TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

                          SUBJECT:

Review of regulatory framework for Northwestel Inc. /

Examen du cadre de réglementation

applicable à Norouestel Inc.

HELD AT:                              TENUE À:

Convention Centre                     Centre des congrès

High Country Inn                      High Country Inn

4051 4th Avenue                       4051, 4^e rue

Whitehorse, Yukon                     Whitehorse (Yukon)

July 12, 2006                         Le 12 juillet 2006

Transcripts

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

Contents.

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.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

               Canadian Radio‑television and

               Telecommunications Commission

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

                 Transcript / Transcription

Review of regulatory framework for Northwestel Inc. /

Examen du cadre de réglementation

applicable à Norouestel Inc.

BEFORE / DEVANT:

Richard French                        Chairperson / Président

Helen del Val                         Commissioner / Conseillère

Barbara Cram                          Commissioner / Conseillère

Andrée Noël                           Commissioner / Conseillère

Ronald Williams                       Commissioner / Conseiller

ALSO PRESENT / AUSSI PRÉSENTS:

Madeleine Bisson                      Secretary / Secrétaire

Peter McCallum/                       Legal Counsel /

Leanne Bennett                        Conseillers juridiques

HELD AT:                              TENUE À:

Convention Centre                     Centre des congrès

High Country Inn                      High Country Inn

4051 4th Avenue                       4051, 4^e rue

Whitehorse, Yukon                     Whitehorse (Yukon)

July 12, 2006                         Le 12 juillet 2006

           TABLE DES MATIÈRES / TABLE OF CONTENTS

                                                 PAGE / PARA

AFFIRMED:  PAUL FLAHERTY                          536 / 3883

PREVIOUSLY AFFIRMED:  RAY HAMELIN

PREVIOUSLY AFFIRMED:  MARK WALKER

PREVIOUSLY AFFIRMED:  SCOTT ROBERTS

AFFIRMED:  RAY WELLS

Examination by Northwestel                        537 / 3891

Examination by Consumers Groups                   537 / 3900

Examination by UCG                                555 / 4019

Examination by Government of Yukon                586 / 4210

Examination by Telus                              648 / 4544

Examination by the Commission                     663 / 4661

AFFIRMED:  JAMES H. PRATT                         727 / 5102

AFFIRMED:  TERRY HAYDEN

Examination by Northwestel                        728 / 5110

Examination by Telus                              739 / 5168

Examination by the Commission                     739 / 5175

AFFIRMED:  WILLIE GRIEVE                          746 / 5218

AFFIRMED:  STEPHEN SCHMIDT

Examination by Telus                              746 / 5219

Examination by Northwestel                        748 / 5244

Examination by UCG                                815 / 5619

Examination by the Commission                     832 / 5744

               EXHIBITS / PIÈCES JUSTICATIVES

                                                 PAGE / PARA

TELUS-6      Speaking points from the             663 / 4656

Honourable Maxime Bernier,

Minister of Industry Canada,

for the 2006 Canadian Telecom

Summit

NWTEL‑4      Document entitled "Telus Tariff      814 / 5616

CRTC 1000‑5, Item 30, Exchanges"

NWTEL‑5      Document entitled "Telecom Public    814 / 5616

Notice CRTC 99‑21, Northwestel Inc.

Implementation of Toll Competition

and Review of Regulatory Framework,

Quality of Service and Related

Matters, Telus Final Argument,

June 26, 2000"

                           ERRATA

     Tuesday, July 11, 2006 / le mardi 11 juillet 2006

                          Volume 2

Page  Line

301     1     "CRTC-310"      s/b  "CRTC-301"

308     8     "in"            s/b  "and"

308     9     "innocents"     s/b  "investments"

312     16     "75"            s/b  "75,000"

351     3     "13.01"         s/b  "1301"

370     19     "some"          s/b  "same"

400     17     "GAP"           s/b  "GAAP"

412     23     ".08 cents      s/b  "0.8 cents

414     7     "CRTC's 16.01"  s/b  "CRTC-1601"

421     5     "0.0265 cents"  s/b  "2.65 cents"

421     5     "0.027 cents"   s/b  "2.7 cents"

421     11     "0.10 cents"    s/b  "10 cents"

421     19     "0.03 cents"    s/b  "3 cents"

421     20     "0.03 cents"    s/b  "3 cents"

456     14     "13.01"         s/b  "1301"

456     18     "13.01"         s/b  "1301"

461     2     "26.02"         s/b  "2602"

461     5     "0.0415 cents"  s/b  "4.15 cents"

461     7     "0.0415 cents"  s/b  "4.15 cents"

484     24     "do"            s/b  "to"

491     4     "Annex X"       s/b  "NXX"

491     7     "Annex X"       s/b  "NXX"

498     20     "26.02"         s/b  "2602"

               Whitehorse, Yukon / Whitehorse (Yukon)

‑‑‑ Upon resuming on Wednesday, July 12, 2006

    at 0900 / L'audience reprend le mercredi

    12 juillet 2006 à 0900

LISTNUM 1 \l 1 \s 38723872             THE CHAIRPERSON:  Order, please.  A l'ordre, s'il vous plaît.

LISTNUM 1 \l 13873             Madame la secrétaire...?

LISTNUM 1 \l 13874             THE SECRETARY:  Should we start with our first panel or should we ask for preliminary matters?

LISTNUM 1 \l 13875             THE CHAIRPERSON:  Are there any preliminary matters?

LISTNUM 1 \l 13876             Seeing none, you may proceed, Madam Secretary.

LISTNUM 1 \l 13877             THE SECRETARY:  We are calling the first panel for this morning, the Policy Panel from Northwestel.

LISTNUM 1 \l 13878             Please come forward.

‑‑‑ Pause

LISTNUM 1 \l 13879             THE CHAIRPERSON:  Please proceed with your direct, counsel?

LISTNUM 1 \l 13880             MR. ROGERS:  Mr. Chairman, I will briefly introduce the panel and then they can be affirmed.

LISTNUM 1 \l 13881             This panel consists of:  Chaired by Mr. Paul Flaherty, President of the company; Mark Walker, VP Customer Solutions; Ray Hamelin as Chief Financial Officer; Ray Wells, VP Corporate; and Scott Roberts, Director Regulatory Framework.  The panel is supported by Muriel Chalifoux, AVP Carrier and Regulatory; Dallas Yeulett; Sheldon Schmidt, Senior Financial Analyst; and Mark Wesolowski, Manager, Consumer Services.

LISTNUM 1 \l 13882             The panel is ready to be affirmed.

LISTNUM 1 \l 13883             THE SECRETARY:  Could you please first stand up for the affirmation?

AFFIRMED:  PAUL FLAHERTY

PREVIOUSLY AFFIRMED:  RAY HAMELIN

PREVIOUSLY AFFIRMED:  MARK WALKER

PREVIOUSLY AFFIRMED:  SCOTT ROBERTS

AFFIRMED:  RAY WELLS

LISTNUM 1 \l 13884             THE SECRETARY:  Please state your name for the record.

LISTNUM 1 \l 13885             MR. FLAHERTY:  Paul Flaherty.

LISTNUM 1 \l 13886             MR. HAMELIN:  Ray Hamelin.

LISTNUM 1 \l 13887             MR. WALKER:  Mark Walker.

LISTNUM 1 \l 13888             MR. ROBERTS:  Scott Roberts.

LISTNUM 1 \l 13889             MR. WELLS:  Ray Wells.

LISTNUM 1 \l 13890             THE SECRETARY:  Thank you, sir.

EXAMINATION / INTERROGATOIRE

LISTNUM 1 \l 13891             MR. ROGERS:  Mr. Flaherty, was the Policy Panel evidence and the associated interrogatories prepared by you or under your direction?

LISTNUM 1 \l 13892             MR. FLAHERTY:  Yes, it was.

LISTNUM 1 \l 13893             MR. ROGERS:  Do you have any corrections or additions to that evidence at this time?

LISTNUM 1 \l 13894             MR. FLAHERTY:  No, I don't.

LISTNUM 1 \l 13895             MR. ROGERS:  To your information and belief, is the evidence accurate and true?

LISTNUM 1 \l 13896             MR. FLAHERTY:  Yes, it is.

LISTNUM 1 \l 13897             MR. ROGERS:  Thank you.

LISTNUM 1 \l 13898             The Panel is ready.

LISTNUM 1 \l 13899             THE SECRETARY:  The first panel for cross‑examination will be the Consumers Groups, PIAC.

‑‑‑ Pause

EXAMINATION / INTERROGATOIRE

LISTNUM 1 \l 13900             MS LOTT:  Good morning, Mr. Chairman and fellow Commissions, and good morning to you, Panel.

LISTNUM 1 \l 13901             I'm sorry to reintroduce myself again.  There might have been some of you on the Panel that I haven't done that, so I will do that before I begin.  My name is Sue Lott and I am counsel for the Consumers Groups.  That consists of the Consumers Association of Canada as well as the National Anti‑Poverty Organization.

LISTNUM 1 \l 13902             With me today, and the last couple of days, has been Mr. Andrew Briggs who is a consultant who has been working with us as well.

LISTNUM 1 \l 13903             So if I could begin, I would like to start with just a few questions about local competition issues.

LISTNUM 1 \l 13904             As I understand it, Northwestel is not proposing that local competition be permitted at this time.  When a competitor company makes a serious request to enter on a facilities basis, then a proceeding should be held to consider permitting local service competition in the North.

LISTNUM 1 \l 13905             Am I correct that that is your proposal in this proceeding?

LISTNUM 1 \l 13906             MR. FLAHERTY:  A slight variation to that.

LISTNUM 1 \l 13907             We have said in our evidence that we are prepared to have resale of services now.  So we are prepared to do that now.  It is the facilities‑base component of it that we feel is more complex and needs further discussion and further understanding.

LISTNUM 1 \l 13908             MS LOTT:  Thank you.  That was going to be my second part, is to confirm that you were proposing to permit resale of services.

LISTNUM 1 \l 13909             MR. FLAHERTY:  That is correct.

LISTNUM 1 \l 13910             MS LOTT:  Doesn't the Northwestel proposal put it at a significant advantage since it will know very well much in advance that a competitor is considering entering?

LISTNUM 1 \l 13911             MR. FLAHERTY:  I think the challenge here is the complexity involved with this.  we have obviously network elements that have to be modified.  We have operating systems that have to be modified as well.  So it is quite complex.

LISTNUM 1 \l 13912             I think as Mr. Roberts said the other day, there are some 130 rulings the Commission has made in the time since local competition has been evolved.  So it is not something that is overly straightforward.  I think it is something that needs to be carefully considered.

LISTNUM 1 \l 13913             Back in the 1990s when long distance competition was contemplated in northern Canada, Sprint had applied to do so and the Commission, I think justifiably so, felt that it was important to really understand the broad issues here and really approach this in a way to ensure sustainability, to ensure that a company like Northwestel can continue to meet its obligations as a full service provider and a provider of last resort.

LISTNUM 1 \l 13914             MS LOTT:  You are familiar, though, with the approach that has been adopted by the CRTC in a recent decision regarding the SILECs.

LISTNUM 1 \l 13915             I am wondering why it wouldn't be appropriate to follow that approach.

LISTNUM 1 \l 13916             MR. FLAHERTY:  I think as you have heard maybe in the last couple of days the SILECs are fundamentally different than Northwestel.  In many cases they don't have long distance services; they are provided by other companies.  So the complexity of their operations is quite a bit different.

LISTNUM 1 \l 13917             The size of their operations is quite a bit different as well.  Northwestel, as we have heard several times, has 40 percent of the land mass of Canada that we are serving, .4 percent of the population.  There is no SILEC in southern Canada anywhere close to any of those geographical challenges.

LISTNUM 1 \l 13918             We have satellite services provided in over half of our communities.  No SILEC in southern Canada has any of that complication as well.

LISTNUM 1 \l 13919             So I think it is all of these factors: long, thin routes we have talked about; 80 percent of our communities with less than 500 lines in them.

LISTNUM 1 \l 13920             All of those elements suggest to me at least that we have to be very careful on how we approach this subject.

‑‑‑ Pause

LISTNUM 1 \l 13921             MS LOTT:  I wanted to go back to an interrogatory response to the Government of Northwest Territories that you made.  It was GNWT‑502.

LISTNUM 1 \l 13922             I don't know if you feel you need to pull that up.

LISTNUM 1 \l 13923             It was in response to a question regarding introduction of local competition.

LISTNUM 1 \l 13924             MR. FLAHERTY:  I have it.

LISTNUM 1 \l 13925             MS LOTT:  My understanding is that in your response to that interrogatory you indicated you don't have detailed information on costs to implement the major components that are associated with local competition.

LISTNUM 1 \l 13926             Am I correct in characterizing your response?

LISTNUM 1 \l 13927             MR. FLAHERTY:  That is correct.  Some of the additional challenges that we have within our operating territory is, given our unique nature and given our very high costs, we have had to approach technology different than other companies in the South.

LISTNUM 1 \l 13928             Many of the companies in the South will adopt one technology and apply it throughout our operating territory.  In the switching side alone we have at least three different types of technologies that we deploy.  We have Nortel DMS‑100 technology here in Whitehorse.  We have GDT‑5 technology in the switches in Yellowknife and in Fort Nelson.  We have a whole bunch of Redcom switches as well.

LISTNUM 1 \l 13929             So that adds to the complexity as well of what we have here.

LISTNUM 1 \l 13930             CCS‑7 is another requirement in order to have this.

LISTNUM 1 \l 13931             In the proceeding that we had in the year 2000 the Commission asked us about equal access in all of the communities.  After we came back with the price tag, I believe, if I remember, it was $40 million to put CCS‑7 into all the communities in the North.

LISTNUM 1 \l 13932             That was just for CCS‑7.  That wasn't for local competition.

LISTNUM 1 \l 13933             So clearly what we are talking about here is very, very significant at the end of the day.

LISTNUM 1 \l 13934             MS LOTT:  Are there other cost components you have just identified there that you can give me a high level estimate of what those costs would be?

LISTNUM 1 \l 13935             MR. FLAHERTY:  It is very preliminary at this point in time.  We have been talking with Télébec to understand their situation.  As I said, their situation is nowhere near the same as ours.

LISTNUM 1 \l 13936             They spent over $7 million implementing local competition.  We have been trying to get a very preliminary ballpark number, and our thought is it could be upwards of $6 million just to do the equal access centres alone.

LISTNUM 1 \l 13937             So I wouldn't say that is a definitive number.  It is something that we are still trying to evaluate and understand.

LISTNUM 1 \l 13938             As I said, the Commission asked the question about DMS‑250 technology, and we don't have DMS‑250 technology in our operating territory.  We only have one DMS‑100, so that would only apply to Whitehorse.

LISTNUM 1 \l 13939             In the communities with GDD‑5 switches, we don't exactly know how we would even do it.  We understand that Telus has done some work here, but we have been unable to get any information on exactly how they have done it.

LISTNUM 1 \l 13940             So there is lots of complexity in how we would actually go about doing this.

LISTNUM 1 \l 13941             MR. WALKER:  One point that I might add is that when Mr. Flaherty talked about equal access centres, I would remind you that we have just four equal access centres out of 96 switches or 96 communities.

LISTNUM 1 \l 13942             MS LOTT:  Thank you.

LISTNUM 1 \l 13943             I want to move to another area, which is the issue of earnings sharing and the self‑correcting mechanism.

LISTNUM 1 \l 13944             My understanding is that Northwestel has proposed that it should have the ability to trigger a review of the proposed framework during the four years of the implementation of the price cap plan, and I understand that in your response to CRTC‑107 you indicated a number of unique factors that you detailed in your evidence that could significantly impact on your ability to advance these objectives and/or have a reasonable opportunity to earn a fair return on your investment.

LISTNUM 1 \l 13945             I also want to pull up your response to our interrogatory, which would be PIAC‑9, where you also indicated that there is a greater risk on Northwestel from moving from the rate of return regulation to the price regulation.  I think, in your words, you said that it would be far more abrupt for you than that of other telephone companies.

LISTNUM 1 \l 13946             Given these two responses, how are ratepayers protected from over‑earnings ‑‑ the possibility of over‑earnings by the company?

LISTNUM 1 \l 13947             MR. ROBERTS:  I'm sorry, could you repeat the last sentence, please?

LISTNUM 1 \l 13948             MS LOTT:  How would ratepayers be protected from over‑earnings by the company, given the uncertainties you have outlined in those two responses about what might transpire over the four years of the price regulation?

LISTNUM 1 \l 13949             MR. ROBERTS:  In addition to the considerations at a high level that I explained to Commissioner Cram yesterday with regard to the constraints on our upside under the proposed regulations, I would note that the items that have been identified, again, work in the negative direction as opposed to the positive direction.

LISTNUM 1 \l 13950             Our concern is that, if anything, we won't be able to make a reasonable return, let alone and excessive return.

LISTNUM 1 \l 13951             In addition to the items enunciated in our response to CRTC‑107, I would suggest that our rate restructuring also has not gone far enough, and we are deeply concerned about sustainability.

LISTNUM 1 \l 13952             Again, that would be a further negative factor that we would suggest is at play.

LISTNUM 1 \l 13953             MR. FLAHERTY:  The other thing I might add is, when you look at our particular situation, half a point on ROE is worth about 2 percentage points on expense.

LISTNUM 1 \l 13954             If you think of the suggestion of a 22 percent return, we would have to drop our operating expense phenomenally to be able to do that, and that is not practical in our operating territory, given all of the unique circumstances we face.

LISTNUM 1 \l 13955             MR. HAMELIN:  In absolute terms what that means is, about $1.5 million, on a pre‑tax basis, is worth half a percent on the ROE.  So 2 percent of expenses would represent that.

LISTNUM 1 \l 13956             MS LOTT:  Could I ask what would happen if you did earn a return on your investment that was above the targeted return?

LISTNUM 1 \l 13957             Have you proposed any form of sharing mechanism?

LISTNUM 1 \l 13958             MR. FLAHERTY:  No, we have not, nor have we proposed anything, should we not achieve that level, that the Commission would top us up either.

LISTNUM 1 \l 13959             MS LOTT:  Wouldn't it be appropriate to share any excess earnings with the ratepayers?

LISTNUM 1 \l 13960             For example, you could have earnings in excess of 50 basis points, the allowed range, be shared 50:50 between the ratepayers and the company.

LISTNUM 1 \l 13961             MR. FLAHERTY:  I think that we are looking at a framework ‑‑ part of the reason we are in this proceeding is to look at having regulations similar to that of the South, to not be marginalized by the form of regulation that we've previously had.

LISTNUM 1 \l 13962             Clearly trying to implement something like that puts us in a different perspective than what's done elsewhere in the country, and I think we'd have to think carefully about that.

LISTNUM 1 \l 13963             The other thing I think is we'd have to look at it being symmetrical.  I don't think we would ask that it just goes one way.

LISTNUM 1 \l 13964             So, the question would be, if we looked at it going one way, if we are over earning, fine, are we going to go the other way and make it symmetrical?

LISTNUM 1 \l 13965             MR. HAMELIN:  If I may add to that, what that would mean is essentially you'd be back to almost rate of return regulation if you're starting to share based on profits and so on.

LISTNUM 1 \l 13966             The idea is to streamline the regulatory effort.

LISTNUM 1 \l 13967             MS LOTT:  Okay, thank you.

LISTNUM 1 \l 13968             I just wanted to move on to one final area, just a couple of questions having to do with quality of service.

LISTNUM 1 \l 13969             Now, if I understand correctly, you have not proposed any changes to your quality of service reporting requirements when it moves to price caps; am I correct about that?

LISTNUM 1 \l 13970             MR. FLAHERTY:  That's correct.  You may also be aware that we actually have more stringent reporting requirements than other telcos, we actually report on a community level basis.

LISTNUM 1 \l 13971             We actually have an additional category called out‑of‑service remote as well that we have to provide in our remote operating regions as well.

LISTNUM 1 \l 13972             MS LOTT:  Okay, thank you.

LISTNUM 1 \l 13973             I'm also aware that in Decision 2002‑34 the Commission did implement a retail rate adjustment plan when the quality of service standards aren't met.

LISTNUM 1 \l 13974             I'm just wondering, why shouldn't a plan similar to that be applicable ‑‑ if it's a applicable to the large ILECs, be applicable to Northwestel as well?

LISTNUM 1 \l 13975             MR. FLAHERTY:  Well, I think the first point I would make is Northwestel's very proud of the excellent service results that we have.

LISTNUM 1 \l 13976             If you've seen the results over the past five years, you'll know that we've done extremely well.

LISTNUM 1 \l 13977             We do have a challenge from time to time meeting the out‑of‑service remote one, largely related to things like weather but, even then, you know, we've been within a point of meeting that.  So, I think we've done extremely well.

LISTNUM 1 \l 13978             I think the big motivator is we understand very full well that if we don't do a good job of this penalties are a very likely reality.

LISTNUM 1 \l 13979             So, simply the notion that those penalties may ultimately be applied is lots of incentive, let me assure you.

LISTNUM 1 \l 13980             MS LOTT:  But isn't it ‑‑

LISTNUM 1 \l 13981             MR. WELLS:  If I could just add ‑‑

LISTNUM 1 \l 13982             MS LOTT:  ‑‑ isn't it true that that was applied to the ILECs even though they had not experienced any drop in quality of service?

LISTNUM 1 \l 13983             MR. FLAHERTY:  I can't really comment on what their situation was at that time.

LISTNUM 1 \l 13984             MR. ROBERTS:  However, if I could just also add a little bit regarding the uniqueness of the north.

LISTNUM 1 \l 13985             We have a very small base of customers, particularly in a number of our communities and, again, we do community level reporting, so a very ‑‑ you know, isolated incident, one or two missed appointments can dramatically swing the indicator for a given community.

LISTNUM 1 \l 13986             So, the notion of I guess penalties when there's actually a good reason, an unavoidable reason in many cases for missing a given appointment, should not trigger a penalty in our view, rather that the current system provides for specific review of the circumstances behind missing an indicator and the provision of action plans on the part of the company.

LISTNUM 1 \l 13987             And in that way we can actually come up with an effective responsive way to deal with the issue at hand, instead of having some sort of arbitrary thing, that given the small base, isn't really representative of a true problem.

LISTNUM 1 \l 13988             MS LOTT:  Well, you've characterized quality of service one way.  I think it could also be characterized ‑‑ is it not true, that these are really mechanisms that provide incentives to maintain an appropriate level of service and that the mechanisms don't penalize you if you're not ‑‑ if you're meeting the quality of service objectives?

LISTNUM 1 \l 13989             MR. WELLS:  Maybe just a point I can make if I could back up to a comment you made earlier about the fact that the penalties were not imposed on the ILECs ‑‑ or the penalty wasn't imposed on the ILECs before there were any problems.

LISTNUM 1 \l 13990             In fact there had been problems with the ILECs and because of that the Commission decided to impose potential penalties.

LISTNUM 1 \l 13991             And to pick up on Mr. Flaherty's point, I don't know, given the situation that we've had a very good record with quality of service, it would make any sense at this point to put a regulatory regime in place for no reason.

LISTNUM 1 \l 13992             MR. ROBERTS:  And, further, I'd suggest that I guess the intent is to provide corrective action here.

LISTNUM 1 \l 13993             And, in our case, again, if we have a weather incident, for instance, that causes a few isolated appointment misses and that swings the indicator below an acceptable level, it's not really representative of a situation that needs to be corrected.

LISTNUM 1 \l 13994             Northwestel is, in fact, doing everything it can.  When there is an issue we explain the details, we explain the action plan, if appropriate, and we act on that and the Commission follows up.  The current system works very well.

LISTNUM 1 \l 13995             MS LOTT: But just to clarify about some of the aspects of that decision, 2002‑34, my understanding was that it was applicable to SaskTel even though SaskTel had not been even part of the first price cap regime.  So I think that is clear that it actually was applicable to one of the large ILECs even though you couldn't say that it had experience any sort of substandard quality of service.

LISTNUM 1 \l 13996             MR. ROBERTS: Regardless, we are different because of our small base and because of the fact that we do community‑level reporting today.

LISTNUM 1 \l 13997             MS LOTT: But just to be clear about how the quality of service, the mechanism, works.  My understanding is that the mechanisms don't penalize you if you're meeting the quality of service objectives.  Is that correct?

LISTNUM 1 \l 13998             MR. FLAHERTY: That is correct.  I guess, just to maybe try and bring our final point on this, is we believe we have done an excellent job.  The Commission has recognized it in decision ‑‑ I can't remember ‑‑ in one of our supplementary funding decisions, recognized the job that we had done on quality of service and we don't see a reason that should need to be implemented.

LISTNUM 1 \l 13999             MS LOTT: I guess my concern from the perspective of consumers is that if there are no competitive alternatives for local service with Northwestel, because you are proposing a local competition at this time, what recourse would consumers have.  And my suggestion would be that they would really have no recourse to a competitive alternative if the quality of service falls below standard, and I think that is the issue for consumers.

LISTNUM 1 \l 14000             MR. FLAHERTY: I think the reality of our situation is back to the make‑up of our operating territory.  You know, we have two what we would call large communities what everyone else in the country would call very small communities and then we have many many very very small communities.

LISTNUM 1 \l 14001             The reality is that the competitive situation there for basic local telephone service on the residential side may not be that great.  We understand that obligation and we are committed to providing that quality of service in those communities.  So the Commission always has the opportunity to step in and order anything at any point in time.

LISTNUM 1 \l 14002             So we are saying we have shown a good track record of providing quality of service, we are indicating we are prepared to maintain that track record going forward.  If at any point in time we don't do that, then that is the time that the Commission could step in and apply those, if required, at that point in time.

LISTNUM 1 \l 14003             MR. WALKER: One thing we did ‑‑ just to ‑‑

LISTNUM 1 \l 14004             THE CHAIRPERSON: Could I just ask the panel please not to make a succession of editorial comments.  The questions are fairly specific and it breaks up the rhythm of the question, the questioner's program.  It is really not required to keep the piling on.  Just make your points, make them quickly, make them explicit and sign off please.

LISTNUM 1 \l 14005             MS LOTT: Thank you.  I just have one last question.

LISTNUM 1 \l 14006             If the Commission was going to implement a retail quality of service adjustment plan for NorTel are there any modifications to the system that you would suggest would be necessary?

LISTNUM 1 \l 14007             MR. FLAHERTY: We haven't proposed any modification.

LISTNUM 1 \l 14008             MS LOTT: Okay, thank you.  Those are my questions, Mr. Chairman, thank you.

LISTNUM 1 \l 14009             THE CHAIRPERSON: Thank you, Ms Lott.  Mr. Briggs.

LISTNUM 1 \l 14010             Madame la secrétaire.

LISTNUM 1 \l 14011             THE SECRETARY: Thank you, Mr. Chairman.

LISTNUM 1 \l 14012             The next party to cross‑examine is UCG.

LISTNUM 1 \l 14013             THE CHAIRPERSON: I think Mr. Rondeau is here.  I am told he is here, but he is not physically immediately available.

LISTNUM 1 \l 14014             THE SECRETARY: Should we go with the next one?

LISTNUM 1 \l 14015             THE CHAIRPERSON: We will just wait a minute or two and see if he emerges from a likely place, as he has.

LISTNUM 1 \l 14016             THE SECRETARY: Here he comes.

LISTNUM 1 \l 14017             THE CHAIRPERSON: He has done it once, he can do it twice, he is always ready.  Mr. Rondeau, you are up.

LISTNUM 1 \l 14018             Please take to heart my earlier comments in responding to Mr. Rondeau.

EXAMINATION / INTERROGATOIRE

LISTNUM 1 \l 14019             MR. RONDEAU: Good morning, ladies and gentlemen the Commission and also the new panel today.  My name is Roger Rondeau.  I am the head of the Utilities Consumers Group and also their representative at these hearings.

LISTNUM 1 \l 14020             I guess before I get into the new regulatory regime I would like to go back and ask a few questions that we were directed from yesterday's panel to ask of you, mainly on your restructuring of rates.

LISTNUM 1 \l 14021             Now yesterday I spoke of an article that we had from one of the newspapers here.  I don't have to go through that again, it's on record.

LISTNUM 1 \l 14022             I would like to ask this panel why you did not do any type of demographics to ensure that the vulnerable people in our society, the low‑ and set‑income people, will not be so negatively affected or impacted by this rate increase that they will not be able to have a telephone in their house.

LISTNUM 1 \l 14023             MR. FLAHERTY:  I think, as was answered on the other panels, the approach that we took was looking at comparability to other telephone companies.

LISTNUM 1 \l 14024             One thing I would say, within the telecom industry, as one of the commissioners pointed out, we do have bill management tools that are in place.  Northwestel has those as well.

LISTNUM 1 \l 14025             Beyond that there hasn't been a lot of precedent for doing special and separate things.

LISTNUM 1 \l 14026             Generally on the social side of the ledger, that has fallen more to governments, both territorial and federal governments.

LISTNUM 1 \l 14027             MR. RONDEAU:  Have you had any complaints about these bill management tools that you have, people who are on low incomes, again, or social assistance not being able to come up with the up‑front monies that you are asking for?

LISTNUM 1 \l 14028             MR. FLAHERTY:  I am not aware of any such complaints, Mr. Rondeau.

LISTNUM 1 \l 14029             MR. RONDEAU:  I can tell you this is the major complaint that we get from the consumer these days.  Your quality of service has been excellent ‑‑ I must give you credit where credit is due ‑‑ but we have complaints from people and it is usually people who simply cannot afford to get a telephone in their house because of these types of conditions that you set.

LISTNUM 1 \l 14030             MR. FLAHERTY:  As I say, I am sorry, I am not aware of any such complaints.

LISTNUM 1 \l 14031             MR. RONDEAU:  Now you state that your proposal for rate restructuring is to get similar rates to other areas of Canada.  Are you aware of any decisions by the CRTC that cap local rates in other jurisdictions in the $20 to $30 range?

LISTNUM 1 \l 14032             MR. ROBERTS:  I am not aware of a hard cap at that level.  I think you may be misinterpreting one of the decisions.

LISTNUM 1 \l 14033             MR. RONDEAU:  Are you aware that in the southern jurisdictions the larger telcos were directed to return some of their excess or deferral monies back to the consumer so that their rates, their actual local rates were lowered?

LISTNUM 1 \l 14034             THE CHAIRPERSON:  Mr. Rondeau, I think we are a little off course here, respectfully.  The deferral account issue is just not relevant to anything that is before the Commission at the moment.

LISTNUM 1 \l 14035             I don't want to inhibit you in this proceeding from asking the questions that you want to ask but may I just caution you that it is very important that you focus on the constituency that you have here, the problems that you have learned about that relate to that, because the intricacies of national telecommunications policy are beyond the scope of the hearing and I don't think that you will find the line of questioning premised on the deferral account decision fertile or useful or fruitful in relation to Northwestel.

LISTNUM 1 \l 14036             MR. RONDEAU:  I understand that, Mr. Chair, but what I am trying to get at is if we are going to have rates that are comparable to the rest of Canada we have to know these types of things, otherwise, there is an unfairness.

LISTNUM 1 \l 14037             THE CHAIRPERSON:  Would you take it from me that this particular issue, to the best of my knowledge, is not relevant to the proceeding that is before us?

LISTNUM 1 \l 14038             I'm looking at the staff to see whether they are agreeing with me on this.

LISTNUM 1 \l 14039             I'm only interested in ensuring you spend your time here as profitability as possible, Mr. Rondeau.

LISTNUM 1 \l 14040             MR. RONDEAU:  Thank you, Mr. Chair.

‑‑‑ Pause

LISTNUM 1 \l 14041             MR. McCALLUM:  I think it may be relevant to discuss benefits for consumers, but the issue of deferral account has not been proposed by Northwestel, so deferral account per se is not really within the scope.

LISTNUM 1 \l 14042             Benefits to consumers, by whatever mechanism might be possible, would be within the scope, in our view.

LISTNUM 1 \l 14043             THE CHAIRPERSON:  Mr. Rondeau, if you want to persist in dealing with the deferral account I don't want to stop you from doing so.  I'm simply advising you that since there is no deferral account in Northwestel the possible uses of a deferral account with a southern ILEC is irrelevant to Northwestel because they don't have a deferral account.

LISTNUM 1 \l 14044             MR. RONDEAU:  I understand that.  I just want them to recognize that rates were lowered in southern jurisdictions.

LISTNUM 1 \l 14045             THE CHAIRPERSON:  Well, rates were not lowered by the deferral account in that sense.  There was ‑‑

LISTNUM 1 \l 14046             COMMISSIONER WILLIAMS:  Let's hear him, Mr. Chairman.

LISTNUM 1 \l 14047             THE CHAIRPERSON:  Please go ahead, Mr. Rondeau.

LISTNUM 1 \l 14048             MR. RONDEAU:  Well, as I stated, I just would like the Panel to recognize this and to state a yes or no whether they are aware.

LISTNUM 1 \l 14049             I will not go any further with this, Mr. Chair.

LISTNUM 1 \l 14050             MR. FLAHERTY:  To be quite honest, Mr. Rondeau, we aren't aware of the intricacies of the deferral account.  Because we haven't proposed it we haven't spend a lot of time trying to understand it either.  So unfortunately we are not aware of all those intricacies.

LISTNUM 1 \l 14051             I do read what I see in the media and I know there was a proposal, but I'm not sure whether the Commission actually agreed with rebating it or whether the funds were used for something else, so unfortunately I'm not in a position to comment on it.

LISTNUM 1 \l 14052             MR. RONDEAU:  I guess another reason I'm asking this, Commissioners, is in all your wisdom you may decide not to go with this proposal that Northwestel has offered and we may still be left with the present regime.

LISTNUM 1 \l 14053             Panel, would you please now look at UCG‑122 and 122 revised?

‑‑‑ Pause

LISTNUM 1 \l 14054             MR. RONDEAU:  Now, what is in front of you panel ‑‑ I gather you have that ‑‑ one is the statistics on a number of employees since 1994 and the other is the amount of monies allocated to non‑management salaries and management salaries.

LISTNUM 1 \l 14055             Now, I have taken the liberty to do some averages, which you guys like to do so much, and what I have come up with is the average non‑management wage is approximately $83,000 per year, plus your perks of course.  The average non‑management wage is $38,000 per year.

LISTNUM 1 \l 14056             Would you say these estimates are reasonably accurate?

LISTNUM 1 \l 14057             MR. FLAHERTY:  Subject to check.

LISTNUM 1 \l 14058             MR. RONDEAU:  Would you say these wages are also fairly comparable to the government sector?

LISTNUM 1 \l 14059             MR. FLAHERTY:  In setting our wages we actually do comparisons both with northern employers as well as within the industry as well.  It depends on the individual positions that we are trying to fill.

LISTNUM 1 \l 14060             If we are trying to fill some positions that perhaps are a little less skilled from a technical perspective, we may look at comparisons more in the local market.  If we are looking at some specialty skills within the telecom industry we would look more nationally.

LISTNUM 1 \l 14061             So that's how we go about setting our compensation policies, is by doing benchmarks, as I say, depending on the specific market that we are hiring from.

LISTNUM 1 \l 14062             MR. RONDEAU:  You have to compete, in other words, with other employers?

LISTNUM 1 \l 14063             MR. FLAHERTY:  That's correct.

LISTNUM 1 \l 14064             MR. RONDEAU:  Yes.  So your major opponent here would be the government, and I am speaking of Yukon.

LISTNUM 1 \l 14065             MR. FLAHERTY:  As I say, it depends on the position.  If it were what I might term ‑‑ I have to be careful of my language here ‑‑ what I might term a less skilled position, for example maybe a clerical position that is more in supply within the North, then we may indeed be competing with the government.

LISTNUM 1 \l 14066             If we are looking for someone with some telecom experience, say an engineering individual, no, we wouldn't be competing with the government.  We would be competing perhaps with other telecom carriers in the country.

LISTNUM 1 \l 14067             MR. RONDEAU:  Understandable.  What I am trying to get at is would you say your wages are comparable to the government's?

LISTNUM 1 \l 14068             MR. FLAHERTY:  As I indicated earlier, we go through an extensive benchmarking process looking at each job individually, and we compare it against the market in which we have to compete.

LISTNUM 1 \l 14069             If again we are looking perhaps at the clerical level, yes, we would benchmark against the government.  We would benchmark against the city.  We would benchmark against any other major employers that might be in the community.

LISTNUM 1 \l 14070             If we were looking at say a technical person again, no, we wouldn't be benchmarking against the government.  We would be benchmarking against other telecom carriers.

LISTNUM 1 \l 14071             MR. RONDEAU:  Fair enough.  So we have four government bureaucracies basically in the Yukon.  We have the feds, the territorial government, First Nations and municipal.

LISTNUM 1 \l 14072             Would you agree with that?

LISTNUM 1 \l 14073             MR. FLAHERTY:  I don't know about the word "bureaucracies", but I would agree we have the four different levels of government.

LISTNUM 1 \l 14074             MR. RONDEAU:  Thank you.  That might be a better way to present it.

LISTNUM 1 \l 14075             Would you say that between Northwestel ‑‑ again I am speaking specifically of the Yukon here.  I am not going through your areas in the Northwest Territories and Iqaluit.  I don't have the statistics nor the knowledge to do that.

LISTNUM 1 \l 14076             Would you say that between Northwestel and the various governments that I have mentioned, you are the major employee section in the Yukon at this time?

LISTNUM 1 \l 14077             MR. FLAHERTY:  I would suggest all of those groups together would obviously be the largest.  In terms of private sector employees, yes, we would be the largest in the Yukon.

LISTNUM 1 \l 14078             MR. RONDEAU:  Would you also agree that wages in the other sectors of our economy, for example tourism, fast foods, recreation, seasonal, mining and construction workers, are at a lower wage scale than what the government and Northwestel are making?

LISTNUM 1 \l 14079             MR. FLAHERTY:  Difficult to say.  I don't have a lot of research in those other areas.  I could maybe just comment on mining.

LISTNUM 1 \l 14080             Again, you didn't want to talk about the other jurisdictions, but I think the other jurisdictions do have an impact on our jurisdiction.

LISTNUM 1 \l 14081             I know in mining, given all the work that is happening in Fort McMurray, wages have gone up dramatically in the mining sector.  So there might be an exception in mining.

LISTNUM 1 \l 14082             MR. RONDEAU:  That may be true, but mining is seasonal here.  We don't have any major mines, with the exception of one, and it is actually in the Northwest Territories.  I know we have workers there.

LISTNUM 1 \l 14083             But most of the workers here are seasonal ‑‑ would you agree with that ‑‑ in both the mining and construction?

LISTNUM 1 \l 14084             MR. FLAHERTY:  Quite a bit of it.  As you may be aware, last year there was $55 million worth of exploration in the Yukon, so I think there are large expectations that that will change here; that very shortly we will start to see more active mines.

LISTNUM 1 \l 14085             I believe there is one, as you say, operating now and there are at least half a dozen that are scheduled to open within the next year or so.

LISTNUM 1 \l 14086             MR. RONDEAU:  Thank you.

LISTNUM 1 \l 14087             Now I am going to get to where I am going on this.

LISTNUM 1 \l 14088             So we have an affluent workforce here, the government and Northwestel, who have very good earnings.  They are earning good wages, in other words.  And we have another section, which is approximately half of the society, that are lower income earners.

LISTNUM 1 \l 14089             If you take the two together, what I am getting at is I believe the numbers are skewed in the Yukon when you take averages for wages.  Because we have a smaller workforce here, if you have a larger proportion of the workforce that is making higher wages, or half of the workforce, it will be much more skewed than if you took the rest of the areas in Canada where you have a larger workforce.

LISTNUM 1 \l 14090             Would you agree with that rationale?

LISTNUM 1 \l 14091             MR. FLAHERTY:  I understand where you are going, but I think that Mr. Walker made a very good point.  Actually, I can relate to it on a personal note.

LISTNUM 1 \l 14092             He indicated that you need to consider students, for example.  I happen to have three students, all who work for summer employment.  They file income taxes.  They would have very low incomes in that sense.  But, again, they are living in my home with myself and my wife.  So that would be different.

LISTNUM 1 \l 14093             Mr. Walker used the other example of working spouses, as well, who may be in a part‑time job.

LISTNUM 1 \l 14094             Again, I think we would have to look at this much more carefully to understand it in greater detail.

LISTNUM 1 \l 14095             MR. RONDEAU:  Yes.  That is why I wish you would have done demographics.

LISTNUM 1 \l 14096             That is all for that area.  Thank you.  I will move on to the new regime that you are proposing.

LISTNUM 1 \l 14097             My first question on this is, why are you proposing to go directly to a price cap regulation rather than going into the interim splitting of the rate base, as was done in other jurisdictions?

LISTNUM 1 \l 14098             MR. ROBERTS:  Our proposal has, as one of its guiding principles, to try and limit the extent to which Northwestel is marginalized from a regulatory perspective.  We are trying to align ourselves with frameworks in other jurisdictions in Canada, to the extent possible, while still recognizing our unique challenges.

LISTNUM 1 \l 14099             It is important to note that we are the last telephone company in Canada that is currently rate of return regulated, and we are trying to address that an align to a greater extent.

LISTNUM 1 \l 14100             MR. RONDEAU:  I agree very much that we are very unique up here, in many other different ways, as well.  For this reason, do you not think we should be regulated in a unique way than other jurisdictions in Canada?

LISTNUM 1 \l 14101             In other words, this price cap regulation has to be done in a different way than it is down South.

LISTNUM 1 \l 14102             MR. FLAHERTY:  We would agree with that.  Our proposals would indicate that we have tried to reflect where we think it needs to deviate, shall we say, from down South.

LISTNUM 1 \l 14103             MR. RONDEAU:  Would initiating a split rate base regulation at this time negatively impact any ratepayer group?

LISTNUM 1 \l 14104             MR. ROBERTS:  I would suggest, Mr. Rondeau, that the focus of consumer and ratepayer groups is on the rate levels, and that through either a rate of return mechanism or a price cap mechanism, rates would continue to be reasonable, and that would be the focus of these groups.

LISTNUM 1 \l 14105             The difference is that, under rate of return, it is believed that if you monitor the company's revenues and the company doesn't make too much, then, obviously, they aren't charging too much.

LISTNUM 1 \l 14106             Conversely, under price caps, the incremental changes to a reasonable rate or it is kept at reasonable levels, again, keeping rates, in total, reasonable.

LISTNUM 1 \l 14107             In either case, consumers are protected.

LISTNUM 1 \l 14108             MR. HAMELIN:  I would add, Mr. Rondeau, that under a split rate base, if you are looking for lower rates, a split rate base would not necessarily guarantee that.  You would probably end up with a different split rate base than down South.  It would be a modified split rate base, similar to us having a modified price cap.

LISTNUM 1 \l 14109             Just think within the utility segment of a split rate base.

LISTNUM 1 \l 14110             In our case, for example, we have the toll connect charges ‑‑ or toll connect investment as part of the regulatory ‑‑ the local access piece currently.  So, right away, there is an instant modification.

LISTNUM 1 \l 14111             Then, under Phase 3, when you think of the competitive segments, these would have to be revisited in light of the northern realities.

LISTNUM 1 \l 14112             As I was explaining the other day, things like terminals, for example, may or may not be competitive up here.  They're competitive certainly in Whitehorse, but when you go to Grise Fiord or elsewhere in the small communities, you don't have the Future Shops there available for them.

LISTNUM 1 \l 14113             So, again, you'd end up with a modified type of regulation, whether it's a split rates base or price caps.

LISTNUM 1 \l 14114             MR. RONDEAU:  Okay, thank you.

LISTNUM 1 \l 14115             Now, it's my understanding that this price cap regulation is mainly put in place to make companies more efficient, more effective and also to lower the regulation stress for the companies and, I presume, to bring in more competition; is that correct?

LISTNUM 1 \l 14116             MR. ROBERTS:  I would suggest that the Commission tries to encourage competition in a number of ways.

LISTNUM 1 \l 14117             MR. RONDEAU:  Okay.  One of the ways that I see that this proposal is trying to encourage competition is by lowering the CAT rate; is that correct?

LISTNUM 1 \l 14118             MR. FLAHERTY:  That's correct.  I'm not sure if price caps in and of itself is designed to encourage competition; it's, as you say, some of the underlying elements, things like the CAT rate.  So, you're quite right.

LISTNUM 1 \l 14119             MR. RONDEAU:  So, would you object to an interim period of time where we simply lower the CAT rate, isolate this, see how much it would actually cost to the new national program and leave the rates as they are now, leave your regulatory regime as it is now and see what this does, see if it brings in competition and see how much it costs?

LISTNUM 1 \l 14120             MR. FLAHERTY:  But I think, as Mr. Roberts indicated, you know, part of the purpose behind price caps is to move to a more modern form of regulation, to move to one that's less intensive.

LISTNUM 1 \l 14121             Today we go through an annual proceeding every year, it takes a lot of our time, obviously yourself and other intervenors and then the Commission's time as well.  I'm not sure that's the most efficient use of everyone's time.  It does add to costs at the end of the day.

LISTNUM 1 \l 14122             So, I think we're talking about two slightly different issues.  One is the form of regulation, the second is, what should we be doing with the carrier access tariff.

LISTNUM 1 \l 14123             We happen to be addressing both of these at the same time.  I think one of the areas that is affected by price caps is the need to try and weed out as many of the implicit subsidies as possible as we move into that regime.

LISTNUM 1 \l 14124             So, the purpose behind price caps, I would argue, is really moving to a more modern form of  regulation as we go forward, one where the company is incented but the consumers are protected as well.

LISTNUM 1 \l 14125             MR. RONDEAU:  I fully understand that but, again, you know, you use the circumstances were unique here, regulation has to be looked at a bit differently as well.

LISTNUM 1 \l 14126             I will move on, nonetheless.

LISTNUM 1 \l 14127             Now, if this price cap regime is implemented, how will you protect ‑‑ how will consumers be protected from future price increases?

LISTNUM 1 \l 14128             MR. FLAHERTY:  That's really designed by the baskets, the price cap baskets that we've got in place.

LISTNUM 1 \l 14129             So, Mr. Roberts can tell you the details of the measures that we have for the baskets, but there is a constraint on how prices will be able to change within that price cap period.

LISTNUM 1 \l 14130             Services like long distance that may be forborne if we're successful, as we've requested, it's more the competitive market that will regulate those prices.

LISTNUM 1 \l 14131             MR. RONDEAU:  Yes, thank you.

LISTNUM 1 \l 14132             And what are the constraints exactly?  What happens if we don't have competition and all of a sudden you decide you're going to raise the rates?

LISTNUM 1 \l 14133             MR. FLAHERTY:  As I say, on the local side the services are regulated by basket, each basket has a price constraint which Mr. Roberts can elaborate on.

LISTNUM 1 \l 14134             On the long‑distance side, as I said at my opening statement, 32 percent of all the long‑distance minutes carried today are carried by competitors, not Northwestel.

LISTNUM 1 \l 14135             MR. RONDEAU:  Okay.

LISTNUM 1 \l 14136             MR. ROBERTS:  Specifically with regard to the residential basket, residential access services that is, there would be a constraint of what we refer to as I minus X, that is inflation less a productivity factor.

LISTNUM 1 \l 14137             MR. RONDEAU: Now, in CRTC‑1403, which I mentioned yesterday, you speak of ‑‑ and I was told to direct it back to you ‑‑ one of the Commissioners asked about this as well yesterday.  You are asking for the discretion for an increase to a maximum of $1.00 per year.  Now my suggestion, if you have this discretion, this is not really price capping or offering the consumer any type of stability.

LISTNUM 1 \l 14138             MR. FLAHERTY: The nature of price caps is really to address how prices change over time.  And it is through the rules around the various services that prices are able to change.  So as Mr. Roberts indicated, in the basket including residential access service the proposal is to use inflation minus productivity.

LISTNUM 1 \l 14139             In this particular service the proposal is to limit any changes to a maximum of $1.00.  So there is a cap there, it is not indiscriminate, it could not be changed more than $1.00 per year.

LISTNUM 1 \l 14140             MR. RONDEAU: But if you nickel and dime us every year like this, as I said, we don't have any stability.  What is the purpose of this price capping.

LISTNUM 1 \l 14141             MR. ROBERTS: I guess I would suggest trying to take your perspective for a moment.  I think it might be reasonable that the number of people that can't afford the incremental price would choose not to take the feature any more.  Northwestel's aware of this and therefore we are very cognizant of the fact that we can't keep raising the rate up by $1.00 a year over year over year.  In fact, we are constrained to a very high degree in this regard.

LISTNUM 1 \l 14142             MR. WELLS: Mr. Rondeau, I think it is also important you made the comment about no competition.  There has been a lot of dialogue over the last few days about wireless competition in the territory.  And the other constraint we have that we have to think about is we, as we do potentially adjust our rates, is the substitution impact of wireless, 77 percent of our territory, of our customers are going to have access to wireless.

LISTNUM 1 \l 14143             And I already know for a fact that people are selecting a wireless cell phone over a landline phone.  So if we continue to increase rates, for example, in these sort of services that you can also get on wireless, at some point consumers are going to say I am going to move to a wireless solution.  So it is important to note that this market isn't a "monopoly" market.

LISTNUM 1 \l 14144             COMMISSIONER NOËL: Just to make a point clear, we are talking about optional services here, i.e. voicemail or etcetera so, you know, it doesn't affect the basic rate for the basic service.

LISTNUM 1 \l 14145             MR. RONDEAU: Thank you.  I understand that, but thank you for the clarification.

LISTNUM 1 \l 14146             How will your consumers be protected?  I know that the interveners ahead of me asked a similar question.  How will customers be protected from deterioration in our quality of service with this new type of regime?

LISTNUM 1 \l 14147             MR. FLAHERTY: As I indicated earlier, and you acknowledged as well, we have a very good track record for quality of service.  We understand very fully that if we don't maintain that obligation that will be imposed upon us.  So as I say, that is our incentive.  Make no mistake about it, we treat that very seriously.

LISTNUM 1 \l 14148             MR. RONDEAU: Okay, thank you.  From what I have seen in this proposal there is no mechanism that you are, besides the quality of service that you already have, there is no other mechanism that you are proposing to be used to ensure that this takes place?

LISTNUM 1 \l 14149             MR. FLAHERTY: That is correct.

LISTNUM 1 \l 14150             MR. RONDEAU: Now, you speak of one of the reasons for going into this new regime as well as rid internal cross‑subsidies.  Can you enlighten us a bit on these internal cross‑subsidies?

LISTNUM 1 \l 14151             MR. FLAHERTY:  As was discussed in some of the panels yesterday, for example, in the Carrier Access Tariff there is a significant amount of implicit subsidies, subsidies that are ‑‑ other services are priced higher, much, much higher than what they might cost.  So for example, the Carrier Access Tariff would be one case where that exists.

LISTNUM 1 \l 14152             Another would be private line.  Mr. Roberts, I think, gave an example yesterday of the difference in pricing from a circuit from Whitehorse to Fort St. John versus Telus or versus another carrier's charge from Fort St. John to Edmonton.

LISTNUM 1 \l 14153             So it is in those services that there are quite large implicit subsidies.

LISTNUM 1 \l 14154             If you go back to prior to the current framework that we have, much of the north was being subsidized on long distance services but what was happening over time is northerners were finding ways to bypass those services and that is a real risk that we have to look at.

LISTNUM 1 \l 14155             So unless we address these implicit subsidies, the very strong likelihood is that you will see bypass of our services making the burden required for the remaining small communities where we are the provider of last resort much, much greater.  So we are really trying to ensure that we don't do that, that we don't end up having to charge huge rates in small remote rural areas where they don't have the advantage of competition.

LISTNUM 1 \l 14156             MR. ROBERTS:  I would just like to elaborate a little further.  You mentioned internal cross‑subsidies.  I would suggest that a lot of these subsidies are better characterized as external.  They are embedded in rates that are charged to other carriers today on a usage basis implicitly.

LISTNUM 1 \l 14157             What our proposal tries to achieve is making these explicit and putting them in a ‑‑ positioning them in such a way that the carriers cannot bypass payment of this subsidy by choosing to adopt new technologies, for instance, and instead ensures that a fair burden is distributed.

LISTNUM 1 \l 14158             MR. RONDEAU:  Will this proposal entirely rid these cross‑subsidies?

LISTNUM 1 \l 14159             MR. FLAHERTY:  No, unfortunately not.  There is not enough room, shall we say, in our restructuring to be able to eliminate them completely.  So there will, unfortunately, be some that remain but it is all that we could really justify in this proceeding.

LISTNUM 1 \l 14160             MR. RONDEAU:  Okay, thank you.

LISTNUM 1 \l 14161             The rest of my questioning ‑‑ I would presume you have the Telecommunications Act that you can access?

LISTNUM 1 \l 14162             MR. ROBERTS:  Yes, we do.

LISTNUM 1 \l 14163             MR. RONDEAU:  The first section I would like you to look at is section 27.  I can read that out, it is very short.  It says:

"Every rate charged by a Canadian carrier for a telecommunications service shall be just and reasonable."  (As read)

LISTNUM 1 \l 14164             My question is:  Can you say that Northwestel follows this practice in all areas of their jurisdiction?

LISTNUM 1 \l 14165             MR. ROBERTS:  Yes.

LISTNUM 1 \l 14166             MR. RONDEAU:  My next question is on section 27, number 6(b), and it reads:

"Notwithstanding subsections 1 and 2 a Canadian carrier may provide telecommunications services at no charge or at a reduced rate..."  (As read)

LISTNUM 1 \l 14167             And then it says (a).  What I am concentrating on is (b):

"with the approval of the Commission to any charitable organization or disadvantaged person or other person."  (As read)

LISTNUM 1 \l 14168             My question on this is:  Northwestel could easily set up two rate schedules under the Act for those customers not being able to afford the rates that are being charged, very easily set this up; is that correct?

LISTNUM 1 \l 14169             MR. ROBERTS:  An example of how this is implemented elsewhere in Canada and indeed with Northwestel's message relay service which provides for discounts to people with, for instance, hearing impairments.

LISTNUM 1 \l 14170             MR. RONDEAU:  Now you already have a type of service where you block long distance.

LISTNUM 1 \l 14171             Is that correct?

LISTNUM 1 \l 14172             MR. FLAHERTY:  That's right.

LISTNUM 1 \l 14173             We refer to that as toll denial.  So if customers feel that long distance charges are difficult for them to manage, there is no charge to subscribe to that service.

LISTNUM 1 \l 14174             MR. RONDEAU:  Do you see a problem with charging a lower rate for people who have toll denial in their homes?

LISTNUM 1 \l 14175             MR. FLAHERTY:  Well, the reasons that people have toll denial I believe could be quite varied.  For example, in the Eastern Arctic the nature of their society has a very open‑door policy so you may have many different people coming into their homes.  For that reason they implement things like toll denial.

LISTNUM 1 \l 14176             So I don't think we could make a blanket statement that just because someone has implemented toll denial that somehow they can't afford it.  They may be doing it for different reasons.

LISTNUM 1 \l 14177             MR. ROBERTS:  In fact, that would open the door to, I guess, some clever people choosing to take toll denial, enjoy the lower rate, and then use prepaid cards for long distance service.

LISTNUM 1 \l 14178             MR. RONDEAU:  Yes, I understand that this may happen.

LISTNUM 1 \l 14179             How difficult would it be to have some type of contract made with individuals who are at the lower income?  In other words, some kind of burden of proof to show that they are having problems?

LISTNUM 1 \l 14180             MR. FLAHERTY:  I think again, as I was saying earlier, a lot of what has been done in the telecom industry around this particular subject has been around bill management tools.

LISTNUM 1 \l 14181             In terms of social assistance, that has generally fallen to governments, whether it be territorial or federal governments.  I haven't seen the most recent piece, but I know in the past the Yukon government, for example, part of their payment relative to social assistance includes the cost of the phone bill.  I don't know whether they would increase that cost associated with this, so I think we would have to be very careful that we weren't somehow double compensating, the government on one hand was providing social assistance meant to in part cover that and somehow we were reducing our rates and also trying to cover the same thing.

LISTNUM 1 \l 14182             MR. RONDEAU:  Understandable.

LISTNUM 1 \l 14183             Just to comment on those on social assistance, as I read yesterday these rates haven't increased in the last seven years and yet inflation has increased, so I think any type of increase in telephone affects their bottom line.

LISTNUM 1 \l 14184             I will move on and it is my second last question to you.

LISTNUM 1 \l 14185             Section 33 of the Act, (a) and (b), and it reads:

"Where a Canadian carrier provides basic telecommunications services and, in the opinion of the Commission

(a) an activity of affiliate of the carrier is integral to the provision of the service by the carrier; and

(b) the Commission's other powers under this Act are not sufficient for the purposes of ensuring that the rates charged by the carrier for telecommunications services are just and reasonable

the Commission may, for that purpose, treat some or all the earnings of the affiliate from the activity as if they were the earnings from the carrier."  (As read)

LISTNUM 1 \l 14186             My question I guess is:  the way I read this is that all of your mother corporations are responsible to ensure that we have equal and equitable access to the telecommunications.

LISTNUM 1 \l 14187             MR. FLAHERTY:  I'm sorry, you are suggested that BCE has a responsibility to the ratepayers in Northern Canada?

LISTNUM 1 \l 14188             Is that ‑‑

LISTNUM 1 \l 14189             MR. RONDEAU:  That's how I'm reading this, yes.

LISTNUM 1 \l 14190             MR. FLAHERTY:  I don't interpret the Act to state that.

LISTNUM 1 \l 14191             I think it is more around in the actual provision of the service, if there was some element that an affiliate was providing to that provision of basic telephone service.

LISTNUM 1 \l 14192             BCE does not provide us with anything to that extent.

LISTNUM 1 \l 14193             Mr. Hamelin talked about financing.  We do all of our own financing.  BCE does not provide any of that financing.

LISTNUM 1 \l 14194             In terms of infrastructure, we have built all of our own infrastructure.  We don't use any BCE infrastructure.

LISTNUM 1 \l 14195             We do interconnect only to have traffic flow to other parts of the country, but we don't depend on BCE to assist us with telephone service in northern Canada.

LISTNUM 1 \l 14196             MR. RONDEAU:  Did not you rely on BCE or Bell Canada to buy this telecommunications system from CN?

LISTNUM 1 \l 14197             MR. FLAHERTY:  BCE made an investment, if that is what you mean.  They invested in the equity; that's true.

LISTNUM 1 \l 14198             Northwestel is the legal entity that is responsible under the Act for this operating territory, not BCE.

LISTNUM 1 \l 14199             MR. RONDEAU:  Thank you.

LISTNUM 1 \l 14200             My last question to the administration while you are in front of the Commission.  I would like you to make a commitment that you will be and continue to be the service provider of last resort for us Northerners.

LISTNUM 1 \l 14201             MR. FLAHERTY:  We very much understand that as our obligation, and through the proposals that we have made in this proceeding we are very much trying to make sure we have a framework that ensures that continues unincumbered, shall we say.  But we understand very clearly that is our obligation.

LISTNUM 1 \l 14202             MR. RONDEAU:  Thank you.

LISTNUM 1 \l 14203             THE CHAIRPERSON:  Thank you, Mr. Rondeau.

LISTNUM 1 \l 14204             Madame la Secrétaire.

LISTNUM 1 \l 14205             THE SECRETARY:  Thank you, Mr. Chairman.

LISTNUM 1 \l 14206             The next party to cross‑examine is the Government of Yukon.

LISTNUM 1 \l 14207             THE CHAIRPERSON:  Good morning, Mr. Pratt.

LISTNUM 1 \l 14208             With your indulgence, somewhere around 10:30 we will take a break.

LISTNUM 1 \l 14209             MR. PRATT:  That is fine, Mr. Chairman; thank you.

EXAMINATION / INTERROGATOIRE

LISTNUM 1 \l 14210             MR. PRATT:  Mr. Rose was called away to deal with some other matters.  Since I won't have his protection here, I wonder if you could just take it easy on me, panel.

LISTNUM 1 \l 14211             Could you start first by looking at your response to Yukon Government 1.  This was the question that asked you to detail how your proposal mapped to the framework objectives that you set out in your evidence.

LISTNUM 1 \l 14212             I am looking at the second page for reasonably comparable prices, and I would like to ask whether in your view the goal and your approach to achieving the goal through your proposal would contemplate a two‑tier rate structure where some of your customers would pay more for the same service in your operating territory.

LISTNUM 1 \l 14213             MR. FLAHERTY:  As you are well aware, we have not proposed a two rate system.  I think Northerners have come to enjoy a single rate system across the North.  So I think we would obviously run into some challenges from our customer base in terms of their view of something like that.

LISTNUM 1 \l 14214             The other thing we would have to think carefully of is how would we define the two‑tiered rate structure?  We could end up with a situation where we all realize that the smaller remote communities are the higher cost ones, but I think ‑‑ people may or may not be aware ‑‑ those are also the less affluent communities in the North.  So the practicality of somehow charging a higher rate to the small remote communities, given their costs are higher, might actually go against, as Mr. Rondeau would say, their affordability.

LISTNUM 1 \l 14215             So I think that would be problematic.

LISTNUM 1 \l 14216             MR. PRATT:  Mr. Flaherty, from the company's perspective are there any good reasons why you would want to or not want to engage in a two‑tiered rate structure?

LISTNUM 1 \l 14217             MR. FLAHERTY:  From a company perspective, we would have to think about the customer impacts that I have just mentioned.  On the other hand, we would have to think about the competitive impacts.

LISTNUM 1 \l 14218             If, for example, local competition at some point in the future happened within Whitehorse and Yellowknife, our two largest communities, we from a company's perspective would want to be able to have our rate structure be more reflective of our costs.

LISTNUM 1 \l 14219             Very much in a competitive world, that could be a strong reality, that we would have to have rates more reflective of cost.

LISTNUM 1 \l 14220             But, as I said, the other side of that are the implications on the smaller, more remote communities, those communities where, in fact, there may be less ability to afford higher prices.

LISTNUM 1 \l 14221             MR. PRATT:  I wondered if you would also consider the implications of the section 7 objectives in the Telecommunications Act.

LISTNUM 1 \l 14222             MR. ROBERTS:  Specifically, within the Act, we would say that, clearly, section 7(b) is relevant to this point.

LISTNUM 1 \l 14223             Just to make the record complete:  "...to render reliable and affordable telecommunications services of high quality, accessible to Canadians in both urban and rural areas, in all regions of Canada."

LISTNUM 1 \l 14224             I would also suggest that 7(h) is particularly relevant, and that is to respond to the economic and social requirements of users of telecommunications services.

LISTNUM 1 \l 14225             MR. PRATT:  Mr. Roberts, in that context, is a two‑tier rate structure a good idea or a bad idea from the company's perspective?

LISTNUM 1 \l 14226             MR. ROBERTS:  A bad idea.

LISTNUM 1 \l 14227             MR. PRATT:  Could you look a little further in the same interrogatory response, under the heading "Northern‑Based Full‑Service Provider", on page 3 of 6.

LISTNUM 1 \l 14228             One of the advantages, I think, that was cited there for being a northern‑based service supplier is that there is specific experience, or the company has specific experience in this market.

LISTNUM 1 \l 14229             I wonder if you could elaborate on how that is beneficial, and particularly how this proposal helps to achieve that aim.

LISTNUM 1 \l 14230             MR. WALKER:  Maybe I could start, and others may want to add their comments.

LISTNUM 1 \l 14231             Some of the things that we understand of our environment, and understand of the unique operating area, include ‑‑ for example, I think I mentioned the other day that we produce a telephone directory in Inuktitut for the people of Nunavut.

LISTNUM 1 \l 14232             In addition to that, we also provide Inuktitut‑speaking Call Centre representatives for the people in the North who want to speak in their language.

LISTNUM 1 \l 14233             In addition to that, and what I was trying to mention earlier, we also have undertaken a program called Community Technician Program in the far North.  This is where we employ part‑time technicians to help provide a high level of service in those very, very small communities.

LISTNUM 1 \l 14234             These are some of the uniquenesses that, I think, we understand and we try to accommodate for all of our operating area.

LISTNUM 1 \l 14235             MR. FLAHERTY:  I think there is a variety of things, too.  From a technology perspective, we have had to be particularly innovative.

LISTNUM 1 \l 14236             In the opening statement that I sent out, on the back, there is a picture of a microwave at Fraser, and you can see two structures there, a structure that is in a fibreglass cocoon.  That cocoon is actually designed to vibrate when the wind blows to shake the snow and ice off it.

LISTNUM 1 \l 14237             That is one way, from a technology perspective, we have had to be innovative.

LISTNUM 1 \l 14238             Another example would be in power generation.  I think you heard some statistics about the number of microwave sites that we have to generate our power in, as well.  In those areas we are using solar power ‑‑ in northern B.C., where it is workable.  In other areas we are using something called "cycle charge", where the generators run long enough to recharge the batteries, and when the batteries are fully charged they turn the generators off.  That is another innovation.

LISTNUM 1 \l 14239             We have actually won a couple of awards, one from the Government of the Northwest Territories and one recognized internationally, for some of the things we have done in the energy field.

LISTNUM 1 \l 14240             Also, from a service perspective, we implemented frame relay over satellite services in ‑‑ I think it was 1997.  That was the first time it had been done in North America.

LISTNUM 1 \l 14241             I think, by having a better understanding of the North, we have adapted both technology and services to try and recognize those unique needs in northern Canada.

LISTNUM 1 \l 14242             MR. PRATT:  Thank you.  That is helpful, especially the explanation of that photograph.  It looked to me like a giant martini shaker, so I am glad to understand it.

‑‑‑ Laughter / Rires

LISTNUM 1 \l 14243             MR. PRATT:  Also at the bottom of page 3 you've got a statement that says:

"Services are position..."  (As read)

LISTNUM 1 \l 14244             I think it's meant to say 'positioned',

"...in a manner to maximize accessibility."  (As read)

LISTNUM 1 \l 14245             I wonder if you could expand on that and perhaps give some examples of where you think that has been the case and, furthermore, how this proposal will foster your ability to do that?

LISTNUM 1 \l 14246             MR. ROBERTS:  One way in which we try to maximize I guess accessibility is through, again, message relay service, these kind of things.

LISTNUM 1 \l 14247             MR. WELLS:  Maybe an illustration that comes to mind that I could share, and this sort of ties back a little bit to your earlier point, Mr. Pratt.

LISTNUM 1 \l 14248             In 2000 I know on record we did put a paper that was developed by someone in the western seaboard of the U.S. about effective diffusion of technology and how it was much more than just about throwing money at a problem and putting technology to solve a problem.

LISTNUM 1 \l 14249             It went on to clearly talk about how important it was to have local service providers that truly understood the market, truly understood the unique needs of that marketplace.

LISTNUM 1 \l 14250             So, some things that come to mind here are the partnerships, for example.

LISTNUM 1 \l 14251             One way that we've been able to bring advanced services throughout northern Canada is working with governments as anchor tenants.

LISTNUM 1 \l 14252             So, for example, where a government like the Government of the Northwest Territories would want to put in an advanced communications network, we would be unable to put that network in without them being an anchor tenant, so by working with local governments we've been able to provide services, advanced services to some of the very small businesses that you would find, for example, in the more remote areas by piggy‑backing, if you will, on the investment.

LISTNUM 1 \l 14253             So, there's a lot of examples of partnership that I think would help bring services ‑‑ that have helped bring services throughout the north.

LISTNUM 1 \l 14254             MR. ROBERTS:  Some other examples that come to mind are providing directories in Inuktitut, for instance, in the eastern Arctic, making Inuktitut CSRs available to our customers, and I guess bill presentation considerations that allow people that are, for instance, sight‑impaired to better understand their bills.

LISTNUM 1 \l 14255             And also this whole notion of the one rate, again, in more broad terms, trying to facilitate access to those in the smaller communities where costs are extremely high.

LISTNUM 1 \l 14256             MR. PRATT:  Well, there's one more example, that having been involved in this jurisdiction for some time myself has always seemed to be a great example of your adaptation, and maybe with your indulgence, Mr. Chairman, I'd ask you to just briefly describe the directory art cover program which the Commission may or may not be aware of.

LISTNUM 1 \l 14257             MR. FLAHERTY:  Thank you.  Each year we hold a directory contest that has local artists from across northern Canada submit art that we then have artists, previous winners for example, help choose, and by doing that we help support the arts community.

LISTNUM 1 \l 14258             I think we have something like a $1,500 award that we provide to the artist, and so it helps the artist to continue and get some of their work socialized.

LISTNUM 1 \l 14259             So, each year we do publish three different directories and Mr. Walker is just handing me...

LISTNUM 1 \l 14260             So, for example, on these directories the theme ‑‑ the Arctic ‑‑ or the Canada Winter Games is coming to Whitehorse in 2007, so we asked the artist to use that theme.

LISTNUM 1 \l 14261             So, this happens to be the Yukon phone book that's here.  This is the one that's used in the Nunavut Territory.  So, you can see some of the artwork that's there.

LISTNUM 1 \l 14262             Now, you've got me on a roll, Mr. Pratt, so if you don't mind.

LISTNUM 1 \l 14263             Another thing that we do is Christmas cards.  The corporation, like many other corporations, does send out Christmas cards to individuals.  So, what we've done with the local schools across northern Canada is that we have a contest and it's the elementary schools who are the ones who provide the input and we have, I believe it's a $500 award.  Some of it goes towards the student, a smaller portion of it, I think it is put in a bursary for them for future years.  The rest goes to the art program within the community as well.

LISTNUM 1 \l 14264             A third area that we do relative to the north is around our recycling of our directories.  In both Yellowknife and Whitehorse we have programs with the local schools and we incent them, shall we say, to go out and collect those old books and bring them back and we recycle them.  So in doing so we award the students or the classes, shall we say, with money.  That is an incentive.  So we have structured it in a way to make it not too competitive, but I believe it is $500.00, $750.00 and maybe $1,000.00, subject to check, that we would give depending on the number of directories they collect per student.

LISTNUM 1 \l 14265             So in the last few years we have substantially increased that number.  Again, subject to check, I am going to say I think it is something like 30,000 directories we have recovered and avoided going into a landfill site.  So thank you for sort of jogging my memory, but those are some of the examples of some of the things that we are doing within the north, that being a northern provider enables us do as well.

LISTNUM 1 \l 14266             MR. PRATT: And more of the benefits of competition.  That is what I wanted to ask you about next.  Under the same IR response, under the heading of Choice Between Competitive Alternatives, the company says that, "In general, competition results in price pressure and that will help further address economic and affordability concerns."

LISTNUM 1 \l 14267             Presumably more choice in competition or more competitive choices makes this effect stronger.  Would you agree with that?

LISTNUM 1 \l 14268             MR. FLAHERTY: Sorry, makes which effect stronger?

LISTNUM 1 \l 14269             MR. PRATT: The effects of addressing the economic and affordability considerations stronger, the more competition there is the less concern the Commission, for instance, needs to have with respect to affordability and economic considerations.

LISTNUM 1 \l 14270             MR. FLAHERTY: Normally you would say that would be the case.  I think one specific concern that we would highlight and was mentioned yesterday is the impact of the BRAND program and the NSI program.  In those particular programs there is 56 communities that will actually have subsidized duplicate infrastructure.  And you might say well that is not a bad thing.  Well, the problem is everyone of those communities are uneconomic communities, they are not covering their own weight today.  So now to have duplicate infrastructure you are going to share or what little revenue exists in those communities is now going to have to be split between those two types of infrastructure.

LISTNUM 1 \l 14271             Unfortunately, in that situation, that is a real problem and that could ultimately affect, in the long‑term, affordability concerns for all.  You know, if you think about that duplicate infrastructure, someone has to pay to maintain both those duplicate systems.

LISTNUM 1 \l 14272             MR. PRATT: Sure, but just in general terms, all other things being equal, more choices are better than fewer choices from the point of view of this affect of ensuring that there is some safeguard on issues of affordability?

LISTNUM 1 \l 14273             MR. FLAHERTY: I would agree.  Particularly in the larger centres, very much so.

LISTNUM 1 \l 14274             MR. PRATT: Thank you.  Could I ask you then to look at your response to YG‑2?  Specifically at page 5 under the heading Fully Considered Government Intervention.  I guess this ties back to a question that I directed to the first panel, the marketing panel, with respect to the BRAND program and the implications for the 56 communities.  And I think Mr. Roberts suggested that I bring that question back later.

LISTNUM 1 \l 14275             I would like to get back to your response in YG‑2, but ask you to begin by first summarizing what you think the implications are for the company's ability to meet service objectives in the future and also on the impacts of customers as a result of the duplicate infrastructures you mention, Mr. Flaherty, and particularly the BRAND program and things of that nature.

LISTNUM 1 \l 14276             MR. FLAHERTY:  I think it goes to the underlying point of why it is so important to restructure some of our pricing today.  With a 7‑cent CAT people are very much incented to bypass our network.  Northerners have shown that propensity to bypass.

LISTNUM 1 \l 14277             When our rates were quite high prior to 2001, elaborate callback schemes were used.  Even before prepaid cards were allowed in the north, northerners were using those.  So northerners are naturally inclined, as other consumers I am sure, to look for alternatives.

LISTNUM 1 \l 14278             Having this duplicate network, as I said earlier, duplicates the cost.  I used the example of Arctic Bay in my opening statement, $9,000 worth of investment.

LISTNUM 1 \l 14279             If I look in the Northwest Territories at where BRAND is being put in, many of those communities have just been connected with a $10 million SIP investment through microwave technology.  The duplication of that infrastructure, to my way of thinking, doesn't make economic sense.

LISTNUM 1 \l 14280             Why would we not use the money that we invested as a group ‑‑ you know, the Commission and the company made a conscious decision to improve services there.  As I said, in that specific case, $10 million was put in place for one microwave system.  A second microwave system now went up to Inuvik, another $10 million.

LISTNUM 1 \l 14281             So we have invested SIP dollars very recently, within the last four years, and to have another network come along and duplicate, use an alternate form of satellite transport, not even the infrastructure that we have just put in place, those are very large concerns.  Where will that lead at the end of the day?  Who is going to be able to pay for that and sustain it?

LISTNUM 1 \l 14282             The Telecom Policy Panel was here in Whitehorse and the proponents of those networks, although the requirements were that they put forward sustainable business plans, they more or less admitted that they are not sustainable.  They are looking for more funding.  So the nature of what they have put in place, they are recognizing, requires even more to go forward.

LISTNUM 1 \l 14283             So I am very concerned that we now have two parallel networks, both of which are going to be requiring subsidy in the long term.

LISTNUM 1 \l 14284             MR. PRATT:  How does that tie into ‑‑ I am suggesting, and you can agree or disagree with me ‑‑ the solution that you have described in your response to YG‑2, a fully considered government intervention?

LISTNUM 1 \l 14285             MR. FLAHERTY:  Well I think, unfortunately, what is done is done.  What we need to do is make sure that we have something that sustains us.  As Commissioner Cram indicated and I mentioned to Mr. Rondeau, we have an obligation to be the service provider of last resort.  So we need to make sure that we have a framework that is in place that will continue to allow us to support those very small communities.

LISTNUM 1 \l 14286             It is highly unlikely that every single customer will go to a competing network and we will be able to shut that network down.  So what that effectively will do though is raise our cost per customer.

LISTNUM 1 \l 14287             So it is very important that when we evaluate pricing of services that we are not inadvertently forcing people into these parallel networks and therefore leaving the burden on a much smaller subscriber base at the end of the day, exacerbating the problem that we are trying to address.

LISTNUM 1 \l 14288             MR. WELLS:  Just a specific example, Mr. Pratt, that might help.  There is promoted on the Quiniq website from Nunavut ‑‑ this is the organization that got the BRAND funding and INAC funding ‑‑ that they were going to be offering VoIP services throughout Nunavut by the end of the year.

LISTNUM 1 \l 14289             So the contribution that is now coming into Northwestel in the form of people paying for long distance and local access, because they are providing as well local access, will be diminished.  Yet, we are still the provider of last resort, so we are still going to have to be there serving the market that is left.  So you can just see the requirement for finding other sources of contribution for that is going to go through the roof.

LISTNUM 1 \l 14290             MR. PRATT:  Well, Mr. Flaherty, were there any discussions by any of these other networks about accepting some portion of the carrier of last resort obligation?

LISTNUM 1 \l 14291             MR. FLAHERTY:  No, there has been no discussions on that whatsoever.

LISTNUM 1 \l 14292             MR. PRATT:  I would like to just probe a little bit further here on the second‑last paragraph.  You are talking about an opportunity to gain efficiencies from leveraging existing infrastructure.

LISTNUM 1 \l 14293             How do you see that happening, particularly with respect to the proposal you have put forward?  What is going to help us to take advantage of the existing infrastructure?

LISTNUM 1 \l 14294             MR. FLAHERTY:  I think what we are really referring to there is more broadly that we need to think more collectively, government leaders, regulators, providers, on how in future we approach situations like this.

LISTNUM 1 \l 14295             As you would be aware, Mr. Pratt, Northwestel worked with the Government of the Yukon to put high‑speed internet into every community in the Yukon.  The difference in that case, though, is we made use of existing infrastructure.  We didn't duplicate anything.

LISTNUM 1 \l 14296             People might ask about was there competitive choice.  In fact, the government requested that part of that program allow competition in the local communities.  So we actually are obligated to resell that service in the community.

LISTNUM 1 \l 14297             So it hasn't diminished the ability of competition, but it has been more rational in that it has allowed us to use common transport infrastructure, not duplicative transport infrastructure.

LISTNUM 1 \l 14298             Unfortunately, the process that Industry Canada embarked on for the Northwest Territories and Nunavut is they actually required bids and competing bids.  There was no discussion.

LISTNUM 1 \l 14299             I had several meetings with Michael Binder trying to encourage him to make use of existing infrastructure and his view was "We will have a bidding process and may the best man win".  Well, I think that unfortunately was very narrow in its thinking in that we do have duplicate infrastructure in extremely high‑cost areas.

LISTNUM 1 \l 14300             So really what we are talking about here is more as we look to the future, if we are going to evaluate programs, particularly in our operating territory, let's make sure we do it in a well thought out way that minimizes the overall costs and the ongoing revenues that will be need to support it.

LISTNUM 1 \l 14301             MR. PRATT:  Mr. Chairman, by my watch it is pretty close to 10:30.

LISTNUM 1 \l 14302             THE CHAIRPERSON:  You are absolutely right, Mr. Pratt.  We thank you for noting it and we will reconvene at quarter to 11:00.

LISTNUM 1 \l 14303             MR. PRATT:  Thank you.

LISTNUM 1 \l 14304             THE CHAIRPERSON:  Thank you.

‑‑‑ Upon recessing at 1033 / Suspension à 1033

‑‑‑ Upon resuming at 1047 / Reprise à 1047

LISTNUM 1 \l 14305             THE CHAIRPERSON:  Mr. Pratt.

LISTNUM 1 \l 14306             MR. PRATT:  Thank you, Mr. Chairman.

LISTNUM 1 \l 14307             I would like to ask you a question related to your response to YG‑3.

LISTNUM 1 \l 14308             At the top of page 3 you have indicated one of the benefits or the benefits associated with your proposed framework enhances choice between competitive alternative siting, reduced carrier costs and permitting resale of local services.

LISTNUM 1 \l 14309             What else could the company have done to improve the choice of competitive alternatives for business and residential customers in the North?

‑‑‑ Pause

LISTNUM 1 \l 14310             MR. FLAHERTY:  Mr. Pratt, as was discussed yesterday, there are a number of other forms of competition that exist in the North today.  For example, wireless services are being rolled out throughout the Yukon as we speak now.  Those are alternate forms of communications services for individuals.

LISTNUM 1 \l 14311             So that is one area.

LISTNUM 1 \l 14312             Yesterday a conversation was taking place with regard to wireless tariffs.  As we pointed out, the tariffs that we have in place are substantially higher than in southern Canada.  There may be an opportunity through that tariff reduction to again encourage more to occur on the cellular side.

LISTNUM 1 \l 14313             Overnight I had the opportunity to go and look on the Ice Wireless website and the number of communities that they are going into.  So this isn't a case of simply affecting one carrier or another.  This is something that would incent all carriers on the wireless side to be able to offer more competitive services.

LISTNUM 1 \l 14314             So on the transport side, which most of the carriers we would hope would use the facilities, our proposals