Mr. Chairman. Thank you.
10878 On Friday, Dr. Taylor was asked by Commissioner Williams if he would modify his evidence as a result of any of the questioning he had heard during the proceeding. You may recall he said that there were two areas that he would like to ponder further. He has done so over the weekend and has put down his thoughts on a two-page exhibit which we distributed last night that I would ask, with your permission, be permitted to file as an exhibit.
10879 MR. SPENCER: Thank you.
10880 The Companies' response to undertaking --
10881 MR. RYAN: Mr. Chairman, could I --
10882 THE CHAIRPERSON: Excuse me, Mr. Secretary.
10883 Mr. Ryan?
10884 MR. RYAN: Mr. Chairman, could I speak to that matter for a moment, please?
10885 The Companies, as Mr. Henry has indicated, have distributed this two-page document that purports to be a response to an undertaking given by Mr. Taylor during the course of questioning by Commissioner Williams.
10886 I must say, Mr. Chairman, that we object to the process that The Companies are proposing to follow here. The general rule in a proceeding such as this is that when a witness' testimony is finished, it's finished. In exceptional cases where a witness does not have available to him at the time a discreet piece of information or an answer to a specific question has been put to him, normal practice allows the parties to agree that the information will be obtained and furnished later. Otherwise the testimony is finished, as I say, when it is finished.
10887 What is happening here has nothing to do with that sort of process. Apparently, Dr. Taylor wants to recant some of the evidence that he gave during the course of his examination in relation to two points.
10888 First, he gave an answer to a question put to him by Commissioner Cram that he wants to reverse himself on. He also wants to modify some evidence he gave in relation to a question posed by Commissioner Langford. Now he attempts to do this on the basis of a question put to him by a third Commissioner, Commissioner Williams. So he is not responding essentially to a question put to him by Commissioner Williams so much as a question put to him by the other two Commissioners.
10889 Now what, as far as I can tell, the company is relying on as an undertaking in this respect is a passage on page 1369 of the transcript. The company does not identify any lines in particular, but the closest I can come to is something that resembles the undertaking they are purporting to rely on at lines 8706 and following. Just immediately before that, Commissioner Williams says:
"Has your position changed in any way as a result of the time we spent today?".
10890 Dr. Taylor says:
"Well, it's my professional responsibility to say no".
Thinking about what I have learned as opposed to what I have taught, I guess the place where I will go home and think some more are issues of dictionary services. I do want to think about that point. That's an excellent point that has been raised.
10891 I would think about the uses of earnings. I mean, despite my -- I have a strong belief that the level of earnings is something that you should turn away from. It seems to me that Commissioner Cram brought up some useful and interesting points about what can be learned from trends as opposed to levels.
So if any doubt were cast on my position or where I will sit tonight and ponder, it would be in those areas".
10892 And that essentially is what has been said. Now, Commissioner Williams asked a straightforward question. Dr. Taylor was in a position to answer it and he did answer it to the best of his ability at the time. He said he was going to think about it in the quiet of his own study before the fireplace with his slippers on that evening, but there was no undertaking asked for, there was no undertaking given, there was no discussion that resembled anything of the sort.
10893 I was listening quite carefully to the testimony. If I thought there was something other than that going on I would have expressed concern at the time.
10894 That's one point, Mr. Chairman. But even if an undertaking was asked for and given, it would be entirely inappropriate to permit an undertaking to be made which would amount, in effect, to an opportunity for the witness to rethink the evidence he had given before the Commission and revise it later in writing through a vehicle of a response provided to the counsel for the company.
10895 Take it out of the situation of Commissioners posing the question, Mr. Chairman, and think of the situation where I, for example, pose a question to a witness, get an answer that I am more or less satisfied with. The next cross-examiner comes up and says, "Have you had an opportunity to rethink what you told Mr. Ryan?". The witness says, "Well, I would like to think about it tonight. I will come back to you tomorrow and let you know if I want to change the testimony I gave to Mr. Ryan". It's an entirely unfair sort of process for the Commission to tolerate.
10896 It's unfair to other parties for The Companies to attempt to skirt the normal rules of evidence in this way to provide a vehicle for Dr. Taylor to in effect change the evidence he gave while he was here before you.
10897 So in sum, Mr. Chairman, three points: No undertaking was requested by Commissioner Williams nor was one explicitly given by Dr. Taylor. It was entirely inappropriate to use or attempt to use an undertaking to revise evidence that was given as opposed to supply, for instance, a discreet piece of information that was requested. And thirdly, it's inappropriate to use an undertaking purportedly given to one party to change evidence that they have given in response to questions posed by a third party.
10898 Those are my submissions. I would ask you to decline to accept this document or to mark it as an exhibit in these proceedings.
10899 THE CHAIRPERSON: Thank you, Mr. Ryan.
10900 So I take it it's your position that -- and I will get back to you, Mr. Henry -- in effect this is new evidence on the part of Dr. Taylor which you or others haven't had an opportunity to test through cross-examination.
10901 MR. RYAN: Yes. In fact, it's recanting some of the evidence he gave. So it's even worse.
10902 THE CHAIRPERSON: Okay. Thank you.
10903 Mr. Henry?
10904 MR. HENRY: Well, Mr. Chairman, let me start by saying we are in your hands. Dr. Taylor was just trying to be helpful. He said he would give further thought to something and we are in your hands as to whether you think it would be helpful to the Commission.
10905 But I want to address a couple of things that Mr. Ryan has said. If you read the two-page exhibit, Mr. Taylor does not recant. He does not reverse his position. He said in answer to the question that there were two areas that he would give further thought to -- not that he would change his evidence, that he would give further thought to. He did that over the weekend and he thought that the Commission would like the benefit of his further thought process.
10906 Now, I would also emphasize that this is not a case where a witness has changed his views in response to something put to him by another party like Mr. Ryan. The question came from Commissioner Williams and it did not ask him anything about whether or not his answer to Mr. Ryan would have changed. I would agree that had that happened and had he said, "Well, what I said to Mr. Ryan earlier I now change", Mr. Ryan would be entitled to cross-examine. But that's not the case we are dealing with.
10907 So as I say, in the exhibit he explains why his views have not changed and this was in answer to not a party adverse in interest, but rather something given to the panel.
10908 So in my view, it's something entirely for you to decide. We are in your hands. We thought it would be helpful. Dr. Taylor thought, having reflected as he said he would, that it would be useful to the Commission, but obviously it's your decision and I am happy to leave it with the panel.
10909 THE CHAIRPERSON: Thank you, Mr. Henry.
10910 I haven't read the document myself so we will reserve on the issue and get back to the parties on that.
10911 Anything else?
10912 Mr. Ryan.
10913 MR. RYAN: Thank you, Mr. Chairman.
10914 Less contentiously, I hope. After discussion with some of the other parties, I would like to make an application inviting the Commission to make provision in the current process for a brief oral argument at the conclusion of the oral segment of this proceeding.
10915 Now, I am conscious that the Commission has already indicated through you, Mr. Chairman, that no provision is going to be made for oral argument and none is contemplated.
10916 I would suggest, however, that since that time the Commission has had an opportunity to hear testimony on a wide range of sometimes very complex issues. In the normal course, we will break up at the conclusion of this hearing in I hope not too many days' time, return to our respective offices and then begin to prepare what might in many cases turn out to be voluminous witness submissions.
10917 We, at this end of the room, face a common challenge in presenting our cases to you and that is we do not have an opportunity to make statements. We are here only to ask questions and to respond to questions from other parties. If certain questions aren't asked, some aspects of our case may not be made clear during the oral portion of the testimony.
10918 I would suggest that given the complexity of the evidence, the diversity of the subjects that have been covered, and that natural limitation there is in our ability to convey to you the messages that we think it's important to convey to you, it would be appropriate, as has often and perhaps ordinarily been done in rate case type proceedings, to make some provision for oral argument.
10919 As I say, this will give us an opportunity to identify the messages that we think are important to leave with you and directly to the evidence that we think is important in establishing the points that are pertinent to our respective positions.
10920 What I have in mind, Mr. Chairman, by way of oral submissions is something in the order of say ten minutes per party, and if approximately ten parties in the room took up the opportunity to make brief oral submissions to you highlighting the most important elements of their case, then we would have to make provision for about an hour and a half or two hours more sitting time.
10921 I would suggest that that would be a modest investment of the time of the Commission and the other parties in the room if the Commission feels that rounding up of what has occurred during the past three weeks at the conclusion of the oral portion of this proceeding would be of use to you and guide you in reviewing the, as I say, potentially voluminous written material that will follow.
10922 I don't want to take more than ten minutes proposing that we have oral submissions of ten minutes, Mr. Chairman, so I will leave it at that.
10923 THE CHAIRPERSON: Thank you, Mr. Ryan.
10924 Others on this issue?
10925 Mr. Van Koughnett.
10926 MR. Van KOUGHNETT: Mr. Chairman, I was canvassing parties in the room last week to see if there would be support on my own motion for the very motion that now Mr. Ryan brings before you.
10927 So now by pure coincidence we are showing the same interest. There is, I cannot say unanimity, Mr. Chairman, but I did get a reasonably broad consensus of support for such a proposition.
10928 For our part, Mr. Chairman, I would undertake to try to ensure that the consumer groups band together in order to even minimize the time to lower than ten minutes per party as shown on the party cross-examining schedule that we get from the Secretary.
10929 Mr. Chairman, this is an important case, of course, as you and the panel know well, for competitors and for interest groups. It has an astonishing amount of play in the press, as you know, Mr. Chairman, especially in the Atlantic provinces and it would appear that that is not diminishing.
10930 I would also suggest, Mr. Chairman -- may I be so bold as to say that the interest taken by the Commissioners themselves in questioning witnesses in this proceeding is a new step and a very welcome one for many of us at the practising bar.
10931 Could I also though note that there is an incentive -- that wonderful word that we use, Mr. Chairman -- on the part of lawyers to explain as though they were giving a precursor to their argument what questions they are about to pose to the witnesses when there is no opportunity for oral final argument. So there is a perverse incentive, is what I am suggesting, Mr. Chairman, that arises in cases where Commissioners show great interest in the proceedings, but there is no provision for a brief synopsis of oral argument.
10932 What it amounts to, and I think, Mr. Chairman, you may have noticed it -- I certainly have -- all of us, including this table, wish to try to explain to the panel what we are trying to get at because how could we do it because in a sense we should be waiting for final argument. But because we are not sure we will ever get a chance to put the points squarely before the panel except in the context of a very voluminous written document, we find ourselves in a sense crafting argument within the four corners of our questions.
10933 Those are my submissions, Mr. Chairman.
10934 THE CHAIRPERSON: Thank you, Mr. Van Koughnett.
10935 Mr. Koch.
10936 MR. KOCH: Me too.
10937 THE CHAIRPERSON: Mr. Daniels.
10938 MR. DANIELS: Me four.
10939 THE CHAIRPERSON: Mr. Henry.
10940 MR. HENRY: Well, Mr. Chairman, I don't have a strong view on this. It's a question of whether the Commission feels it would add value. I take Mr. Van Koughnett's point.
10941 I think we have to balance two objectives, though. And one is if we are going to do this, we have to do the process justice. And at the same time, I recognize the Commission's valuable time. We don't want to extend it too much.
10942 I must say I find 10 minutes may do more harm than good because it's so short that I think it may be difficult for parties. Some parties have shorter issues to deal with and others don't. But I think 10 minutes is on the short side.
10943 And the other point I would make is, if we are to go with oral argument, I think the ILECs that are subject to the price cap regime can be viewed very much as applicants in this proceeding. They filed their evidence first, for example. So I would ask that if we do do that, that the ILECs be allowed to deliver their argument last.
10944 THE CHAIRPERSON: Mr. Lowe.
10945 MR. LOWE: Thank you.
10946 From our perspective, Mr. Chairman, we have been away from home for a while, so, naturally, we would be reluctant to extend the hearing another day, for example. But, at the same time, if oral argument is something that the Commissioners think would be useful, we would certainly not oppose it.
10947 I think Mr. Henry makes some good points on the process that should be used for the oral argument. If we are going to do it, we might as well do it right and I would adopt those suggestions as well.
10948 THE CHAIRPERSON: Anybody else? No.
10949 Well, I agree with those who have suggested that oral argument can be useful. I note the comments that Mr. Van Koughnett with respect to Commissioner questions and the value that adds to the process.
10950 Most of you know that since I have been Vice-Chair of Telecom at the Commission it has been the practice to have Commissioners pose questions to the parties. And I think it's been helpful to the Commissioners and to the process.
10951 One of the other things I can assure you all is that with the particular group of Commissioners we have here that virtually every word of the record has been read by the members, and I can assure you that the written argument and reply will be read, as well.
10952 Having said that, I think that oral does add a valuable input to the process. Certainly the proceedings where we have had oral argument, thinking of the contribution one where we only had oral argument and didn't have an oral cross-examination phase, I'm sure all the members who were involved in that found that very helpful.
10953 It isn't clear yet how long the process is going to go itself, and so I think for now I would want to reserve on this and have a discussion among ourselves about whether or not to do it.
10954 One thing I would say is that it has been our practice, as most of you know, in the past that if we do oral argument that the written argument will be filed the same day. Part of the problem we get into if we don't do that is that there is both an incentive and an opportunity. I guess one could use the phrase that's crept into a lot of these proceedings, for parties to use the written phase if it is somewhat later than the oral to, in effect, have two stages of reply.
10955 So I don't know whether that will have a bearing on the ultimate decision about whether or not you would still want to do oral, but I think we would probably want to stick with that practice of having your written argument filed the same day as the oral. It could be later that day, perhaps at the close of business day on the day when we do it, but I would suggest that we would be strongly thinking about including that in the decision. I don't know whether that influences anybody's proposal as to whether or not to do oral or not.
10956 So we will take that, again, under advisement and we will certainly get back before this week is out and decide what to do about that.
10957 Which I guess -- I know John Macrie has been talking to a number of parties about our schedule and it isn't clear to me yet, in fact, when we will finish the hearing itself. It has gone on a little bit longer, and I note Mr. Ryan, I guess, said that we have heard from a lot of different issues. It's true. We have heard about a lot of different issues from one party. So we have only heard one part of one side of the case and we are about to hear from others the rest of this week and next week.
10958 This part has gone on a little bit longer than we had anticipated. I don't see that as being a problem as parties have indicated it's an extremely important issue that we are dealing with here and it's important that we get all the facts out on the table so we can make another excellent decision.
10959 So I think some time within the next day or so we are going to have to get a better handle on where we are likely to be next week. If we do oral, I want to be fair to you in terms of providing you an opportunity to gather your thoughts and do it and not just end the hearing at five o'clock one day and expect you to do oral at nine o'clock the next morning. So I think we will want to get a little bit of a handle on what the order of our business is going to be for the rest of this week, and, indeed, into next week.
10960 And I might way I don't know what the availability of witnesses is -- and I understand that may be a bit problematic with a few of them -- but I'm still holding out the prospect that we may need to sit this Saturday in order to complete our business at a reasonable time sometime next week.
10961 So with that, we will reserve on that and, hopefully -- well, we will get back -- it probably would be best, I suppose, by the end of the day tomorrow -- with a decision on this issue.
10962 Anything else, then, before we start? No. Okay.
10963 Well, then, I think we are back to cross-examination by RCI, Mr. Engelhart.
PREVIOUSLY SWORN: MICHAEL R. PARK
PREVIOUSLY SWORN: GEORGE J. HARITON
EXAMINATION BY / INTERROGATOIRE PAR
10964 MR. ENGELHART: Thank you, Mr. Chairman.
10965 Good morning, Mr. Hariton and Mr. Park.
10966 MR. HARITON: Good morning, Mr. Engelhart.
10967 MR. PARK: Good morning, Mr. Engelhart.
10968 MR. ENGELHART: When we broke yesterday, we were talking about the stretch factor, in part, and I wanted to just review that discussion a bit. If you could turn, again, to page 31 of the RCI evidence that sets out the current formula for calculating the productivity offset?
10969 MR. HARITON: Yes, Mr. Engelhart.
10970 MR. ENGELHART: And we see there, as we discussed yesterday, that we start with the company-wide historical TFP gains of 5 per cent, and then to that the Commission in 97-9 and RCI, in its evidence on page 31, added a 1 per cent consumer productivity dividend. And your evidence and your testimony yesterday was to the effect that you don't believe that any such consumer productivity dividend should be added to the historical TFP numbers.
10971 Is that right?
10972 MR. HARITON: That's correct, Mr. Engelhart, and there were two reasons for that.
10973 MR. ENGELHART: And can you repeat those two reasons?
10974 MR. HARITON: Yes, Mr. Engelhart.
10975 The two reasons are that, first of all, I would expect that what is called the consumer productivity dividend, otherwise called the stretch factor, really reflects the impact of shifting from one regulatory regime to another, from a rate base rate of return to price caps, with the accompanying incentives and flexibility to realign prices and so on. And I would think that a lot of the gains that can be achieved through that shift will be achieved in the first few years. I don't deny that there may be continuing benefits from doing that, but they would be much less than they would be in the first few years.
10976 The second point is that by calculating productivity on an historic basis, including years in which the price cap regime has been in effect, you are implicitly capturing some of that efficiency gain or new incentives because you are averaging in a number of years where these efficiency gains have been at play, and, indeed, those years where they have been at play the strongest. So that in fact you already have some productivity dividend built into the historic average.
10977 Now, as I did say to Ms Lawson, I believe it was yesterday, there is no good hard evidence as to exactly how big the productivity dividend should be in the second year of price cap regime. I have never seen that quantified anywhere. So it is, to a certain degree, a matter of judgment.
10978 My judgment is that using the historic average, which does build in some productivity, does provide an adequate amount, but, obviously, this is a judgment call. And if the Commission were to say, "No, it's a little bit bigger than that," I would be hard put to quarrel with that.
10979 However, one thing is quite clear to me, Mr. Engelhart, 1 per cent would be entirely too large and, I suspect, even an additional 0.5 per cent would be too large.
10980 MR. ENGELHART: And let's just review for a moment from the Bell evidence why it is that, as you say, we expect in the price cap period there to be some increased productivity compared to the period before price caps. If we could look at your evidence at page 40, in paragraph 4.7, and that paragraph is reviewing the Commission's determinations in 94-19. And your evidence states in the second sentence:
"For example, at pages 55 to 56 of Decision 94-19, the Commission noted the replacement of rate base rate of return regulation with price regulation will reduce the incentives and opportunities for companies to overinvest or misallocate costs..." (As read)
And jumping down to the third bullet:
"...provide incentives for telephone companies to be more efficient and innovative, since shareholders assume more of the risks and rewards of business decisions and retain the benefits of higher levels of productivity." (As read)
And then flipping over the page to paragraph 4.9, your evidence states:
"The Companies continue to support these determinations." (As read)
10981 So that's the issue that I think you have acknowledged: price cap regulation does create those incentives and will provide some stimulus to productivity. And I think what I just heard you say now is the matter -- the quantum of the stretch factor that should be applied is really a matter, in your view, of judgment.
10982 MR. HARITON: Yes, in the sense that I have seen no hard evidence. But on the other hand, that doesn't mean that we have no guidance at all, Mr. Engelhart.
10983 We do know, for example, that the easy gains are the ones that are made at the beginning. And, indeed, the numbers for the various telephone companies reflect that, in that there are certain new projects or certain inefficiencies, certain restructuring, certain consolidations, certain out-sourcing, that can be done relatively quickly. And after that, it becomes much harder.
10984 Now, again, I think we have agreed that there will still be opportunity for further gains, but the opportunity for further gains will be much smaller than they were in the original period. And this is why my position is that if there is a stretch factor, it should be small. There is already one in the historic estimate and there should not be an addition to that, But if the Commission were to choose to put one, it should be very small.
10985 MR. ENGELHART: Well, let's just put this into historical context by recalling your evidence at the first price cap hearing. We were in this same room and you were probably in that same chair.
10986 As I understand Bell's evidence at that time, you said that while there should be a stretch factor of .5 per cent, there should also be a shrink factor of 1.2 per cent, leading to Bell Canada's evidence in the first price cap period that you expected productivity to decline by .7 per cent compared to the historical numbers.
10987 Isn't that correct?
10988 MR. HARITON: That is correct, Mr. Engelhart. Again, as I am sure you will remember, the factor, the 1.2 factor that you just mentioned, was based on the premise, on the forecast, that local competition is going to come very quickly and that in fact local competition was going to be facilities based.
10989 By facilities based, I mean competitors providing their own facilities, including their own local loops. That, in itself, would have entailed all sorts of losses of economies of scale. I am sure you remember the discussion.
10990 As it has turned out, the base of local competition -- and here I mean facilities based; competitors using their own facilities -- has been a lot slower than we had anticipated back in 1996. As a result, the constraints in productivity growth that we saw at the time have not materialized.
10991 So the 1.2 in fact was premised on a series of events that did not come to pass.
10992 I would also add that other circumstances changed as well, and I mentioned some of them briefly yesterday.
10993 MR. ENGELHART: Picking up on your point that there is a certain amount of judgment inherent in figuring out the size of the stretch factor, we did review yesterday the evidence that we have available, which at least puts some parameters on that discussion.
10994 What we saw was that the productivity, which historically had been 4.3 per cent, jumped to a very healthy 7 per cent, an increase of 2.7 per cent during the price cap period.
10995 Your evidence yesterday was that some of that increase was attributable to the healthy economy. Your evidence today is that some of the stimulus from the price cap system will be more pronounced in the first period than in the second.
10996 With a jump of that magnitude, Mr. Hariton, 2.7 per cent from 4.3 -- which is quite frankly already a very productive telecommunications industry -- doesn't that very large increase during the first price cap period suggest that the 1 per cent that the Commission imposed during the first price cap period may in fact have been too modest and that continuing with that 1 per cent during the second period would be quite achievable?
10997 MR. HARITON: Towards the end of the day yesterday, I think we had a brief discussion that when you are looking at changes in TFP you have to look at a number of factors.
10998 I did mention some of them to you, which we can explore further if you want.
10999 I would like to also say -- and I think this is a very important point -- you cannot use a very short time trend to extrapolate, for a number of reasons. There will constantly be events that will be affecting the way your productivity moves. A lot of them are one-time events. However, over a longer period they will average out, and you will get a proper trend.
11000 If you look at a short time period you will not get that averaging out process, and you will be overly influenced by small things.
11001 For example, one of the things -- and you are looking at TFP now, I gather, Mr. Engelhart.
11002 MR. ENGELHART: Yes.
11003 MR. HARITON: Or are you looking at unit costs?
11004 Let's use TFP just to focus our attention perhaps.
11005 What you had in the last four years or the last three years, from 1998 onwards, was a dramatic increase in toll traffic and a dramatic increase in data traffic, and in fact a slowdown in local output.
11006 The toll traffic -- in 1998, for example, toll minutes increased by a very large amount and in 1999 again very large amounts due to price cuts which essentially brought us down to a $20 flat rate calling in the evenings for residential customers. That stimulated an enormous amount of minutes.
11007 This enormous amount of growth in minutes all counts as productivity. Given that you can put toll traffic over fixed facilities, you don't have to spend a lot more money on your facilities to accommodate the extra traffic, especially if it is off-peak. But it does count as additional output and therefore productivity.
11008 That is one of the major reasons for the jump in productivity that we do see for The Companies, not just Bell but the others as well.
11009 That has little to do with the form of regulation because toll, after all, was forborne in 1997 and the shift in type of regulation would not have affected that.
11010 The other very large cause of the increase in productivity over those years was the very fast growth in data traffic and related services. Once again what we are looking at is a jump of as high as 40 per cent in 1997 and subsequent jumps in 1998, and so on.
11011 A large part of this was due to new applications which included, for example, the growth of the Internet. It is hard to know where that growth is going to go in the future. But certainly in the past this was growth that was extremely fast and contributed an awful lot to productivity once again in a service that was essentially forborne. I fail to see how you could link a change in regulatory regime for utility services to the productivity increases for data due to the growth in data traffic.
11012 It is not at all clear to me that once a service is forborne, the form of regulation for your other services is going to have an impact.
11013 That is not to say that it doesn't have an impact on the utility. It certainly does. But indeed, when you are looking at the TFP numbers, the large changes you see for the years 1998, 1999 and 2000 come from the competitive side of the business.
11014 MR. ENGELHART: Your evidence here today is that the dramatic increase measured by the TFP numbers is attributable to increases in productivity in long distance and data; and that if we looked at productivity measures that only look at primary exchange service, we would not see a similar leap.
11015 Is that correct?
11016 MR. HARITON: Not quite, Mr. Engelhart. We would also see an increase, but we would not see an increase of the same magnitude.
11017 MR. ENGELHART: Let's have a look and see just what that magnitude is.
11018 Could you refer, please, to CRTC-105, attachment 1, page 11 of 11. This chart sets out the unit cost changes using the method that Bell Canada has proposed to use in this proceeding to measure productivity.
11019 Is that correct?
11020 MR. HARITON: That's correct, Mr. Engelhart.
11021 MR. ENGELHART: If we take an average of the numbers from 1989 to 1997, would you agree with me, subject to check, that average marginal cost number is .03 per cent, so almost zero, from 1989 to 1997, and that from 1998 to 2001 the average of those last four numbers there is 3.725 per cent?
11022 Would you accept that?
11023 MR. HARITON: Subject to check, Mr. Engelhart, I will accept your numbers.
11024 MR. ENGELHART: As we discussed yesterday, to convert these numbers into a productivity number we have to add the inflation rate.
11025 MR. HARITON: That is correct.
11026 MR. ENGELHART: We have the inflation rate. I don't think you need to turn to it.
11027 We have the inflation rate provided at The Companies(CRTC)1111, Table 1.
11028 MR. HARITON: I would rather turn to it, if you don't mind, Mr. Engelhart.
11029 MR. ENGELHART: Certainly. That is The Companies(CRTC)1111, Table 1.
11030 MR. HARITON: Yes, I have that, Mr. Engelhart.
11031 MR. ENGELHART: Keep your finger on 105, because we may be going back.
11032 MR. HARITON: I wouldn't dare drop it.
11033 MR. ENGELHART: If we look at Table 1, which is at page 2 of 3 -- I believe there are four different columns, but the inflation number that has your seal of approval is the chain GDPPI.
11034 Is that right?
11035 MR. HARITON: That is correct. This is the number that Statistics Canada is currently using.
11036 MR. ENGELHART: If we average those first nine numbers, I get 2.6 per cent. If we average the last four, I get 1.9 per cent.
11037 Have I averaged the correct two groups?
11038 MR. HARITON: I take the numbers you have given me, subject to check, as being the averages of the years you have stated.
11039 MR. ENGELHART: Right. If I then add that 2.6 per cent of inflation to the .03 per cent of productivity from 105, and if I add the 1.9 per cent inflation from 1111 to the 3.725 per cent of unit cost change from 105, using your method, the Bell Canada method, I get a 2.7 per cent productivity for the period before the price cap era and a 5.4 per cent productivity for the price cap period.
11040 Subject to check, would you agree with those numbers?
11041 MR. HARITON: I agree with the arithmetic, Mr. Engelhart. I am waiting for the interpretation you may put on the numbers, because I am not sure I will agree to that.
11042 MR. ENGELHART: The interpretation I would put on is that even when we take away the long distance and data services which you seem to feel had an undue influence on the TFP numbers, and even when we restrict ourselves to the Bell Canada approved method of calculating productivity, we see that the productivity estimate doubled during the price cap period.
11043 Doesn't that indicate that the additional incentives of the price cap period played a very large role in increasing productivity at Bell Canada?
11044 MR. HARITON: I would point out to you, Mr. Engelhart, just looking at Table 2 of 105, is the reason you are getting the very large difference between the two periods really comes down to one year, the year 2000.
11045 If you look at the year 2000, you will see there is a minus 13.4 per cent decrease, which is just huge.
11046 That suggests to me that what you are getting is a one-time event here which is distorting the time trend which you would be looking at if you were to look at a very short time trend of five points.
11047 Looking at five points will give undue influence to any one year. This is why I strongly recommend using a much longer trend.
11048 The point is that productivity comes from a number of sources including, as we mentioned last night, technology, restructuring and things of that sort. Many of these things are a one-time event.
11049 This table illustrates exactly that. If you were to take away the minus 13.4 as an exceptional event and redo the numbers -- I haven't done it yet -- I would expect the result to come out in line with the previous years.
11050 So what you are really saying is: Gee, we have one year in which your productivity took a big jump. As a result, we are going to forecast the next four or five years based on that one big jump.
11051 To my mind, that is unreasonable.
11052 MR. ENGELHART: Just so we are clear, I take your point that one does not want to base productivity forecasts of the future on a very few data points.
11053 I think there is common ground between RCI and Bell Canada that we need to go all the way back to 1988 and use all of that data in calculating the historical productivity and use that to forecast the future productivity. RCI's evidence does not suggest that the 7 per cent over the last four years should be the basis on which productivity estimates are calculated on the future. No, we go back all the way to 1988.
11054 Where I think we are disagreeing, or where the two pieces of evidence disagree, is that I am saying that theory tells us that under a price cap period because companies are no longer rate of return regulated, because they no longer have to give back the benefits of their productivity to their subscribers, because they get to keep it for their shareholders, they will devote more energy and creativity to being productive. That theory seems to be borne out amply by the evidence no matter which method we use.
11055 Even taking into account that the price cap era had a healthy economy, we seem to have a dramatic increase in productivity. Even taking your point that some of it is due to the economy, even taking your point that some of it represented the low hanging fruit of early gains, the evidence just seems so overwhelming that I am having trouble understanding your judgment that the stretch factor must be very small.
11056 The theory and the evidence would seem to suggest that the stretch factor, to compensate for the fact that our series has a great many years from the rate of return era, that stretch factor of 1 per cent would seem to be well within the bounds of judgment.
11057 So can you help us as to why despite that theory and despite this evidence you are so convinced that your judgment is so strong that the stretch factor should be very, very small?
11058 MR. HARITON: Again, Mr. Engelhart, the numbers you are showing me and the theory you are putting forward do not in my mind negate -- sorry, let me start that sentence again and try to put it into English.
11059 I don't disagree that a 1 per cent factor was appropriate for the period from 1998 to 2000. What I am saying is that in my judgment to continue a 1 per cent factor going forward would be too large. The reasons I think we have already canvassed. We have said that a lot, and in your words, "the low hanging fruit" have been picked off. You do see some -- one very large one time event.
11060 It is a matter of judgment at the end of the day as to how large the stretch factor -- the impact of moving to price cap regulations should be. It seems to me that many if not most of the gains will have been achieved in the period in which you are actually looking at the ones you are showing me. In fact, that confirms in large part the theory that you do get large gains at the beginning. It says nothing to what the gains should be in the second price cap period.
11061 I would say that in any organization, and especially in telecommunications, productivity at the end of the day is driven by technology. That is the long-term driver and this is one of the factors we mentioned on Friday. Technology itself and technological improvement will not fundamentally be altered by the forces we have been talking about. The forces we have been talking about tend to have short-term effects. The long-term trend is still technology.
11062 I don't know if this will be helpful, Mr. Ryan. There is an interrogatory -- I called you Mr. Ryan, again, didn't I?
--- Laughter / Rires
11063 MR. ENGELHART: Again, I take no offence.
11064 MR. HARITON: Mr. Engelhart, the reason I called you Mr. Ryan is I was about to turn to an AT&T(The Companies) Interrogatory No. 9. You needn't turn to it. I will just read a sentence from it to you. It says:
"Factors affecting year over year as well as longer term TFP growth include output growth, economies of scale, economies of scope, technological change, product and service innovations, cost control programs and changes in relative output and output prices. In addition, as in the case of the ILECs, changes in the regulatory regimes such as a shift from rate of return to pure price caps can be expected to have a significant impact on private performance." (As read)
11065 I would totally agree with that interrogatory response, and I would say that these are all of the different factors, perhaps with different labels attached to them, that we did discuss late yesterday evening.
11066 But, again, the very important factor is that you do have technological change which is coming along. You do have all of these overlays over it. There is no reason, empirically, to believe that a stretch factor or the change from rate base rate of return to price caps will have a persistent high impact. That it will have a persistent impact I would agree, but that the impact will diminish over time is something which seems to me reasonable and I would say almost obvious.
11067 MR. ENGELHART: But when we look at the evidence and we see the 2.7 per cent increase in the TFP, the doubling using your unit cost method, we have no way of knowing whether the stretch factor turned out to be 1 per cent or whether the added incentives of the price cap system led to more productivity improvements or less productivity improvements.
11068 You can have your judgment on that, but ultimately we have no way of disaggregating that 2.7 per cent TFP number and figuring out how much was attributable to the price cap system.
11069 Is that right?
11070 MR. HARITON: That's correct. We do not have rigorous arithmetical decomposition. What we do know is some of the factors that were at play over this period. We have talked about them again at some length. I'm not sure that repeating it would be all that useful, but we can if you want.
11071 MR. ENGELHART: Okay. I would like to turn to a related matter which really came out of a previous discussion and that is an analysis of the unit cost method of calculating productivity which Bell Canada favours. I think we were looking at 105, page 11 of 11. That was the table that showed your -- the unit cost changes and you remarked about the sort of spectacular outlier in the year 2000. I guess I wanted to talk about that a bit.
11072 Maybe we could compare The Companies(CRTC)105 which sets out the Bell Canada unit cost measurement with The Companies(CRTC)102, abridged update, page 3 of 8, which has the total factor productivity method used by the Commission in the current price cap regime and favoured by RCI in this proceeding.
11073 So comparing those two columns of numbers let's have a look first at the TFP numbers at The Companies(CRTC)102, page 3 of 8.
11074 We see in 1988 we have a productivity of 4.9. It makes a healthy jump up to 7.0, an increase of 2.1, another sizeable drop down to 4.6, then it declines by 0.4, then it declines by 1.2, declines substantially down to 0.6, goes back up to 3.0, stays at 3.0. So we see year to year movements of about 2.5 per cent, reflecting some years better, some years not so good, for total factor productivity of Bell Canada.
11075 But then when I look at your marginal cost method at 105 I see some very wild swings. I see dramatic changes in productivity measurements.
11076 So if I look at 1989 the productivity -- the Bell Canada residential primary exchange service became 1.3 per cent more productive in 1989, fair enough. Then in 1990, it became 5.3 per cent less productive. It got wildly more expensive to provide telephone service in Bell Canada territory. Then in 1991, huge savings. It goes from between 5.3 per cent more expensive to 4.2 per cent less expensive and then the following year 5.8 per cent less expensive. We see if we carry on with this series these wild swings from the service -- from the productivity measurement showing that it is getting more productive to some years it is -- the productivity is going the other way.
11077 Now, I know what you are going to say, which is that you have to add the inflation to that in order to really come up with the productivity number and rather than go to 1111 and add them back and forth in our heads, Mr. Briggs stayed up late last night preparing an exhibit. I believe it has been provided to you this morning?
11078 MR. HARITON: Yes, that's correct.
11079 MR. ENGELHART: It's an exhibit, Mr. Chairman, called "Bell Canada - X-Factor Using Phase II Costs."
11080 Does Table 1 reflect an appropriate way of adding the inflation to the unit cost change to achieve a productivity factor, Mr. Hariton?
11081 MR. HARITON: Well, subject to check.
11082 I notice there are two pages and that you have added inflation in different ways in the different tables.
11083 MR. ENGELHART: Mr. Briggs is uncertain whether you lag the inflation by a year or not. I'm convinced that you do.
11084 MR. HARITON: No, we -- actually, we do not.
11085 MR. ENGELHART: Oh.
11086 MR. HARITON: There is an interesting question here. One could argue that you should use the mid-year inflation and actually go somewhere between the two.
11087 At the time, we assumed that the cost study would be effective January 1. That's what it is intended to do. So we used the productivity accordingly -- sorry, inflation accordingly.
11088 But if your point is that we should have done a mid-year adjustment then I would agree that's appropriate.
11089 MR. ENGELHART: So if you are in the camp that says no lagging I think that would take us to page 2 of 2. Table 1 is including the impact of a new loop survey and --
11090 MR. HARITON: I believe I'm -- sorry. Sorry.
11091 I believe I am on Table 1 because the number that I have used, as you know, is 3.5, which is the number you find on Table 1 on page 1.
11092 MR. ENGELHART: Okay. Stick with page 1, Table 1 then --
11093 MR. HARITON: Yes, please.
11094 MR. ENGELHART: -- subject to check.
11095 Again, even though we have now added inflation, I guess I am looking at some pretty wild swings -- 5.9 per cent in 1989. Then it gets more expensive to provide phone service. Cheaper until 1996, and then it gets more expensive and more expensive and that 2000 year where it gets 15.3 per cent less expensive. I am seeing some wild swings and peaks compared to the TFP numbers.
11096 MR. HARITON: Yes.
11097 MR. ENGELHART: And I wonder if you could explain why that would be, Mr. Hariton?
11098 MR. HARITON: Yes, there is a number of explanations. But let me preface that by saying that when one looks at productivity it can be misleading to look at productivity changes year by year.
11099 With your permission, Mr. Engelhart, I just want to cite a line or two from a Statistics Canada study on productivity. This is a publication from this spring where they say -- they are talking about economy wide but they say:
"The volatility in these estimates mean that changes in longer run trends are difficult to detect in the short run. An evaluation of the performance of productivity is best done using data over longer periods than just from peak to peak of an economic cycle."
11100 The real quote is:
"Reading too much into any particular year's productivity estimate is risky because high levels of growth in one period are often followed by low growth in the next. It is the long term growth of productivity over the cycle that is most meaningful."
11101 So they are making the point that quite often in productivity numbers, you are going to see a high growth followed by a low growth.
11102 In this case, we are seeing a positive followed by a negative. A large part of that is due to the fact that now we are talking about a specific service, costing about a specific service, where you may have an improvement in one year and the improvement in that year will carry through for two or three years.
11103 So what you will have seen is a big dip in one year followed by a levelling or even a rebound in the next year. That is due to the nature of the indivisibilities. You make a change and the change will then carry through for a couple of years and then you implement another change and that carries through and that does give you a saw-toothed pattern.
11104 This is much more noticeable if you are at the service level than if you are at the company-wide level because, if you are at the company-wide level, you will have different things happening in different services which are not in synchronous, if I can call it that. So what you will have is some improvement here and then some improvement there and on average, you will get a smoothing out.
11105 If you are looking at a given service, you will have a much more volatile series and, indeed, this is what one would expect to see.
11106 MR. ENGELHART: Well, I take your point but I guess what I am interested in exploring with you, Mr. Hariton, is the extent to which this volatility might be due to some inherent weaknesses in Bell Canada's method of calculating productivity. I want to compare your method with the TFP method.
11107 Would you agree with me that the TFP method uses real numbers from your financial books, it takes a look at the actual outputs and inputs of Bell Canada to calculate the total factor productivity?
11108 MR. HARITON: Yes, it does.
11109 MR. ENGELHART: And what you have done with your method is you have said: Well, we just want to look at primary exchange service in the RES market and we don't have those numbers. So we will look at the historical changes in our Phase 2 studies.
11110 That's how you have done your calculation, isn't it?
11111 MR. HARITON: That's correct.
11112 MR. ENGELHART: But the Phase 2 studies, I think you would agree with me, are forecasts. They are not actual recorded costs. They are forecasts that you made as to what the costs were going to be.
11113 MR. HARITON: They are based on forward-looking costs, incremental costs, that's correct. The reason I am hesitating is when you use the word "forecasts", there are some elements in the Phase 2 -- let me go back.
11114 A typical Phase 2 cost is indeed based on the forecast of demand for a number of years going out, five or seven or ten years. The cost studies we have done here typically use one year's worth of demand and then look at the consequence of provisioning that one year over a 20-year period, including replacement of capital, new injections and so on.
11115 But the forecast of demand in these studies is, in fact, not the typical five year or 10 year that you might see in an economic study but rather costing out the current -- well, one year's demand going forward.
11116 So in that sense, while there is a forecast involved, I would not want that forecast to be overstated.
11117 MR. ENGELHART: So you forecast the demand and then the costs, as I understand it, don't get sort of measured and written down in your financial books. The costs are used as inputs into models.
11118 MR. HARITON: That's correct.
11119 MR. ENGELHART: Right. And the Phase 2 has a bunch of models and the models are used to produce forecasts and that gives us a number for each year. And then, you have taken those historical changes in those forecasts, you have used various statistical judgments to smooth out methodological changes and that is how you have arrived at your productivity estimate?
11120 MR. HARITON: We have gone back -- yes, essentially, although I would use slightly different words for some of that. Let me just do that.
11121 We looked at the results of the studies year by year, we observed that there were changes both in service definition over time and also in some cases in methodology. To get a consistent time series, we adjusted for those. So we did do the adjustments to make the time series consistent and then we produced the trend that you see here, that's correct.
11122 MR. ENGELHART: Well, let's have a look at one of these Phase 2 studies to see how this is done. The Park studies that underlie your time series were produced at RCI-18, The Companies(RCI)18. Let's have a look at The Companies(RCI)18, attachment 9 and, in particular, let's have a look at page 13 of attachment 9.
11123 So this is one of those Park studies that has gone into the series, this is actually the 1997 costs or cost estimate. If I look on the front page, I see it was prepared in June 1997. So it's halfway through the year. Let's have a look at page 13. This is at the top of that page, we see how the company calculated functional operating expenses.
"Functional operating expenses (FOE) are unit costs representing activities such as billing and collections, marketing and advertising, products and services, et cetera. The FOEs have been updated to 1996 levels and inflated to 1997, using expense increase factors adjusted for expected productivity gains." (As read)
11124 So the thing that concerns me about seeing this, Mr. Hariton, is it looks to me like these Park studies are themselves estimates of productivity gains. So when you estimate productivity by looking at the changes in Park studies, you are estimating productivity by looking at your estimates of productivity. It's a wholly circular process and we don't seem to be really using real numbers anywhere in the process, or not many real numbers.
11125 MR. HARITON: Let me explain a little bit. This study was done, I believe, before the activity base -- this was the last one done, I think, before the activity-based costing process was put in place.
11126 What was done at that time, we did study the different activities periodically. We couldn't study them yearly simply because there is too many of them and it was too time consuming. So what the study says is that we last studied these activities in 1996.
11127 To get 1997 levels, at that time, what we did is we looked at what -- our expense increase factors. This is the prices we pay for labour and so on, inputs. And then we recognized that there was some productivity in the company. I would have to check exactly what the expected productivity gains were. I suspect they were probably a TIP factor, but I would have to check that. Then, we used the resulting costs for 1997.
11128 Since then, we no longer do that. What we do is we have a yearly study due to the activity-based costing system, which we have talked about before. And so, this updating between years is no longer necessary. What you get each year is the costs as they are seen in that year going forward.
11129 So in that sense, Mr. Engelhart, I don't think that it is circular. On the contrary, what you are getting is you are getting input from a variety of sources, trying to reflect the best estimate we have.
11130 MR. ENGELHART: Well, hang on a sec.
11131 I mean, you have just told us that the way you did it before 1998, you now feel to be not as good as the way you do it now. So, you are telling us that of the 13 data points in your time series, nine of them were calculated using Park studies which you now believe to have a methodology which is inferior to the one you are currently using.
11132 Shouldn't that make us question the unit cost, the calculation that you have put forward in this hearing?
11133 MR. HARITON: No, Mr. Engelhart. Well, let me put it in two stages here.
11134 First of all, we try to improve the quality of our studies continuously by going to better data sources and to better analyses and, if there is a new tool that comes available, we will use it.
11135 While I would expect the new tool to give more accurate numbers in the sense that you will get more precise numbers, by and large, the old method used the same principles, used many of the same studies and, as a result, gave you numbers which, while not as precise -- so the old numbers might have out by 1 or 2 or 3 per cent -- nevertheless, overall, gave you the same order of magnitude of results as if you had used the same -- the more recent studies.
11136 It's the nature of costing that you try to get better over time, that you will get better numbers. That doesn't mean that you should discard the old ones. The old ones are still the best that was available at the time.
11137 MR. ENGELHART: Well, let's flip over a couple of pages, to pages 15, where we see "Generate outside plant costs", and I am reading from that paragraph:
"The generation of prospective incremental capital costs for feeder distribution and drop-ware facilities is performed by the outside plant access costing system OPAC's model. Basic inputs are the growth technology costs for cable as well as network information at the exchange level describing the loop make-up, loop links, cable sizes, cable gauges, by service. The outputs of the model are prospective incremental capital costs by rate group and/or density band at the service level." (As read)
11138 So when it says that one of the inputs is the network information at the exchange level describing the loop make-up, links, cable sizes, cable gauges, is that our old friend, the 1981 now discredited loop study?
11139 MR. HARITON: It was our old friend the 1981 loop study, that's correct.
11140 MR. ENGELHART: So this OPAC's model, I think you would agree with me, like any other forecasting model, is only going to be as good as the input information that goes into it.
11141 Is that right?
11142 MR. HARITON: That's correct.
11143 MR. ENGELHART: And if the input information is inaccurate, then the forecast generated by the model will be unreliable.
11144 Is that right?
11145 MR. HARITON: That's correct.
11146 MR. ENGELHART: Thank you, gentlemen.
11147 Thank you, Mr. Chairman, those are my questions.
11148 THE CHAIRPERSON: Thank you, Mr. Engelhart. Mr. Secretary.
11149 MR. SPENCER: Yes, Mr. Chairman, I would like to enter two exhibits. The first document "Bell Canada X-factor Using Phase II Costs" will be entered as RCI Exhibit No. 4 and we also have Mr. Bruckshaw's CV which will be The Companies Exhibit No. 17.
11150 Thank you.
EXHIBIT NO. RCI-4: Table entitled Bell Canada X-factor Using Phase II Costs
EXHIBIT NO. THE COMPANIES-17: Mr. Bruckshaw's CV
11151 THE CHAIRPERSON: Thank you, Mr. Secretary.
11152 I believe those are all the parties to cross-examine this Panel so, we will now turn to Commission counsel.
11153 Counsel Moore.
11154 MS MOORE: Thank you, Mr. Chairman.
EXAMINATION BY / INTERROGATOIRE PAR
11155 MS MOORE: First, I would like to just put to you a question with respect to the exogenous factor that was referred to you by a previous panel. It's in respect of the evidence filed by ARC at page 10, paragraph 47.
11156 In that paragraph they state that:
"It is unlikely that the reduction in provincial taxes are fully reflected in the Canada-wide GDPPI which is used for the current price cap".
11157 Do you see that statement?
11158 MR. HARITON: Yes, I see it.
11159 MS MOORE: And I wonder if The Companies agree with this statement.
11160 MR. HARITON: The difficulty is the following, Ms Moore. What you get over time is you get a series of events in a series of provinces which may or may not be synchronous and they tend to move together over time so that if you are looking at inflation in different provinces, you will see that the inflation rates are roughly equal.
11161 It's certainly true for the larger provinces. I looked at some numbers last night and see that, for example, using CPI over the period of say 1986 to 2000, the CPI was not that different from province to province. I could file this if you want to show you exactly what is happening.
11162 But the point is that, yes, maybe there is going to be a tax cut in Ontario one year. There will be tax cut in Alberta another year. Another year, another province is going to do something. In another year, another province will do something else. So you will have a series of province-specific events. By and large they do cancel out and we feel comfortable in using a national inflation measure to capture inflation province by province.
11163 The alternative is to go to a provincial -- in my mind, the best alternative is to go to a provincial measure of inflation. That is certainly possible. I don't know of many jurisdictions that have done that. They tend to use a national inflation number and the reason for that, as I say, is -- well, there are several reasons.
11164 One is that inflation over a number of years tends to be the same across provinces, but the second one is that when you start looking at province-specific inflation measures, they tend to be less reliable than the national ones in the sense that the national one gets more attention, more scrutiny, more use and so to my mind, it is preferable to have a national inflation measure than to have a number of provincial inflation measures.
11165 As far as the impact on any exogenous factor is concerned, first of all, I note that The Companies in this proceeding are not proposing the traditional exogenous factor, but even if they were, this kind of change, change in provincial income tax, would affect everybody operating in that province, not just the telephone company, and therefore would not be appropriate as an exogenous factor. It's much better to pick it up in the inflation factor. Make it provincial, if you must, although I would not recommend that.
11166 MS MOORE: So I take it that you wouldn't take the position that the provincial tax rate changes are fully reflected in the rate of inflation, but using the rate of inflation as the best method given the problems you see with going to a provincial measure.
11167 MR. HARITON: I would say that the provincial tax rate is fully reflected in the national inflation measure along with a lot of other things. So that, in fact, because of the weighting it won't show up with the same weight in a national inflation measure as it would in a provincial inflation measure.
11168 If you want to capture provincial province-specific events very, very carefully, obviously you go to a province-specific inflation rate. Should you do that, again the numbers I have here say no, because there are offsetting events in different provinces.
11169 Let's be intuitive about this. It's unlikely that tax rates in different provinces are going to be moving in radically different directions from each other. Alberta may go first. Ontario will follow. British Columbia will follow with another lag. So I don't see the big problem.
11170 MS MOORE: Could you undertake to file the numbers that you have referred to in this regard?
11171 MR. HARITON: I would be happy to.
11172 MS MOORE: Thank you.
11173 Just one last thing on this point, just to confirm that with respect to federal tax, would you consider that that is fully reflected in the rate of inflation?
11174 MR. HARITON: I would, again with the usual caveat that there are a lot of things in there, but surely federal income tax would be fully reflected, yes.
11175 MS MOORE: Thank you.
11176 Now, I would ask you to turn to The Companies(CRTC)16March-105 at page 44.
11177 MR. HARITON: Yes, Ms Moore.
11178 MS MOORE: At the last paragraph The Companies have proposed a 3.5 per cent target productivity offset factor for the Phase 2 cost component of the TSR or Total Subsidy Requirement for high-cost serving areas.
11179 MR. HARITON: That's correct.
11180 MS MOORE: The Commission might determine that in addition to an X-factor adjustment for the TSR that there should be an X-factor in a new price cap formula in respect of some or all baskets. I wonder whether, in your view, the 3.5 per cent that you have proposed for the TSR would be an appropriate productivity offset for some or all of the baskets under the price cap regime. So in other words, should the X-factor for the price cap formula be the same as the X-factor for the TSR?
11181 MR. HARITON: I know you have had a discussion earlier with Mr. Nicholson and Mr. Farmer about X-factors and I won't go there.
11182 In my mind if you are going to choose an X-factor you should try to base it on services that match the basket that they are looking at applying to. So that if you were to, for example, look at residential services, an X-factor for residential services everywhere in non-HCSAs and HCSAs, I would use the same 3.5.
11183 If you were looking at capping a mix of residence and business services and applying an X-factor to that, then I would use a weighted average of the 3.5 which you get for residential and then I would turn you to 102 where we would get a similar number for business services and we would do a weighted average of those two.
11184 Now, if you had something else we would have to taylor it to whatever basket you were contemplating.
11185 MS MOORE: Right. Now, would you agree in general that The Companies would be more productive in non-high-cost serving areas than in high-cost serving areas?
11186 MR. HARITON: Yes. I believe that productivity is harder to achieve in high-cost serving areas than in non-high-cost serving areas. Just to expand on that for a minute, if I may. I did get some numbers from my friends in SaskTel which, to my mind, is the extreme example of what happens if you are in a high-cost serving area where things are indeed high.
11187 In their case, I did take a look and there are at least two factors that were at play. One is that in their high-cost serving areas growth, generally speaking, is slower than in the rest of their province.
11188 Indeed, their rural population is shrinking so that when you have a shrinking population base and a very slow line growth what you get is less opportunity for putting in new technologies and for putting in new processes. You also have the very fact that you don't get the benefits of as much economies of scale, economies of density as you otherwise would.
11189 The second factor, again illustrating using SaskTel, is your loop, the cost of your loop will be a greater proportion of your total cost in rural areas than in urban areas and I know that's not exactly HCSAs, but it doesn't overlap.
11190 Now, over time, although the cost of the actual copper pair, or copper cable, is going down, as you would expect, the cost of installation is actually going up so that if anything the cost of loops all in, installed first cost, is actually going up over time.
11191 Since the loops are a more important component of total cost in rural areas than in urban areas, therefore it's harder to get productivity increases in rural areas.
11192 I hope that's helpful.
11193 MS MOORE: Now, is it possible to estimate in rough general terms, or even in order of magnitude sense, what the difference would be between high cost and non-high cost. Would it be one 1 to 2 per cent, for example, difference in productivity overall?
11194 MR. HARITON: I don't have a number for you. What I have are these piece parts, as I have mentioned, and I can certainly give you the numbers for the piece parts, but I haven't done the exercise to put it together and come up with an overall productivity number.
11195 It could be 1 per cent lower, I don't know. I am speculating at this point. All I know is that the evidence I have shows that it is lower.
11196 MS MOORE: But you would undertake to file those piece parts as you call them.
11197 MR. HARITON: Yes, I would be happy to.
11198 MS MOORE: Thank you.
11199 Now, I would like to follow up on a question that was discussed with you yesterday with Mr. Engelhart and not Mr. Ryan.
--- Laughter / Rires
11200 MR. HARITON: I will try to not call you Mrs. Ryan.
11201 MS MOORE: Okay. Thank you.
--- Laughter / Rires
11202 MS MOORE: I'm sure that Mrs. Ryan would appreciate that.
11203 Yesterday you took him to a 4.7 per cent X-factor using the TFP approach and I wanted to confirm with you that this 4.7 per cent was based on the Bell TFP for the period of 1988 to 2000.
11204 Is that correct?
11205 MR. HARITON: Yes. We used the 5.0 per cent for the Bell TFP for 1988 to 2000. However, I did also take a look at telco industry-wide numbers where I averaged across those numbers for which I had 1988 to 2000 data which is Bell, Island, Maritime Tel and Tel, NBTel and I also found a TELUS interrogatory that gave me numbers. It turns out that the average across all those companies also turns out to be 5.0.
11206 So although I did use Bell, I think the number is applicable to the industry as well.
11207 MS MOORE: So in your view, as it basically amounts to the same thing, it doesn't matter whether Bell TFP or industry weighted TFP is used.
11208 MR. HARITON: That's correct for TFP. I think that the numbers come up pretty close.
11209 MS MOORE: Now, if you could look at interrogatory response RCI(CRTC)3100, attachment 1.
11210 MR. HARITON: RCI(CRTC).
11211 MS MOORE: Correct.
11212 MR. HARITON: Give me a minute.
11213 MR. HARITON: I have the right binder. Could you give me the reference again?
11214 MS MOORE: Yes. It's attachment 1 of interrogatory 3100.
11215 MR. HARITON: RCI(CRTC) --
11216 MR. HARITON: I'm sorry. I had the binder upside down.
11217 MS MOORE: That could lead to some interesting results.
--- Laughter / Rires
11218 MR. HARITON: Yes, I believe I have it.
11219 MS MOORE: So RCI has calculated an industry-wide TFP revenue weighted for the period of 1998 to 2000 as 5.06 per cent, or 5.1 per cent. Would you agree with that?
11220 MR. HARITON: Let me navigate the table first. If you would just give me a minute.
11221 MR. HARITON: You are looking at the -- which column are you looking at? I'm sorry. Can you help me? Oh, the total column here. I see, the 5.06 per cent, yes.
11222 MS MOORE: Right. And I may have said 1998 to 2000, but I was to say 1988 to 2000.
11223 MR. HARITON: That makes sense to me. Right.
11224 MS MOORE: So if we took the economy-wide productivity numbers of minus 0.7 per cent and the input price numbers of plus 0.4 per cent that you mentioned yesterday, then is it correct to say that we would come with an X-factor of 4.8 per cent and this would not include any stretch factor?
11225 MR. HARITON: Yes, I had a 4.7, but I suspect there is some rounding going on here. I would caution you -- I would put one caution on the calculation you have just done and that is that in your input price differential you have used economy-wide prices versus Bell prices. I haven't got the industry number because I don't know what TELUS' input prices are. I would expect them to be not that far from Bell's, so I would expect your calculation to be approximately right. But, again, I don't know that.
11226 MS MOORE: Mr. Chairman, I have about five to ten more minutes. Shall I proceed or shall we take a break?
11227 THE CHAIRPERSON: No, proceed and then -- we will finish counsel's questions and then we will take our break, and I understand there will be a few questions from Commissioners.
11228 MS MOORE: Thank you.
11229 I would like to turn now to some questions relating to quality of service. And if you could turn to The Companies evidence at page 115, paragraph 9.7.
11230 So in that paragraph The Companies comment on customer specific rebates. And they note a passage from the Commission's Decision 97-16 and they indicate that they concur with this passage. And in the second paragraph of the passage that is quoted, the Commission stated:
"The Commission notes, however, that a mandated rebate scheme is difficult to administer fairly in that what is deemed just compensation to one individual may not be sufficient to another. In addition, a telephone company may decide that providing rebates is less expensive than maintaining good service quality." (As read)
11231 Now, you have indicated that The Companies concur with this in respect of customer-specific rebates. I wonder if, in your view, the same concern can arise with respect to a Q-factor approach.
11232 MR. PARK: Well, fundamentally, the Q-factor approach is one way of returning a company-wide miss, where this is really referring to customer-specific misses. So I think it can apply in that sort of same way. This paragraph still stands and we agree with it, and the Q-factor approach is something entirely different.
11233 MS MOORE: So, in your view, there wouldn't be a concern that a telephone company might decide that to make the payments that could be required under a Q-factor regime would be less expensive than maintaining good service quality?
11234 MR. PARK: Well, what I think is at play here, I think it's very expensive to do customer-specific rebates. We would have to modify quite a number of our systems and so forth. So from that point of view, a customer-specific rebate is very expensive. Going to a Q-factor from the rebate plan that we have proposed is obviously not that expensive, from that point of view. So that is what I'm trying to separate here.
11235 MS MOORE: And so given the distinction that you are making, in your view, is the idea expressed in that second paragraph of 97-16 that you quoted, does that have any application to a Q-factor scenario?
11236 MR. PARK: Not particularly, no.
11237 MS MOORE: Thank you.
11238 In paragraph 9.5 of your evidence, The Companies describe their proposed residential service quality guarantee. And in the fourth bullet, The Companies state that:
"The assessment of penalties should be triggered by the same events that trigger exception reporting requirements in order to mirror the established Q of S regime as closely as possible." (As read)
11239 Now, assuming that current indicators and standards are maintained, could you please elaborate on why it's important, in your view, to have the same triggers for penalties as for exception reports?
11240 MR. PARK: I think in arriving year's ago at the exception reports, the trigger was, essentially, a persistent quality of service problem, and that is what led to the rules around three months of misses before you get into the action planning and so forth. And it's in that light that we have some of the other complementary principles just stated before that that suggest that you need a persistent problem to trigger the event. And that is, really, where this comes into play. So we are just trying to make the thing sort of self-consistent, if you will.
11241 MS MOORE: And what specific disadvantages do you foresee if this were to be adopted and yet there were to be different triggers for penalties than for the current exception reports, for example, if a one-month miss triggered a penalty?
11242 MR. PARK: There wouldn't be any practical differences. Yes, we could, in fact, if the Commission decided, have a penalty on a monthly basis and still file action reports on a -- triggered after three months. That, obviously, can be done.
11243 MS MOORE: I just want to follow up a little further on your positions regarding triggers for penalty. And there was some discussion yesterday about penalties being triggered after three consecutive months, but also with respect to seven out of twelve months, and it just wasn't clear to me whether you meant seven consecutive months or seven months in total out of twelve.
11244 MR. PARK: I think when we referred to it, and I believe it's in one of the interrogs, it was seven months out of twelve calendar months.
11245 MS MOORE: Thank you.
11246 Now, I just want to solicit your view on a further potential trigger of a penalty. So assume that a company missed the first two months of each of the first three-quarters of the year -- so January-February would be missed, April-May would be missed and July and August would be missed. So this would result in six months total, out of nine, and yet it wouldn't have the three consecutive months. In your view, would it be appropriate for a penalty to kick in, in light of that kind of pattern?
11247 MR. PARK: No. And I think consistent with what I have said all along, I think it really is the three months persistent. I think what you are getting at here is: is there some underlying incentive to never miss the third month, so that, in effect, you are never in the penalty-ready state? And I acknowledge that there is some obvious incentive because of just the manipulation, if you will, of the numbers. But, again, very difficult to tune our resourcing, and so on, to get there.
11248 So that is really -- I really stick to we really would like to see three months and not this kind of pattern. We really don't want to get into this kind of pattern, obviously, but that is really the -- and I stick to what I said yesterday on that.
11249 MS MOORE: And just to go back for a minute, when we were discussing the seven months out of twelve months, are you speaking of a calendar year or a rolling year?
11250 MR. PARK: We are speaking of a calendar year, I think, to emulate what we have done in the past in this regard.
11251 MS MOORE: Thank you.
11252 Now, I don't think you need to turn up this interrogatory, but my reference is The Companies(CRTC)1504, where you state that, a Verizon type of plan could penalize The Company for non-persistent quality of service problems that have occurred for reasons beyond The Companies' control. So let's assume that, for the sake of discussion, natural calamities like the ice storm or the Red River flood are accepted as being outside of your control.
11253 Are there any other types of categories of factors, other than natural calamities, that, in your view, would improperly penalize the company if they were considered -- if it was not considered that they were out of your control?
11254 MR. PARK: Well, I think the sort of force majeure clause I acknowledge that if there is a large thing like an ice storm that those would be excluded. I think, then, the question becomes one of degree. At what point does one judge whether these one-month problems are in fact exceptional or not? Does record rainfall in the year 2000 constitute, you know, a reason to have a penalty. I don't know.
11255 So all in that is a question of degree. And that is why the monthly time period may be too short. And we really don't want to get into this exception debate, if you will, this debate of what should be excluded or included on a monthly basis, even in light of some fairly normal events, if you will, but can manifest themselves differently in different time periods.
11256 MS MOORE: So there aren't any other types of factors that I have heard you mention?
11257 MR. PARK: No, there are not.
11258 MS MOORE: Okay. You are really speaking of natural calamities.
11259 I would ask you now to turn to CRTC Exhibit 15 and to Table 1, which is titled, "Months Below Quality of Service Standards." And this is for Bell Canada.
11260 Looking at the table, it appears that for 1998, six of the indicators listed there recorded misses; in 1999, nine indicators were missed; and in 2000, nine indicators were missed again; and that in the year 2001, only one indicator has been missed.
11261 Do you agree with that general overview?
11262 MR. PARK: That's correct.
11263 MS MOORE: I would like to turn to indicator 2.2(a). And as you are aware, and as we have discussed with others, in Decision 2001-217 the Commission directed The Companies to report 2.2 and 2.6 separately, commencing in the third-quarter of 2001. And I wonder if you could describe what the problems have been in separating the data. And I wonder if repair appointments for competitors are handled in exactly the same way as repair appointments for others or not.
11264 MR. PARK: The repair appointments are streamed through the same systems. And, therefore, to isolate different customers in the same systems, we have had to modify our repair appointment systems to track customers separately, whereas in the past, we would not have, and that systems work had to be done to in fact do the separation. That work is now complete and undergoing a variety of tests to make sure it's right, and, therefore, we will be able to comply with the separation going forward.
11265 MS MOORE: And just for the historical periods, would you have any information to indicate whether missed appointments were primarily on the competitors' side or the consumers' side?
11266 MR. PARK: Not the appointments themselves, although, obviously, the volume of appointments for competitors versus retail customers -- I mean, the volume is about 1 per cent -- would be about 1 per cent leading up to this period of time. So if you look at, say, September 2000, or some number like that, the competitor appointments would be about 1 per cent of the total volume.
11267 Now, how much that would affect the weighted average of the end result, obviously, it's a fairly small number, so it wouldn't have that large an effect on it.
11268 MS MOORE: Thank you.
11269 Now, with respect to indicator 2.5, access to repair service, it appears that this indicator was missed in all of the years on the table, including two misses in the first six months of this year. And I wonder if you can describe what the problems have been with this indicator, including, in particular, the causes for the two misses this year.
11270 MR. PARK: I don't have the reasons for the two causes this year, although they both missed by only 1 per cent. So I don't have the cause of that.
11271 Some of the effects in the prior years was, as we have noted in some of our action plan reports, caused by the introduction of a new work force management system. That management system essentially takes the work force and matches it to the repair load that is given on any given day, and in launching that system, we have had some difficulties and teething pains in matching the force to load.
11272 As well, the technicians were not closing off their tickets in the new system when the customer problem was cleared. So, in effect, they were adding time to the repair, even though the customer didn't view it that way, and we believe about 5 per cent of our misses in late 1999 and early 2000 were caused by that. In other words, we actually missed some indicators that we don't believe we really missed because of this new system introduction.
11273 We trained and retrained the technicians to ensure that they used the system properly, and that problem has, obviously, gone away. So that's really -- in fact, I think we would have, if we had gone back, and could have gone back, we would have revised some of the 1999 and 2000 numbers, which we can't do, but we probably missed a few just because of that.
11274 MS MOORE: With respect to the two misses for this year, could you undertake to provide the reasons for those misses?
11275 MR. PARK: Sure.
11276 MS MOORE: Thank you. I would like you to turn to another CRTC exhibit. It was provided to counsel last week, but it has not been referred to yet. It is entitled Annual Adjustments for The Companies. It is a one-page document.
11277 It is based on Interrogatory 1504, but it pulls it out into a more consolidated table.
11278 In this table we have reflected the annual adjustments that The Companies calculated on the assumption that a Q-factor would apply to the prices of Aliant, Bell and MTS.
11279 MR. PARK: Just one correction there. I think we indicated in that indicator that these amounts could be done through a rebate as well. It wasn't necessarily a Q-factor per se.
11280 MS MOORE: That's fine. My question is: Would annual adjustments such as these, whether for a Q-factor or a rebate as you have mentioned, provide an appropriate incentive for each company to deliver services that meet or exceed quality of service indicators on a consistent basis?
11281 MR. PARK: I think they would. The question then becomes one of size, which we talked to Mr. Van Koughnett about yesterday.
11282 Think of it this way. Think of the $27 million that we have put in our proposal and think of hiring business office personnel. Let's say we were to hire the personnel rather than pay the rebate. We would hire some 750 people at a reasonable wage rate to do that.
11283 If you think of it in those terms, the difference between hiring 750 people and paying the rebate, I think we would get a lot more mileage out of doing the hiring and producing good quality service than paying the rebate.
11284 I think we have also acknowledged that there is some balance that we are trying to strike, and other parties obviously have other views as to what that balance is.
11285 MS MOORE: Thank you.
11286 Those are my questions, Mr. Chairman.
11287 THE CHAIRPERSON: Thank you, counsel.
11288 I would like to respond to the issue that Mr. Ryan raised this morning with respect to the document characterized as response to undertaking, information requested by Commissioner Williams.
11289 Having read Dr. Taylor's answer to Commissioner Williams' question, I cannot find any new evidence beyond what was discussed by Dr. Taylor last week, either with the parties or with Commissioner Langford or Commissioner Cram; nor do I find that Dr. Taylor has changed his position that options and features should not be capped or that past earnings should not be considered in developing a new price cap plan.
11290 Having said that and having checked the record, I don't find that an undertaking was specifically requested or indeed accepted on behalf of The Companies by Dr. Taylor.
11291 It seems to me that we have to have reasonable fences around the process that we have in front of us, and that in order to do that I don't think it would be appropriate, unless a specific undertaking is requested, for parties to come back and amplify the answers that they had, in fairness to all of the parties in the room and to the interrogatory process.
11292 Based on that and the fact, as I say, that an undertaking was not specifically sought, I would rule that we would not accept the document proposed by Bell.
11293 With that, we will take our morning break and reconvene in 15 minutes.
--- Upon recessing at 1053 / Suspension à 1053
--- Upon resuming at 1108 / Reprise à 1108
11294 THE CHAIRPERSON: We will return to the proceeding now.
11295 I understand there are a few questions from Commissioners, starting with Commissioner Langford.
11296 COMMISSIONER LANGFORD: He never tells us the order, so it always comes as a surprise.
11297 I have one question for Mr. Park.
11298 I'm afraid it harkens back, Mr. Park, to your initial discussions -- which seem like light years ago -- with Ms MacDonald regarding one-page agreements versus 58 pages in the white pages of the phone book and customers' bills of rights.
11299 I suppose the best way to put it would be to say to you that I am a little confused as between what you see as an agreement or a contract and what you see as a bill of rights.
11300 If I could refer to Exhibit 2 which was filed yesterday as the Bell Mobility Our Agreement With You, one page, do you see that an agreement like that could be called a bill of rights? Or would you see a bill of rights as something different from this?
11301 MR. PARK: I would see that it could be a bill of rights. It has many of the same elements. So, in a sense, if you were to put the bill of rights all on to one page, you could frame it in that way and it would have many of those same elements.
11302 I would distinguish that from sort of the technical contractual type of arrangement, which really is, from a technical point of view, our terms of service as stated.
11303 To make sure there is no confusion, I think it is very difficult to get all of the contractual elements that we talked about yesterday on to perhaps one page. It is more of a bill of rights issue than a contract issue, if you follow me here.
11304 COMMISSIONER LANGFORD: I am not quite sure how to frame this, so I am just going to state it. I had not seen this agreement before yesterday either. I don't know if you had seen it earlier.
11305 MR. PARK: I had not.
11306 COMMISSIONER LANGFORD: I have now read it. I can't say that I have studied it, but I have read it and I have underscored it in different places. I have tried to make a list of rights and responsibilities.
11307 If I had to categorize it, I would categorize it as a customer's bill of responsibilities rather than rights. I could only find at a quick reading two mentions of customers' rights in this document -- there may be others -- and a great many customers' responsibilities.
11308 I appreciate that you too have had limited experience with this.
11309 On the subject of a bill of rights, what more might you add as a comfort to customers than exists in this document?
11310 Would it help if I were more specific?
11311 MR. PARK: Yes, a little bit. There are obviously smaller things that I could think of.
11312 COMMISSIONER LANGFORD: If you start at the top of the document under Service Rules, you kind of get a flavour of the language:
"Bell Mobility trusts you will not use our service for any illegal or abusive purpose." (As read)
11313 And midway through that paragraph:
"...do not resell your service."
11314 And near the end:
"You must agree to follow all service regulations." (As read)
11315 Then in the next paragraph you are assigned a telephone number, but you don't own the number. And then:
"We will not be liable for any change of the number." (As read)
11316 But -- and it is not a surprise -- you are responsible for paying your bill and what happens if you don't pay your bill.
11317 We finally get to a right, I think, in the fourth paragraph, where it says:
"Bell Mobility guarantees you will not experience an increase in your air time rate and monthly access fee for the term of your contract." (As read)
11318 But even that right then is followed by that great famous word "however", and a list of other -- I would not call them responsibilities, but other terms.
11319 It is not until the top of the second column entitled "Confidentiality" where the second big right comes in, that with the exception of your name and address, confidential information will not be released.
11320 But even that is then followed by five bullets, five examples of where information may be released.
11321 That is all I could find in here by way of customer rights.
11322 What would you add to that if you were charged with putting together a bill of rights for customers?
11323 MR. PARK: I think we would have to go back to the list of things, which is kind of the discussion we had, which is some of these payment terms available, how to connect to service, recognizing this is kind of a contract with Mobility and a little different concept than a bill of rights, which is what a customer gets.
11324 I think there is a long list in some of the Barbara Alexander evidence of what those things are. I think we are in agreement with what those things are: the terms and conditions of service; under what conditions your service is disconnected, and these kinds of things.
11325 What are the customers' rights in those cases? What are the rights of payment, and so on, deferred payment; those kinds of things that we talked about yesterday?
11326 COMMISSIONER LANGFORD: In fact, this perhaps is not a bill of rights at all.
11327 MR. PARK: No. Really what I was addressing there was more the form than the substance, if you will. This is more like our terms of service as I read it later, as well, than what would be in a bill of rights.
11328 I guess the appeal was it framed out on one page what was going on, and we would put in the right things, if you will, to constitute a bill of rights.
11329 Given that we haven't done it, we would have to work with that to get it done.
11330 COMMISSIONER LANGFORD: So it was a form reference you were making with Ms MacDonald.
11331 MR. PARK: Correct.
11332 COMMISSIONER LANGFORD: That is clear. I appreciate that. Thank you very much.
11333 Those are my questions, Mr. Chairman.
11334 THE CHAIRPERSON: Thank you, Commissioner Langford.
11335 Commissioner McKendry.
11336 COMMISSIONER McKENDRY: Thank you, Mr. Chair.
11337 Mr. Hariton, I wanted to clarify or make sure that I understood fully one of your responses yesterday to Mr. Ryan.
11338 I am looking at page 1675 of the transcript, and I am at paragraph 10738.
11339 MR. HARITON: Yes, sir.
11340 COMMISSIONER McKENDRY: I will read a sentence out of there, and I want to make sure I understand your response to that.
11341 Mr. Ryan says to you, and I quote:
"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."
11342 You went on then in the following paragraphs to point out that you disagreed with Mr. Ryan.
11343 You say, at paragraph 10740, and I quote:
"It is open to the competitors at any time to challenge the existing costs and to have a new study done."
11344 Is that the only control that exists on the reliability of the costing process? It is the only one you cite there, and I am wondering if that is all of the controls.
11345 MR. HARITON: No, I don't think that is the only control. It clearly is one important one, and one which the regulatory process contemplates.
11346 I think there are a number of other controls that do play. For example, we have seen cases where costs for one service change, or there is a new study that shows for one service changing. Then there is the natural question of whether costs for another service which is similar should also change. That is something which we have seen.
11347 This is, if you will, an external control as well as an internal control.
11348 There is also an internal control; that the telephone companies would not want to get the costs terribly wrong because it may hurt them. In other words, there is a tension on the one hand. You want to make sure that your costs are not misstated; otherwise, you are going to be led to business decisions that are erroneous, and indeed you may not pass an imputation test where in fact you should be passing an imputation test, or vice versa.
11349 Finally, there is a test which at the end of the day says this service suggests that it requires certain capital injections. Let's take a look at the capital expenditures and see if those are consistent with what the different services are saying.
11350 This last one I hesitate to put forward because I don't think I have thought it out well enough. It would require more thought. But over time if you are saying that going forward you are going to be putting capital injections in for this service and that service, at a certain point it does have to match your capital expenditure program. Otherwise, there is a disconnect somewhere. That said, it would have to be over a cycle.
11351 Does that help at all, Mr. McKendry?
11352 COMMISSIONER McKENDRY: Yes, that's helpful.
11353 Just in terms of the first one you mentioned where if the costs change you might learn about that because the costs for a similar service changed, I just want to make sure again that I understand. Because I think earlier, and I'm looking at now at page 1672, paragraph 10724, where I think you told Mr. Ryan that the costs and so on in the Phase 2 studies aren't monitored or tracked to see if the forecasts actually correspond with the actual expenditures.
11354 MR. HARITON: That's right. To my knowledge, the costs are not tracked.
11355 In fact, in the Phase 2 context it's not immediately clear what tracking would mean. If you have a new service it's fairly easy to track the demand for a new service. You see the service come on board and you see how many people are using the service and you can then say, "Yes, I'm on track" or "No, I'm off track."
11356 If what you are doing is you are studying say a change -- the consequences of a new promotion to toll service, to take an example, you will have growth in that service anyway. You will have forecast that the promotion that you are about to launch will increase your demand for service by a certain percentage. After the fact, you will have noticed the demand has gone up. You would then have a problem trying to disentangle what part of that increase is due to the promotion that you have been studying and what part has been due to other factors such as perhaps an increase in people's incomes or the economy is doing better than expected.
11357 So that tracking is relatively straightforward for a new service. For modifications to an existing service tracking is more complicated. Not to say it can't be done -- and it can be done -- I just don't want to minimize it.
11358 COMMISSIONER McKENDRY: But Bell doesn't do tracking for new services either, I take it, from the discussion you had with Mr. Ryan, even though it would be relatively easy.
11359 MR. HARITON: I would have to check that for you. I don't know.
11360 COMMISSIONER McKENDRY: Perhaps you could --
11361 MR. HARITON: I will, certainly do so.
11362 COMMISSIONER McKENDRY: -- check that for us. That would be helpful for me to understand the controls that exist on the reliability of the costing process.
11363 But I take it, just so I don't misunderstand you, the primary one is the role of the competitors and their ability to challenge costs. Is that the big one?
11364 MR. HARITON: Well, in the context of the discussion I was having with Mr. Ryan I understood the discussion to be how would a competitor be able to make sure that these costs are reasonable.
11365 One of the ways of doing that is to trigger or to ask for a new cost study, which when performed will show whether the costs have changed or not. That is not a function of tracking as such. It's a function of whether you think just by looking at the environment in which you are operating there has been a change.
11366 So obviously, if you see 800 traffic increasing more quickly than expected that is a suggestion you might want to look at the costs. It does not necessarily conclude that the costs have changed in one way or another, but it is the trigger to say we should look at the costs again.
11367 Now, there may be other triggers. I mean, there are other things that happen. We are all in this industry together and I think we are pretty well aware of what is going on.
11368 COMMISSIONER McKENDRY: If we were examining the reliability of the costing process it seems to me, broadly speaking, we would want to understand the controls that existed to make sure that the system was reliable, and we have had a discussion of that.
11369 Then I suppose the second phase is to make sure the controls are actually operating. So if a control was that somebody checked somebody else's work one could say that is a good control but it doesn't tell the whole story. One has to actually go and see whether that person is actually checking the other person's work. So there would be two prongs to the examining of the reliability.
11370 In terms of the costing process at Bell, to what extent do The Companies' internal auditors, for example, get involved in examining the reliability of the costing process in terms of the output from the process?
11371 MR. HARITON: Subject to check, my understanding is that the internal auditors do not currently audit the Phase 2 studies.
11372 However, what you do get is -- for example, earlier yesterday I mentioned that studies are done to justify expenditures on capital projects. What you do have is you have various groups who are vying for a very limited number of capital dollars so there is actually a crosscheck between the groups on each other because they are competing for scarce resources.
11373 Perhaps Mr. Park would want to add to that.
11374 MR. PARK: Well, that's I think, an indirect, a more indirect control. That's obviously true that senior management people in the selection of investments obviously challenge the work that is done to make sure that the studies are valid and purport to be what they are, so that they can in fact make the right investment choice.
11375 I would just only add on the audit side, from time to time, whatever internal procedures we use have been audited over the past, but it is not an annual event or something of that more routine nature.
11376 COMMISSIONER McKENDRY: Thanks for that.
11377 One of the controls, I think, and you can comment on this, in examining the reliability of the costing process would be to ensure that there are people expert in the area that are directly managing the costing process.
11378 Would you agree with that?
11379 MR. HARITON: Yes, you are quite right.
11380 COMMISSIONER McKENDRY: Now, I am not clear who does that at Bell. I noticed from your resume, Mr. Hariton, you haven't worked at Bell since 1998 and you are obviously a consultant or an expert witness for the company in this proceeding.
11381 So I'm not clear who is doing it at Bell and where the costing group and whoever the individual or individuals are that are responsible for that fit in.
11382 MR. PARK: The costing group at Bell is within the Chief Financial Operating -- the CFO's organization. It is a centralized group and essentially it is centralized to maximize the expertise of that group and it reports up through the comptroller of Bell Canada. So it's -- in that sense it is within the finance organization and that's where the studies are done and that organization is obviously independent of the business units that operate around it and independent of marketing, for example.
11383 COMMISSIONER McKENDRY: Is there somebody that has the title "Head of Costing" or some such title as that?
11384 MR. PARK: Currently, it reports to the VP of Planning within Bell Canada, of which that person's organization has costing as well as the responsibility for three year plans within the company.
11385 COMMISSIONER McKENDRY: And, Mr. Hariton, I'm right that you haven't worked for Bell since 1998 in a capacity as a costing expert?
11386 MR. HARITON: That's correct. Although I must say that in preparation of the unit cost trends that we put forward in front of you I did seek to assure myself that the costs had -- excuse me -- the costs were representative and had been stated on a consistent basis. So to that extent I did get involved in the costing process.
11387 COMMISSIONER McKENDRY: So your comments here about how the costing process works and so on and whether or not there would be internal auditors looking at the process -- and I understand you are going to follow up with some information about that -- that's based on your experience prior to 1998?
11388 MR. HARITON: That's largely so and this is why we will get back to you.
11389 COMMISSIONER McKENDRY: Thanks very much.
11390 Those are my questions, Mr. Chair.
11391 THE CHAIRPERSON: Thank you, Commissioner McKendry.
11392 Commissioner Cram.
11393 COMMISSIONER CRAM: Thank you, Mr. Chair.
11394 I would first like to start with quality of service issues. I wanted to make sure, Mr. Park, that I understood you when counsel asked you of the issues or the circumstances in which the penalty would not click in. You were asked if it was natural calamities and you agreed with that. But I think it's CRTC(The Companies)1503-B --
11395 MR. PARK: Yes, I talked about, I think, the strike in that case and I --
11396 COMMISSIONER CRAM: Yes, and I don't think that is a natural catastrophe.
11397 MR. PARK: No, probably an oversight on my part but, yes, it is our evidence that work stoppage, which obviously has severe impacts, would not be included.
11398 COMMISSIONER CRAM: So whether or not I agree with you on that -- I mean, the question is how do we put a fence on it because in terms of work stoppage there is always two sides to that sort of issue.
11399 Is there a point after which -- to me, the issue is reliability and quality of the telephone service that should be engineered to come up to a certain level of service. I can understand in an ice storm or a flood where things happen beyond your control. I have more difficulty in seeing how a strike would be the same kind of thing, and I also have difficulty in thinking that if a strike is an exception, then what else is?
11400 MR. PARK: I think it's really a question of degree and somewhat judgment. I think it's up to the company to make its case. In terms of a strike obviously there is two parties that disagree that cause a strike, and it is such a large event and it is so customer impacting and imposes some financial burden on the company in any event that --
11401 COMMISSIONER CRAM: But you probably make money too, don't you?
11402 MR. PARK: No, not necessarily, not with all the extra costs of paying our managers overtime to fill in and so on. We tend to not -- it tends to be more of a break-even proposition depending on the length of the strike. But nonetheless, I think in that case we would have to make our case on a case-by-case basis if an exception were to be required.
11403 I agree with you, it is a matter of some judgment. But we don't want to in some sense -- and I will use this kind of pedantically -- we don't want to nickel and dime it either. We don't want to go to such an extent that obvious things aren't challenged every time as well.
11404 COMMISSIONER CRAM: So would it be fair to say natural calamities are an exception but anything other than that, the onus would then be on the company --
11405 MR. PARK: That's correct.
11406 COMMISSIONER CRAM: -- to prove an exception?
11407 MR. PARK: That's correct.
11408 COMMISSIONER CRAM: The next thing, and I am listening to you talking about the word "persistent" and that that should be our focus, and the problem of how much money of a penalty or Q-factor is enough money.
11409 It is going around in my mind and I am asking myself if really we are talking about maybe a phase in that year one -- and I know it is starting, everybody is going to go crazy with me even proposing it -- but year one you would pay "X" amount if you, you know, didn't meet whatever. Year two if it was the same issue there would be a higher penalty. I mean, of course, there would have to be limits, but then at the end of the day we may come to a point where the cost benefit analysis actually works.
11410 Does that sound feasible to you?
11411 MR. PARK: Yes, it does. I think what it is addressing is if the severity of the problem is long and worsens what do we do. I think it is a workable way to look at it.
11412 I think as we would gain experience with this type of incentive then I think it would become easier for us in sort of hindsight at that point to see whether it worked or not. I think what we have to offer up here is let's give it a try, let's make it work, see how we are doing and then move on. But I acknowledge your point that is certainly something that could be phased in.
11413 COMMISSIONER CRAM: Mr. Hariton, I have been listening to you talking about the issue of productivity and that, if I read you correctly, the stimulus of price cap for the large part in terms of productivity was due to anything other than landline long distance and data and there was a healthy economy.
11414 And yet, if Commissioner Williams will give me the text -- I found it for myself, he didn't have to find it for me -- I am looking at questions directed to AT&T from the director, dated the 31st of August and it's one price cap and they attach the BMO, Nesbitt Burns, and I know they are not Bell's brokers, Telecom monthly.
11415 Maybe you just want to look at page 1 of the attachment. Actually, I think there was something by Mr. Talbot talking also about the same issue, but I couldn't find it.
11416 MR. HARITON: I am sorry, Commissioner Cram, could you tell me which --
11417 COMMISSIONER CRAM: It's the first question from the director --
11418 MR. HARITON: The director. Just a second, I will get that.
11419 COMMISSIONER CRAM: -- to AT&T.
11420 MR. HARITON: Sorry, the wrong binder. I apologize. Which question?
11421 COMMISSIONER CRAM: The first one from the director.
11422 MR. HARITON: The first one, yes.
11423 COMMISSIONER CRAM: And then, let's go to the attachment.
11424 MR. HARITON: Sorry. My copy doesn't seem to have an attachment. This is AT&TC Director-1?
11425 COMMISSIONER CRAM: AT&TC Director, 31 August.
11426 MR. HARITON: I have a copy now.
11427 COMMISSIONER CRAM: I am looking at the second paragraph on the first page, which is sort of a summary. The last two sentences in that say:
"Most carriers indicated they were increasing their focus on improving cost efficiencies in order to offset margin pressure. We believe that there are considerable opportunities among incumbent operators as their previous efforts in the industry have proven successful." (As read.
11428 MR. HARITON: Yes, I see that.
11429 COMMISSIONER CRAM: So, I guess I am having a difficult time when I hear what you are saying. Is it your point that the efficiencies will not be in relation to residential landlines.
11430 Is that your point?
11431 MR. HARITON: Well, there will certainly be efficiency gains as regards landline lines. My point is twofold, I guess.
11432 One is that if we looked at history, those efficiency gains will be less than they have been in other lines of business in their operations. The other one is that we have to be careful in looking at the potential for the gains not to look at too short a historical period, to look at longer historical period in trying to extrapolate outwards.
11433 So those are the two cautions. But again, both of those would be quite consistent, I think, with the statement here.
11434 COMMISSIONER CRAM: My next trouble comes with separating out productivity for residential landline or landline from long distance and data. If I use the test "but for", but for the existence of those lines that serve residential, but for the bedrock that Mr. Talbot referred to of residential customers, the opportunity to exploit new areas and thus sort of increase productivity would not exist.
11435 So, what is the rationale then from separating total company productivity into any kind of subset of that?
11436 MR. HARITON: Well again, you have touched on an important area which is that total productivity cannot easily -- cannot be decomposed into different pieces. It tends to be productivity of the company measured as such.
11437 What we did do is look at the unit cost trends for the residential service because if what you are concerned with is what unit cost trends might be in the future, that would be the relevant piece. Let's go back and think about what we are trying to do. In my experience, a lot of confusion comes from the fact that different costs are appropriate for answering different questions.
11438 My understanding of what the company's proposal is, is to say: Okay, we are going to set a subsidy in high-cost serving areas, which will be equal to the unit cost -- sorry, let me go back -- the unit cost, minus the price, minus a certain amount for options and features. There are two ways you can go about -- and we are going to do this over time.
11439 There are two ways of going about this over time. One way is to do an annual cost study, which I would not recommend and which was not adopted by the Commission, say, "Okay, the unit costs for these lines have gone down by so much, we will reduce the subsidy by the amount that corresponds."
11440 The other way is to say, "Well, based on past experience, we will set a target for cost reductions for residential service in these areas and we will look at the past to set the factor and this is our best estimate of what it is," whatever it is.
11441 It is in that context that we are trying to get a "productivity factor" and, in that case, it seems to me that the company-wide productivity that has been floating around for a long time as a concept, is less relevant than the very specific gains that you can expect to make for that service, based on the history of that service.
11442 I don't know if that helps at all, this is a --
11443 COMMISSIONER CRAM: I hear you totally. If we choose though to use a productivity factor for everything in the baskets, then I would be correct, we would have to go to look at the total company?
11444 MR. HARITON: Well, your baskets are much narrower than the total company.
11445 COMMISSIONER CRAM: I hear you.
11446 MR. HARITON: Right now, the total company includes a large number of services that are forborne. Again, if what you are looking at is the reasonable efficiency gains that you can get from services in those baskets, once again you should tailor your measure of productivity to those baskets. You are getting -- sorry, go ahead!
11447 COMMISSIONER CRAM: But you haven't gotten to why wouldn't we use a "but for" test? That is the corner that I need you to cover for me.
11448 MR. HARITON: Yes. Well, the "but for" test, I think, if you look at costing in -- I am sorry, I am hesitating because I am about to use a bit of jargon. Please stop me if the jargon is not helpful.
11449 What you have is a multi-product firm. In other words, it's the firm that is producing all sorts of things. An example can be -- I think, a more simple example is a car manufacturing plant that also manufactures trucks. And then, you can say, "Well, I have got this plant that manufactures cars, what is the additional cost of producing trucks and what can I do with that?"
11450 The other way of looking at it is to say, "Well, you know, I am producing trucks and the car is the additional output. What is the additional cost of producing the cars?"
11451 In each case, what you are going to get is the "but for" is always -- the service you are looking at is the additional one. You are assuming everything else is there and you assume that that service, which you are going to be adding, is the additional one. Everything else is core, the one you are looking at is the increment. That essentially is the way that a commercial firm on modern economic principles would do its calculation.
11452 In other words, I have got this body here of services and outputs and goods and so on I am going to be producing anyway, what happens if I add a line -- what happens if I grow a line of output?
11453 I don't know if that helps at all. In other words, each gets looked at in turn as the additional one.
11454 COMMISSIONER CRAM: I hear you and maybe we will just leave it at that.
11455 Thank you very, Mr. Chairman.
11456 THE CHAIRPERSON: Thank you, Commissioner Cram.
11457 Mr. Hariton, just following up on a question Commissioner McKendry asked you. I guess I am struck by, as we moved into this new, more competitive world and particularly into price cap, we have certainly begun -- it's probably fair to say -- placing more reliance on Phase 2 costing than Phase 3 that we used to, and Phase 3 has kind of faded into the background somewhat, or indeed considerably. So Phase 2 has become much more important and we have indicated that in a number of recent Commission decisions.
11458 We have also seen instances over the past while where those costs have been challenged and you indicated in your discussion with Mr. Ryan that, you know, one of the opportunities for checking this is for a party to come forward and raise a concern.
11459 This morning in response to Commissioner McKendry you and Mr. Park have indicated that one of the opportunities for checking this would be, if I can characterize it as the in-fighting among staff within Bell over capital programs, that somehow we could be comforted that that would be enough of a check on the costing exercise to satisfy us that those costs would be indeed accurate.
11460 Thinking about a couple of the issues that have been in front of us, the 800 Database query charge and the loop costs, I am wondering how, in fact, that in-fighting over capital indeed would be a check on the accuracy of those costs and indeed a check on the art, if I can characterize it as that, that goes along with the science, a lot of the forecasts that go into making up the Phase 2 costs.
11461 I don't understand how this capital test, in fact, is a test at all, if I think about the couple of instances that have been discussed this week.
11462 MR. HARITON: Let me start that and perhaps Mr. Park will add to it later.
11463 I think you are quite right that for a number of services, the internal checks are not sufficient. I was talking a bit more about the introduction of new services and perhaps the growth of existing services, which are intended for end users, where there are portfolio managers who have -- or product managers who have very different and definite interests to defend, and to some degree the CSG Group also has its own interests and has its own customers which are competitors to look at.
11464 Nevertheless, there is no substitute at the end of the day for actually checking the study, which is why, I assume, the Commission wants to know what are the assumptions that were made in the study, including the demand assumptions, including the various cost assumptions and the different inclusions and exclusions in the study.
11465 At the end of the day, if you are looking at a Phase 2 study, to my mind, there is no substitute for actually having an independent look, which is what Commission staff does, and which includes all the different components. So at the end of the day, the check, as it has been set up, rests with Commission staff in these services.
11466 THE CHAIRPERSON: But that is a check at the time that you file and do the study.
11467 Is that what you mean?
11468 MR. HARITON: That's correct. Once the study is done -- perhaps we should separate two different aspects.
11469 THE CHAIRPERSON: I guess what I am getting is, given that this is all based on forecasts, do you think we should have a check somewhere down the road within the life of the study, either early on or mid-term or near the end, to try and ascertain, in fact, whether the assumptions that were put into it were indeed correct and that, therefore, the cost is correct based on the assumptions that went into it?
11470 MR. PARK: Yes, I think we could certainly put that in play. I recall years ago that, when we introduced new products, that in fact the most critical assumptions in those studies were in fact tracked annually and we had to file those tracking reports with the Commission years ago. So, it's obviously a mechanism that can work and I think, given the importance of these studies, is certainly something that could be put in place to give more assurance and less reliance on, as you say, the internal mechanisms of Bell or others.
11471 THE CHAIRPERSON: We have seen concerns on both sides of the issue, both from the incumbents and the new entrant's point of view.
11472 Do you think that this is something we should do?
11473 MR. PARK: Yes, I think you should seriously consider that given the level of concerns and the amount of risks on both sides that have to be taken here.
11474 THE CHAIRPERSON: Mr. Hariton?
11475 MR. HARITON: I would agree with Mr. Park. I can't obviously speak or commit for Bell, but I think that --
11476 THE CHAIRPERSON: I thought you were speaking for Bell here.
11477 MR. HARITON: From time to time. On this issue, on this one point, I can't speak for Bell because it's a commitment of resources going forward, but I think that the type of process Mr. Park has mentioned would go a long way to help alleviate a lot of the concerns, and I think on both sides.
11478 THE CHAIRPERSON: Could that include some sort of an independent audit?
11479 MR. PARK: Yes, it could.
11480 MR. HARITON: I agree with Mr. Park.
11481 MR. PARK: The issue there is really that this is, I think as was indicated, a difficult area to audit given the level of expertise and the kind of terms of reference that you would require in an audit study, but it can be done.
11482 THE CHAIRPERSON: Thank you very much, gentlemen.
11483 I believe that concludes all the questions for this panel. So you may step down. Well, Mr. Park, I guess, we will see more of you.
11484 So we will turn now to the next and, I believe, final panel for The Companies.
11485 Mr. Henry.
11486 MR. HENRY: Mr. Chairman, my colleague, Mr. Kidd, will handle this panel.
11487 THE CHAIRPERSON: So I will turn to you, Mr. Kidd.
11488 MR. KIDD: Thank you, Mr. Chairman.
11489 The affiliates panel is made up of Mr. Tom Gillette, Senior Vice President, Sales for Bell Nexxia, and Mr. Park. Mr. Gillette is here to testify on affiliate sales practices and affiliate products and services. Mr. Park is on the panel to address the relationship with affiliates from a Bell Canada perspective.
11490 The panel is assisted by Ms Julie Flegg, Director of Sales Operations, Bell Nexxia, and Mr. Richard Pagé.
11491 Mr. Chairman, the CVs of Mr. Gillette and Mr. Park are set out in the attachment to The Companies' September 20th letter to the Commission.
11492 Perhaps Mr. Gillette can be sworn, Mr. Secretary.
SWORN: THOMAS J. GILLETTE
EXAMINATION BY / INTERROGATOIRE PAR
11493 MR. KIDD: Mr. Gillette, are your qualifications as set out in the attachment to The Companies' September 20th letter correct?
11494 MR. GILLETTE: They are.
11495 MR. KIDD: Mr. Gillette and Mr. Park, while The Companies have not filed evidence on affiliate issues, are you both responsible for the interrogatory responses assigned to the affiliate panel as noted in attachment 2 to The Companies' September 20th letter?
11496 MR. GILLETTE: Yes, we are.
11497 MR. PARK: We are.
11498 MR. KIDD And are those responses correct to the best of your knowledge and belief?
11499 MR. GILLETTE: Yes, they are.
11500 MR. PARK: Yes, they are.
11501 MR. KIDD: Mr. Chairman, as noted in Decision 2001-582 and in 2001-618, and I quote:
"Activities of in-territory affiliates are relevant to consideration of the state of competition within markets for local services and consequently to the pricing flexibility determinations to be made in this proceeding". (As read)
11502 The Commission went on in Decision 618 to note, and I quote:
"The Commission also confirms that the determination of new rules for affiliates is not within the scope of this proceeding". (As read)
11503 Mr. Chairman, within the context of those rulings, the witnesses are available for cross-examination.
11504 THE CHAIRPERSON: Thank you, Mr. Kidd.
11505 Welcome, Mr. Gillette.
11506 MR. GILLETTE: Thank you.
11507 THE CHAIRPERSON: Now, I believe the first party to cross-examine is CallNet, Mr. Koch.
EXAMINATION BY / INTERROGATOIRE PAR
11508 MR. KOCH: Thank you, Mr. Chairman.
11509 Good morning, Mr. Gillette, Mr. Park.
11510 My questions will focus today largely on response to interrogatory The Companies(CallNet)1007 and specifically the supplemental response that was provided -- I think it was provided on the first day of the hearing, so October 1st.
11511 Do you have that, gentlemen?
11512 MR. GILLETTE: Yes, we do.
11513 MR. KOCH: Okay. And I take it you recall the history of this interrogatory. Specifically I am referring to the answer to Part D of this question.
11514 MR. GILLETTE: Yes.
11515 MR. KOCH: And you remember that this was an instance where CallNet asked this interrogatory and was provided with a response that it was not satisfied with and asked for a further response and Commission staff ruled in favour of the further response. Do you recall that, Mr. Gillette and Mr. Park?
11516 MR. GILLETTE: Yes, I do.
11517 MR. KOCH: And then a further response was not forthcoming so CallNet wrote to the Commission and the Commission ruled in a decision, I believe, dated September 10th that a further response should be provided. Do you recall that?
11518 MR. GILLETTE: Yes.
11519 MR. KOCH: And that was Decision CRTC 2001-582. Do you recall that in a letter seeking clarification of some scope issues -- I believe it was the 13th of September -- Bell suggested that, or The Companies suggested, they had provided a response on August 27th. Do you recall that?
11520 MR. GILLETTE: I believe I do, yes.
11521 MR. KOCH: And CallNet wrote again to the Commission suggesting that that response was inadequate and the Commission finally ruled on a ruling that came out on the Friday before the commencement of the hearing, which is Decision 2001-618, that The Companies should provide a further response. Do you recall that, Mr. Gillette?
11522 MR. GILLETTE: Correct.
11523 MR. KOCH: Do you have that ruling before you, Mr. Gillette?
11524 MR. GILLETTE: I don't believe I do.
11525 MR. KOCH: I don't think it's necessary for us to turn to it, but the last paragraph dealing with this issue says:
"Accordingly, the Commission directs The Companies to provide a full and detailed response to each part of interrogatory 1007-D, including an explicit response as to whether Nexxia has ever resold Bell's tariff services below tariff rates with all relevant and supporting details, including itemization of which services and at what prices". (As read)
11526 Now, the supplemental response that I have asked you to turn up, is that your response in response to the Commission's order to provide full details?
11527 MR. GILLETTE: Yes.
11528 MR. KOCH: I take it from Mr. Kidd's -- your counsel's brief introduction -- that you were responsible for the preparation of this response.
11529 MR. GILLETTE: Correct.
11530 MR. KOCH: And in addition to being responsible for it -- I take it if you were responsible for it you understand the response. Do you?
11531 MR. GILLETTE: Yes.
11532 MR. KOCH: Okay. I have to confess, I don't understand the response and that's where my questions will be directed this morning, Mr. Gillette.
11533 If I could ask you to go to the beginning. So we are dealing with page 2 of 5. Why don't we focus -- actually, I think it would be more helpful if we focused first of all on the question which is on page 1 of 5, and again we are just focusing on D, Part D of the question, which makes reference to an interrogatory response of The Companies to an interrogatory asked by the Commission.
11534 Then Part 1 of the question is:
"Has Bell Nexxia ever sold any retail services at a price that is below the tariff rates charged by Bell Canada to Bell Nexxia for services identified in B above?. If so, provide details".
11535 Again, "B" refers to a description of the tariff services currently provided by Bell Canada to Bell Nexxia which Bell Nexxia uses to provide retail and competitor services referred to above.
11536 So with that maybe we could turn to the answer. Now, the first part of the answer -- I am just looking under "I" -- I always call that one little I, but I guess it's just Roman numeral I.
11537 In the large business customer market, which is the predominant market for Bell Nexxia, I would just like you to explain that. What is the raison d'être for Bell Nexxia?
11538 MR. GILLETTE: Bell Nexxia was established to really have two missions. One, is to provide a single point of contact for providing services to our large corporate customers headquartered in Ontario, Quebec as well as British Columbia and Alberta. As well, Nexxia had the mandate to develop Bell's broadband and IP services nationally and to provide those data products to our customers.
11539 MR. KOCH: Mr. Dixon was here last week and I think we learned that -- or I learned, I obviously didn't know enough -- Mr. Dixon was with Bell Nexxia rather than Bell Canada. Does Bell Nexxia also perform the role of wholesaler of Bell Canada services to competitors?
11540 MR. GILLETTE: Yes.
11541 MR. KOCH: When was Bell Nexxia created?
11542 MR. GILLETTE: Now you are testing my memory. Bell Nexxia was established in early 1999, I believe. I think it was February. I may stand corrected.
11543 MR. KOCH: I guess I just don't understand. Bell Nexxia was created in your evidence to provide a single point of contact, I think your answer was, partly for customers in Ontario and Quebec. Why couldn't have Bell Canada done that? Why do you need a separate --
11544 MR. GILLETTE: It was established to provide support for customers that had a national presence so that it could provide broad national services, including services of other telecom providers for those customers. So that was the focus when we established our national network, that Bell Nexxia would have a national scope and Bell would maintain a regional scope.
11545 MR. KOCH: So that's the rationale.
11546 MR. GILLETTE: Yes, the distinction.
11547 MR. KOCH: But for customers is it the case then that Bell Nexxia would not serve a customer who only has telecommunications needs in Ontario and Quebec?
11548 MR. GILLETTE: That's generally the case.
11549 MR. KOCH: It's generally the case?
11550 MR. GILLETTE: It's generally the case. There may be a situation where the customer has a minimal amount of national presence, but in general we are looking for customers that have at least 20 per cent of their business outside of our existing territory. That's the rule of thumb.
11551 MR. KOCH: And does Bell Nexxia have a sales force?
11552 MR. GILLETTE: Yes.
11553 MR. KOCH: How is it? I am just trying to figure out if I were in charge of all of this, when a call comes into Bell Canada -- being a business customer I might call Bell Canada first. That is certainly the brand I am most familiar with. Would Bell Canada then refer the customer over to Bell Nexxia?
11554 MR. GILLETTE: No. Each of our customers has an assigned sales representative and they generally know who that sales representative is and would generally call that sales representative.
11555 MR. KOCH: So in 1999 then you took your major business customers in Ontario and Quebec and would have assigned them new sales representatives from Bell Nexxia.
11556 Is that right?
11557 MR. GILLETTE: Some of the people from Bell Canada who supported those customers were moved to Bell Nexxia. So they didn't change the people, but they would then have a Bell Nexxia rep at that point, an account representative.
11558 MR. KOCH: So those same people who were at Bell Canada moved over to Bell Nexxia.
11559 MR. GILLETTE: In some cases.
11560 MR. KOCH: Did some of these people who were moved over from Bell Canada to Bell Nexxia retain a role in Bell Canada?
11561 MR. GILLETTE: No.
11562 MR. KOCH: So Mr. Dixon has no role in Bell Canada?
11563 MR. GILLETTE: He is in Bell Nexxia now.
11564 MR. KOCH: And is Bell Nexxia owned by Bell Canada?
11565 MR. GILLETTE: Yes.
11566 MR. KOCH: One hundred per cent?
11567 MR. GILLETTE: Yes.
11568 MR. KOCH: And so the employees of Bell Nexxia are employees of which entity?
11569 MR. GILLETTE: Bell Nexxia.
11570 MR. KOCH: And the reporting structure, who do you report to, Mr. Gillette?
11571 MR. GILLETTE: The president of Bell Nexxia.
11572 MR. KOCH: And who does the president of Nexxia report to?
11573 MR. GILLETTE: The president of Bell Canada.
11574 MR. KOCH: The financial results of Bell Nexxia, are those reported on a consolidated basis with Bell Canada or independently?
11575 MR. GILLETTE: Do you want to take that one?
11576 MR. PARK: Obviously, they are reported separately. It's a separate subsidiary, as well as it's consolidated within, obviously, the BCE-Bell Canada holdings framework. But they are reported statutorily separately, as well.
11577 MR. KOCH: And is Bell Nexxia profitable on a stand-alone basis?
11578 MR. PARK: Now, at this point I don't know if I'm getting into confidentiality, but, no.
11579 MR. KOCH: Now, going down into the second paragraph, we have here:
"Outside of Ontario and Quebec, Bell Nexxia resells the legacy services of the other ILECs..." (As read)
11580 Those are other than Bell Canada, correct?
11581 MR. GILLETTE: Correct.
11582 MR. KOCH:
"...and offers its own broadband IP services." (As read)
11583 Does Bell Nexxia own facilities?
11584 MR. GILLETTE: Yes, it does.
11585 MR. KOCH: Okay. Does it own facilities in Ontario and Quebec?
11586 MR. GILLETTE: In general, most of the network facilities in Ontario and Quebec are provided to it by Bell Canada on an out-source basis.
11587 MR. KOCH: Okay. So its facilities would largely be outside of Ontario and Quebec?
11588 MR. GILLETTE: Correct.
11589 MR. KOCH: Okay. And what type of facilities are those that it owns?
11590 MR. GILLETTE: Fibre and electronic facilities to provide broadband and IP services nationally.
11591 MR. KOCH: And does Bell Nexxia serve, then, Bell Intrigna, when Bell Intrigna, operating as a CLEC in Alberta or British Columbia, have a customer with needs outside of those provinces?
11592 MR. GILLETTE: For broadband and IP services?
11593 MR. KOCH: For any services.
11594 MR. GILLETTE: Bell Nexxia would provide, generally, broadband and IP services to Bell Intrigna. They have their own local services.
11595 MR. KOCH: So Bell Nexxia doesn't sort of -- doesn't have the same role vis-à-vis Bell Intrigna as it does versus Bell Canada?
11596 MR. GILLETTE: Maybe let me try that again. If Bell Intrigna wished to buy services from Bell Canada, they would do that through our carrier services group under Mr. Dixon.
11597 MR. KOCH: And just, again, to follow up on a question that I think the chairman had for Mr. Dixon, that carrier services group operated by Mr. Dixon in Bell Nexxia, that doesn't share information with Bell Canada. Correct?
11598 MR. GILLETTE: That's correct.
11599 MR. KOCH: And I believe Mr. Dixon indicted that he doesn't share information with the retail operations of Bell Nexxia either.
11600 MR. GILLETTE: That is correct.
11601 MR. KOCH: Okay. Do the retail operations of Bell Nexxia share information with the retail operations of Bell Canada?
11602 MR. GILLETTE: No, we do not.
11603 MR. KOCH: Okay. What do you have in place to prevent that from occurring?
11604 MR. GILLETTE: Well, we have a separate organization and we deal with our customers separately. There is no need to share information with Bell Canada relative to our customers, generally -- separate customers.
11605 MR. KOCH: So there is no structure in place to prevent it, you are just suggesting that there is no particular purpose to share that information?
11606 MR. GILLETTE: If I can just clarify on that, I think Mr. Dixon discussed the fact that within carrier services, yes, a significant structure so that there is no visibility on the retail part into his business. Between Bell Canada and Bell Nexxia, while they are different customers, there is not as stringent a structure, that is correct.
11607 MR. KOCH: If I could ask you to turn to page 3 of 5, please?
11608 Now, in the second paragraph on this page, you indicate:
"It's important, therefore, to note that Bell Nexxia does not generally resell Bell Canada's tariffed services." (As read)
11609 Sorry, but whenever I see the word "generally," I want to know what the "ungeneral" situation is. So there is some resale, but you are saying the majority is acting as an agent?
11610 MR. GILLETTE: The vast majority is acting as an agent.
11611 MR. KOCH: Okay. What percentage?
11612 MR. GILLETTE: Over 99 per cent. I can't think -- we put that in there because there may have been instances where that has happened. I cannot identify one for you.
11613 MR. KOCH: Okay. So you are just being cautious?
11614 MR. GILLETTE: Correct.
11615 MR. KOCH: Okay. So predominantly we are dealing with a situation where Bell Nexxia acts as an agent. But you indicated that, really, for these large customers, Bell Nexxia really sees the customer as its customer, right?
11616 MR. GILLETTE: That is correct.
11617 MR. KOCH: Okay. So when it acts for as an agent, who does the customer write the cheque -- I want to take this down to simple terms that even I can understand.
11618 When Bell Nexxia's customer writes a cheque for services, who does that cheque go to? Who does it pay?
11619 MR. GILLETTE: It would definitely pay Bell Nexxia for the service that Bell Nexxia provides from its portfolio, IP broadband services. I'm not certain exactly who it pays. I suspect it pays Bell Canada for the services that I provide on an agent basis, but I can't -- I'm not sure I can be 100 per cent certain on that.
11620 Mike, do you know?
11621 MR. KOCH: Yes, I would have thought that was not a controversial question.
11622 MR. GILLETTE: No, that would be my assumption. I just don't see every bill that goes to the customer.
11623 MR. KOCH: So you are saying that Bell Nexxia only bills for part and Bell Canada bills for the rest directly?
11624 MR. GILLETTE: That would be my speculation at this point.
11625 MR. KOCH: Okay. Could I ask you to confirm your speculation?
11626 MR. GILLETTE: Yes, we can.
11627 MR. KOCH: Okay.
11628 And then when Bell is -- sorry, when Bell Nexxia acts as an agent for Bell Canada, it says here, "Bell Canada..." -- sorry maybe I could back up.
11629 The second sentence, you speak of Bell Canada booking the revenue for all tariff services at the tariff rates. Again being -- I don't have an accounting background, what does it mean to "book revenue"?
11630 MR. GILLETTE: The revenue would be reflected in Bell Canada's books as revenue.
11631 MR. KOCH: Okay. But again, I want to understand sort of who gives whom a cheque and who cashes it. So you will get that information for me?
11632 MR. GILLETTE: Correct.
11633 MR. KOCH: Okay, thanks.
11634 Then your answer suggests that Bell Canada pays Bell Nexxia a commission for the sales support agency services. Is there a standard commission? What is the commission that's paid?
11635 MR. GILLETTE: The commission is approximately 11 per cent of the revenue that we represent on behalf of Bell Canada.
11636 MR. KOCH: Okay. So we could have a situation where Bell Canada receives the tariffed rate for the services, but Bell Canada then puts back to Bell Nexxia 11 per cent of that?
11637 MR. GILLETTE: It puts back a specified amount, equivalent to about 11 per cent, when we looked at it. And that's based on -- that's to reflect the work that we do as an agent in terms of the commission that we would charge as a channel for Bell Canada.
11638 MR. KOCH: And moving on to the next paragraph, you say:
"In assessing each proposal for a single-source arrangement or package deal..." (As read)
And as I understand the distinction between the single-source arrangement and package deal, single-source is for everything, all of your customers, telecommunications needs; package deals is for part of them.
11639 Am I right about that?
11640 MR. GILLETTE: No. Single-source may not include all aspects of the product. It may be a subset of what they buy. They may not put all of their products into a single-source agreement.
11641 MR. KOCH: So that's why I didn't understand that part of the answer. What's the distinction -- you seem to make something of the distinction between a single-source and a package.
11642 MR. GILLETTE: A single-source agreement was an agreement where we would provide, really, the single point of contact for a menu of products that the customer wished to buy. A package solution tends to take those products and make it into more of a complex solution, where there might be managed services, et cetera, as opposed to just a menu of products.
11643 MR. KOCH: Okay.
11644 MR. GILLETTE: That's the distinction there.
11645 MR. KOCH: Thank you for clarifying my misunderstanding.
11646 Going on to that next paragraph:
"In assessing each proposal for a single-source arrangement or package deal, Bell Nexxia applies its pricing policy, which requires that prices charged to customers exceed the sum of all incremental costs for forborne services, plus the charges for regulated services at tariffed rates by a target margin." (As read)
11647 As I understand this process, you imputing those charges and costs?
11648 MR. GILLETTE: We would use the costing provided to us by product management for the costs of the products that we mentioned in that paragraph. Correct.
11649 MR. KOCH: And you would impute those.
11650 Is that correct?
11651 MR. GILLETTE: Correct. It's based on the ABC costing model that we use internally -- W-based costing.
11652 MR. KOCH: Okay. And so you impute those and then you look to make sure that there is a specific margin on top of those?
11653 MR. GILLETTE: That is correct.
11654 MR. KOCH: Okay. And you then indicate:
"Each of these bids is reviewed and improved in a governance process called the sales opportunities sanction process, which was established in March 2000." (As read)
11655 Why was that process established, Mr. Gillette?
11656 MR. GILLETTE: We concluded -- prior to that, we had a process which was -- there was a process in place, but it was not as formalized as we felt we needed to ensure that there was proper scrutiny and proper approval process on all of the larger deals, such as these that we brought forward, and we decided that we needed to tighten that process and so established this sanction process at that time.
11657 MR. KOCH: Okay. And that earlier process, I take it, you weren't satisfied it was working?
11658 MR. GILLETTE: We felt it needed to be tightened because there are instances where we were not as happy as we would have that it had the right visibility on the way the deals were brought forward. Correct.
11659 MR. KOCH: What was the concern, though, in establishing the -- you said you weren't --
11660 MR. GILLETTE: We wanted to --
11661 MR. KOCH: -- as happy as you would have been --
11662 MR. GILLETTE: We wanted to ensure that we had enough financial scrutiny to ensure that the profitability objectives that we had set out in the business were being met by all of these specific deals. We wanted to ensure that we were focused on maintaining our profit objectives.
11663 MR. KOCH: Okay. But presumably, on an overall basis, you are not maintaining your profit objectives. You indicated you are not profitable yet.
11664 MR. GILLETTE: Profit objective is on a deal-by-deal basis. Correct.
11665 MR. KOCH: On a deal-by-deal basis.
11666 MR. GILLETTE: Yes.
11667 MR. KOCH: You indicate that -- then you say, I guess:
"In light of the Commission's directive in Decision 2001-618 to provide a full response, The Companies are waiving the claim of confidentiality regarding that policy."
And you provide attachment 1.
11668 Attachment 1 is not the policy, is it? It's a description of the policy.
11670 MR. GILLETTE: It's a description of the policy. Correct.
11671 MR. KOCH: It's a summary?
11672 MR. GILLETTE: Yes.
11673 MR. KOCH: Okay. So we still haven't seen the policy. Right?
11674 MR. GILLETTE: I guess that would be true.
11675 MR. KOCH: Okay. And then if we go over to page 4, and look at -- now, I take it, this part is your response to our request to cite instances where the contracts, the prices at which Bell Nexxia was selling the services, did not exceed the Bell tariff rate.
11676 MR. GILLETTE: Excuse me, what are you looking at?
11677 MR. KOCH: Page 4?
11678 MR. GILLETTE: Page 4 of the --
11679 MR. KOCH: We are still on the same document --
11680 MR. GILLETTE: Yes.
11681 MR. KOCH: -- page 4 of 5.
11682 MR. GILLETTE: Correct.
11683 MR. KOCH: Right.
11684 MR. GILLETTE: That's correct.
11685 MR. KOCH: Now, the Commission, you recognize, asked you to give a full response, citing every instance. You haven't provided that, correct?
11686 MR. GILLETTE: We have provided the two instances where there were situations where services were sold at less than tariff rates --
11687 MR. KOCH: Okay, but that --
11688 MR. GILLETTE: -- with what I was counselled on, to maintain customer confidentiality.
11689 MR. KOCH: But what you are providing, in fairness, Mr. Gillette, is the two instance that you found, upon an examination of 220 existing contracts, right?
11690 MR. GILLETTE: That is correct.
11691 MR. KOCH: Okay.
11692 MR. GILLETTE: Those were all of the contracts that went through this process.
11693 MR. KOCH: Okay. That's going to be my next -- my next question is: so those are all of the contracts that have gone through this policy of yours?
11694 MR. GILLETTE: Correct.
11695 MR. KOCH: Okay. And that new policy was -- so that sample -- that's what I wanted to get to is, sort of, you were asked to produce everything; you have chosen to produce a sample. I would like --
11696 MR. GILLETTE: No, let me say that is not a sample, that is all of the agreements that went through this process. Everything outside of that is simply sold at book price or tariff rates.
11697 MR. KOCH: Okay. So -- but what about those proceeding the process being put into place? Those aren't counted in this analysis?
11698 MR. GILLETTE: Yes, we did look at some that preceded, as a matter of fact. The two instances, the two exceptions we noted, preceded the process.
11699 So we went back in time and looked at contracts that predated the process, all of the agreements.
11700 MR. KOCH: Your answer doesn't indicate that you have looked at every single agreement. Have you or have you not?
11701 I just want to know what the answer is, Mr. Gillette.
11702 MR. GILLETTE: We have looked at all of the agreements.
11703 MR. KOCH: I would have expected, frankly, to see that in writing here.
11704 It is your evidence, then, just so we can all understand it and maybe put this issue to bed, that you have looked at every contract that Bell Nexxia has entered into since its inception?
11705 MR. GILLETTE: Correct.
11706 MR. KOCH: And 220 of those follow the implementation of this new pricing policy in time?
11707 MR. GILLETTE: I'm sorry, I didn't understand the question.
11708 MR. KOCH: Two hundred and twenty of those contracts follow in time the implementation of your new pricing policy or sales opportunity sanction process.
11709 MR. GILLETTE: Yes, the majority of those agreements would have gone through this process. Some predated the process, as I mentioned earlier.
11710 MR. KOCH: I had understood a few moments ago that you said 220 followed your establishment of this process in time.
11711 MR. GILLETTE: Two-twenty was the total number of contracts that we looked at, some of which predated the implementation of the sanction process in March of 2000.
11712 MR. KOCH: How many contracts would you estimate, overall, that you looked at?
11713 MR. GILLETTE: Two hundred and twenty.
11714 MR. KOCH: That's all. And those are all of the contracts that Bell Nexxia has ever entered into?
11715 MR. GILLETTE: Those are all of the contracts for these types of deals since Nexxia was established; correct.
11716 MR. KOCH: When you say "these types of deals" --
11717 MR. GILLETTE: Single source and package deals.
11718 MR. KOCH: Was that your understanding of what the interrogatory requests --
11719 MR. GILLETTE: Those would have been the only deals where we would have done pricing outside of standard book pricing; correct.
11720 So those would have been the deals that would have had any variations in prices.
11721 MR. KOCH: Then you found only two where you say they are not in compliance with the pricing policy, and you say these were signed prior to the sales opportunity sanction process.
11722 Which policy are you speaking of? I just want to make it clear.
11723 MR. GILLETTE: The policy that we outlined earlier, which you described so correctly, on how we would impute the costs and then ensure that there was profitability for that deal.
11724 MR. KOCH: So it is your evidence that those would also be the only two that didn't recover tariff rates for Bell tariffed services?
11725 MR. GILLETTE: Of those 220, that's correct.
11726 MR. KOCH: What about the others?
11727 Sorry, I keep misunderstanding what the significance of the 200 is.
11728 MR. GILLETTE: The 200 are the only situations or agreements or deals that had pricing flexibility applied. Anything else would have been sold to the customer at standard pricing to begin with.
11729 MR. KOCH: What does standard pricing mean?
11730 MR. GILLETTE: Tariff pricing or standard book pricing for forborne services.
11731 MR. KOCH: You say in the next paragraph:
"As the tariffed services in question in all two cases were offered nationally, Bell resold these at tariffed rates outside Bell Canada territory. Within Bell Canada territory the tariffed services were provided at non-standard rates."
11732 Again, what does that mean, non-standard rates?
11733 MR. GILLETTE: In those two situations a discount was given across the tariffed services that was less than tariff rate. In the actual evidence I think we outlined how much that discount was for each situation.
11734 There was a broad discount given for the products and services in those two particular situations.
11735 MR. KOCH: At the bottom of the page you have no. 3, and that seems to be the answer to D(2) rather than -- there is no D(3).
11736 Is that the answer to D(2)? Is that just a typo that says "3" rather than "2" there?
11737 MR. GILLETTE: Let me check that.
11738 MR. GILLETTE: Yes.
11739 MR. KOCH: So here you have answered "no" to the question:
"Has Bell Nexxia ever sold any retail services at a price that is below the non tariffed rates, plus mark-up charge, by Bell Canada to Bell Nexxia for services identified in C?"
11740 What is the review that you did to provide this answer, Mr. Gillette?
11741 MR. GILLETTE: I am just trying to put the context together here. Give me a minute.
11742 MR. KOCH: Sure.
11743 MR. GILLETTE: Are you talking about non-tariffed products now?
11744 MR. KOCH: Yes.
11745 MR. GILLETTE: No, we have not.
11746 MR. KOCH: You have done no review?
11747 MR. GILLETTE: No. We have --
11748 MR. KOCH: My question was what review have you done in order to provide the answer that you have provided?
11749 MR. GILLETTE: We looked at the 220 agreements, and we looked at the same products within those agreements to be able to answer the question.
11750 We looked at both forborne and tariffed items.
11751 MR. KOCH: Mr. Chairman, I am noticing it is coming up on the time for our usual break.
11752 I have some more to do after lunch and, with the benefit of the lunch period, I may be able to shorten my questions.
11753 THE CHAIRPERSON: Well, with that incentive --
11754 MR. KOCH: I always knew that would be a great incentive.
11755 THE CHAIRPERSON: -- we will take our lunch break and reconvene at 2:00 p.m.
11756 MR. KOCH: Thank you.
--- Upon recessing at 1228 / Suspension à 1228
--- Upon resuming at 1400 / Reprise à 1400
11757 THE CHAIRPERSON: Order, please.
11758 So we will return to our proceeding now and continue cross-examination of the Panel dealing with affiliate issues.
11759 Mr. Koch.
11760 MR. LOWE: Mr. Chairman?
11761 THE CHAIRPERSON: Mr. Lowe.
11762 MR. LOWE: I just wanted to mention two things briefly. First, we provided our response to 4200 by letter dated October 9th and there is an attachment no. 1 to that response. I just wanted to tell parties that Dr. Emerson will be speaking to that response on the TELUS Panel No. 2, just for preparation of cross-examination purposes.
11763 And then, secondly, on the -- back to the oral argument issue and your comments that you would want to have written argument on the same day as oral argument is presented, we don't take issue with that but we did plan on having five clear days to prepare our written argument and, you know, with the record the size that it is and the issues that we are dealing with we think that's the bare minimum. So we will just leave that with you when you are considering how to address oral argument.
11764 THE CHAIRPERSON: I'm not sure what you mean by clear days.
11765 MR. LOWE: Well, I would include weekend days in that but I would not include hearing days.
11766 THE CHAIRPERSON: So from the end of the hearing is what you are saying?
11767 MR. LOWE: Yes.
11768 THE CHAIRPERSON: Five clear days from the end of the hearing?
11769 MR. LOWE: Yes.
11770 THE CHAIRPERSON: I am trying to recollect in the past where we have had oral argument and had written argument filed. I'm not sure we generally have had five clear days. I think from time to time we have had a somewhat shorter period of time than that, but I take your comment.
11771 Anybody else on this issue?
11772 Mr. Ryan?
11773 MR. RYAN: I would just say, Mr. Chairman, that we would be happy to live with the shorter period of time.
11774 THE CHAIRPERSON: I'm sorry, no one else on this issue or any other issue?
11775 Mr. Henry.
11776 MR. HENRY: Mr. Chairman, I guess I would support Mr. Lowe as well. My memory may be failing me but I thought in one of the framework cases or split rate base or something we adjourned for a few days and all came back and filed our written arguments the same day and did oral argument. I don't know if the schedule would permit that, but that might be a solution.
11777 THE CHAIRPERSON: I agree with you, on several proceedings it was several days. I'm not sure it was five. That was my only point.
11778 MR. HENRY: I just don't remember.
11779 THE CHAIRPERSON: Okay.
11780 Oh, sorry, Mr. Daniels.
11781 MR. DANIELS: Although we are very interested in being given the opportunity to make an oral final argument we do believe that it would be in our interest as well to have time roughly in the five clear days, or maybe not clear days but five days, in order to prepare final argument.
11782 THE CHAIRPERSON: Okay. Thank you.
11783 Okay. Over to you, Mr. Koch.
11784 MR. KOCH: Thank you, Mr. Chairman.
11785 Mr. Gillette, I am finished with your answer to Part D of the interrogatory and I would like to move now to Part E and maybe it's worth everyone flipping to page 105 to see what the question was.
11786 For E the question was:
"What measures if any does Bell Canada employ to ensure that Bell Nexxia complies with the sound business practices of ensuring that Bell Nexxia's retail and competitor services are priced to at least cover incremental costs of supply plus a sufficient mark up to attract investment." (As read)
11787 If I could ask you to turn to page 5 of 5 of the supplemental answer, E says:
"When Bell Nexxia is acting as an agent for Bell Canada it is obliged to charge the tariff rate for those services." (As read)
11788 I am just interested in the choice of words "obliged."
11789 How is it obliged, Mr. Gillette?
11790 MR. GILLETTE: I think generally when we are acting as agents it is our policy to charge tariff rates for those services. I'm not sure whether obliged is the proper term there but generally that's our practice.
11791 MR. KOCH: Okay. Is that written down or --
11792 MR. GILLETTE: Yes, it is. It's in our documentation relating to the SOS process that I talked about earlier.
11793 MR. KOCH: The SOS process?
11794 MR. GILLETTE: Process. The Sales Opportunity Sanction. I apologize for the acronym. Took me a while to figure out what that stood for as well.
11795 MR. KOCH: Yes, and it would take me a while to figure out a witty response to that.
--- Laughter / Rires
11796 MR. KOCH: And again, we have the language of obligation in the last sentence of that paragraph, "Bell Nexxia is obliged to pay the tariff rate for services it acquires from Bell Canada."
11797 MR. GILLETTE: We do.
11798 MR. KOCH: So your evidence is that you consider Bell Nexxia under an obligation to do that?
11799 MR. GILLETTE: That's correct.
11800 MR. KOCH: Okay. The question was actually what measures does Bell Canada ensure? Are there measures or are we relying solely on the SOS?
11801 MR. GILLETTE: No, actually, and this is for all tariff services that we actually represent Bell as an agent. They bill us at tariff rates, period. There is no variance on that.
11802 MR. KOCH: And where you resale?
11803 MR. GILLETTE: Where we resale they bill us at tariff rates for those services.
11804 MR. KOCH: But I'm talking about the -- you are charging your customers for those services?
11805 MR. GILLETTE: Yes, in our case.
11806 So there are two parts to that. How does Bell ensure that we do that? Well, that's what they bill us. There is no variation from that.
11807 MR. KOCH: But how do they ensure that is what you bill your customer?
11808 MR. GILLETTE: They don't. Bell Nexxia is the responsible organization to put processes in place to do that. Eventually, we are accountable to Bell Canada for that but we are the ones that have established those processes.
11809 MR. KOCH: And again, you are accountable because your president reports to Bell Canada?
11810 MR. GILLETTE: Correct.
11811 MR. KOCH: But I guess you would agree with me then there is nothing in place from Bell Canada other than the reporting structure to ensure that you are not charging less than that.
11813 MR. GILLETTE: I'm not aware of any other process that would ensure that?
11814 MR. KOCH: Now, if you could -- then you have an attachment which is again a summary of your pricing policy. If I could ask you to go to the last page of that attachment -- so it's page 2 of 2 -- under "Sales Incentives" and this, I take it, is the description of the SOS policy, Sales Opportunity Sanction Process?
11815 MR. GILLETTE: Correct.
11816 MR. KOCH: SOSP?
11817 MR. GILLETTE: Yes.
11818 MR. KOCH: You say:
"In order to reinforce the foregoing pricing policy Bell Nexxia has a sales incentive program designed to reward Bell Nexxia sales personnel on the basis of EBITDA margin or profitability rather than revenues realized on any successful bids." (As read)
11819 So your point is that margin is what gets them an incentive payment. Right?
11820 MR. GILLETTE: That is a bit awkwardly worded. They are measured on both revenue and profit of the deal, not one or the other exclusively, so they are really responsible for both aspects of a particular opportunity.
11821 MR. KOCH: The personnel that you are speaking of are they salaried personnel or do they -- are they compensated only through commissions?
11822 MR. GILLETTE: Salary and commission both.
11823 MR. KOCH: Okay. And roughly for a typical one of your sales people what percentage does the commission represent of their overall compensation?
11824 MR. GILLETTE: Two-thirds salary, one-third commission.
11825 MR. KOCH: Okay. And the commission you just indicated, I guess we should change this language to make it clear that the commission is in part based on revenues and part based on margin?
11826 MR. GILLETTE: And in part based on customer satisfaction.
11827 MR. KOCH: Right.
11828 How is customer satisfaction measured?
11829 MR. GILLETTE: We use an outside firm to survey our customers annually.
11830 MR. KOCH: Okay. Is price part of the question that is asked of customers regarding their satisfaction with Bell Nexxia?
11831 MR. GILLETTE: I believe it is, yes.
11832 MR. KOCH: Okay. In terms of -- so we have three components, we have revenues, margins and satisfaction. What is the relationship between revenues and margins? Is there a formula as to how much of their commission is determined by the revenue and how much by the margin?
11833 MR. GILLETTE: No, there isn't a specific formula. There are different elements of the compensation plan that deal with either or both of those.
11834 MR. KOCH: But what ---
11835 MR. GILLETTE: It's fairly complicated.
11836 MR. KOCH: I'm sure it's complicated.
11837 MR. GILLETTE: Yes.
11838 MR. KOCH: What is the ---
11839 MR. GILLETTE: But not intentionally so.
11840 MR. KOCH: No. And I'm sure of that, too.
11841 What is the relative weight of revenues and margin in their commission compensation?
11842 MR. GILLETTE: Let me try to answer it this way.
11843 Roughly, if I were to do it this way -- roughly, I would say -- I am going to try to make this simple. I'm not going to get into decimal point precision, but roughly a third of their incentive would be on revenue. There would be a third of their incentive based on "customer sat." and then if they missed their EBITDA -- if we miss our EBITDA objectives there is 25 per cent roughly of their earnings that they would forfeit if indeed that happened, if we missed our EBITDA objectives.
11844 MR. KOCH: And their earnings being their commission?
11845 MR. GILLETTE: That one-third that is the commission piece, just that one-third component.
11846 MR. KOCH: So they lose one-quarter of one-third?
11847 MR. GILLETTE: Correct.
11848 MR. KOCH: So that's like one-twelfth --
11849 MR. GILLETTE: Correct.
11850 MR. KOCH: -- of their overall compensation?
11851 MR. GILLETTE: That is about correct.
11852 MR. KOCH: Okay. So that's what is at stake over this EBITDA?
11853 MR. GILLETTE: There is also a set of incentives that we provide called the Sales Excellence award based on large complex deals similar to these 220 that we talked about earlier. EBITDA is a critical factor of how we pay those bonuses, which can be significant to the reps on an individual situation basis. For any rep to qualify there has to be a minimum of 15 per cent of EBITDA in any given deal just for the minimum pay out and then it would increase exponentially, if you will, or a straight line as the EBITDA of a particular deal improves. So that is very much of a focus in their minds.
11854 MR. KOCH: That's a potential for even more compensation?
11855 MR. GILLETTE: Over and above what I just described. Think of it as a bonus as opposed to a commission.
11856 MR. KOCH: Thank you.
11857 Those are my questions, Mr. Chairman.
11858 THE CHAIRPERSON: Thank you, Mr. Koch.
11859 So I believe the next party to cross-examine then is Group Telecom, Mr. Daniels?
EXAMINATION BY / INTERROGATOIRE PAR
11860 MR. DANIELS: Good afternoon, gentleman. I'm Jonathan Daniels, counsel for the GT Group Telecom.
11861 I would like to begin by just exploring with you -- I want to make sure I understand the corporate structure of a couple of companies that are referred to in the interrogatories.
11862 I would like to start off with Bell Nexxia which I understand you have already stated it is 100 per cent owned by Bell Canada. You also stated that its results are reported separately but as well included in Bell Canada's overall results. Is that a correct characterization?
11863 MR. PARK: That's correct.
11864 MR. DANIELS: Where are they reported separately?
11865 MR. PARK: Well, internal to the company. They are not reported externally to -- they are reported separately and obviously they are filed in the carrier reports to the Commission, as an example.
11866 MR. DANIELS: Right, so if I understand correctly, when we say reported separately that's just an internal mechanism, but from the shareholder's perspective they are not going to see any information separately about the performance of Bell Nexxia?
11867 MR. PARK: That is correct.
11868 MR. DANIELS: And Bell Nexxia is the Canadian carrier. Is that correct?
11869 MR. GILLETTE: It's a non-dominant Canadian carrier. I believe that's the categorization.
11870 MR. DANIELS: Right, so a Canadian carrier as under the Telecom Act.
11871 I would like to ask a couple of questions then about -- there is another company that is referenced, BAC Inc. I take it that BAC Inc. stands for Bell Advance Communications Inc. Is that correct?
11872 MR. GILLETTE: That's correct.
11873 MR. DANIELS: And once again, this company is owned by Bell Canada 100 per cent?
11874 MR. GILLETTE: Yes.
11875 MR. DANIELS: And it too is included in Bell reports?
11876 MR. PARK: Yes.
11877 MR. DANIELS: And would it be reported separately on the public record?
11878 MR. PARK: No.
11879 MR. DANIELS: But if I understand correctly, it's what we generically refer to as a reseller. So let's just make sure that I am correct in this. It is not a Canadian carrier as defined under the Telecom Act. Is that correct?
11880 MR. GILLETTE: Correct.
11881 MR. DANIELS: But it is a telecommunications service provider.
11882 MR. GILLETTE: It's a reseller. So we are comfortable using the term reseller, but it is a separate company from Bell Canada.
11883 MR. DANIELS: Unfortunately, I wasn't able to find it. It's not on the reseller list. So should it be on the reseller list?
11884 MR. PARK: I don't know.
11885 MR. GILLETTE: I can't answer that question.
11886 MR. DANIELS: Perhaps you guys could take an undertaking to see whether it should be on the reseller list. Are you okay with that as an undertaking?
11887 MR. GILLETTE: Sure. No problem at all.
11888 MR. DANIELS: Turning then back to Nexxia for a second, I was interested in your discussions with Mr. Koch earlier this morning where you described that Nexxia, as I understand it, buys some of services from Bell Canada. Is that correct?
11889 MR. GILLETTE: It is correct.
11890 MR. DANIELS: And I guess what I was trying to put together is who sells those services to Nexxia?
11891 MR. PARK: Maybe give an example, just --
11892 MR. DANIELS: I guess I am trying to understand, just to put my confusion out on the table: Mr. Dixon is head of the Carrier Services Group. There was a reference to the Carrier Services Group as the one where Intrigna buys services, for example, when it wanted to buy from Nexxia and I am just trying to understand when Nexxia buys from Bell Canada if all other wholesalers have to go to Nexxia. Where does Nexxia buy its services when it wants to buy it from Bell Canada?
11893 MR. PARK: In this case I would guess they would go directly to Bell Canada. So they wouldn't go through a CSG operation.
11894 MR. DANIELS: They wouldn't go through a CSG operation.
11895 MR. PARK: That's correct.
11896 MR. DANIELS: That's very helpful.
11897 I would like to move on then to -- I would just like to make sure I understand. There is no legal problem, from your position, with the situation where Bell could sell a service to a reseller that's an affiliate who then in turn could sell its service to a Canadian carrier that's also an affiliate. Is there any issue with that, what I am going to call a chain?
11898 MR. GILLETTE: Not that I am aware of.
11899 MR. DANIELS: I'm sorry? I didn't get that.
11900 MR. GILLETTE: Not that I am aware of.
11901 MR. DANIELS: In fact, I would just like to turn your attention first to a couple of interrogatories.
11902 The first one I am going to start with is companies GT 12B and I know there are tonnes of numbers here, so we will have to move very slowly through this one.
11903 MR. DANIELS: Do you have that? All right. I would actually like to just turn to the answer for B7. That's on page 9 of 12. In that answer I read there that:
"The proportion of total co-locations offered to in-region affiliates under the general tariff is zero".
11904 Is that correct? That is still accurate?
11905 MR. PARK: That is correct.
11906 MR. DANIELS: And in addition I think let's not throw away that interrogatory because we will be coming back to it in a minute, but another interrogatory. This company is CallNet 1013. I thought you might want to get that in front of you as well for a minute.
11907 COMMISSIONER McKENDRY: Excuse me. Could you just tell us what interrogatory you are referring to?
11908 MR. DANIELS: My apologies. The Companies(CallNet)1013.
11909 MR. DANIELS: I just thought you might want to read it for a second before I asked. So as I understand it in this interrogatory we find out that Nexxia itself does not co-locate in Bell Canada territory. Is that correct? That's how I am reading this answer.
11910 MR. PARK: That's correct.
11911 MR. DANIELS: But this answer seems to suggest that BAC Inc. does co-locate in Bell Canada territory.
11912 MR. PARK: That's correct.
11913 MR. DANIELS: But it does it through a special territories tariff as opposed to the general tariff. Is that correct?
11914 MR. PARK: correct.
11915 MR. DANIELS: So just to understand what we have here is that BAC Inc., we go from Bell to BAC Inc. to Nexxia. That's the chain here.
11916 MR. PARK: Correct.
11917 MR. DANIELS: So we are going from what I suggested before, from Bell selling it to a reseller and then the reseller is selling it to a Canadian carrier.
11918 MR. PARK: That's correct.
11919 MR. DANIELS: Okay.
11920 MR. DANIELS: At this point in time I would like to explore with you in answer to the interrogatory that relates to the -- that you gave that relates to the local affiliate rule and I have handed out as an exhibit Telecom Order CRTC 99-972. So we might want to have that one handy.
11921 MR. DANIELS: Are you gentlemen ready?
11922 MR. PARK: Yes.
11923 MR. DANIELS: As I understand it there is the local affiliate role. There is a prohibition against resellers as opposed to Canadian carriers. Do you agree with that?
11924 MR. GILLETTE: Correct.
11925 MR. DANIELS: So for the benefit of our conversation just for the next minute or so, let's keep the conversation restricted to resellers.
11926 Now, as I understand it the key paragraph is paragraph 43 of that Order which is on page 8 of 9, I believe, is the copy that people have. Sorry my copy is slightly different. So I will just wait for everyone to find page 6, the back of page 6 for those who have copies handed by Group Telecom.
11927 MR. DANIELS: If I could just take a minute to read that so that we are all clear on what we are talking about.
"In light of the foregoing, the Commission finds it appropriate to establish a rule that prohibits the ILECs from providing to affiliates that are not Canadian carriers local exchange facilities such as loops or local exchange services for resale to provide local exchange services". (As read)
11928 So this is what I generically refer to as the local affiliate rule. You guys, are you comfortable with that reference?
11929 MR. PARK: Correct.
11930 MR. DANIELS: As I understand it, would you agree with me that local exchange facilities like loops are local exchange facilities?
11931 MR. GILLETTE: Yes.
11932 MR. DANIELS: Including Type A loops, Type B loops and Type C loops?
11933 MR. GILLETTE: Yes.
11934 MR. DANIELS: Would digital network access also be considered a local exchange facility?
11935 MR. GILLETTE: I am not a regulatory expert, but I think it would be if it was sold as only a stand-alone product.
11936 MR. DANIELS: I am sorry. I am not sure I understood that.
11937 MR. GILLETTE: If it was sold as a stand-alone product as opposed to being part of a broader offering.
11938 MR. DANIELS: A local exchange facility is sold as a stand-alone product. Sir, are you suggesting that digital network access, is that a stand-alone product by your view?
11939 MR. GILLETTE: I believe so.
11940 MR. DANIELS: So it is a local exchange facility then by your understanding.
11941 MR. GILLETTE: Yes. Again, I am not an expert on all the regulatory classifications.
11942 MR. DANIELS: At this point in time, if I could turn you back -- I am really just trying to understand Bell's position on this -- to The Companies(GT)12. That the interrogatory we looked at just a short little while ago, page 10.
11943 I am at item 10 -- small "x". I will just give you a second to read it. I don't intend to read everything out again, but I just want to make sure you are comfortable with it.
11944 MR. DANIELS: Have you had a chance to read it?
11945 MR. GILLETTE: Correct.
11946 MR. DANIELS: As I understand it, without boring everybody by reading this again, it's Bell's position that the affiliate rule allows you to resell local exchange facilities as long as they are not used to provide local exchange service. Is that correct?
11947 MR. GILLETTE: Correct.
11948 MR. DANIELS: In this context, local exchange service here defined, I take it, as primary exchange service. Am I right in making that assumption?
11949 MR. KIDD: Mr. Chairman, I hate to interrupt, but I wonder whether we are really getting into questions that are involving definitions under the general tariff of Bell Canada and I am not sure really that these people are equipped to answer those types of questions.
11950 THE CHAIRPERSON: Mr. Daniels?
11951 MR. DANIELS: Mr. Chairman, I think it's true that I am trying to understand whether in their definition here that they have made an explicit explanation -- not an explicit explanation, but where they stated that the resale by affiliate resellers of local exchange facilities is not prohibited. I am trying to understand this interrogatory.
11952 I think it's also fair to point out that I suggested to Bell prior to my appearance -- actually, prior to this hearing starting -- that I would have some questions regarding some regulatory interpretation of these rules and I had suggested that they might want to make sure that someone with a regulatory background would be on the panel. I was assured that that wouldn't be necessary, that the individuals presented would be able to covet the material.
11953 I am asking directly to understand their interpretation of this answer No. 10.
11954 THE CHAIRPERSON: Mr. Kidd?
11955 MR. KIDD: Mr. Chairman, if I could suggest to Mr. Daniels, if I may be permitted to say, that there is a way of asking those questions where he asks what Nexxia does as opposed to what the definition is of local exchange service, for example, and can elicit the facts on the record. Then I think that for final argument purposes he can argue what he wants about what the definition of a local exchange service may or may not be under the general tariff if there is such a definition.
11956 I am just objecting to a question that relates to purely and simply a regulatory definition as opposed to what the affiliate actually does.
11957 THE CHAIRPERSON: Well, I take the point and I am not sure I could answer the question and one would probably expect that I should be able to know what those kinds of definitions are.
11958 So I take the point that Mr. Gillette may not be able to specifically provide the definition, but I am not sure that should necessarily inhibit your cross-examination to deal with the issue that is here on the page, Mr. Daniels.
11959 MR. DANIELS: I take your point, Mr. Chairman.
11960 MR. GILLETTE: If I could just add rather than get into definitional discussions. Our view of BAC Inc.'s role is that it is consistent with the affiliate rule in terms of the products that it does sell in the marketplace and what we buy from it. So our view is it is not inconsistent with the affiliate rule in the way it goes about its business relative to some of these tariffs.
11961 Maybe that's a better way of answering your question.
11962 MR. DANIELS: Mr. Chairman, would it be appropriate to ask Bell to take an undertaking to clarify whether their view of local exchange service is primary exchange service? That is the definition and that is the distinction, and so that I don't have to ask these gentlemen these questions to explain this interrogatory here whether they are making the distinction.
11963 THE CHAIRPERSON: Could you undertake to do that?
11964 MR. GILLETTE: That would be fine.
11965 MR. DANIELS: So, bringing you back to factual questions. I think we both agree that the affiliate role doesn't apply to Nexxia because we stated that Nexxia is a Canadian carrier.
11966 Is that correct?
11967 MR. GILLETTE: Correct.
11968 MR. DANIELS: And that, in fact, Nexxia does resell primary exchange service.
11969 Is that correct as well?
11970 MR. GILLETTE: In what context do you mean by that? I mean, in general, those services we sell as an agent for Bell Canada. I stated that earlier.
11971 MR. DANIELS: Right. I guess when I hear "in general", I am wondering does Nexxia resell primary exchange service at all in any situation?
11972 MR. GILLETTE: Are you thinking of services like Centrex, for example?
11973 MR. DANIELS: I think that would qualify as primary exchange service.
11974 MR. GILLETTE: The answer is, as I stated earlier, there may be -- in 99 per cent of the cases we are an agent, there may be situations where we have acted as a reseller, I am not aware of those.
11975 MR. DANIELS: Fair enough. At this point, I would like to turn to probably the most famous interrogatory that we have in this proceeding, which is The Companies(CallNet)1007. This is the same interrogatory Mr. Koch spent most of his examination on.
11976 MR. DANIELS: Do you have that in front of you, gentlemen?
11977 MR. GILLETTE: Yes, we do.
11978 MR. DANIELS: I too, like Mr. Koch, was a little bit confused with this interrogatory. So I am going to try -- a number of my questions have been addressed, and I am going to try to clarify some of my confusions as well that have not been addressed.
11979 As I understand it, on page 2 of that interrogatory, you state that Bell Nexxia responds to these demands of these national customers by offering a single-source arrangement. So for national customers, Bell Nexxia acts as a single source as I think you explained earlier.
11980 That is correct?
11981 MR. GILLETTE: That's correct.
11982 MR. DANIELS: And when you say single source, I just wanted to make sure I understood this correctly, are you suggesting that's in order to form a single point of contact?
11983 MR. GILLETTE: It's to provide a single point of contact for national services for those customers and to be able to provide those services and solutions. Correct.
11984 MR. DANIELS: And then the other type of service you talked about was bundled --
11985 MR. GILLETTE: Package.
11986 MR. DANIELS: I am sorry, package service.
11987 MR. GILLETTE: Package solutions, if I would --
11988 MR. DANIELS: Right. And would it be fair to say that package solutions would consist of -- would be generally bundles?
11989 MR. GILLETTE: Not in the term that we have come to use in some of these discussions. It would be a set of services which would include potentially circuits from Bell, third-party equipment from other suppliers like Cisco, Nortel. It would include management of the networks in some cases where we would actually manage it. So, it's a much more complex solution than just selling a menu of services under single source.
11990 MR. DANIELS: But it would be for one overall price or different -- I guess my understanding of a bundle is a bunch of services for maybe one overall price or two different price components, but that are sold together as a unit.
11991 MR. GILLETTE: This would be priced uniquely to that customer based on the requirements of the customer solution. Everyone of them tends to be different.
11992 MR. DANIELS: Right. I understand that everyone is different. But is it fair to say that, for some of those customers, it's going to be one price for different types of services put together?
11993 MR. GILLETTE: Correct. Which we would call a package
11994 MR. DANIELS: As I understand it, back on page 2, there's a reference there too that Nexxia sells both what are referred to as legacy and broadband services?
11995 MR. GILLETTE: Correct.
11996 MR. DANIELS: And I take it legacy services can consist of local toll, even private-line services like digital network access?
11997 MR. GILLETTE: Correct.
11998 MR. DANIELS: Now, is it limited to the combination of legacy and broadband services or does Nexxia sell some -- just have some contracts that would only be legacy services?
11999 MR. GILLETTE: There would be some contracts that are only legacy services in some circumstances.
12000 MR. DANIELS: For example, there could be a contract that has a bundle of toll and local and some private line together that Nexxia would sell?
12001 MR. GILLETTE: Correct.
12002 I wouldn't call that a package, that would tend to be more of a single-source menu offering. I wouldn't call that a package, it's not a complex solution.
12003 MR. DANIELS: But could this be done in a way that it's one overall price?
12004 MR. GILLETTE: No.
12005 MR. DANIELS: Why is that?
12006 MR. GILLETTE: Because we only do that with a package, not an offering such as single source where the products are priced individually.
12007 I hope that helps to clarify that.
12008 MR. DANIELS: Just to understand something on the single source. Is there a contingency relationship that, in order to get the price of one part of the source offering, let's say, you would have to take some of the other products as part of the sourcing?
12009 MR. GILLETTE: The deal is a menu of products and, if the customer doesn't want that menu, then they can buy the products individually.
12010 MR. DANIELS: But would the prices differ?
12011 MR. GILLETTE: It could.
12012 MR. DANIELS: Right. So there could be some contingency that you get a lower price?
12013 MR. GILLETTE: Yes, there would be an incentive. I will be blunt, there would be an incentive for the customer to buy more and over a longer term. But the pricing would remain on an individual product basis.
12014 MR. DANIELS: At this point, I would like to take you to your comment about agency. So just to understand this correctly, within Ontario and Quebec, as I think we discussed this morning, Nexxia generally acts as the agent for Bell Canada?
12015 MR. GILLETTE: Correct. For those services that we get from Bell Canada.
12016 MR. DANIELS: For the services that you buy from Bell Canada.
12017 And I notice in your conversation with Mr. Koch earlier this morning -- or actually, maybe it was this afternoon, and I am on page 5 of the interrogatory response -- Mr. Koch pointed you to the word that Bell Canada -- I should say the first sentence there:
"Bell Nexxia is acting as agent for Bell Canada, it is obliged to charge the tariff rates for those services." (As read)
12018 I guess I wanted to put to you a proposition that, if I understand correctly, as an agent, they are just representing Bell Canada, do we have a common understanding of agency in that context?
12019 MR. GILLETTE: I am not quite sure we are representing -- well, we are an agent for those products. I am not necessarily sure we are representing Bell Canada. The customer is dealing with Bell Nexxia as the single point of contact.
12020 MR. DANIELS: But for those products, you are representing Bell Canada?
12021 MR. GILLETTE: We are acting as an agent for Bell Canada for those products.
12022 MR. DANIELS: So, you would agree with me, and I think you are correct in stating here "obliged" because Bell Canada has to file a tariff for those services?
12023 MR. GILLETTE: That's why we said that.
12024 MR. DANIELS: Right. So it is correct to say you are obliged?
12025 MR. GILLETTE: And we do.
12026 MR. DANIELS: Right.
12027 Now, you stated earlier that you generally -- this was on page 3 -- that you generally do not resell Bell services within Bell Canada territory, traditional territory?
12028 MR. GILLETTE: Correct.
12029 MR. DANIELS: But that's not an absolute prohibition?
12030 MR. GILLETTE: That is correct.
12031 MR. DANIELS: But 99 per cent -- I think you said 99 per cent?
12032 MR. GILLETTE: Well, I am just putting some contingency.
12033 MR. DANIELS: Roughly.
12034 MR. GILLETTE: I am just not aware of a specific instance that I could point to you where we acted as a reseller that I am aware of.
12035 MR. DANIELS: When you say of the 99 per cent, for example -- I take your point that it might be 98, 97 -- that is in reference to, for example, the 220 contracts, that roughly 99 per cent of those would be situations for the services sold within Bell Canada territory, that for those services from Bell Canada you would be acting as agent.
12036 Is that correct?
12037 MR. GILLETTE: That's correct.
12038 MR. DANIELS: But there are some situations where Nexxia actually does resell Bell Canada services not as an agent but actually resells them?
12039 MR. GILLETTE: There could be, although I am not aware of any.
12040 MR. DANIELS: I think we will discuss the couple that are in your answer here. But before I go there, Bell Nexxia -- you would agree with me that Bell provides technical assistance to the bids that Bell Nexxia prepares?
12041 MR. GILLETTE: Yes, we have out-sourced some activities to Bell.
12042 MR. DANIELS: Is it also fair to say that Bell and Nexxia are known to put in joint bids together?
12043 MR. GILLETTE: No, we do not, we have separate customers. Bell will sell Nexxia products but I wouldn't call that a joint bid.
12044 MR. DANIELS: We might want to turn to GT -- The Companies(GT)12, that same interrogatory -- don't put it away. Let's turn to B-8 there.
12045 THE CHAIRPERSON: Sorry, Mr. Daniels, again. GT-12, but what was the further --
12046 MR. DANIELS: I am actually on page 3 where I will read the question and then, we will turn to the answer.
12047 THE CHAIRPERSON: Okay.
12048 MR. DANIELS: If I look at question (e), the question was:
"Whether the affiliate and the ILEC cooperate on joint bids, which would include provision in regional network services by the affiliate." (As read)
12049 And the answer as I read it, on page 10, is yes.
12050 MR. GILLETTE: I think we are dealing with semantics. Because we out-source certain elements to Bell Canada and we buy services from them, they would support a bid. When you said do we provide joint bids with Bell Canada, I was assuming you meant to Bell Canada's customers as opposed to the other way around. My apologies if I misunderstood your question.
12051 MR. DANIELS: No problem. Lastly, would you say that it's also true that Bell and Nexxia perform joint sales calls?
12052 MR. GILLETTE: Where we buy services from Bell Canada, we would get support from those organizations on sales calls, correct. An example of that would be Bell Gateways that provides us with customer premise equipment.
12053 MR. DANIELS: Now, if I could turn you back to that CallNet Interrogatory 1007.
12054 MR. GILLETTE: Sorry, which number?
12055 MR. DANIELS: The Companies(CallNet)1007, the same interrogatory.
12056 MR. GILLETTE: Okay.
12057 MR. DANIELS: You state on page 3 of that interrogatory that Bell books the revenues. I know you explained this to --
12058 MR. GILLETTE: For the legacy services?
12059 MR. DANIELS: For the legacy services.
12060 I know that you explained what you meant by that with Mr. Koch this morning. So I just want to understand, when Bell books the revenues, is that a resale or an agency relationship?
12061 MR. GILLETTE: Agency relationship.
12062 MR. DANIELS: Who does the customer sign the contract with?
12063 MR. GILLETTE: Bell Nexxia in most cases.
12064 MR. DANIELS: Is Bell Nexxia the one who the customers contractually obligated to or is it Bell Canada?
12065 MR. GILLETTE: It would be Bell Nexxia.
12066 MR. DANIELS: Does the customer know that it's Bell that's selling it some services for the legacy?
12067 MR. GILLETTE: Generally, they do, yes. We would tell them that.
12068 MR. DANIELS: I know Mr. Koch explored with you the question of who does the customer pay, but I actually want to go a step back and say: who does the customer receive a bill from?
12069 MR. GILLETTE: I can give you a little more insight into that. We have tried to clarify that over the break.
12070 In most cases, the bill is a Bell Nexxia bill. In some cases, because of system limitations, the bill will come from Bell Canada. But over the next while, as we implement a new billing system, that will change and all the bills will come from Bell Canada -- sorry, Bell Nexxia. But there are certain products that the customer would see a bill from Bell Canada.
12071 Hopefully, that clarifies for Mr. Koch as well.
12072 MR. DANIELS: I can't speak for him, but it does for me.
12073 So, if I could turn you to page 4 of that same interrogatory, this is where you discuss the two cases which were found not to be consistent with your SOS practice?
12074 MR. GILLETTE: Correct.
12075 MR. DANIELS: And as I understand it, what you state there is that outside of Bell Canada's traditional territory, in these two cases, you resold some services at below the tariff rates, is that correct?
12076 MR. GILLETTE: Yes.
12077 MR. DANIELS: So, you lost money on those services and those contracts?
12078 MR. GILLETTE: Correct.
12079 MR. DANIELS: But inside Bell territory, Bell booked the full revenue for the services?
12080 MR. GILLETTE: That's correct.
12081 MR. DANIELS: And Nexxia resold those services but didn't receive the same amount of revenue that Bell did?
12082 MR. GILLETTE: That's correct.
12083 MR. DANIELS: So this one isn't an agency relationship, this is resell, isn't it?
12084 MR. GILLETTE: I'm not certain exactly if you could classify it as that. Perhaps true. But I still think I'm in my 1 per cent.
12085 MR. DANIELS: Well, let me put it to you this way, if it was an agency relationship, would you agree with me that this would be in violation of the tariff?
12086 MR. GILLETTE: Bell was recompensed the entire tariffed amount, so, yes, it would -- let us just say we did not sell those services at the tariffed rate.
12087 MR. DANIELS: Actually, I'm going to have to clarify this because I think your interrogatory, to be fair, is making a very big distinction between being an agent and when you resell. And I think it's an important distinction. And as I understand it, if you were acting as agent for Bell, and Bell sold something below the tariff rate --
12088 MR. GILLETTE: You are correct. But if I was acting as a reseller and sold these, then it would not be a tariff filing.
12089 MR. DANIELS: So these two, when you resold below, you are reselling; in every other case, the other 218 cases, you are an agent.
12090 Is that correct?
12091 MR. GILLETTE: Correct. Point taken.
12092 MR. DANIELS: And as far as you know, these are the only two cases of non-agency that you are aware of?
12093 MR. GILLETTE: That's correct.
12094 MR. DANIELS: And you stated before, as a commission -- sorry, acting as agent, Bell pays Nexxia roughly 11 per cent commission. Is that correct?
12095 MR. GILLETTE: Correct.
12096 MR. DANIELS: Did Bell pay Nexxia the 11 per cent commission in these two cases?
12097 MR. GILLETTE: The way it works is it's not done on a case-by-case basis. It's done on a broad revenue basis, not on an individual case basis.
12098 MR. DANIELS: So were these two contracts included in part of the overall broad revenue that the 11 per cent was applied to?
12099 MR. GILLETTE: I would think so, but I would have to check for sure.
12100 MR. DANIELS: I would be happy to have an undertaking from you to check on that.
12101 MR. GILLETTE: Okay.
12102 MR. DANIELS: I would like to discuss the SOS for a moment, the sales opportunity sanction process. As I understand it, it was created in March of 2000. Is that correct?
12103 MR. GILLETTE: Correct.
12104 MR. DANIELS: But this is an internal Nexxia policy?
12105 MR. GILLETTE: Process.
12106 MR. DANIELS: Process.
12107 So this is not a regulatory rule?
12108 MR. GILLETTE: No.
12109 MR. DANIELS: And it could be changed by Nexxia at any time?
12110 MR. GILLETTE: It could be.
12111 MR. DANIELS: And if I look at the process, as I understand it, it's that you take the sum of the tariff -- of the services that are legacy, as you say -- sum of the tariff -- and you add to that the incremental costs.
12112 And I just wanted to understand, the incremental costs of what services do you include?
12113 MR. GILLETTE: The non-tariff services.
12114 MR. DANIELS: Would that be forborne services from Bell?
12115 MR. GILLETTE: It could include forborne services from Bell.
12116 MR. DANIELS: As well as Nexxia services --
12117 MR. GILLETTE: Correct.
12118 MR. DANIELS: -- that Nexxia provided itself?
12119 MR. GILLETTE: Correct.
12120 MR. DANIELS: So, in a sense, this is similar to an imputation test?
12121 MR. GILLETTE: Similar.
12122 MR. DANIELS: Does it follow the Phase 2 process?
12123 MR. GILLETTE: I don't profess to be an expert on the Phase 2 process, so I can't answer that question.
12124 MR. DANIELS: Do you want to take an undertaking to find out whether it falls in the Phase 2 process?
12125 MR. GILLETTE: It does --
12126 MR. KIDD: Mr. Chairman, I object to that question.
12127 MR. GILLETTE: As I answered, just one comment, is we use our internal ABC costing methodology to impute those costs. I'm not sure how that ties to Phase 2.
12128 THE CHAIRPERSON: Mr. Daniels.
12129 MR. DANIELS: I would like to understand the basis of the objection.
12130 MR. KIDD: Well, Mr. Chairman, I think the witness went on and gave an answer. Perhaps we could determine whether Mr. Daniels was satisfied with the answer. But, really, Nexxia is not subject to Phase 2. And I don't know where he's going with this question, but I think that to ask these witnesses questions about Phase 2, it's hard enough for experts to understand it, let alone people that are from another company.
12131 MR. DANIELS: I'm satisfied for now.
12132 THE CHAIRPERSON: Thank you, Mr. Daniels.
12133 MR. DANIELS: Would it be fair to say, then, that from a Commission perspective, when an imputation test is filed, certain assumptions are made, such as demand and other assumptions. I believe that the Chairman referred to the process this morning as "there is some art along with the science". Is that also a fair characterization for your SOS process?
12134 MR. GILLETTE: I'm not sure how much art there is. We obtain our costs from the product management owners and we assume those costs are correct. How much art or science they put into it, I leave to the product and financial people. We do not invent the prices as part of our process.
12135 MR. DANIELS: But these SOSs are not filed with the Commission for approval, are they?
12136 MR. GILLETTE: No.
12137 MR. DANIELS: I noticed earlier that we had a discussion about the appropriateness of having -- it wasn't with our panel, it was the panel beforehand, where I believe George Hariton stated that it was appropriate to have the CRTC -- that's the best means to review the accuracies of tracking certain types of information associated with costing. I guess what I would like to know is: does Bell agree with that position or does that position not apply to SOS?
12138 MR. GILLETTE: I think my observation would be these are individual customer deals generally done with forborne services. We believe we are using the costs that have been scrutinized by our product people. I can't see how it serves the Commission's purpose or our purpose to look at every specific forborne deal that Bell Nexxia does, would be my observation. It would sound like a fairly costly undertaking.
12139 MR. DANIELS: So if I understand it, it's reliable because it has been scrutinized by your costing people.
12140 I guess with that in mind, I would like to turn -- and perhaps, Mr. Park, you could address this.
12141 I handed out another exhibit, which is Order 2000-964.
12142 MR. DANIELS: Do you have that in front of you?
12143 MR. PARK: Yes, I do.
12144 MR. DANIELS: Have you had a chance to review it?
12145 MR. PARK: Just briefly.
12146 MR. DANIELS: Well, maybe we can go through the facts together just to make sure we both understand them.
12147 As I understand it, in this order there was a tariff notice where Bell applied to get approval for a special facility tariff for VDSL, video DSL-type product or very high speed type product. Are you comfortable with that?
12148 MR. PARK: Yes.
12149 MR. DANIELS: And that the Commission rejected it on the basis that their imputation tests that they had filed with the CRTC was not satisfactory.
12150 Do you see that?
12151 MR. PARK: That's correct.
12152 MR. DANIELS: In fact, it wasn't satisfactory on two grounds. One is that they had used the wrong costs. They had used some causal costs instead of general tariff rates for certain services.
12153 Is that correct?
12154 MR. PARK: That is correct.
12155 MR. DANIELS: As well, they had excluded the pre-service introduction costs, which the Commission found to be inappropriate exclusion.
12156 Is that correct?
12157 MR. PARK: That is correct.
12158 MR. DANIELS: And then if I can turn you to an exhibit which is not in your company's document, but Order 2001-68, which I also handed out. And I should note, for the record, that there seems to be an typo on the Commission's website because it says "2068," but I believe it's actually 2001-68.
12159 And in this document -- this is a TELUS attempt to get a special facilities tariff approved. But it, too, was rejected on the basis of failing to pass an imputation test.
12160 Is that correct?
12161 MR. PARK: That's what it says, yes.
12162 MR. DANIELS: Right. And in fact it failed on the same grounds that Bell had failed three months earlier.
12163 Do you agree with that?
12164 MR. DANIELS: It's okay. Let's --
12165 MR. PARK: In terms -- yes. I just wanted to make sure that it's exactly the same grounds because you asked that question, whether it was the same grounds --
12166 MR. DANIELS: Right.
12167 MR. PARK: -- but they did reject it for the costing on tariff rates --
12168 MR. DANIELS: Right.
12169 MR. PARK: -- in paragraph 3.
12170 MR. DANIELS: Right. So here we have two cases, we can agree, where imputation tests were filed and the Commission rejected it on the basis of them not being accurate.
12171 You can agree to that statement, I take it?
12172 MR. PARK: That for the reasons they specified, they denied the test. That's correct.
12173 MR. DANIELS: Now, did Bell think it passed the test when it filed it?
12174 MR. PARK: I would think so, yes.
12175 MR. GILLETTE: So would I.
12176 MR. DANIELS: Turning then to the SOS, again, as I understand it, this is a Nexxia process. Is that correct?
12177 MR. GILLETTE: Correct.
12178 MR. DANIELS: So it's not a BAC process?
12179 MR. GILLETTE: No.
12180 MR. DANIELS: And we have already established that certain services could be purchased. Under this process you take it at tariffed rates if you buy it directly from Bell Canada.
12181 Is that correct?
12182 MR. GILLETTE: That's correct, in general, yes.
12183 MR. DANIELS: And there are some services, we have agreed, that Nexxia buys through BAC, who buys it from Bell Canada?
12184 MR. GILLETTE: For some services, correct.
12185 MR. DANIELS: At this point in time, I would like to turn back, unfortunately, to the CallNet 1007 Interrogatory. I would like to turn back to page 4, at the top there, where we have that reference to 220 contracts.
12186 Now, I know you explored this with Mr. Koch earlier, but I'm a little bit confused by your answer -- reconciling your answer to the statement. If I read:
"In responding to the further requests of the Commission for details on Bell Nexxia's pricing, Bell Nexxia examined 220 existing contracts for single-source and package deals which involved local access service in Bell Canada territory."
And this is the line I want to concentrate on:
"In the time available, Bell Nexxia was not able to review every such contract."
12187 MR. GILLETTE: Subsequent to this submission, we did complete that work.
12188 MR. DANIELS: So are there more than 220, then?
12189 MR. GILLETTE: No, we finalized the review of 220 contracts.
12190 MR. DANIELS: I'm sorry. The first statement seems to suggest that you reviewed only 220 and that there was more.
12191 MR. GILLETTE: No there was not. Sorry. I think it was misleading in that at the time we submitted we hadn't reviewed all of them. It was referring to the fact that at the time we submitted this, we were not able to review all 220. It's just the way it reads.
12192 MR. DANIELS: This was submitted a week ago, so this review was just completed in the last week. Is that what you are suggesting?
12193 MR. GILLETTE: That is correct.
12194 MR. DANIELS: I'm sorry, I am just removing parts of my questions so that we are not repeating ourselves from this morning.
12195 All of these 220 contracts are the ones that contain local access services.
12196 MR. GILLETTE: Not all of them contained local access services. About half would have contained local access services.
12197 MR. DANIELS: In your review of the 220, did you find any other than the all two cases?
12198 MR. GILLETTE: That did not meet the guidelines?
12199 MR. DANIELS: Yes.
12200 MR. GILLETTE: No.
12201 MR. DANIELS: Was this a review of only contracts that are in force today?
12202 MR. GILLETTE: That are in force today as opposed to?
12203 MR. DANIELS: As opposed to have expired.
12204 MR. GILLETTE: I think they were in general in force today.
12205 Some of them have expired, but mainly in force today.
12206 MR. DANIELS: Sorry to jump around a little bit, but if we turn back to page 2 of that answer, in the last paragraph there is a statement that:
"Bell Nexxia acts as Bell Canada's agent in the provision of legacy services such as Centrex, long distance gateway data services to the customer."
12207 As I understand it, what we have here -- and on page 3 it talks about how Bell books the full revenue for these services.
12208 MR. GILLETTE: Correct.
12209 MR. DANIELS: And we have agreed that a number of these contracts involve what I would call a bundle, and I think under CRTC rules they would be viewed as a bundle. But we can refer to them in your terms as source arrangements and package deals.
12210 I guess the question I want to know is: Did Bell file a special facilities tariff for each and every one of those items?
12211 MR. KIDD: Mr. Chairman, I'm sorry to have to do this again. But I have to object.
12212 I think there has been a discussion here today where Mr. Daniels has been using the word "bundle" in a regulatory sense, and the witness has been using the word "package" in a business sense. There has been no meeting of the minds as to what those two terms mean.
12213 Now Mr. Daniels is asking him whether or not the bundle should require a tariff. I don't think there has ever been any agreement on that.
12214 If he wants to go back over and understand the difference, he is welcome to pursue it. But I don't think that question should be allowed to be put to the witness.
12215 THE CHAIRPERSON: Mr. Daniels.
12216 MR. DANIELS: Perhaps I am a little bit confused. I believe that the witness did respond that some of the contracts involved contingency where there was a relationship between certain prices; that if you wanted to take certain of the products, you had to buy other products.
12217 That falls as a bundle under the CRTC's definition for what requires an imputation test for a special facilities tariff.
12218 So I am not really sure what Mr. Kidd is objecting to.
12219 MR. KIDD: Mr. Chairman, to be clear, if Mr. Daniels wants to argue something is a bundle, he is entitled to do that. I am objecting to him putting a question that is purely a regulatory issue of definition of bundle in the Commission's decisions to the witness.
12220 The witness has not reviewed -- I think it is Decision 98-2, if I recall. I am certain he has not reviewed that. I don't know how he could possibly answer that question.
12221 THE CHAIRPERSON: Mr. Daniels, not having seen the transcript, I don't know what the exact words were. But I am not sure that Mr. Gillette has agreed to the term bundle, or however it was characterized for regulatory purposes.
12222 MR. DANIELS: Perhaps I could have a moment.
12223 MR. DANIELS: Mr. Chairman, I am prepared to move on, on the basis of my noted objection earlier -- and I guess we will have to take this up -- that I had warned Bell that there would be questions of this nature to understand. I obviously cannot explore it with the witness, based on his answers here, as to his understanding of what requires a tariff and what does not require a tariff. I find that is unfortunate.
12224 But I am prepared at this point to move on.
12225 MR. GILLETTE: The only comment I could shed on that, Mr. Chairman, is that in most cases these packages consist of services that are forborne or third party services that have no bearing on the commission, like equipment and services.
12226 That is the only light I can shed on that. Hence, the comment of a bundle perplexes me a bit.
12227 THE CHAIRPERSON: Mr. Daniels.
12228 MR. DANIELS: I would like to turn once again to page 4, where we have a discussion in the last full paragraph that Bell Nexxia was involved in a wholesale arrangement a number of years ago where they sold Centrex services.
12229 As I understand it, they sold the Centrex service to a CLEC that is now bankrupt.
12230 Is that correct?
12231 MR. GILLETTE: That is correct.
12232 MR. DANIELS: Nexxia offered them a 30 per cent discount off that Centrex tariff.
12233 MR. GILLETTE: That is my understanding.
12234 MR. DANIELS: So this would be another case where not an agent was reselling.
12235 MR. GILLETTE: That is correct.
12236 MR. DANIELS: If not, we have agreed that it would violate the tariff.
12237 Would it also be fair to say that there wasn't anything else included in that contract?
12238 MR. GILLETTE: The concept here was that there was almost every product in our arsenal in the contract with the customer. They were going to be a channel for all of our services, including toll, data, as well we would be selling them the third party equipment that they would need.
12239 So it was really a concept at the time of using the CLEC as a channel for other products that the CLEC wouldn't provide natively, like long distance.
12240 We thought it was a good idea at the time in that Centrex was a small component of that, and hence we used it as an incentive to get a broader deal with the customer, which would include a broad range of services.
12241 Subsequently, we stopped doing that. In hindsight, we didn't think it was such a good concept to try to use CLECs as a channel partner that broadly.
12242 MR. DANIELS: Was this another one of the cases where the revenue is counted towards the agency fee, the 11 per cent agency fee?
12243 MR. GILLETTE: I can't answer that question. That goes back in time.
12244 MR. DANIELS: Could you take an undertaking to provide us with an answer to that question?
12245 MR. GILLETTE: Yes. And I would have to say that my initial eager answer on the first one we will have to check, because I just don't know.
12246 MR. DANIELS: I'm sorry, you will have to check whether you can provide an answer?
12247 MR. GILLETTE: No. We will check both of the situations that you outlined earlier on the agency fee issue, including the first one you raised.
12248 MR. DANIELS: So an answer will come back.
12249 MR. GILLETTE: Correct.
12250 MR. DANIELS: Mr. Chairman, that concludes my questions.
12251 THE CHAIRPERSON: Thank you, Mr. Daniels.
12252 I believe the next party is AT&T, Mr. Ryan.
12253 THE CHAIRPERSON: Before you start, Mr. Ryan, perhaps, Mr. Secretary, we should have exhibit numbers for Mr. Daniel's exhibits.
12254 MR. SPENCER: Thank you, Mr. Chairman.
12255 We have 11 documents, one of which is a correction.
12256 Yesterday The Companies filed a response to an undertaking requested by Commission counsel, Ms Moore, Transcript Reference Volume 4, paragraph 6500, which was entered as CRTC Exhibit 25. It should have been entered as The Companies Exhibit No. 20.
12257 The next document is a response to an undertaking requested by Commission Counsel, Ms Moore, Transcript Reference Volume 4, paragraph 6174, will be entered as The Companies Exhibit 21.
EXHIBIT NO. THE COMPANIES-21: Response to undertaking requested by Ms Moore, Transcript Reference Volume 4, paragraph 6174
12258 MR. SPENCER: The response to undertaking requested by Rogers Communications Inc., Transcript Reference Volume 3, paragraphs 4748 to 4749, will be entered as The Companies Exhibit 22.
EXHIBIT NO. THE COMPANIES-22: Response to undertaking requested by Rogers Communications Inc., Transcript Reference Volume 3, paragraphs 4748 to 4749
12259 MR. SPENCER: The response to undertaking requested by Commissioner Langford, Transcript Reference Volume 4, paragraph 7172, will be The Companies Exhibit 23.
EXHIBIT NO. THE COMPANIES-23: Response to undertaking requested by Commissioner Langford, Transcript Reference Volume 4, paragraph 7172
12260 MR. SPENCER: The response to undertaking requested by Commission Counsel, Ms Moore, Transcript Reference Volume 4, paragraph 6621, will be The Companies Exhibit 24.
EXHIBIT NO. THE COMPANIES-24: Response to undertaking requested by Commission Counsel, Ms Moore, Transcript Reference Volume 4, paragraph 6621
12261 MR. SPENCER: Mr. Gillette's CV will be The Companies Exhibit 25.
EXHIBIT NO. THE COMPANIES-25: CV of Thomas J. Gillette
12262 MR. SPENCER: Response to undertaking requested by ARC et all, Transcript Reference Volume 3, paragraphs 4138, 4140 and 4144, will be The Companies Exhibit 26.
EXHIBIT NO. THE COMPANIES-26: Response to undertaking requested by ARC et all, Transcript Reference Volume 3, paragraphs 4138, 4140 and 4144
12263 MR. SPENCER: Annual adjustments will be CRTC Exhibit 25.
EXHIBIT NO. CRTC-25: Annual adjustments
12264 MR. SPENCER: Telecom Order CRTC 99-972 will be GT Group Telecom Exhibit No. 8.
EXHIBIT NO. GT GROUP TELECOM-8: Telecom Order CRTC 99-972
12265 MR. SPENCER: Order CRTC 2000-964 will be GT Group Telecom Exhibit 9.
EXHIBIT NO. GT GROUP TELECOM-9: Order CRTC 2000-964
12266 MR. SPENCER: Finally, Order CRTC 2001-68 will be GT Group Telecom Exhibit No. 10.
EXHIBIT NO. GT GROUP TELECOM-10: Order CRTC 2001-68
12267 MR. SPENCER: Thank you, Mr. Chairman.
12268 THE CHAIRPERSON: Thank you, Mr. Secretary.
12269 Mr. Ryan.
12270 MR. RYAN: Thank you, Mr. Chairman.
EXAMINATION BY / INTERROGATOIRE PAR
12271 MR. RYAN: Good afternoon, gentlemen.
12272 MR. GILLETTE: Good afternoon.
12273 MR. RYAN: I think we have gotten at least this far today. Bell Nexxia provides IP broadband services as well as legacy services, as I understand it.
12274 MR. GILLETTE: Correct.
12275 MR. RYAN: And those legacy services would include, for example, Centrex and local access, that sort of thing?
12276 MR. GILLETTE: Correct.
12277 MR. RYAN: And in territory you provide these services -- and I am referring specifically to the legacy services -- as agent for Bell Canada?
12278 MR. GILLETTE: In most cases, as we have talked about.
12279 MR. RYAN: Most cases. And out of territory, you do it by way of resale.
12280 MR. GILLETTE: That's correct.
12281 MR. RYAN: What is the attraction to Bell Nexxia providing legacy services in territory?
12282 MR. GILLETTE: Our customers look to us as an organization that can provide the full range of services they need. They don't want to have to deal with multiple entities. So, our view is that we would try to supply their national requirements from one point of contact within Bell and that's Bell Nexxia.
12283 MR. RYAN: And would part of the attraction be that you have the opportunity to own the customer and sell not only the services they originally come to you for but also sell, for instance, your IP broadband services?
12284 MR. GILLETTE: Or recommerce applications. Correct.
12285 MR. RYAN: When you supply a -- I use the term cautiously but not necessarily accurately here -- a bundle or a package service, and I don't attach any significance to one or the other, choose the language you like.
12286 When you supply a package product, who provides the billing function? And just before you answer that, I heard you say before that the bill -- I understood you to be saying the bill has the Bell Nexxia name on it. Does Bell Nexxia actually generate the bill or is that something you obtain from another source?
12287 MR. GILLETTE: Today, all of our billing functions are being out-sourced to an organization called Certen, C-E-R-T-E-N, which is a majority-owned affiliate of Bell. So they provide billing support on an out-source basis to not only Bell Nexxia but Bell Canada as well. Most of those systems have migrated over -- I think all of them have migrated over to Certen.
12288 MR. RYAN: So that's a resource you share with Bell Canada effectively?
12289 MR. GILLETTE: Yes, we both buy services from that company.
12290 MR. RYAN: And when you say that some of the bills are Bell Nexxia bills and some of them are still Bell Canada bills and you are transitioning over so that they are all Bell Nexxia bills, they will all still come from the same source. They will have a different name on them eventually?
12291 MR. GILLETTE: That's correct.
12292 MR. RYAN: What about help-desk functions for your customers, who provides those?
12293 MR. GILLETTE: We provide some of those help-desk functions natively within Bell Nexxia and we also buy help-desk services from Bell Canada on an out-source basis for in-territory support.
12294 MR. RYAN: With respect to the billing function, does the company you refer to provide that resource for you both in territory and out of territory for the billing function?
12295 MR. GILLETTE: In some cases, we do national billing for our customers. Correct.
12296 MR. RYAN: I might not have made myself clear.
12297 MR. GILLETTE: Try again.
12298 MR. RYAN: The same company that you referred to, the Bell Canada affiliate --
12299 MR. GILLETTE: Certen, yes.
12300 MR. RYAN: -- that provides the billing function not just within Bell Canada territory but out of territory?
12301 MR. GILLETTE: That's correct. That is correct.
12302 MR. RYAN: The help-desk function operates a little bit differently, I gather. When it's an in-territory inquiry, it's provided by Bell Canada but out of territory, what happens?
12303 MR. GILLETTE: Generally out of territory, we would handle the request and work with the other potential provider. But -- yes, go ahead.
12304 MR. RYAN: Sorry, go ahead, with your answer.
12305 MR. GILLETTE: I think I answered.
12306 MR. RYAN: Okay. And the other potential provider would be another ILEC.
12307 Is that correct?
12308 MR. GILLETTE: Correct.
12309 MR. RYAN: Would you have an arrangement then similar to the one you have with Bell Canada with, for instance, TELUS in TELUS operating territory to provide the help-desk function?
12310 MR. GILLETTE: In some cases, we would have -- yes, TELUS would provide help-desk functionality for our customers, that's correct.
12311 MR. RYAN: So, from a customer stand point, would there be any difference between how the service is provided by Bell Nexxia in territory of Bell Canada and out of territory? I mean, in territory they go directly to Bell Canada, I take it; out of territory, they go directly -- you give them a TELUS number to call?
12312 MR. GILLETTE: No. In some cases, the customer will come directly to us for out-of-territory services. Are you thinking of local services, for example?
12313 For example, for our national services, they would always come to us. For services outside of our territory, if we were acting as a reseller of those services, then they would deal with us directly and we would deal with the ILEC, as you called it. If we were an agent, then they would deal with the third party.
12314 MR. RYAN: Now, are the arrangements that you have described, that you have in place with Bell Canada relating, for instance, to the billing function -- not a good example -- the resale of Bell facilities or the agency relationship that you have with them, are these arrangements made on a case-by-case basis or is there some umbrella arrangement under which you operate with Bell Canada?
12315 MR. GILLETTE: I believe there is an umbrella arrangement.
12316 Mike, you may want to comment on that.
12317 MR. PARK: No, I don't think I have any further comments.
12318 MR. RYAN: Now, that umbrella arrangement what does that encompass apart from the provision of the agency services you provide in territory, for instance?
12319 MR. GILLETTE: Well, we also buy services from Bell, as I mentioned earlier, in terms of some out-sourced functions that support Bell Nexxia, that they provide us on that basis and we pay them for it.
12320 MR. RYAN: And this umbrella arrangement, is that defined in a particular agreement or exchange of correspondence or what form does it take?
12321 MR. GILLETTE: I am not aware of a specific agreement.
12322 MR. RYAN: I don't want to mislead either one of us here, and certainly not mislead myself. When say there is an umbrella arrangement, is it more akin to just a standard way of doing business or is there a written arrangement that defines how you will interact with each other and what services will be provided?
12323 When I used the term "umbrella arrangement" and you said there was one, what did you mean by that?
12324 MR. GILLETTE: I meant that there are a set of services that we have agreed to Bell providing and there were charges that have been agreed to. I am not sure I have ever seen a document that has that all written down in one place, but there is agreement on the charges and the services and what services we would sell. There is agreement on the commission rate that we talked about earlier, that is being paid. I am just struggling with, you know, you are asking me if there is an umbrella agreement, I am not I have seen an umbrella document that puts all of that in one place.
12325 MR. RYAN: Now, the arrangement that you have with Bell Canada, whatever form it takes, it allows you to sign what has been referred to as a single-source agreement with customers?
12326 MR. GILLETTE: Correct.
12327 MR. RYAN: And under that arrangement, I take it you become the sole interface with the customer for the range of services that are covered by that agreement?
12328 MR. GILLETTE: That's correct.
12329 MR. RYAN: You could perhaps help me clarifying a point by turning to TELUS(AT&T)26June-208. That is TELUS(AT&T)26June-208.
12330 MR. GILLETTE: Okay.
12331 MR. RYAN: I will give other people a chance to catch up with us, but I am going to refer you to the passage just before the table on the first page of the response. You see the second sentence in that second paragraph on the first page of the response, so page 1 of 2, second paragraph, TELUS is providing some market share estimates. A simple question really:
"The estimates are based on the assumption that the local services in use by customers who have signed single-source agreements with Bell have been lost." (As read)
12332 Now, should that read Bell Nexxia or is that a reference to Bell Canada?
12333 MR. GILLETTE: Bell Nexxia.
12334 MR. RYAN: That should be a reference to Bell Nexxia, all right, as far as you are concerned at least.
12335 Now, you have already had a discussion with other counsel about your pricing policies, in particular as they are described in CallNet 1007, I want to look at the cost side, not the price side, of your relationship with Bell. For that purpose, could we please turn to AT&T 505? That is The Companies(AT&T)26June-505.
12336 MR. GILLETTE: I have got it.
12337 MR. RYAN: You have got it?
12338 MR. GILLETTE: Yes.
12339 MR. RYAN: The Companies(AT&T)26June-505 and there you were asked or rather Bell Canada was asked -- The Companies were asked to provide some information on the relationship with affiliates and, you see the first couple of lines of the response. The Companies say that:
"Most of the transactions are provided..." (As read)
And they are referring to the four types of transactions identified in the question.
"Most of the transactions are provided on a cost-recovery basis which may or may not include a mark-up, depending on the circumstances." (As read)
12340 And you go on to provide some detail later in this response, Mr. Gillette, that I will come to momentarily, but would you agree with me that the situation would seem to be that, typically, there is no mark-up attached to the prices that are charged by Bell for these services?
12341 MR. GILLETTE: Can you let Mr. Park answer that?
12342 MR. RYAN: Yes, certainly.
12343 MR. PARK: Yes, that's correct.
12344 MR. RYAN: So, we turn first to the bottom of the page, the help-desk functionality and, if we go over to the next page, the third paragraph, it indicates that:
"Bell Canada provides help-desk service to Bell Nexxia on a cost-recovery basis." (As read)
12345 So, I guess that is clear enough that there is no mark-up included specifically there?
12346 MR. PARK: That's correct.
12347 MR. RYAN: Now, this may already have been answered but is that function provided exclusively in territory or sometimes provided out of territory?
12348 Let's say we had a national customer that happened to make a help-desk inquiry from Vancouver, would that come through to -- if it is a Toronto-based customer, would that call through to Toronto or would it be dealt with in some other place?
12349 MR. PARK: I can't be certain that in every case it would be a national -- on a national basis. Mostly, this help-desk is for expediting things within Bell Canada. So, it is generally used for that purpose.
12350 In other words, a customer would call this help-desk and they would look into the Bell Canada aspects of the service and expedite the customer's needs at that point and that is the intent of that help-desk is to facilitate the customer requirements within the Bell Canada umbrella.
12351 MR. RYAN: If I were a Telecom service manager, customer of Bell Nexxia, with responsibility nationwide and I, myself, was based, say, in Toronto, but I became aware because of my responsibilities, of a difficulty with the service in Vancouver, would I be able to get that addressed by the help-desk that I am used to dealing with for Ontario and Quebec problems, at least in the first instance?
12352 MR. PARK: Potentially, yes.
12353 MR. RYAN: Going on to the billing and billing support function, the company Certen that is referred to here is the one you were referring to earlier, Mr. Gillette, I presume?
12354 MR. GILLETTE: That's correct.
12355 MR. RYAN: My understanding is -- correct me if I am wrong -- that Certen was the creation of Bell Canada and what Bell did effectively was take an existing billing platform and convey it, sell it, transfer it some way or another to Certen so that Certen could then act as an out-source point of supply for that service.
12356 Is that correct?
12357 MR. GILLETTE: Partially. But the whole mandate of Certen was to re-engineer the Bell billing systems in cooperation with other partners. So the whole focus was to take the existing and migrate them to new integrated billing systems to provide better support for our customers. That was the real objective here.
12358 MR. RYAN: And it indicates here that that billing service and support function is provided on a cost-recovery basis. Would you confirm that that is again without a mark-up?
12359 MR. PARK: In this case, I can't confirm that. I believe this is commercial terms between Certen which also, obviously, has a minority interest that is not Bell's. So, I believe on this one there is mark-ups built into the way it is built and it is essentially a fairly standard out-sourcing agreement on commercial basis.
12360 MR. RYAN: So does Certen, and tell me if it is not within your knowledge to help me with this question, Mr. Park, but does Certen have a mandate to generate a profit from the companies it services or is it solely a cost centre as it were?
12361 MR. PARK: I can't recall its objectives, but certainly it's not a cost centre from that point of view. It is a stand-alone business and has its own objectives. And, obviously, if they can do better than the terms of the out-sourcing that they would profit by that.
12362 MR. RYAN: So they might take a mark-up on a service, but it's not necessarily part of their mandate to maximize their revenues?
12363 MR. PARK: I don't know that.
12364 MR. RYAN: Okay. And if I were a national customer -- let's go back to the in-territory, out-of-territory question again -- would I typically get a single bill for the range of services I get from Bell Nexxia?
12365 MR. GILLETTE: Well, what do you mean by a "single bill", like one piece of paper? I wish that was the case sometimes.
12366 MR. RYAN: Would I have one billing address, let me put it that way?
12367 MR. GILLETTE: Not necessarily. I mean, you could have municipal billing addresses. I guess if your question is: is there -- I'm not quite sure how to answer your question.
12368 MR. RYAN: Well --
12369 MR. GILLETTE: It would vary by customer.
12370 MR. RYAN: Okay, fair enough. Certen would prepare your bills for customers, no matter where they are located, is another way of putting it?
12371 MR. GILLETTE: That's correct.
12372 MR. RYAN: Thank you.
12373 Can we go over to the next page, please, under items three and four, "Access to Switches" and "Operations Support Infrastructure"? It's indicated there, in the second full paragraph under that response, that:
"All of the engineering support for Bell Nexxia's services is provided by Bell Canada network operations." (As read)
12374 Is that true both in territory and out of territory?
12375 MR. RYAN: I noticed the previous sentence refers specifically to "in Bell Canada territory" -- I don't want to mislead you -- I'm just not sure in the second sentence if that's limited in the same way or not.
12376 MR. PARK: I think there are some functions within this engineering family, like planning for example, that could be out-of-territory activities.
12377 MR. GILLETTE: Can I try that, as well. It's a bit of a collaborative effort. Bell Nexxia does have engineering resources that work on customer-specific projects. They would also engage people from Bell to work on that with them so that the Bell people would generally focus on the in territory stuff and our people would be focused on out of territory, generally.
12378 MR. RYAN: And do you pay for the services that Bell Canada provides to Bell Nexxia in this connection?
12379 MR. PARK: The charges for this service -- or these folks here are in the Bell Nexxia books. Yes, they are covered off.
12380 MR. RYAN: Not, I think, the question I meant to ask.
12381 When Bell Canada provides what is referred to here as "engineering support for Bell Nexxia services," does Bell Canada charge Bell Nexxia for that?
12382 MR. PARK: It's, in a sense, the same cost-recovery notion here.
12383 MR. RYAN: So it bills it on a cost-recovery -- bills Bell Canada on a cost-recovery basis?
12384 MR. PARK: Yes. The arrangement is on a cost-recovery basis.
12385 MR. RYAN: Is it actually done by way of billing?
12386 MR. PARK: Not by billing, no. I'm sorry, it's not done by billing. It's just that arrangement.
12387 MR. RYAN: How do you make sure that Bell Nexxia reimburses Bell Canada for the expense that Bell Canada incurs in providing the engineering support on a cost-recovery basis or otherwise?
12388 MR. PARK: How do we ensure that it's correct?
12389 MR. RYAN: Well, sorry --
12390 MR. PARK: Maybe we are miscommunicating.
12391 MR. RYAN: Yes. Bell Canada doesn't send, if I understood your evidence correctly, Bell Nexxia a bill for the engineering support, so how is it Bell Nexxia pays?
12392 MR. PARK: In this case, the payroll and the accounting system for these people are separate. So there is a separate identification or cost identification for these people separately from other Bell Canada activities, and, therefore, it's in that context that it's controlled separately. In other words, there is a separate accounting for these people and a separate set of cost centres and so on, so that the amount of money involved here is separated and therefore can be attributed to Nexxia correctly.
12393 MR. RYAN: Let me try it this way. Where did the people that provide this engineering support to Bell Nexxia, where do they sit? Are they employees of Bell Canada that work in a Bell Canada office somewhere?
12394 MR. PARK: Yes.
12395 MR. RYAN: But somehow their time is apportioned in some way so that Bell Nexxia picks up part of the cost. Is that what you are saying?
12396 MR. PARK: It's 100 per cent of the cost because they are working on 100 per cent of that activity.
12397 MR. RYAN: I see. And is that arrangement defined in some exchange of correspondence or memoranda or agreement between the two companies?
12398 MR. PARK: No, it's not.
12399 MR. RYAN: How many people would be engaged in providing this engineering support?
12400 MR. PARK: That I do not know.
12401 MR. RYAN: Does the arrangement pertaining to the help desk work the same way?
12402 MR. PARK: Yes.
12403 MR. RYAN: On to another issue for the moment.
12404 Mr. Gillette, apart from the role that you have at Bell Nexxia, I understand you are on the board of Bell Intrigna?
12405 MR. GILLETTE: That's correct.
12406 MR. RYAN: And could you remind us what the ownership structure of Bell Intrigna is?
12407 MR. GILLETTE: It is owned two-thirds by Manitoba Tel and one-third by Bell Canada.
12408 THE CHAIRPERSON: Mr. Ryan, I will want to be taking our afternoon break sometime soon.
12409 MR. RYAN: Well, then, now might be an ideal time, Mr. Chairman, if you would like to do that now.
12410 THE CHAIRPERSON: Okay. We will take our break now and then reconvene at ten to four.
--- Upon recessing at 1535 / Suspension à 1535
--- Upon resuming at 1553 / Reprise à 1553
12411 THE CHAIRPERSON: Order, please, ladies and gentlemen.
12412 We will return to our proceeding and continue with the cross-examination of this panel by Mr. Ryan.
12413 Mr. Ryan.
12414 MR. RYAN: Thank you, Mr. Chairman.
12415 One small step back before we go forward, gentlemen.
12416 Mr. Park, can I just return to the question of how you deal with the costs of the Bell Nexxia -- or the Bell Canada employees that perform Bell Nexxia functions?
12417 MR. PARK: Yes.
12418 MR. RYAN: You said that there was a cost allocation made to cover the costs associated with these individuals, if I understood you correctly.
12419 MR. PARK: Correct.
12420 MR. RYAN: On what basis is that cost allocation done? Does it include more than salary, for instance?
12421 MR. PARK: Yes.
12422 MR. RYAN: And salary, is it a multiple of salary that's used as the parameter for deciding how much would be allocated?
12423 MR. PARK: No, their costs are directly reported, so each individual employee reports their costs on a cost centre, including all their non-salary costs, and those costs then form the basis of the amount.
12424 MR. RYAN: And what costs other than salary are included, then?
12425 MR. PARK: It could include travel, for example, and other things of that nature.
12426 MR. RYAN: Would it include overhead allocation?
12427 MR. PARK: No, it would not.
12428 MR. RYAN: It would not include any allocation for overhead. Would it include the cost of the space they occupy?
12429 MR. PARK: Yes, it would.
12430 MR. RYAN: And how is that calculated, just in broad terms?
12431 MR. PARK: In terms of -- Nexxia pays for the real estate they use on Bell Canada premises and it's, again, calculated by the square footage they use in each building.
12432 MR. RYAN: And that's on a cost-recovery basis?
12433 MR. PARK: Correct.
12434 MR. RYAN: Without mark-up?
12435 MR. PARK: Correct.
12436 MR. RYAN: Mr. Gillette, we had just established prior to the break that you have served on the board of Bell Intrigna -- or do serve on the board of Bell Intrigna. How long have you served on the board?
12437 MR. GILLETTE: Just over a year.
12438 MR. RYAN: And could you tell us where Bell Intrigna has active operations at present?
12439 MR. GILLETTE: Alberta and British Columbia.
12440 MR. RYAN: And more specifically, the particular locations within Alberta that you serve?
12441 MR. GILLETTE: That Bell Intrigna serves?
12442 MR. RYAN: Yes.
12443 MR. GILLETTE: Well, its mandate is to serve all locations. Presently I know that they have infrastructure in Vancouver, Edmonton, Calgary and are in the process of expanding that.
12444 MR. RYAN: And no infrastructure outside of those locations at present?
12445 MR. GILLETTE: Yes, I just -- if you wanted specific, it's a moving target. Their mandate is to build out infrastructure across both provinces. Currently, we are both engaged in a project with the Government of Alberta, and, as a result, there's progress every day. I couldn't give you a specific on how many cities.
12446 MR. RYAN: How many connected customers do you have at present?
12447 MR. GILLETTE: I don't know the answer to that question. Sorry.
12448 MR. RYAN: Do you have an order-of-magnitude answer?
12449 MR. GILLETTE: Connected customers? No, I don't. I'm sorry, I can't answer that off the top of my head.
12450 MR. RYAN: Do you have any information on that, Mr. Park?
12451 MR. PARK: No, I don't.
12452 MR. GILLETTE: You are speaking of Bell Intrigna?
12453 MR. RYAN: I'm speaking of Bell Intrigna.
12454 MR. GILLETTE: Sorry, I don't. Off the top of my head, I don't have that.
12455 MR. RYAN: When I say "you," I sometimes mean Bell Nexxia, I sometimes mean Bell Intrigna, I sometimes mean you, personally, I sometimes mean Bell Canada and you have to figure out which one I meant.
12456 MR. GILLETTE: I apologize. I just don't have that at my fingertips.
12457 MR. RYAN: All right. Could you tell me what percentage of the customers you do serve are served over your own facilities, as opposed to leased facilities or resold facilities? And now, when I say "you," I mean Bell Intrigna.
12458 MR. GILLETTE: Again, I don't have the specifics, but I would say a fair amount of services are still done on a resale basis and they are ramping up there on net services. So, again, I couldn't give you exact percentages.
12459 MR. RYAN: Could you explain to us what role facilities building has versus resale or leasing of facilities in your plans going forward?
12460 MR. GILLETTE: For Bell Intrigna?
12461 MR. RYAN: Yes.
12462 MR. GILLETTE: Their mandate is to build their own facilities. That's clearly their mandate, not to be a reseller.
12463 MR. RYAN: Does Bell Intrigna have any sort of relationship with Bell Canada similar to the one that we have just been exploring between Bell Nexxia and Bell Canada?
12464 MR. GILLETTE: Not that I'm aware of.
12465 MR. RYAN: Is Bell Intrigna a completely stand-alone operation?
12466 MR. GILLETTE: Yes.
12467 MR. RYAN: I passed to your counsel after lunch a copy of a one-page document that I would not like to refer to. And it's headed at the very top, in smaller type, "UPS Warburg, October 9, 2001." It's a single-page document.
12468 MR. GILLETTE: I have it.
12469 MR. RYAN: And could you -- have you seen this document prior to obtaining it through your counsel today?
12470 MR. GILLETTE: No.
12471 MR. RYAN: I have noticed October 9, 2001. Are you able to tell us what this document is?
12472 MR. GILLETTE: It appears to be an analyst's view of Bell Intrigna. I'm guessing, though.
12473 MR. RYAN: Yes. Or I would suggest to you, more properly, of Manitoba Tel.
12474 MR. GILLETTE: Manitoba Tel, correct.
12475 MR. RYAN: And you are quite right in suggesting there is some specific remarks made about Bell Intrigna here in this analyst's report, and I'm referring to the first -- pardon me, I'm referring to the third paragraph of text, the heading, "Valuation." It reads:
"Bell Intrigna has shown an outstanding growth record, but with the recent resignation of the CEO and new revelations about operational changes, we question the potential for this unit."
12476 Can you, in your capacity as a member of the board, shed any light for us on what the analysts might be referring to by "new revelations about operational challenges"?
12477 MR. GILLETTE: No, I do not. I would disagree with that view.
12478 MR. RYAN: Okay. You don't feel there are operational challenges facing the company?
12479 MR. GILLETTE: There are operational challenges facing all new organizations, but I would say our view of their outlook is still very positive. Everybody's got their opinion.
12480 MR. RYAN: That, Mr. Chairman, concludes my questions for this panel. Thank you very much.
12481 THE CHAIRPERSON: Thank you, Mr. Ryan.
12482 MR. RYAN: Thank you, gentlemen.
12483 MR. PARK: Thank you.
12484 THE CHAIRPERSON: Mr. Secretary.
12485 MR. SPENCER: Thank you, Mr. Chairman.
12486 "UBS Warburg, October 9, 2001, will be entered as AT&TC Exhibit No. 19. Thank you.
EXHIBIT NO. AT&TC-19: Single-page document entitled, "UBS Warburg, October 9, 2001"
12487 THE CHAIRPERSON: Thank you.
12488 And I believe those are all the parties who have indicated an intention to cross-examine this panel, so with that we will turn to Commission counsel.
EXAMINATION BY / INTERROGATOIRE PAR
12489 MS MOORE: Thank you, Mr. Chairman.
12490 Just referring again to your supplemental response to Interrogatory 1007-D --
12491 MR. GILLETTE: Yes.
12492 MS MOORE: -- at the bottom of page 2, you state that:
"Within Ontario and Quebec, Bell Nexxia acts as Bell Canada's agent in the provision of legacy services such as Centrex, long distance, gateways, data services, et cetera, to the customer." (As read)
And you touched on this a bit with Mr. Ryan, but I just wanted to be very clear as to whether this agency relationship that is described here is formalized in any way, in any type of written documents that you are aware of?
12493 MR. GILLETTE: I am not aware of any formal documents but clearly, there is an understanding between the organizations in terms of our role of representing them. There is clear arrangements financially. For example, we talked about the commission. That has been worked out between the two financial organizations. There is the costing that has been worked out.
12494 Clearly, someone has written all of those down. I just haven't seen all the encompassing document that says here where it all is. It's not ad hoc. There is clearly agreements between the organizations that have been established in terms of how we operate, in terms of our agent role, the commissions, the cost that we are charged and how we allocate those charges. But I am not sure I could pinpoint the agreement. I just haven't seen it in terms of -- I suspect there is multiple agreements across the organization.
12495 MS MOORE: Could you undertake to ascertain whether there are documents that could be considered agency agreements or agreements that speak to the terms of the agency relationship and, if so, to provide them to the Commission?
12496 MR. GILLETTE: Certainly.
12497 MS MOORE: Thank you.
12498 I also wonder if you could undertake to provide Bell Nexxia's financial statements for the years 1999, 2000 and the first six months of 2001, including statements of cash flows?
12499 MR. GILLETTE: We will provide that.
12500 MS MOORE: Thank you.
12501 And finally, could you also undertake to provide the number of customers that Bell Nexxia had, if possible, as of June 30, 2001, broken down into terms of its own customers and then customers that would be considered customers of Bell by virtue of your agency relationship?
12502 MR. GILLETTE: We can do that, certainly.
12503 MS MOORE: Thank you.
12504 Those are my questions, Mr. Chairman.
12505 THE CHAIRPERSON: Thank you, counsel.
12506 Ms Noël.
12507 COMMISSIONER NOËL: Just one question.
12508 You have been asked a number of questions related to cost-recovery charges for help-desk billing, engineering services that are performed on your behalf by Bell Canada. Is there any other charges that are levied or charged by Bell Canada such as management fee for Bell Nexxia?
12509 MR. PARK: I think the only other arrangement or cost of that nature would be we also perform some corporate functions for Nexxia and those would be financial, human resource, those kinds of things, and those are also recovered on that basis.
12510 COMMISSIONER NOËL: As a management fee?
12511 MR. PARK: Yes.
12512 THE CHAIRPERSON: Thank you, Commissioner Noël.
12513 Just one question, and maybe this is quite a general one, and I don't know whether you are able to answer it or which one of you might be, if you are.
12514 If Bell Canada wasn't a regulated company, would Bell Nexxia exist? What would be the business reason for having Bell Nexxia exist?
12515 MR. GILLETTE: I think, as I said earlier, the original concept of Bell Nexxia was to provide national services to our customers on a broad basis and in particular to focus on the emerging data services, IP broadband services and complex solutions for our customers. That was the reason for Bell. It was separated as a non-dominant carrier so it could play that role separate from Bell for those customers and for those products.
12516 So that was the raison d'être in the establishment of Nexxia and I still think that rationale applies in our ability to provide those types of products and services to our customers nationally.
12517 THE CHAIRPERSON: But if Bell wasn't a regulated company, couldn't it do that?
12518 MR. GILLETTE: If Bell was not a regulated company, could it do that? I would think it could, yes.
12519 THE CHAIRPERSON: What would prevent Bell Canada from doing what Nexxia does?
12520 MR. GILLETTE: Nothing would prevent it from doing it.
12521 THE CHAIRPERSON: Okay. Thank you. I think those are all the questions for this panel, gentlemen. Thank you very much for your participation in our proceeding.
12522 MR. GILLETTE: Thank you.
12523 THE CHAIRPERSON: I believe that concludes the cross-examination of The Companies' witnesses. We thank all of the witnesses who appeared on behalf of the company for their participation in the proceeding. We will now turn to TELUS.
12524 Mr. Lowe.
12525 Just give the parties a minute or two to change seats here.
12526 MR. LOWE: My friend Mr. Jérôme will be introducing this panel, sir.
12527 THE CHAIRPERSON: Mr. Jérôme.
12528 MR. LOWE: And could we have five minutes just to set up, sir?
12529 THE CHAIRPERSON: In fact, why don't we just take a short five-minute break and we will allow the parties to change places and change books.
--- Upon recessing at 1608 / Suspension à 1608
--- Upon resuming at 1615 / Reprise à 1615
12530 THE CHAIRPERSON: Order please, ladies and gentlemen.
12531 So, we will return to our proceeding now and turn to the TELUS group of witnesses.
12532 Mr. Jérôme.
12533 MR. JËRÔME: Thank you, Mr. Chairman.
12534 It's my pleasure to introduce TELUS' first and long-awaited panel. For the record, my name is André Jérôme, I am also appearing on behalf of TELUS in this proceeding.
12535 This panel will cover the subject matter of quality of service, including both the retail and the wholesale perspectives.
12536 Sitting at the table, closest to you, you have Dr. Dennis Weisman, Professor of Economics at Kansas State University, doing a repeat performance in this proceeding. He has testified in front of this Commission before in the last price cap proceeding.
12537 Dr. Weisman, in addition to his academic career, also has extensive experience with Southwestern Bell where his last position was Director of Strategic Marketing. He is also on the editorial boards of two economics journals and he will speak to the theory and practice of regulation relative to quality.
12538 To his right, you have Mr. Mark Kolesar. Mr. Kolesar is Assistant Vice-President, Regulatory and Public Policy at TELUS. Mr. Kolesar has extensive regulatory experience dating back to the days before the CRTC regulated AGT. He has also worked for the Alberta Public Utility Board and he will speak to regulatory and policy issues relating to quality and will act as chair of this panel.
12539 To his right, we have Ms Saaron Shuya who is Senior Regulatory Policy Adviser at TELUS. Ms Shuya has worked for TELUS for over 20 years, having held positions in marketing, corporate development operations and strategic planning. She will be speaking specifically to matters relating to retail quality of service.
12540 And finally, we have Mr. Don Towner. Mr. Towner is Vice-President of Customer Care at Global Trading and Partner Solutions at TELUS, which is the TELUS division responsible for wholesale services. Mr. Towner began his career with the former BCTel taking payments in the billing office and has progressed to numerous operations and customer service positions in the company and he will be speaking specifically to issues relating to quality of service on the wholesale side of the business.
12541 They are assisted in the back row closest to your right by Mr. Alan Hamilton and Mr. Hal Reirson, both Senior Regulatory Policy Advisers at TELUS.
12542 Mr. Chairman, the CVs of Mr. Kolesar, Ms Shuya and Mr. Towner were provided in the attachments to a letter from TELUS dated October 9th, while Dr. Weisman's CV was provided as attachment 9 of a letter from TELUS dated September 20th.
12543 THE CHAIRPERSON: Mr. Secretary, perhaps you will have the witnesses sworn.
SWORN: DENNIS WEISMAN
SWORN: MARK KOLESAR
SWORN: SAARON SHUYA
SWORN: DON TOWNER
12544 THE CHAIRPERSON: Thank you, Mr. Secretary.
EXAMINATION BY / INTERROGATOIRE PAR
12545 MR. JËRÔME: Ms Shuya, Mr. Kolesar and Mr. Towner, your qualifications are set out in the attachments to the TELUS letter of October 9 and they are correct to the best of your knowledge?
12546 MS SHUYA: Yes, they are.
12547 MR. KOLESAR: Yes.
12548 MR. TOWNER: Yes.
12549 MR. JËRÔME: Dr. Weisman, your qualifications are set out in attachment 9 to the TELUS letter of September 20 and they are correct, to the best of your knowledge?
12550 DR. WEISMAN: Yes, they are.
12551 MR. JËRÔME: And all of you are responsible for section 4.1 of the TELUS evidence dated May 31, 2001, is that correct?
12552 DR. WEISMAN: Yes.
12553 MS SHUYA: Yes.
12554 MR. KOLESAR: Yes.
12555 MR. TOWNER: Yes.
12556 MR. JËRÔME: And you are also responsible for those interrogatory responses listed in attachment 1 to the TELUS letter of October 9th, that are related to that evidence?
12557 DR. WEISMAN: Yes.
12558 MS SHUYA: Yes.
12559 MR. KOLESAR: Yes.
12560 MR. TOWNER: Yes.
12561 MR. JËRÔME: Is that evidence and those interrogatory responses correct, to the best of your knowledge and belief?
12562 MR. KOLESAR: Yes, it is.
12563 DR. WEISMAN: Yes.
12564 MS SHUYA: Yes.
12565 MR. TOWNER: Yes.
12566 MR. JËRÔME: Mr. Chairman, the witnesses are now available for cross-examination.
12567 THE CHAIRPERSON: Thank you, Mr. Jérôme.
12568 Welcome to our hearing. I believe the first party to cross-examine is ARC et al or Ms MacDonald, BCOAPO.
EXAMINATION BY / INTERROGATOIRE PAR
12569 MS MacDONALD: Commissioners and panel members, my questions today are with respect to the concept known as the Consumer Bill of Rights. I am not sure who would be answering those questions but feel free to jump in.
12570 MS SHUYA: I will.
12571 MS MacDONALD: Ms Shuya then.
12572 Ms Shuya, I am going to be referring to two exhibits that I passed around earlier, one of them will be -- it has a contents page on it and it looks like that. That's the right one. And that's the Terms of Service in the Vancouver telephone book.
12573 Are you comfortable with dealing with that exhibit?
12574 MS SHUYA: I am not sure if you are aware, Ms MacDonald, but TELUS has applied to the Commission earlier this year to have the Terms of Service that currently exist in Alberta, in fact, adopted in B.C. and the Commission has issued an order in July agreeing to that. So, I would like to make available the current Terms of Service that are now part of the company's.
12575 MS MacDONALD: I would have no objection to you making it available but can you make it available to me as well?
12576 MS SHUYA: Yes, we are prepared to put it on the public record.
12577 MS MacDONALD: If you are going to be answering some of my questions with respect to it, are you going to be referring to this document, because if you are, it would be of course most helpful for me if I could see what you are referring to.
12578 MR. KOLESAR: I think we would be more than prepared to provide you with one. I just need to find out if we have an extra copy here on hand. We would be more than happy to give it to you now. If not, we could probably send somebody next door to make a quick copy. So, I will see if we have one.
12579 MS MacDONALD: Okay.
12580 MS MacDONALD: Mr. Chairman, I am not familiar with the document and the witness may be answering questions from it. I will attempt to keep up with my witness over there or TELUS's witness with respect to it but if I may ask a little leeway to flip through the document when I first see it, just to see what it looks like. But I will proceed until I get it.
12581 THE CHAIRPERSON: If I could just ask the witnesses to speak a little louder and a little clearer into the microphones, it's a little difficult hear.
12582 MS MacDONALD: The other document that I passed around earlier was a photocopy that I made of a little pamphlet like this that I got from TELUS cell phone and it looks like this. You have a copy of that document as well?
12583 MS SHUYA: I do now.
12584 MS MacDONALD: Of course, I will be referring to the -- I won't be referring to the TELUS evidence on this issue because, as you are aware, there isn't any reference to a consumer bill of rights in your original filing, but I will also be referring to the interrogatory response 4500, the TELUS(CRTC) interrogatory.
12585 After the close of my cross-examination of the Bell panel, I had a discussion with Mr. Harrington and he told me that if I had asked the question: is Bell in agreement that a document in one place listing a customer's rights and responsibilities was necessary and they were prepared to do it, he could have answered, "Yes," and we could have proceeded and they would have wiped out half my cross. So I would like to ask you the same question, just in case I get the answer I want.
12586 Would you be in agreement that a customer's rights and responsibilities should be in one place, easily accessible to the customer and understandable to them?
12587 MS SHWYA: Yes, I would agree that that is an important thing to have available and we do believe that our Terms of Services that are currently in front of all our directors in fact provide that.
12588 MS MacDONALD: Okay, we will have to go through a little bit of background, then.
12589 Now, you are in agreement with me, I take it, that this document that I have handed out, which is TELUS Mobility's "Privacy Commitment and Service Terms" is a document which contains the contractual terms from TELUS Mobility and it's in one place and it's easily accessible. You would be in agreement with that?
12590 MS SHWYA: Yes.
12591 MS MacDONALD: And with respect to having the information in one place with respect to local telephone service, it's contained in the introductory pages of the white book and -- a copy here -- it's contained within the 40 pages of this document?
12592 MS SHWYA: In their Terms of Service, that we are just getting a copy of, that is in fact correct. But I would also like to point out that TELUS makes their Terms of Service available through their website, as well, for those customers that would prefer to view it in that form.
12593 MS MacDONALD: Now, the document that has just been handed to me is the "General Tariff." And the headings in that look, to me, to be identical to the headings contained in page 2 of your interrogatory response of 4500?
12594 MS SHWYA: Yes.
12595 MS MacDONALD: Can you just tell me -- now this is a General Tariff -- is this going to go right into the telephone book? Or what do you propose to do with this information?
12596 MS SHWYA: Actually, that is the information that is contained within the phone book as of today. You are looking at a word document version of it. But as it is displayed in the front of the phone book, it is easy to access and locate the same information.
12597 MS MacDONALD: Okay. I'm sorry, so the telephone book you just handed out -- I'm sorry, that you just showed me, it has this right in there, the General Tariff?
12598 MS SHWYA: It has the same information contained in there under the Terms of Service.
12599 MS MacDONALD: Okay.
12600 MR. KOLESAR: If I could perhaps try to help out here, what we provided you was the General Tariff forms of the terms, and those terms have been approved by the Commission in the form of a tariff. That wording that's in here, word for word, is then provided, as approved by the Commission, in the front of the phone book.
12601 So the information in the phone book is, in effect, a carbon copy of what has been approved in the tariff pages that you have. So if you were to open up a TELUS phone book, you would find, word for word, the same layout that you have there, in the phone book.
12602 MS MacDONALD: Okay. It would be helpful for me if I could actually look at the telephone book that you have. I promise I won't keep it. If I could just flip through it.
12603 I'm sorry about this, Mr. Chairman. I wasn't aware of this, and my apologies for not being aware of this. It may affect some of the questions, but I really need to look at -- they are, obviously, going to refer to this document, so I just need to review it and I won't take more than a couple of minutes.
12604 THE CHAIRPERSON: No, I understand that, Ms MacDonald, and I appreciate -- there is no need for you to apologize. I appreciate that you haven't seen this particular document before just now and that it may take a few minutes to review it.
12605 And if you want to proceed with some of your questions today, please, do so. I would certainly -- in light of this, your not having had a chance to review this, I would certainly be prepared to have you continue some questioning with respect to that tomorrow, if need be.
12606 MS MacDONALD: I mean, obviously, Mr. Chairman, it would assist in my organization of my cross, and I would be much more efficient if I wasn't flipping between the document that I had intended to use for cross-examination and the other document. I don't want to be the person that delays the hearing but, I mean, obviously, it would be in my best interests to do so.
12607 I would like to raise one other issue that may make my application to stand down the hearing until I have an opportunity to look at this somewhat more favourable.
12608 I have been approached by the TELUS lawyers, by Mr. Lowe, and he has advised me that he has canvassed the room in connection with the evidence of Barbara Alexander to be heard on Friday. I understand that there is a consensus amongst all the parties that were going to be cross-examining Ms Alexander that they don't want to cross-examine Ms Alexander and they don't require her to come out.
12609 Now, Ms Alexander is scheduled to leave tomorrow morning, so, obviously, it's very important that this issue be dealt with and I was going to raise it at five o'clock. Now, the reason for me bringing this up now is this is a little glitch that I wasn't expecting with this, and there may be a potential of recapturing four-and-a-half hours of estimated time with respect to Ms Alexander not appearing, and, as well, saving the cost of her appearance, if the parties who wanted to cross-examine her no longer feel that they need to.
12610 Again, this is the information that I have from Mr. Lowe, so I'm not entirely sure how every other party here views this. But I'm putting the matter up for discussion, at least, at this point because I would like to review this rather than flip back and forth between documents.
12611 THE CHAIRPERSON: That's fine, Ms MacDonald. And as far as I'm concerned, those are two separate issues. I mean, you don't have to be trading time here for anybody, whether others in the room wish to cross-examine that other party of not. I mean, I appreciate the position you are in. It's now four-thirty, in any event, and I was proposing to adjourn at five o'clock. So we would end up adjourning half-an-hour early today, and I don't have a problem with that, frankly, and I'm certainly m prepared to give you time to review that document.
12612 As it happens, I want to have a meeting of our panel to be deciding on this oral argument issue at the end of the day, so we can use that time ourselves profitably, in any event.
12613 So having said that, I'm prepared to adjourn now for tomorrow. But I guess that raises a question about, just so we can be certain, because I want to be in a position to be making some judgments on the balance of this week and next week, in terms of the time we are going to need and in fact whether we should be sitting on Saturday of this week, even if it's only for half a day. So it would be helpful if we could pin down this issue of the cross-examination of other parties.
12614 So do I understand correctly that -- sorry, I have forgotten the name -- Ms Alexander. Do I understand there are no parties who wish to cross-examine Ms Alexander?
12615 Mr. Lowe, you canvassed all the parties?
12616 MR. LOWE: I believe I did. I spoke to CallNet, I spoke to AT&T, I spoke to GT, I spoke to Bell. And I'm not sure if Rogers would have any, but I recall from a discussion with Mr. Engelhart the other day that he didn't have any cross. So that, of course, leaves the Commission and Commission counsel, but, to my mind, there was -- that the sentiment was accurately reflected by Ms MacDonald.
12617 THE CHAIRPERSON: And in terms of Ms Alexander knowing this, she needs to know.
12618 MS MacDONALD: Well, obviously, it would be best for her if she knew tonight, but I understand she has to leave for the airport at ten o'clock in the morning. So if we had a final answer before that time, we could at least notify her so that she wouldn't get on the plane.
12619 THE CHAIRPERSON: Okay. Well, we will certainly advise you before the end of the day today in terms of our own situation. So we will take it that none of the parties intend to cross-examine Ms Alexander and we will advise you in terms of the -- with respect to the Commission.
12620 Are there any other procedural issues that anyone wants to raise?
12621 Mr. Daniels.
12622 MR. DANIELS: Mr. Chairman, I would just like to clarify that, from Group Telecom's position, we had originally scheduled to ask some questions of Ms Alexander, but they are not sufficient to justify her being brought out here. So to say that no party would have any questions for cross-examination, I think it's fair to say that it wouldn't justify. I have so few questions for her, that can be done in another forum, but if she were here, there might be some questions we might ask.
12623 THE CHAIRPERSON: Okay. Thank you. Is that it, then, for today?
12624 So we will adjourn, then, for today and reconvene tomorrow morning at nine o'clock.
--- Whereupon the hearing adjourned at 1635, to resume
on Wednesday, October 11, 2001 at 0900 / L'audience
est ajournée à 1635, pour reprendre le mercredi
- Date modified: