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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
Review of price cap framework /
Examen du cadre de plafonnement des prix
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 10, 2006 Le 10 octobre 2006
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Review of price cap framework /
Examen du cadre de plafonnement des prix
BEFORE / DEVANT:
Richard French Chairperson / Président
Helen del Val Commissioner / Conseillère
Elizabeth Duncan Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Stuart Langford Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Marielle Giroux-Girard Secretary / Secrétaire
Bob Noakes Staff Team Leader /
Chef d'équipe du personnel
Stephen Millington Legal Counsel /
Rachelle Frenette Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 10, 2006 Le 10 octobre 2006
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
AFFIRMED: PAUL ROWE 16 / 88
AFFIRMED: SCOTT ANDREW COLLYER
AFFIRMED: MIRKO BIBIC
AFFIRMED: GEORGE HARITON
AFFIRMED: PETER DILWORTH
AFFIRMED: DAVID PETER KRAUSE
Cross-examination by MTS Allstream 17 / 109
Questions by the Commission 108 / 768
Cross-examination by The Competitors 120 / 850
Questions du Conseil 204 / 1363
Cross-examination by The Consumer Groups 208 / 1389
- v -
EXHIBITS / PIÈCES JUSTICATIVES
No. PAGE / PARA
MTS-1 Excerpt from Final Report of 21 / 133
the Telecommunications Policy
COMPANIES-1 Opening Statement Submitted by 301 / 2033
Bell Aliant, Bell Canada, and
(The Companies) in the matter of
Price Caps Regulation, Public
Notice 2006‑5, dated
10 October 2006
TELUS-1 Opening Statement of TELUS 302 / 2034
Communications Company dated
October 10, 2006
MTS-2 Excerpt of Telecom Decision 302 / 2037
CRTC 2005-27, Review of price
floor safeguards for retail
tariffed services and related
issues, dated 29 April 2005
MTS-3 Excerpt of Telecom Decision 302 / 2037
CRTC 2006-15, Forbearance from
the regulation of retail local
exchange services, dated
6 April 2006
Gatineau, Quebec / Gatineau, Québec
‑‑‑ Upon commencing on Tuesday, October 10, 2006 at
0858 / L'audience débute le mardi 10 octobre 2006
LISTNUM 1 \l 11 LE PRÉSIDENT: À l'ordre, s'il vous plaît. Order, please.
LISTNUM 1 \l 12 Good morning, ladies and gentlemen.
LISTNUM 1 \l 13 Bienvenue à cette audience publique. Je suis Richard French, vice‑président des Télécommunications au CRTC. C'est moi qui présiderai l'audience.
LISTNUM 1 \l 14 Before I begin, I would like to say that we are pleased to be here and to have this opportunity to hear your views on very important set of telecommunications issues.
LISTNUM 1 \l 15 Je vous présente les autres membres du Comité d'audition.
LISTNUM 1 \l 16 À ma gauche immédiate, Helen del Val, conseillère régionale de la Colombie‑Britannique et du Yukon; juste à côté, Stuart Langford, conseiller national. À ma droite immédiate, Elizabeth Duncan, conseillère régionale de l'Atlantique et juste à côté, Andrée Noël, conseillère régionale du Québec.
LISTNUM 1 \l 17 We have a number of Commission staff here as well. The front table on my left are hearing secretary, Marielle dont vous allez entendre beaucoup parler; staff leader Bob Noakes far left here; legal counsel Steven Millington and Rachelle Frenette au milieu.
LISTNUM 1 \l 18 In Telecom Public Notice CRTC2006‑5, Review of Price Cap Framework, the Commission initiated this proceeding to establish the price cap regime that will go into in 2007 in the operating territories of Aliant Telecom, Bell Canada, MTS Allstream, Saskatchewan Telecommunications and Telus Communications Company.
LISTNUM 1 \l 19 Au cours de l'audience, nous aborderons différentes grandes questions telles que les objectifs du nouveau régime de plafonnement des prix, de structure des ensembles, les restrictions relatives à l'ensemble, les composantes, la formule de plafonnement des prix, la subdivision ‑‑ la sous‑division sûrement ‑‑ des tarifs à l'intérieur d'une tranche et la nécessité de maintenir les comptes de rapports.
LISTNUM 1 \l 110 The scope of this proceeding is delineated by Public Notice 2006‑5. In this regard, I note that in a letter addressed to all parties, dated 6 October 2006, the Commission determined that some submissions made by parties were not within the scope of this proceeding.
LISTNUM 1 \l 111 La portée de l'instance est définie donc par l'Avis public 2006‑5. À ce titre, justement, je signale que dans une lettre qu'il a adressée à toutes les parties le 6 octobre dernier, le Conseil a établi que certains des mémoires reçus débordaient le cadre de l'instance.
LISTNUM 1 \l 112 With respect to final oral argument, we will allow parties to provide their comments by teleconference. I would ask that you register your intention to do so with the hearing secretary who will provide you with the procedure to participate by telephone.
LISTNUM 1 \l 113 Nous vous remercions sincèrement d'être venus malgré votre emploi du temps chargé. Je tiens à vous assurer que vos observations nous sont réellement précieuses et que nous en tiendrons compte au moment de prendre notre décision.
LISTNUM 1 \l 114 We look forward to what promises to be a very interesting and informative hearing.
LISTNUM 1 \l 115 At this point, I would like to ask the hearing secretary to address the process which we will be following today and in the following days.
LISTNUM 1 \l 116 LA SECRÉTAIRE: Merci, monsieur le président. Bonjour à tous.
LISTNUM 1 \l 117 As stated by the Chairman, I am Marielle Giroux‑Girard, the secretary of this hearing.
LISTNUM 1 \l 118 As indicated in the Commission's Organization and Conduct Letter dated September 27, we plan to sit from 0900 to 1730 each day. We will take a lunch break of about an hour and a half as well as a health break at mid‑morning and mid‑afternoon.
LISTNUM 1 \l 119 It appears that the hearing will conclude no later than Friday, October 20th. While we do not anticipate sitting into the evenings or the weekend, it may be necessary to consider these options. We will watch our progress and you will be advised of any change to the schedule that becomes necessary.
LISTNUM 1 \l 120 La salle d'examen public est située dans la pièce Papineau près de la réception. Elle sera ouverte à toutes les parties et au public pour la durée de l'audience. Vous pourrez y trouver un exemplaire du dossier public de l'instance.
LISTNUM 1 \l 121 All submissions heard at this public hearing will be transcribed and will form part of the public record of this proceeding. To assist court reporters in producing an accurate transcript, please ensure you identify yourself and that your microphone is turned on when you are speaking and when you are finished, please turn it off.
LISTNUM 1 \l 122 In addition, place cards will be provided to the witnesses prior to their testimony. We encourage witnesses to inscribe their name on these cards. This will assist the panel and Commission staff to properly identify various witnesses during their testimony.
LISTNUM 1 \l 123 Anyone wishing to purchase a copy of the transcript may speak with the court reporter directly. Copies of the transcript will be available on the Commission's website and in our examination room the next working day.
LISTNUM 1 \l 124 When you are in this room, would you, please, turn off your cell phones, pagers, blackberries and other text messaging devices as they are a non welcomed distraction for participants and Commission.
Furthermore, they may cause interference on the internal communication system used by the translators and court reporters.
LISTNUM 1 \l 125 As per set out in the Organization and Conduct Letter, parties have provided me with their best estimate of the time they require for cross‑examination of each witness or panel of witnesses.
You are required to advise me as soon as possible of any changes to those estimates.
LISTNUM 1 \l 126 Parties should also inform us as soon as possible if they do not intend or no longer intend to cross‑examine a witness or a panel.
LISTNUM 1 \l 127 Nous comptons sur votre collaboration à tous et chacun pour nous aider à assurer une audience ordonnée.
LISTNUM 1 \l 128 This concludes the initial comments that I wish to make at this time. I now call on Commission counsel, Steven Millington to address some additional procedural matters.
LISTNUM 1 \l 129 Merci.
LISTNUM 1 \l 130 MR. MILLINGTON: Good morning everyone. Welcome to Gatineau.
LISTNUM 1 \l 131 Before we begin the cross‑examination phase, I need to say a few words about the administration of this phase of the proceeding.
LISTNUM 1 \l 132 At these proceedings, parties normally appear in the order set out in the Organization and Conduct Letter, although I understand that some of the parties have made arrangements to appear in a different order and I think that's MTS and Telus and if they could go on mike, please, and just set out what arrangements have been made.
LISTNUM 1 \l 133 MR. KOCH: Thank you, counsel. Yes, Mr. Chairman, and Commissioners, the arrangement that we made, given the unavailability of MTS Allstream panel before Thursday, the arrangement that we made was that if we were to conclude the evidence of the company's panel prior to the end of Wednesday, that Telus has kindly agreed, I think it also suits their schedule, to go ahead of MTS Allstream in the order.
LISTNUM 1 \l 134 MR. MILLINGTON: And will that order hold for any re‑cross?
LISTNUM 1 \l 135 MR. KOCH: I'm sorry?
LISTNUM 1 \l 136 MR. MILLINGTON: Will that order hold for both parts of the participation then?
LISTNUM 1 \l 137 MR. KOCH: Not for cross‑examination; just for that.
LISTNUM 1 \l 138 MR. MILLINGTON: Just for the original?
LISTNUM 1 \l 139 MR. KOCH: That's just for the panel.
LISTNUM 1 \l 140 MR. MILLINGTON : Okay. And then you'll appear in the order in the conduct for the cross then?
LISTNUM 1 \l 141 MR. KOCH: That's the understanding.
LISTNUM 1 \l 142 MR. RYAN: That's correct, Mr. Chairman.
LISTNUM 1 \l 143 MR. MILLINGTON: Okay. Thank you. Consistent with our usual practice, traditional examination‑in‑chief by any party will not be permitted. Rather, a party calling a witness will generally be entitled only to examine its witness briefly regarding the preparation of the evidence, any errors or any routine updates to the evidence and the witness' qualifications.
LISTNUM 1 \l 144 The order of cross‑examination is also stated in the Organization and Conduct Letter. Generally, the panel and Commission counsel will pose questions after the parties have completed their cross‑examination of a particular representative or panel of representatives.
LISTNUM 1 \l 145 Parties will be sworn in or affirmed prior to providing testimony. As a result, counsel are instructed to remind their witnesses that they are not permitted to discuss the content of their testimony with their counsel during that witness' period of giving evidence. Limiting communications extends to break periods, lunch breaks, evening and weekends.
LISTNUM 1 \l 146 The order in which parties conduct their cross‑examination may be changed by agreement between the parties with advanced notice to the party being examined and to the secretary and me.
LISTNUM 1 \l 147 Our experience in the past proceedings is that there is usually no need to engage in re‑direct examination, although we recognize there may be situations where re‑direct is necessary and appropriate.
LISTNUM 1 \l 148 After cross‑examination of all witnesses being completed, we move on to the final argument phase with a maximum time allowance of 30 minutes per party.
LISTNUM 1 \l 149 Parties wishing to present final oral argument should proceed in the order set out in Attachment 1 of the Letter of Organization and Conduct.
LISTNUM 1 \l 150 Parties will also be permitted to supplement their oral argument with written submissions filed and served on all parties by the later of 26 October 2006 or the end of the oral hearing.
LISTNUM 1 \l 151 It may not be the intention of all parties to be in attendance throughout the hearing. In this regard, I wish to stress that all parties are responsible for monitoring the progress and content of the hearing and for attending and having their witnesses available at the correct time.
LISTNUM 1 \l 152 I note that the hearing is being web cast on the Commission's website. Parties should also be aware of the progress and content of cross‑examination which precedes their own in order to be ready with their cross‑examination at the appropriate time and to ensure that there is no unnecessary duplication of matters previously dealt with by other parties.
LISTNUM 1 \l 153 Our hearing secretary, madame Girard, has the forms providing a written or record of appearance. If you have not already completed that form, please ask her for one and fill it out. The information in the form will allow us to contact you, if necessary.
LISTNUM 1 \l 154 I also remind parties that they must provide copies of their responses to undertakings to both the hearing secretary and to other parties in advance of their being introduced as exhibits.
LISTNUM 1 \l 155 Wherever possible, oral or written responses or undertakings should include a reference to the transcript page at which the undertaking was given, identifying both the witness giving the undertaking and the party to whom the undertaking was given.
LISTNUM 1 \l 156 Before circulating these documents, parties should confirm with the hearing secretary the number assigned to the most recent exhibit. Parties themselves should then number the responses to undertakings accordingly prior to distribution.
LISTNUM 1 \l 157 The hearing secretary will then enter the responses to undertakings as exhibits and an appropriate time by briefly identifying the party in question and noting the exhibit numbers assigned to various responses to undertakings.
LISTNUM 1 \l 158 Unless there is sufficient reason for not doing so, party should provide the hearing secretary and the other parties with copies of the proposed exhibits in advance. To facilitate recognition of a particular document, parties should ensure that exhibits have titles only.
LISTNUM 1 \l 159 During the cross‑examination of a witness or panel by a party, the Hearing Secretary will track the documents put to the witness or panel of witnesses and will assign numbers accordingly.
LISTNUM 1 \l 160 Following a party's completion of the cross‑examination of the witnesses, or witness, the Hearing Secretary will enter as exhibits the documents that were in fact put to the witness by that party. This will be done orally.
LISTNUM 1 \l 161 All parties are reminded that with respect to all documents filed at this hearing, 20 copies must be provided to the Hearing Secretary for the Commission's use. At the same time, a copy of all such documents must be served on all other parties present that this hearing on the date the document is filed.
LISTNUM 1 \l 162 Finally, with respect to the curricula vitae of witnesses that were filed with the Commission prior to the commencement of this hearing, these documents will not be assigned an exhibit number as they already form part of the record. During the course of the hearing, should parties provide the Commission with curricula vitae of witnesses, they will then be given an exhibit number in the manner outlined in the organization and conduct letter.
LISTNUM 1 \l 163 In order to ensure that the oral hearing may be conducted smoothly and efficiently, Commission counsel Rachelle Frenette and I will be available both prior to and during the hearing to assist legal counsel.
LISTNUM 1 \l 164 Finally, Mr. Chairman, Madam Secretary and Staff Leader Bob Noakes, Commission Counsel Ms Frenette and myself, will be available throughout the hearing to assist any parties who have any questions regarding practices or procedures that we may follow. It is often possible for Commission Counsel and counsel for the parties to resolve procedural matters off‑line and this may save hearing time.
LISTNUM 1 \l 165 Thank you very much. Are there any preliminary matters anyone wishes to raise at this time?
LISTNUM 1 \l 166 MR. MILLINGTON: Sorry. Is there one?
LISTNUM 1 \l 167 MR. HENRY: Just one. We have a written opening statement to file this morning. I'm not sure what the procedures are for that, but perhaps we should just distribute them and get an exhibit number.
LISTNUM 1 \l 168 THE SECRETARY: I have the 20 copies you provided me and I believe it would be presented as Exhibit No. 1 for The Companies.
LISTNUM 1 \l 169 MR. HENRY: Thank you.
LISTNUM 1 \l 170 MR. MILLINGTON: Is there anything else?
LISTNUM 1 \l 171 MR. RYAN: We equally, Mr. Chairman, have an opening statement that I understand has been made available to the Hearing Secretary.
LISTNUM 1 \l 172 MR. MILLINGTON: Thank you, mr. Ryan.
LISTNUM 1 \l 173 THE SECRETARY: Mr. Henry, you may want to proceed with introducing your witnesses.
LISTNUM 1 \l 174 MR. HENRY: Thank you, Madam Secretary.
LISTNUM 1 \l 175 Mr. Chairman, it is my pleasure to introduce the panel representing Bell Aliant, Bell Canada and Saskatchewan Telecommunications.
LISTNUM 1 \l 176 Sitting closest to you I believe, out of my sight, Dr. David Krause, who is Director, Economic Analysis, BCE. He is assisted in the back row by Mr. Pierre Luc Hébert who is Senior Counsel Regulatory Law.
LISTNUM 1 \l 177 Next to Dr. Krause is Mr. Peter Dilworth, Vice President Finance, Bell Aliant. He is assisted in the back row by Mr. Richard Pagé, Director of Business Decision Support.
LISTNUM 1 \l 178 Next to Mr. Dilworth is Mr. George Hariton of TIA Telecommunications, a consultant to Bell Canada.
LISTNUM 1 \l 179 Next to him is Mr. Mirko Bibic, Chief Regulatory Affairs, Bell Canada. He is assisted in the back row by Jodi Bodnar, Director, Reg. Matters at Bell Canada.
LISTNUM 1 \l 180 Next to Mr. Bibic is Mr. Scott Collyer, Director of Bell Residential Services Regulatory Marketing Coordinator for Bell Canada. He is assisted ‑‑ actually he is not assisted by anybody. He is quite talented.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 181 MR. HENRY: Next to him is Mr. Paul Rowe, Vice President Enterprise Marketing, Bell Canada. He is assisted in the back row by Ms Marie‑Josée Parcell who is Associate Director Marketing.
LISTNUM 1 \l 182 As you mentioned, the CVs are on the record and we filed a very slight revision this morning so I won't go through those. Maybe I could just have a minute to situate the panel for you and the various roles of the individuals.
LISTNUM 1 \l 183 Mr. Bibic is responsible for the overall design of our proposal and may be viewed, if you like, as the Chairman of the panel.
LISTNUM 1 \l 184 Mr. Rowe and Mr. Collyer are there to provide their perspective on the business and consumer marketplace.
LISTNUM 1 \l 185 Dr. Krause and Mr. Hariton have assisted with the economic principles underlying our proposal and have also authored Appendix 8 of our evidence on deaveraging, price deaveraging.
LISTNUM 1 \l 186 Mr. Dilworth is responsible for issues related to operations finance. Mr. Dilworth and Mr. Hariton have also collaborated on the interrogatories that were directed to us where we were asked to develop a productivity factor in the event the Commission were to prescribe one.
LISTNUM 1 \l 187 Now, if there were to be any specific questions for Bell Aliant and/or Saskatchewan Telecommunications, we would propose to call a representative for one of those companies to the stand in that event.
LISTNUM 1 \l 188 Perhaps the witnesses could be sworn, with that introduction.
AFFIRMED: PAUL ROWE
AFFIRMED: SCOTT ANDREW COLLYER
AFFIRMED: MIRKO BIBIC
AFFIRMED: GEORGE HARITON
AFFIRMED: PETER DILWORTH
AFFIRMED: DAVID PETER KRAUSE
LISTNUM 1 \l 189 MR. HENRY: Gentlemen, are your qualifications correctly set out in our letter of October 5th as amended today?
LISTNUM 1 \l 190 MR. ROWE : They are.
LISTNUM 1 \l 191 MR. COLLYER: They are.
LISTNUM 1 \l 192 MR. BIBIC: They are.
LISTNUM 1 \l 193 MR. HARITON: Yes, they are.
LISTNUM 1 \l 194 MR. DILWORTH: They are.
LISTNUM 1 \l 195 MR. KRAUSE: They are.
LISTNUM 1 \l 196 MR. HENRY: Mr. Bibic, were Bell's evidence and interrogatory responses prepared by you or under your direction and with the assistance of the panel members?
LISTNUM 1 \l 197 MR. BIBIC: They were.
LISTNUM 1 \l 198 MR. HENRY: Are they true, to the best of your knowledge and belief?
LISTNUM 1 \l 199 MR. BIBIC: They are.
LISTNUM 1 \l 1100 MR. HENRY: Dr. Krause and Mr. Hariton, did you also prepare an economic paper attached as Appendix 8 to the evidence entitled "Issues Concerning Price Deaveraging Regulation"?
LISTNUM 1 \l 1101 MR. KRAUSE: Yes.
LISTNUM 1 \l 1102 MR. HARITON: That's correct.
LISTNUM 1 \l 1103 MR. HENRY: Is that true, to the best of your knowledge and belief?
LISTNUM 1 \l 1104 MR. KRAUSE: Yes.
LISTNUM 1 \l 1105 MR. HARITON: Yes.
LISTNUM 1 \l 1106 MR. HENRY: Mr. Chairman, the witnesses are available for cross‑examination.
LISTNUM 1 \l 1107 THE SECRETARY: We will now proceed with the cross‑examination phase with MTS.
LISTNUM 1 \l 1108 Mr. Koch you may wish to proceed.
CROSS‑EXAMINATION / CONTRE‑INTERROGATOIRE
LISTNUM 1 \l 1109 MR. KOCH: Thank you, Madam Secretary.
LISTNUM 1 \l 1110 Good morning, Mr. Chairman and Commissioners. I would like to first of all apologize for being a few minutes late in arriving at the hearing.
LISTNUM 1 \l 1111 The questions I have, Mr. Collyer, since you are the only unassisted member of the panel, perhaps I will focus most of my questions on you. Generally, I will try to, if I do want to direct my question to a specific member of the panel, I will indicate which member of the panel; otherwise it is open season on me.
LISTNUM 1 \l 1112 THE CHAIRPERSON: Counsel, could you just formally introduce yourself, because we are not all aware of your name.
LISTNUM 1 \l 1113 MR. KOCH: Thank you, sir. My name is Michael Koch.
LISTNUM 1 \l 1114 THE CHAIRPERSON: Thanks, Michael.
LISTNUM 1 \l 1115 MR. KOCH: I should say I did provide to the hearing secretary several exhibits, which I propose to put to the witnesses. I did inform counsel representing the companies last night of the nature of the exhibits that I propose to put to the witnesses. They are all documents well known to the witnesses. So perhaps if their counsel has not provided them a physical copy, now would be an appropriate time.
LISTNUM 1 \l 1116 In their usually efficient way, the company's counsel have done that already. So I can launch right in.
LISTNUM 1 \l 1117 In the company's evidence, you refer liberally to the report of the Telecommunications Policy Review Panel to support certain of the objectives you propose this Commission adopt and certain elements of the design of the new price cap period or the new price cap plan. Is that not correct?
LISTNUM 1 \l 1118 MR. BIBIC: There are references to the TPR panel report, that is correct.
LISTNUM 1 \l 1119 MR. KOCH: And, in fact, you seek to support several of your proposals by reference to the TPR. Is that not correct?
LISTNUM 1 \l 1120 MR. BIBIC: We do use the report to support some of our proposals.
LISTNUM 1 \l 1121 MR. KOCH: And some of the objectives as well?
LISTNUM 1 \l 1122 MR. BIBIC: I believe that's correct, as well.
LISTNUM 1 \l 1123 MR. KOCH: It's probably an understatement to say that this panel is very familiar with the report of the TPR. Is that not fair?
LISTNUM 1 \l 1124 MR. BIBIC: We're familiar with it or some of us are.
LISTNUM 1 \l 1125 MR. KOCH: I would like to refer to certain sections of the TPR report and specifically chapter 1 of that report deals with the need for change. I take it you would agree with me, Mr. Bibic, that the panel focused on the fact that Canada was losing ground in broadband and had relatively poor wireless penetration. Would you not agree with that, without going to the document specifically, Mr. Bibic, based on your familiarity with the report?
LISTNUM 1 \l 1126 MR. BIBIC: Based on my familiarity, I do remember the broadband, I think that would be a yes to broadband in a sense that Canada was once second a couple of years ago in penetration per 100 inhabitants and had slipped a bit.
LISTNUM 1 \l 1127 I can't remember the wireless statement from the TPR panel report, however.
LISTNUM 1 \l 1128 MR. KOCH: Perhaps we could go, then, to the first exhibit that I introduced, which is an excerpt from the final report of the Telecommunications Policy Review Panel.
LISTNUM 1 \l 1129 I take it Commissioners have a copy of that report before them?
LISTNUM 1 \l 1130 COMMISSIONER DUNCAN: That's the one before them?
LISTNUM 1 \l 1131 MR. KOCH: Yes, that's the first exhibit.
LISTNUM 1 \l 1132 THE SECRETARY: I will distribute this exhibit and it will be registered as MTS Exhibit No. 1.
LISTNUM 1 \l 1133 MR. KOCH: Thank you.
EXHIBIT NO. MTS‑1: Excerpt of the Telecommunications Policy Review Panel Final Report 2006
LISTNUM 1 \l 1134 THE CHAIRPERSON: Please proceed, Mr. Koch.
LISTNUM 1 \l 1135 MR. KOCH: Thank you.
LISTNUM 1 \l 1136 I was asking you to confirm whether the panel had articulated a particular concern in regard to broadband and wireless. If I could ask you to turn to page 1‑13, which is included in this excerpt. I will read from the first paragraph at the top. It's titled "The Canadian Telecommunications Industry Leadership Threatened."
LISTNUM 1 \l 1137 It says:
"Over the course of its work, the panel has become concerned that the Canadian telecommunications sector performance has not kept pace with its earlier achievements. In particular, Canada has not remained at the leading edge of development and deployment in the two key growth areas of the telecommunications sector: Broadband and wireless." (As read)
LISTNUM 1 \l 1138 That is the reference I was making. You would agree, then, the panel was focusing in particular on those two segments?
LISTNUM 1 \l 1139 MR. BIBIC: In this section of the report, that is correct. In this paragraph that you're citing, rather, that's correct.
LISTNUM 1 \l 1140 MR. KOCH: This section is entitled "Leadership Threatened". They don't focus on any other particular service segment in addressing that contention that Canada's leadership is threatened, do they? I am speaking of service segment.
LISTNUM 1 \l 1141 MR. BIBIC: For this paragraph, that's correct. I just don't have pages 14, 15, 16.
LISTNUM 1 \l 1142 MR. KOCH: You don't.
LISTNUM 1 \l 1143 MR. BIBIC: No.
LISTNUM 1 \l 1144 MR. KOCH: But are you aware of whether they identified another market segment? I'm suggesting to you they did not, in which they specifically identified as being where Canada's leadership is threatened?
LISTNUM 1 \l 1145 MR. HARITON: Mr. Koch, I agree that they identified these two segments in this portion of the report. However, I think the report as a whole did express concern about the telecommunications sector as a whole and, indeed, if you go to ‑‑ and I don't have the report at hand ‑‑ if you go to chapter 7, I think you will find that chapter 7 examines the role of telecommunications in the company as a whole and expresses concerns.
LISTNUM 1 \l 1146 So, it is not just these two factors.
LISTNUM 1 \l 1147 MR. KOCH: So there is a general concern?
LISTNUM 1 \l 1148 MR. HARITON: There is definitely a general concern.
LISTNUM 1 \l 1149 MR. KOCH: And, indeed, the report expressed some concerns regarding the regulatory framework, we can agree on that?
LISTNUM 1 \l 1150 MR. BIBIC: That's correct, but I think if you look at chapter 7, it probably went beyond the regulatory framework and it looked at investment in ICTs, as they are called, information and communications technologies and other such things.
LISTNUM 1 \l 1151 MR. KOCH: These two specific segments of the market that are identified here as being of specific concern to the panel, these are not markets in which there is retail regulation in Canada, correct, wireless and broadband?
LISTNUM 1 \l 1152 MR. BIBIC: Did you say retail regulations?
LISTNUM 1 \l 1153 MR. KOCH: That is correct.
LISTNUM 1 \l 1154 MR. BIBIC: That is correct. I would point out, by the way, that in, for example, page 1‑22 of the same chapter, the need for change does talk about the telecommunications policy framework as well, to support Mr. Hariton.
LISTNUM 1 \l 1155 MR. KOCH: In fairness, I put that suggestion to Mr. Hariton. But these two specific segments that it identifies are not segments where there is retail regulation and, in fact, the panel, when it spoke to the metrics of local telephony, it actually lauded that area as an area where Canada is a leader. Correct?
LISTNUM 1 \l 1156 Perhaps you could look at page 1‑5, which I have also reproduced.
LISTNUM 1 \l 1157 MR. BIBIC: It did mention that Canada has very low rates for local exchange wire line services as compared to our OECD peers, but did mention significant number of issues with telecommunications and policy and regulatory framework in association with wire line services for quite a number of pages.
LISTNUM 1 \l 1158 MR. KOCH: But I want to distinguish between the regulatory framework, which, as I put to Mr. Hariton, I acknowledged that TPR did address, versus segments where specific issues or problems were raised. You will agree with me that on page 1‑5, in discussing local telephony, the panel made two points.
LISTNUM 1 \l 1159 One regarding the ubiquity of local service. I don't think we are having an argument here, Mr. Bibic. They mentioned the ubiquity of local service, and they mentioned the fact, as you point out, that Canada's rates for residential users are the third lowest in an OECD study and for business users, the fourth lowest. Correct?
LISTNUM 1 \l 1160 MR. HARITON: Chapter 1 does do that. I think you have to remember the role of chapter 1 in this report, Mr. Koch.
LISTNUM 1 \l 1161 Chapter 1 was attempting to set the stage or the rest of the report and was really focusing on marketing and technology and perhaps more on technology than anything else.
LISTNUM 1 \l 1162 So if you take it in that sense, I think you should think of singling out wireless and broadband as areas where there has been rapid technological change and where special concern is warranted.
LISTNUM 1 \l 1163 MR. KOCH: Mr. Hariton ‑‑
LISTNUM 1 \l 1164 MR. BIBIC: If I may ‑‑
LISTNUM 1 \l 1165 MR. KOCH: No, if I may.
LISTNUM 1 \l 1166 I take it that is a "yes" to my question to acknowledge that these were the two factors that the panel pointed out in respect.
LISTNUM 1 \l 1167 MR. BIBIC: That is what I wanted to answer, sir.
LISTNUM 1 \l 1168 I would agree that the TPR report does identify Canada as having very high wireline penetration and very low rates for local residential exchange services.
LISTNUM 1 \l 1169 As far as page 1‑13 is concerned, I would agree that that page in particular points out that Canada ‑‑ in my view, I think what it says is that Canada has done quite well with respect to broadband penetration and wireless as well. However, over the last couple of years, others have been catching up.
LISTNUM 1 \l 1170 MR. KOCH: So the segment that we are dealing with in this proceeding is largely local. Is that a fair statement?
LISTNUM 1 \l 1171 MR. BIBIC: Well, it's all regulated services that fall under the current price cap regime. To a large measure, that does include local and business exchange services ‑‑ local residential and business local exchange services; sorry.
LISTNUM 1 \l 1172 MR. KOCH: To the extent that parties are making proposals in this proceeding, including ‑‑ well, I should focus on yours ‑‑ they are not based on any finding of Canada being behind other countries in respect of ‑‑ and again, I think this is important ‑‑ not the regulatory framework. I understand The Companies have a lot of complaints about the regulatory framework. I'm talking about the metrics of the market.
LISTNUM 1 \l 1173 There is not a concern regarding ubiquity. There is not a concern regarding prices that is driving your proposals.
LISTNUM 1 \l 1174 Is that correct?
LISTNUM 1 \l 1175 MR. BIBIC: That is correct.
LISTNUM 1 \l 1176 MR. KOCH: Okay; thank you.
LISTNUM 1 \l 1177 So we get that clear, in terms of what is driving your proposals, I take it when you developed your evidence, you developed it in a way to make sure that the Commission had the benefit of what you considered to be important in terms of what your proposals were based on.
LISTNUM 1 \l 1178 You tried to put in your evidence what you were relying upon and what the Commission should have regard to in either accepting or rejecting your proposals. Correct?
LISTNUM 1 \l 1179 MR. BIBIC: That is correct. Let me just clarify what I said to the immediately preceding question.
LISTNUM 1 \l 1180 Certainly our proposal isn't based on any issues with the fact that Canada is one of the leaders in terms of low local residential exchange services. However, obviously the whole proceeding is about pricing constraints and pricing flexibility.
LISTNUM 1 \l 1181 So in that respect, obviously our proposal does relate to pricing.
LISTNUM 1 \l 1182 MR. KOCH: Absolutely.
LISTNUM 1 \l 1183 Perhaps we could turn next to The Companies' proposal regarding competitor services, specifically Category 1 services.
LISTNUM 1 \l 1184 I believe that is set out in paragraph 126 of your evidence.
LISTNUM 1 \l 1185 At paragraph 126 you state:
"Category 1 and Category 2 competitor services are subject to separate pricing constraints. Under the current price cap régime Category 1 competitor services are generally priced at incremental cost plus a mark‑up of 15%."
LISTNUM 1 \l 1186 I would like to focus on these Category 1 services.
LISTNUM 1 \l 1187 MR. BIBIC: Mr. Koch, I'm going to need to catch up with you.
LISTNUM 1 \l 1188 MR. KOCH: Absolutely.
LISTNUM 1 \l 1189 MR. BIBIC: Okay; thanks.
LISTNUM 1 \l 1190 MR. KOCH: What you do not indicate in your evidence ‑‑ and I recognize you say "generally" ‑‑ is that many of these services, or certainly certain of these services are in fact currently subject to a productivity offset under the current price cap régime.
LISTNUM 1 \l 1191 Is that not correct?
LISTNUM 1 \l 1192 MR. BIBIC: That is correct. For certain of these services there is, I believe, a productivity offset already built into the Phase 2 studies that derive the pricing.
LISTNUM 1 \l 1193 MR. KOCH: Right. In fact, what occurs is that for some of these Category 1 services there is a productivity offset already built into the study. And for those, the Commission does not apply a further productivity offset. But for others a productivity offset is applied under the current price cap régime.
LISTNUM 1 \l 1194 Is that not a fair statement?
LISTNUM 1 \l 1195 MR. BIBIC: That is a fair statement.
LISTNUM 1 \l 1196 MR. KOCH: All right.
LISTNUM 1 \l 1197 I don't think we have to go back to Decision 2002‑34, the last price cap decision, but you would agree with me that the Commission imposed a productivity offset on these Category 1 services due to its expectation, its articulated expectation, that there would be productivity gains in these services. Correct?
LISTNUM 1 \l 1198 MR. BIBIC: I do know that there is a productivity offset applied to the Category 1 competitor services. I can't, as I sit here, vouch that that is the exact reasoning behind it, to be frank.
LISTNUM 1 \l 1199 If you have it, I can certainly confirm.
LISTNUM 1 \l 1200 MR. KOCH: Someone else on the panel may be familiar with 2002‑34. The last time I read 2002‑34 ‑‑ it's a long document so I try not to read it too often ‑‑ is that the reason the Commission articulated for imposing the productivity offset is a stated expectation that there would be productivity gains in respect of the services.
LISTNUM 1 \l 1201 Is that a fair statement?
LISTNUM 1 \l 1202 MR. HARITON: That was my reading of the decision.
LISTNUM 1 \l 1203 MR. KOCH: Thank you.
LISTNUM 1 \l 1204 You are proposing for these services that the rates for these services be maintained at their current levels until a proceeding has been concluded in respect of wholesale services generally.
LISTNUM 1 \l 1205 Is that not a correct statement of your position?
LISTNUM 1 \l 1206 MR. BIBIC: That is a correct statement.
LISTNUM 1 \l 1207 MR. KOCH: Just so that we are clear, currently certain of these Category 1 services are subject to a productivity offset. But your position is that at least until we deal with the whole issue of wholesale services in this proceeding, that you refer to, the rates would be maintained. So they would not be subject to that productivity offset.
LISTNUM 1 \l 1208 Is that correct?
LISTNUM 1 \l 1209 MR. BIBIC: Yes. Our proposal is that for Category 1 services we already have rates for those services. We will have ‑‑ the Commission confirmed in a letter in the context of this proceeding not too long ago, in fact in a letter addressed to your client, I believe, that there would be a wholesale services review, which in fact Chairman Dalfen had indicated would be the case, in a recent speech earlier this spring.
LISTNUM 1 \l 1210 As well, there is the issue that the federal government tabled the draft policy directive, which if it becomes effective would mandate the Commission to undertake a wholesale services review.
LISTNUM 1 \l 1211 So our point of view for this proceeding was rather than engage in a lengthy debate about pricing of competitor services, let's continue with the treatment that we have for those services now, that we have had for four years; keep the prices where they are for Category 1; for Category 2 services, which aren't essential services, continue with the current model of having pricing examinations on a case‑by‑case basis, as necessary.
LISTNUM 1 \l 1212 When that proceeding starts ‑‑ the wholesale review proceeding, that is ‑‑ we can engage in the debate about what is Category 1, what is not Category 1, what mark‑up should be, et cetera.
LISTNUM 1 \l 1213 MR. KOCH: Thank you for that answer.
LISTNUM 1 \l 1214 You indicated that we would treat them the same, or I think keep the treatment the same.
LISTNUM 1 \l 1215 The point of my question is to get you to acknowledge that actually maintaining the price for those which would otherwise be subject to the productivity offset is not keeping them the same. In fact, you would be temporarily suspending the application of a productivity offset from those.
LISTNUM 1 \l 1216 MR. BIBIC: I think that is fair. If I said treat them the same, for Category 2 certainly have the same mechanism on a case‑by‑case basis for Category 2. For Category 1, keep the rates the same in the review; the reason being, of course, that overall in our proposal we don't propose an X factor. So we, in our judgment, decided that we would treat competitor services the same way in our proposal as we would for other services.
LISTNUM 1 \l 1217 MR. KOCH: I think that we are in agreement now that your proposed treatment ‑‑ and it is pending this proceeding ‑‑ would not be to keep the treatment the same but rather to keep the rates the same. Correct?
LISTNUM 1 \l 1218 MR. BIBIC: For those services in Category 1 that are subject to an explicit X factor, then correct, the treatment wouldn't be exactly the same. But for those that have the X factor built in the Phase 2 cost study, I don't think that would be correct.
LISTNUM 1 \l 1219 MR. KOCH: We are just looking at those for which a productivity offset would otherwise apply, Mr. Bibic.
LISTNUM 1 \l 1220 You said something interesting which I didn't see in your evidence, which is a rationale of treating them like the other services.
LISTNUM 1 \l 1221 From your evidence, the only rationale that you provide to the Commission for really freezing those rates is waiting for this proceeding; that you think there is going to be ‑‑ well, there is going to be a proceeding, and you simply want to wait for that proceeding.
LISTNUM 1 \l 1222 You haven't indicated any other rationale for your proposal in respect of Category 1 services in your evidence, have you?
LISTNUM 1 \l 1223 MR. BIBIC: I can't recall specifically. But certainly as I sit here today on the stand, I can express to you quite clearly that what went into the thinking were both elements: the review that is upcoming and the fact that overall our proposal clearly doesn't propose an X factor.
LISTNUM 1 \l 1224 In our judgment, the proposal is to apply across all services. So it is both reasons.
LISTNUM 1 \l 1225 MR. KOCH: As you say, your general proposal doesn't propose an X factor, and my question doesn't quibble with that per se. I wanted to understand in that case you had a specific rationale for not proposing an X factor, which, as I understand it, is that you believe competitive market forces are such that an X factor is not necessary.
LISTNUM 1 \l 1226 Is that not correct?
LISTNUM 1 \l 1227 MR. BIBIC: It is correct but incomplete.
LISTNUM 1 \l 1228 For areas which meet our competitive networks' test, which I won't go into detail on, we believe that an X factor is not required because of the fact that market forces in our view will determine what the appropriate rate level is.
LISTNUM 1 \l 1229 That is not the entire reason for areas which do not meet our own capping test, which would continue to be capped at the overall basket level with individual rate constraining elements. There wouldn't be an X factor applied to those baskets either.
LISTNUM 1 \l 1230 That is a combination of two things. One is we believe that in some of these areas there does exist competitive behaviour, albeit perhaps not of the kind that is facilities based.
LISTNUM 1 \l 1231 The second reason is that in our view the rates, as you pointed out from the TPR report reference, are quite low, the lowest in the world. We felt that with the combination of a cap at the basket level, together with the individual rate element constraint of 5 percent for residential and 10 percent for business, those two constraints would ensure affordability in those areas.
LISTNUM 1 \l 1232 So it is not all about market forces, but certainly in large part it is.
LISTNUM 1 \l 1233 MR. KOCH: You haven't applied that same analysis to competitor services. You have simply said: (1) wait for the proceeding; and (2) let's treat them the same way as retail.
LISTNUM 1 \l 1234 Is that a fair statement?
LISTNUM 1 \l 1235 MR. BIBIC: Correct. And as far as the X factor goes, there is an element of symmetry, in our view, to be applied between residential and competitor services. And to be quite frank, we also think that competitor service pricing is quite low today as well.
LISTNUM 1 \l 1236 MR. KOCH: We will leave that for the next proceeding, Mr. Bibic.
LISTNUM 1 \l 1237 At paragraph 132 of your evidence you state:
"Existing approved prices for these services will continue in force until both the scope and the pricing rules for competitor services have been reviewed as a result of the policy direction and consequent changes made."
LISTNUM 1 \l 1238 The policy direction to which you are referring in your evidence, I take it that is the document released in June of this year.
LISTNUM 1 \l 1239 Is that correct?
LISTNUM 1 \l 1240 MR. BIBIC: That is correct.
LISTNUM 1 \l 1241 MR. KOCH: You are aware that the policy direction was put out for public comment?
LISTNUM 1 \l 1242 MR. BIBIC: Yes, I am aware of that.
LISTNUM 1 \l 1243 MR. KOCH: Are you aware of whether that policy direction has been finalized in light of that public comment?
LISTNUM 1 \l 1244 MR. BIBIC: Mr. Koch, clearly we all know that the policy direction hasn't been finalized. Of course, this submission that you were referring from was drafted in July and submitted on July 10th. At the time all we had was a general reference by Chairman Dalfen that there would be a wholesale services review.
LISTNUM 1 \l 1245 Now we clearly know, because the Commission has indicated specifically in a letter to your client, that there would be a wholesale services review.
LISTNUM 1 \l 1246 So paragraph 132 has to be read in the context of what has happened since.
LISTNUM 1 \l 1247 MR. KOCH: Paragraph 132 perhaps is put in quite definitive language about the scope and rules being reviewed as a result of the policy direction.
LISTNUM 1 \l 1248 MR. BIBIC: Clearly policy direction is in draft form and is not yet effective, is that what you are getting at.
LISTNUM 1 \l 1249 MR. KOCH: You don't know if and when that policy direction, or a similar policy direction in different language, might actually become effective. Correct?
LISTNUM 1 \l 1250 MR. BIBIC: No, I don't.
LISTNUM 1 \l 1251 MR. KOCH: In terms of the proceeding that the Commission has indicated it will undertake, you don't know precisely the scope of that proceeding, do you?
LISTNUM 1 \l 1252 MR. BIBIC: No, I don't. But we have Commission staff here. Perhaps we can ask them.
LISTNUM 1 \l 1253 MR. KOCH: The beautiful thing for them is that they are not being called as witnesses.
LISTNUM 1 \l 1254 When I say you don't know, I don't know either. I'm not being critical of your lack of knowledge.
LISTNUM 1 \l 1255 You don't know when that proceeding will be commenced precisely.
LISTNUM 1 \l 1256 MR. BIBIC: Precisely, I do not.
LISTNUM 1 \l 1257 MR. KOCH: And I take it you would agree with me that it is reasonable to conclude or to assume that that will be a complex proceeding?
LISTNUM 1 \l 1258 MR. BIBIC: I don't think it will be any more complex than the typical proceeding of this sort.
LISTNUM 1 \l 1259 MR. KOCH: I think that is circular, but I will go with it.
LISTNUM 1 \l 1260 So you don't know when a decision in that proceeding would be available, do you?
LISTNUM 1 \l 1261 MR. BIBIC: No, I do not.
LISTNUM 1 \l 1262 MR. KOCH: Likewise, depending on the outcome, I take it you don't know what steps will be necessary in order to implement that decision if changes are made?
LISTNUM 1 \l 1263 MR. BIBIC: Clearly not.
LISTNUM 1 \l 1264 MR. KOCH: In fact, it could be some time. It could be before we get to the end of that chapter, could it not, Mr. Bibic?
LISTNUM 1 \l 1265 MR. BIBIC: That I don't know.
LISTNUM 1 \l 1266 MR. KOCH: All right.
LISTNUM 1 \l 1267 Based on past examples, such as the proceedings to consider CDN, it could go on for the better part of a couple of years, could it not?
LISTNUM 1 \l 1268 MR. BIBIC: Some proceedings take longer than others. I think in recent years Commission processes have been more efficient than they were in the past, so I certainly wouldn't bank on a wholesale review proceeding taking as long as the CDN proceeding took back in 2002‑2003.
LISTNUM 1 \l 1269 MR. KOCH: The problem is we just don't know. Correct?
LISTNUM 1 \l 1270 MR. BIBIC: I think we have established that.
LISTNUM 1 \l 1271 MR. KOCH: I would like to move to another area, which is that of your proposal for deaveraging.
LISTNUM 1 \l 1272 At pages 46 and 47 of your evidence you deal with your proposal to eliminate the prohibition. I will give you a moment to get there, although I am going to quickly when you get there tell you to turn somewhere else.
LISTNUM 1 \l 1273 I was just trying to make sure everyone had it located.
LISTNUM 1 \l 1274 MR. BIBIC: I'm there.
LISTNUM 1 \l 1275 MR. KOCH: All right.
LISTNUM 1 \l 1276 You refer to the expert report of Hariton and Krause as supporting the removal of the requirement for uniform prices.
LISTNUM 1 \l 1277 Is that correct?
LISTNUM 1 \l 1278 MR. BIBIC: That is correct.
LISTNUM 1 \l 1279 MR. KOCH: So that report sets out the basis, can I assume, for your proposal regarding deaveraging?
LISTNUM 1 \l 1280 MR. BIBIC: I think it would be more fair to say it sets out one of the bases for our proposals around deaveraging. There are policy elements to our proposal with respect to the removal of the prohibition on rate deaveraging. And as far as the economic underpinning of the proposal, we rely on the report of Mr. Hariton and Dr. Krause, as well as a report that we filed in a previous proceeding authored by Professor Donald McFetridge.
LISTNUM 1 \l 1281 MR. KOCH: You haven't made Dr. McFetridge available to be cross‑examined here, have you?
LISTNUM 1 \l 1282 MR. BIBIC: No, we haven't.
LISTNUM 1 \l 1283 MR. KOCH: So there is no way if we take issue with some of the statement in his report to test that report, is there?
LISTNUM 1 \l 1284 MR. BIBIC: He is not a witness. I leave it up to you to make your case.
LISTNUM 1 \l 1285 MR. KOCH: As we would like to say, that's the beauty of it, my Lord.
LISTNUM 1 \l 1286 Perhaps, then, I could direct some questions to Messrs. Krause and Hariton.
LISTNUM 1 \l 1287 Your report, Mr. Hariton and Mr. Krause, appears at Appendix 8; is that correct?
LISTNUM 1 \l 1288 MR. KRAUSE: Yes, it does.
LISTNUM 1 \l 1289 MR. KOCH: That might be worth turning up, as I have a number of questions on it.
LISTNUM 1 \l 1290 First of all, Mr. Krause, you are an employee of Bell Canada.
LISTNUM 1 \l 1291 Is that correct?
LISTNUM 1 \l 1292 MR. KRAUSE: Yes, I am the Director of Economic Analysis at Bell Canada Enterprises.
LISTNUM 1 \l 1293 MR. KOCH: As a matter of housekeeping, since you are both listed as authors of this report, I take it this is your joint work, Mr. Hariton and Mr. Krause?
LISTNUM 1 \l 1294 MR. HARITON: That's correct.
LISTNUM 1 \l 1295 MR. KOCH: All right.
LISTNUM 1 \l 1296 Mr. Krause, given your position at Bell Canada, I take it you are not here to provide an independent objective expert opinion on these matters?
LISTNUM 1 \l 1297 MR. KRAUSE: The report reflects my views on deaveraging, so in that context.
LISTNUM 1 \l 1298 I am here to talk about my report that I authored with Mr. Hariton.
LISTNUM 1 \l 1299 MR. KOCH: But you are not purporting to be an independent expert, are you?
LISTNUM 1 \l 1300 MR. KRAUSE: The analysis, the report was written while I was an employee of Bell Canada Enterprises, but the views reflect my own.
LISTNUM 1 \l 1301 MR. KOCH: Now, can I take it the purpose of the report was to mount the economic arguments for the removal of the prohibition against deaveraging?
LISTNUM 1 \l 1302 MR. HARITON: That is fair.
LISTNUM 1 \l 1303 MR. KOCH: All right.
LISTNUM 1 \l 1304 In fact, you do make a recommendation for the removal of the prohibition in your report.
LISTNUM 1 \l 1305 Is that correct?
LISTNUM 1 \l 1306 MR. HARITON: That is correct.
LISTNUM 1 \l 1307 MR. KOCH: All right.
LISTNUM 1 \l 1308 Now, I would like to make sure we are all on the same page as to what we are talking about when we discuss the prohibition against deaveraging.
LISTNUM 1 \l 1309 At paragraph 6 of your report you quote from Commission Decision CRTC 2005‑27. That is one of the most recent places where the Commission has reaffirmed its prohibition against deaveraging.
LISTNUM 1 \l 1310 Is that correct?
LISTNUM 1 \l 1311 MR. HARITON: That was the most recent instance I could fine.
LISTNUM 1 \l 1312 MR. KOCH: I have asked the Secretary to circulate copies of a brief excerpt from that decision, so perhaps we will just take a momentary break while that is accomplished.
LISTNUM 1 \l 1313 MR. KOCH: At paragraph 6 you cite paragraph 301 of this decision.
LISTNUM 1 \l 1314 Is that correct?
LISTNUM 1 \l 1315 MR. HARITON: That's correct.
LISTNUM 1 \l 1316 MR. KOCH: I would like to read to you paragraph 300 of the decision.
"The Commission considers that its policy to preclude further rate deaveraging within a rate band provides a valuable additional safeguard to protect against targeted price reductions. The Commission notes that, should an ILEC wish to respond to existing or anticipated competition within a rate band, it is permitted, under existing pricing rules, to reduce rates, provided that the rate reduction applies throughout the rate band and the imputation test is satisfied. By contrast, existing rules do not permit an ILEC to target small geographic areas within a rate band, for this practice could deter entry into the local market, where the ILECs continue to be the dominant service provider."
LISTNUM 1 \l 1317 You will agree with me that one of the concerns expressed by the Commission in this paragraph is the possibility of deterring entry specifically given the ILECs dominance.
LISTNUM 1 \l 1318 Is that correct?
LISTNUM 1 \l 1319 You don't have to agree with the Commission, Mr. Hariton, but that was ‑‑
LISTNUM 1 \l 1320 MR. HARITON: I understand that was the concern of the paragraph.
LISTNUM 1 \l 1321 As you say, I think the concern can better be dealt with in other ways then a ban on price deaveraging.
LISTNUM 1 \l 1322 MR. KOCH: We will come to your views in a moment. This will go a lot more quickly if we have a very direct exchange as I was anticipating.
LISTNUM 1 \l 1323 MR. HARITON: Absolutely.
LISTNUM 1 \l 1324 MR. KOCH: So the Commission's concern was, again, in the context of the ability to deter entry in light of the ILECs dominance.
LISTNUM 1 \l 1325 Is that correct?
LISTNUM 1 \l 1326 MR. HARITON: That's what the decision says.
LISTNUM 1 \l 1327 MR. BIBIC: Clearly that was the concern at the time, Mr. Koch, based on a record that had been put together in that proceeding in 2003 and 2004. Certainly it is our position that the competitive environment has changed dramatically since then.
LISTNUM 1 \l 1328 MR. KOCH: The Commission's concern ‑‑ well, why don't we go on.
LISTNUM 1 \l 1329 When we talk about removing the prohibition against deaveraging, we are talking about charging customers within the same rate band but located in difference geographic areas different prices for the same services. That's what we are talking about.
LISTNUM 1 \l 1330 Is that correct?
LISTNUM 1 \l 1331 MR. HARITON: That's correct.
LISTNUM 1 \l 1332 MR. KOCH: All right.
LISTNUM 1 \l 1333 We are not talking about the ability to offer promotions to new customers, are we?
LISTNUM 1 \l 1334 MR. HARITON: We are talking about different prices.
LISTNUM 1 \l 1335 MR. KOCH: All right.
LISTNUM 1 \l 1336 We are not talking about the ability to offer promotions to new customers?
LISTNUM 1 \l 1337 MR. HARITON: I am agreeing with you.
LISTNUM 1 \l 1338 MR. KOCH: All right. Thank you.
LISTNUM 1 \l 1339 We are not talking about the ability to offer customers volume discounts where they are taking effectively a different service than another customer.
LISTNUM 1 \l 1340 Is that correct?
LISTNUM 1 \l 1341 MR. HARITON: That's correct.
LISTNUM 1 \l 1342 MR. KOCH: All right.
LISTNUM 1 \l 1343 In section 2 of your report ‑‑ and I don't want to leave you out of this entirely, Mr. Krause ‑‑ you discuss differential pricing.
LISTNUM 1 \l 1344 I take it the point of this section is your contention that differential pricing is a normal part of the competitive process.
LISTNUM 1 \l 1345 Is that correct?
LISTNUM 1 \l 1346 MR. KRAUSE: Differential pricing and price discrimination is consistent with the competitive process and pricing decisions by firms.
LISTNUM 1 \l 1347 MR. KOCH: So I will take that as a yes.
LISTNUM 1 \l 1348 In paragraph 14 you refer to differential pricing as:
"... different customers paying different prices for the same product, either because of differences in demand characteristics or cost differences."
LISTNUM 1 \l 1349 Is that correct?
LISTNUM 1 \l 1350 MR. KRAUSE: That is correct.
LISTNUM 1 \l 1351 MR. KOCH: All right.
LISTNUM 1 \l 1352 Here, because we are dealing with customers within the same rate band, we are not talking about differential pricing based on presumed cost differences.
LISTNUM 1 \l 1353 Is that correct?
LISTNUM 1 \l 1354 MR. KRAUSE: I think Mr. Hariton will add to this, but even within a rate band there can be some cost differences.
LISTNUM 1 \l 1355 MR. KOCH: Right. But generally the proposition for the rate bands was that there was a certain homogeneity, you will agree with me, in the costs across those rate bands?
LISTNUM 1 \l 1356 MR. HARITON: Mr. Koch, I think that it would ‑‑ it's obvious to me at least that within a rate band, indeed within an exchange, you will have highly varying costs. That can be seen quite simply. If you have a customer who is close to a switch the loop length will be short and the cost will be low. If you have a customer who is ‑‑
LISTNUM 1 \l 1357 MR. KOCH: I will let you finish.
LISTNUM 1 \l 1358 MR. HARITON: I was just simply disagreeing with your ‑‑ I will disagree with your proposal that costs are homogeneous within a band and I am willing to give you reasons why I believe that, if you want them.
LISTNUM 1 \l 1359 MR. KOCH: I don't think that's necessary.
LISTNUM 1 \l 1360 MR. HARITON: All right.
LISTNUM 1 \l 1361 MR. KOCH: I think the point is to focus on what we are talking about here and what we are not talking about here.
LISTNUM 1 \l 1362 As I understand it, you are not talking about differentiating between customers based on presumed different cost characteristics.
LISTNUM 1 \l 1363 MR. HARITON: I think it's important to realize that differential pricing has two aspects to it. It can be based on differences in demand characteristics, but it can also be based on differences in cost characteristics.
LISTNUM 1 \l 1364 MR. KOCH: That's correct.
LISTNUM 1 \l 1365 MR. HARITON: So that differential pricing could be either one or the other or both.
LISTNUM 1 \l 1366 MR. KOCH: All right.
LISTNUM 1 \l 1367 MR. HARITON: I don't think you can separate them.
LISTNUM 1 \l 1368 MR. KOCH: But your proposal is not to differentiate based on cost. Your proposal is to have the flexibility to differentiate geographically.
LISTNUM 1 \l 1369 Is that not the prohibition that you are addressing?
LISTNUM 1 \l 1370 MR. HARITON: The prohibition is a much wider one. We would like to see an end to the prohibition ‑‑ or I personally would like to see an end to the prohibition, whether it be based on costs or whether it be based on demand characteristics, whether it be based on geographic characteristics or whether it be based on other customer characteristics. It doesn't have to be geographic.
LISTNUM 1 \l 1371 MR. KOCH: But clearly your report deals with demand characteristics. That is what you are focused on.
LISTNUM 1 \l 1372 MR. HARITON: The bulk of the report certainly does, but I have in mind the fact that I also get the possibility of different prices for different cost conditions.
LISTNUM 1 \l 1373 MR. KOCH: But what you are attacking is not your ability to go to the Commission and prove that your costs are different, but, rather, your ability to price differentially regardless of geographic location and costs within the same rate band. Correct?
LISTNUM 1 \l 1374 MR. HARITON: That is certainly one thing we are asking for. Again, I think this is important because I think there has been a lot of confusion on this point in the past.
LISTNUM 1 \l 1375 Uniform prices can be price discrimination, a form of price discrimination. That is very, very important, if you have customers whose costs of service differ, if there is a different cost of serving customer A and customer B.
LISTNUM 1 \l 1376 But if you are charging a uniform price to those two customers, you will get different margins for those two customers and you will get price discrimination at that point.
LISTNUM 1 \l 1377 So I think the idea that if you have a uniform price you do not have price discrimination is one which is a common misconception and one which is not true.
LISTNUM 1 \l 1378 MR. KOCH: Moving, then, to what your report is about, which, as you recognize, the bulk of the report deals with discrimination or differential pricing based on what you contend are demand characteristics, you refer to three types of discrimination, correct: First degree, second degree and third degree.
LISTNUM 1 \l 1379 It is the third degree price discrimination you claim is at issue here. Correct?
LISTNUM 1 \l 1380 MR. KRAUSE: The main focus of the differential pricing proposal, I think the easiest idea to get across would be third degree price discrimination where you would be able to segment particular markets based on some sort of observable characteristic.
LISTNUM 1 \l 1381 MR. KOCH: Right. At paragraph 17 you offer up certain examples of what you refer to as that third degree type of price discrimination. Correct, Mr. Krause?
LISTNUM 1 \l 1382 MR. KRAUSE: That is correct.
LISTNUM 1 \l 1383 MR. KOCH: And the examples you use are examples of differentiating based on age, based on student status, based on a customer being new or a geographic location. Correct?
LISTNUM 1 \l 1384 MR. KRAUSE: That is correct.
LISTNUM 1 \l 1385 MR. KOCH: Again, at paragraph 19 you again refer to real world examples of differential pricing. Correct?
LISTNUM 1 \l 1386 MR. KRAUSE: These are certainly examples that you see within the economy. There are plenty of others.
LISTNUM 1 \l 1387 MR. KOCH: Student discounts, that is not something that we are dealing with here; that is not prohibited by the deaveraging prohibition. Correct? It may or may not be allowed, but that is not what we are addressing here?
LISTNUM 1 \l 1388 MR. BIBIC: No, I disagree with that, Mr. Koch. I think the deaveraging rules, in conjunction with some of the other regulatory restrictions, would prevent Bell Canada from putting together packages available only to students, for example in September in Kingston for Queen's University, different from a package for students in Sherbrooke.
LISTNUM 1 \l 1389 So, I don't think it is fair to say that we are not talking about student discounts specifically. They are an example.
LISTNUM 1 \l 1390 MR. KOCH: But that is not an example of differentiating based on a geographic location, is it?
LISTNUM 1 \l 1391 MR. BIBIC: It could be. If Bell would want to put together a different student discount package for students in Kingston as compared to students in Sherbrooke ‑‑ I am assuming they are in the same rate band ‑‑ then that would be both an element of differentiation based on the fact that the group is a student and the geographic location.
LISTNUM 1 \l 1392 MR. KOCH: But what we are dealing with here is the geographic distinction. Correct? That is what the prohibition is against?
LISTNUM 1 \l 1393 MR. HARITON: My understanding is the prohibition is against the averaging on a broader basis than geographic. If I were to want to give different prices to people in similar geographic locations, I might be prohibited from doing that.
LISTNUM 1 \l 1394 The type of prohibition that I have in mind is, in this case, can I give a different price to a new customer who has not been my customer before than to an existing customer, a customer who already is my customer.
LISTNUM 1 \l 1395 My understanding is that is the kind of thing that would be prohibited by the price deaveraging rule.
LISTNUM 1 \l 1396 MR. KOCH: Well, a promotion would not be prohibited?
LISTNUM 1 \l 1397 MR. HARITON: I am talking about not a promotion to a semi‑permanent price, semi‑permanent I say because no price is forever, but a price indefinitely going forward.
LISTNUM 1 \l 1398 Just to come back to your example of the university, that can easily be looked at on a geographic basis. All you have to do is define your geographic area as university campuses and then you would have different prices for effectively students and for effectively non‑students, simply by distinguishing university campuses from all others.
LISTNUM 1 \l 1399 All these other forms of discrimination, because of the nature of telecommunications, which tends to be location specific, local telecommunications, you can translate almost all forms of price discrimination and differential pricing in all of these things into location specific, therefore geographically averaging.
LISTNUM 1 \l 1400 MR. KOCH: I would like to clarify one thing, which is what is the flexibility that you are asking for, because my understanding was the flexibility that you were asking for was ending the prohibition against a deaveraging, which, as I understand it, and as I think as the Commission understands it, is the specific prohibition against charging different rates in different geographic areas within the same rate band.
LISTNUM 1 \l 1401 If you are now suggesting that your proposal is to be able to discriminate or differentiate charging on all the varied bases that you are now citing, then I think we should know about that because that is not what I took from your evidence.
LISTNUM 1 \l 1402 I think we are getting quite far afield and I wanted to really explore what I understood was on the table in this proceeding.
LISTNUM 1 \l 1403 MR. BIBIC: Let me clarify. Clearly the only issue that is in scope in this proceeding is the prohibition on rate deaveraging. But in the real world, it can't be isolated from two other restrictions which work together with the prohibition on rate deaveraging to limit our flexibility.
LISTNUM 1 \l 1404 One is the promotions rule which require promotions to be consistent across rate bands. So, again, prohibition on rate deaveraging ties into that.
LISTNUM 1 \l 1405 The same thing with the win back rule. The win back rule and the promotion rules are not in scope. So in that respect, if that is what you are getting at, I completely agree with you.
LISTNUM 1 \l 1406 However, when I jumped in with the student discount, it would still be an applicable example with respect to the prohibition on rate deaveraging because today an incumbent cannot, for example, put together a package that is available only to students, be they in the same rate band.
LISTNUM 1 \l 1407 In my example, if Sherbrooke is in the same rate band as Kingston, which it probably is, but I don't know for sure, we could not put together a package only for students in rate band B, for example. So that is only because of the prohibition on rate deaveraging.
LISTNUM 1 \l 1408 To clarify, certainly all that is in scope is the prohibition on rate deaveraging. If that is what you were getting at, I agree. But I don't agree that we are not talking necessarily about student discounts.
LISTNUM 1 \l 1409 MR. KOCH: I think, Mr. Krause, you agree that the basic point you were trying to make was that differential pricing is common in markets characterized by competition, but the examples that you provide of differential pricing, the examples you provide in paragraph 19 such as student discounts, seniors discounts, men's versus women's rates for hair cuts and new customer discounts, these all relate to the demand conditions and not the presence of an additional competitor or not in a specific geographic area. Correct?
LISTNUM 1 \l 1410 MR. KRAUSE: The examples that are listed in paragraph 19 are definitely demand side characteristics. Third degree price discrimination tends to focus on your customer base and being able to segment a particular market based on an observable characteristic.
LISTNUM 1 \l 1411 MR. KOCH: At paragraph 21, you make the point that even in the case of a monopoly supplier or in a perfect competition, price discrimination is common and can lead to an increase in total surplus and, thus, benefit the economy. Correct?
LISTNUM 1 \l 1412 MR. KRAUSE: That is correct.
LISTNUM 1 \l 1413 MR. KOCH: And you fairly state that the one general condition required for this to occur is that total input must increase. Correct? Or total output, is it?
LISTNUM 1 \l 1414 MR. KRAUSE: Yes, total output, yes.
LISTNUM 1 \l 1415 MR. KOCH: Total output.
LISTNUM 1 \l 1416 If an ILEC is permitted to de‑average in order to meet competition, this means that a customer might purchase service from the ILEC rather than an competitor at a lower price.
LISTNUM 1 \l 1417 MR. KRAUSE: Can you restate?
LISTNUM 1 \l 1418 MR. KOCH: One of your contentions or your arguments for removing the prohibition is that you want the flexibility as an ILEC to offer a low price where a competitor ‑‑ maybe the same price, I'm not suggesting a lower price ‑‑ where a competitor has entered. Correct?
LISTNUM 1 \l 1419 You want to be able to meet competition.
LISTNUM 1 \l 1420 Is that correct?
LISTNUM 1 \l 1421 MR. KRAUSE: I will let the marketing people on this panel discuss that aspect, but being able to differentiate prices certainly allows you to compete where there are competitors, but it also allows you to meet the particular demand requirements that certain consumers want.
LISTNUM 1 \l 1422 MR. KOCH: But your piece, in fairness, is replete with references to being able to compete, what the effects on competition will be if you are not permitted to de‑average. I mean, you make an allegation of inefficient entry.
LISTNUM 1 \l 1423 What we are really talking about is your ability to lower your prices in areas ‑‑ which you say you should have the flexibility to do ‑‑ where a competitor has entered.
LISTNUM 1 \l 1424 Is that not correct?
LISTNUM 1 \l 1425 MR. KRAUSE: I think you have to take some of our statements in context.
LISTNUM 1 \l 1426 If you refer back to the paragraph that you wanted us to look at earlier on, which was paragraph 301 of Telecom Decision 2005‑27, the concern there was related to unjust discrimination with respect to consumers and the other concern was what the deaveraging proposal would have on the effect in competition. So our report focused on both the consumer side and both on the competition side.
LISTNUM 1 \l 1427 MR. KOCH: In terms of the competition side my proposal was quite simple: If an ILEC is permitted to de‑average in order to meet competition, this means that a customer might purchase service from the ILEC rather than the competitor.
LISTNUM 1 \l 1428 Is that correct?
LISTNUM 1 \l 1429 MR. KRAUSE: That is correct. I thought you said that the person would purchase from the ILEC and not from a lower cost competitor.
LISTNUM 1 \l 1430 MR. KOCH: I am going to your contention that a general required for a benefit to the economy in imperfect competition is that output would increase. If the ILEC were to drop its price to meet competition and get the business of the consumer rather than the competitor, that would not result in total output increasing, would it?
LISTNUM 1 \l 1431 MR. KRAUSE: In that particular circumstance it would not allow output to increase.
LISTNUM 1 \l 1432 MR. KOCH: All right.
LISTNUM 1 \l 1433 In your report you state that the prohibition on further rate deaveraging can decrease economic efficiency within a market in three ways.
LISTNUM 1 \l 1434 Is that correct?
LISTNUM 1 \l 1435 MR. KRAUSE: That is correct.
LISTNUM 1 \l 1436 MR. KOCH: One way you cite is the risk of inefficient entry.
LISTNUM 1 \l 1437 Is that correct?
LISTNUM 1 \l 1438 MR. KRAUSE: That is correct.
LISTNUM 1 \l 1439 MR. KOCH: In Appendix 1 to your evidence, entitled "Competitive Landscape", you have provided a detailed description of what The Companies perceive to be the existing and emerging competitive landscape.
LISTNUM 1 \l 1440 Is that not correct, Mr. Bibic?
LISTNUM 1 \l 1441 MR. BIBIC: It is a general overview, yes, of the competitive landscape.
LISTNUM 1 \l 1442 MR. KOCH: It is your contention, is it not, that the competitive landscape reflects intense competition and aggressive competition.
LISTNUM 1 \l 1443 Does it not?
LISTNUM 1 \l 1444 MR. BIBIC: Clearly it does, in our submission.
LISTNUM 1 \l 1445 MR. KOCH: That is a landscape The Companies claim to have emerged while the prohibition against deaveraging has in fact been in place.
LISTNUM 1 \l 1446 Is that correct?
LISTNUM 1 \l 1447 MR. BIBIC: The rule has been in place for quite some time.
LISTNUM 1 \l 1448 MR. KOCH: All right. In the context of that rule you have described what you characterize as an aggressive competitive landscape.
LISTNUM 1 \l 1449 Is that correct?
LISTNUM 1 \l 1450 MR. BIBIC: Could you repeat the question, please?
LISTNUM 1 \l 1451 MR. KOCH: You have described a very aggressive competitive landscape according to The Companies' view of the world.
LISTNUM 1 \l 1452 Is that correct?
LISTNUM 1 \l 1453 MR. BIBIC: Yes. But our report, as you know, doesn't attribute ‑‑ doesn't speak about causes and effects, certainly as it relates to the prohibition on rate deaveraging.
LISTNUM 1 \l 1454 MR. KOCH: No. But the prohibition on rate deaveraging has not prevented that landscape that you described.
LISTNUM 1 \l 1455 Is that correct?
LISTNUM 1 \l 1456 MR. BIBIC: I would disagree with that. In my opinion ‑‑
LISTNUM 1 \l 1457 MR. KOCH: Well, does the landscape exist?
LISTNUM 1 \l 1458 MR. BIBIC: In my opinion, I actually believe that the prohibition on rate deaveraging has blunted the competitive vigour with which incumbents can respond to the aggressive competition, some of which is summarized in Appendix 1 of our submission.
LISTNUM 1 \l 1459 So in that respect, I disagree with you, but clearly I agree that Appendix 1 describes a vigorously competitive landscape.
LISTNUM 1 \l 1460 MR. KOCH: You say it could be better, but it is what it is.
LISTNUM 1 \l 1461 There is not one mention in that appendix of inefficient entry, is there?
LISTNUM 1 \l 1462 I reviewed it and I didn't see one mention of inefficient entry.
LISTNUM 1 \l 1463 MR. BIBIC: I can't recall, but I certainly wouldn't dispute that.
LISTNUM 1 \l 1464 MR. KOCH: As you told the Commissioners earlier, you sought in your evidence to put in your evidence all of the important information for the Commission to support your proposals.
LISTNUM 1 \l 1465 Is that correct?
LISTNUM 1 \l 1466 MR. BIBIC: We did our best.
LISTNUM 1 \l 1467 MR. KOCH: All right.
LISTNUM 1 \l 1468 Another concern that is cited, Mr. Krause and Mr. Hariton, in your report regarding the prohibition against deaveraging is that mark‑ups over incremental costs are especially important in an industry characterized by high fixed costs.
LISTNUM 1 \l 1469 Is that correct?
LISTNUM 1 \l 1470 MR. HARITON: That is correct.
LISTNUM 1 \l 1471 MR. KOCH: The Companies have not introduced any evidence regarding their inability to recover their fixed costs, have they?
LISTNUM 1 \l 1472 It is quite a straightforward question, Mr. Hariton.
LISTNUM 1 \l 1473 MR. HARITON: It is a straightforward question.
LISTNUM 1 \l 1474 We have not introduced evidence on the ability to recover fixed costs in the future. We have shown that in the past. In the future we have shown that because of line losses productivity is going to be under pressure and as a result fixed and common costs are going to be harder to recover and we do see ‑‑ at least I understand Bell sees that this is going to be a problem going forward.
LISTNUM 1 \l 1475 MR. KOCH: All right. But in the past under this prohibition against rate deaveraging, there has been no problem in recovering your fixed costs.
LISTNUM 1 \l 1476 Is that correct?
LISTNUM 1 \l 1477 MR. HARITON: In the past there has not been. In the past of course we have had significant market power. That has disappeared.
LISTNUM 1 \l 1478 MR. KOCH: That too is perhaps for another day, Mr. Hariton.
LISTNUM 1 \l 1479 MR. HARITON: Fair enough.
LISTNUM 1 \l 1480 MR. KOCH: The third way you contend that the prohibition against deaveraging can lead to inefficiency is you state that:
"This may decrease the incentive on the incumbents to lower their price and meet competition in specific market segments, given the large revenue losses that will occur elsewhere."
LISTNUM 1 \l 1481 Is that correct?
LISTNUM 1 \l 1482 MR. HARITON: That is correct.
LISTNUM 1 \l 1483 MR. KOCH: As pointed out by the Commission in the excerpt from Decision 2005‑27 that I read to you, the prohibition does not actually prevent the ILEC from lowering its price to meet competition where it faces it.
LISTNUM 1 \l 1484 Is that correct?
LISTNUM 1 \l 1485 MR. HARITON: It does not, as long as the price is lowered throughout a rate band.
LISTNUM 1 \l 1486 MR. KOCH: That's right. That's right.
LISTNUM 1 \l 1487 MR. HARITON: So that does prevent lowering prices for smaller market segments.
LISTNUM 1 \l 1488 MR. KOCH: Well, you posit that it may be too costly to lower prices across the board and therefore it might be profit maximizing for the incumbent to retain its higher price.
LISTNUM 1 \l 1489 Is that correct?
LISTNUM 1 \l 1490 MR. HARITON: That's correct.
LISTNUM 1 \l 1491 MR. KOCH: All right. So under this scenario competitors will perhaps make greater market share gains where they enter than otherwise would be the case?
LISTNUM 1 \l 1492 MR. HARITON: Yes, that is correct.
LISTNUM 1 \l 1493 MR. KOCH: On the other hand, if it is less costly to lower prices across the board then to lose market share in the more competitive market, then the result will be that customers in all areas within the rate band would receive service from the incumbent at a lower price.
LISTNUM 1 \l 1494 Is that correct?
LISTNUM 1 \l 1495 MR. HARITON: Or the incumbent might ‑‑ here this is subject to an obligation to serve ‑‑ decide not to serve certain areas rather than lower price to those areas.
LISTNUM 1 \l 1496 MR. KOCH: But subject to that what we are going to see is that people across the board will get lower prices.
LISTNUM 1 \l 1497 Is that correct?
LISTNUM 1 \l 1498 MR. HARITON: The service would still have to be profitable, including contribution to fixed and overhead costs ‑‑
LISTNUM 1 \l 1499 MR. KOCH: Right. Right.
LISTNUM 1 \l 1500 MR. HARITON: ‑‑ at the lower price, otherwise some action will have to be taken, whether it is to cut back on the market served or whether it is to, if it's possible, pull out of the service all together, I don't know.
LISTNUM 1 \l 1501 MR. KOCH: But we are dealing with one rate band. We are not across the rate band.
LISTNUM 1 \l 1502 MR. HARITON: Yes, we are dealing with one rate band. The difficulty is that if you have fixed incumbent costs and you drop your prices to marginal cost to meet your competitor, it may be that your business in that band is no longer viable.
LISTNUM 1 \l 1503 MR. KOCH: So two possible results if the prohibition is continued, you have agreed with me, is that either everyone gets service for less, subject to the concerns that you have raised, and Mr. Hariton, or in fact competitors gain ground.
LISTNUM 1 \l 1504 Is that correct?
LISTNUM 1 \l 1505 MR. HARITON: That's correct. And customers who are still served by the incumbent would still pay the higher price.
LISTNUM 1 \l 1506 MR. KOCH: Let's look at what would happen if the prohibition were in fact discontinued, as you recommend, and the incumbent were allowed to de‑average. One of the effects is the incumbent would be able to meet competition in the more competitive market by lowering its price.
LISTNUM 1 \l 1507 Is that correct?
LISTNUM 1 \l 1508 MR. HARITON: That is correct.
LISTNUM 1 \l 1509 MR. KOCH: But at the same time, with the rule against deaveraging gone, there would be nothing stopping the incumbent from raising prices in other markets where it faces little or no competition in order to pay for the revenue that it would lose in the competitive markets.
LISTNUM 1 \l 1510 Is that correct?
LISTNUM 1 \l 1511 MR. HARITON: No, I don't agree with that.
LISTNUM 1 \l 1512 In places where the incumbent does not face sufficient competitive forces, I understand that the prices would stay capped or regulated in some form and that therefore there would be the usual constraints on price increases.
LISTNUM 1 \l 1513 So in fact you do have the constraints in the places where competition is not strong enough to control prices. That would be regulatory.
LISTNUM 1 \l 1514 MR. KOCH: So regulation would be relied upon to constrain.
LISTNUM 1 \l 1515 MR. HARITON: That's correct.
LISTNUM 1 \l 1516 MR. KOCH: At page 14 of your report you caution against protecting competitive firms. At the bottom of that page I think your quote is:
"The preoccupation with fairness to competitors has sometimes been at the expense of efficiency and productivity."
LISTNUM 1 \l 1517 MR. HARITON: I'm sorry, this is paragraph 14?
LISTNUM 1 \l 1518 MR. KOCH: Paragraph 49.
LISTNUM 1 \l 1519 MR. HARITON: Paragraph 49; sorry.
LISTNUM 1 \l 1520 MR. KOCH: At the foot of page 14.
LISTNUM 1 \l 1521 MR. HARITON: Yes, I have it.
LISTNUM 1 \l 1522 MR. KOCH: Where do you get this suggestion that the Commission's prohibition against deaveraging is aimed at protecting competitor firms or with the preoccupation of fairness to competitors?
LISTNUM 1 \l 1523 What do you rely upon for those types of statements, Mr. Krause and Mr. Hariton?
LISTNUM 1 \l 1524 MR. HARITON: My impression comes from reading a number of decisions, including the second price cap decision which spoke of a balance between three different stakeholders: the incumbents, the competitors and the customers.
LISTNUM 1 \l 1525 Also from the decision which you were kind enough to hand out to us, which is 2005‑27, at paragraph 300, where the Commission said:
"Here the existing rules do not permit an ILEC to target small geographic areas within a rate band for this practice could deter entry into the local market where ILECs continue to be the dominant service provider."
LISTNUM 1 \l 1526 MR. KOCH: Do you interpret that as a preoccupation of fairness to competitors as opposed to a preoccupation of the Commission to actually ensure that competition is not deterred and that customers not be subject to the ILEC's continued dominance?
LISTNUM 1 \l 1527 MR. HARITON: I have combined that with the previous statement of fairness to competitors, which was one of the three objectives of the second price cap plan to say that what we are looking at is fair competition.
LISTNUM 1 \l 1528 While I see entry here, there is no further description of entry. The word I would have wanted to see was "efficient" entry. If the word "efficient" entry had been here, I would have been at peace.
LISTNUM 1 \l 1529 MR. KOCH: So because you are not happy that the word "efficient" is left out of this formulation, you have chosen to characterize the Commission as preoccupied with fairness to competitors rather than interested in the interests of customers and the rates that they pay ‑‑
LISTNUM 1 \l 1530 MR. HARITON: No.
LISTNUM 1 \l 1531 MR. KOCH: ‑‑ and the pace of competition.
LISTNUM 1 \l 1532 Is that correct?
LISTNUM 1 \l 1533 MR. HARITON: No, I disagree, Mr. Koch.
LISTNUM 1 \l 1534 As I say, I go back to the principles enunciated in the objectives for the second price cap régime. I don't have it in front of me, but I believe one of those was balancing the interests of the stakeholders, which were explicitly the incumbents, the competitors and customers.
LISTNUM 1 \l 1535 MR. KOCH: So a three‑way balancing of interests of those stakeholders you characterize as a preoccupation with fairness to competitors. Correct?
LISTNUM 1 \l 1536 MR. HARITON: Not an exclusive. That was one of the three ‑‑ one of five objectives. But that is certainly one of them, and to that extent it does seem to have been on the Commission's mind.
LISTNUM 1 \l 1537 The other thing which perhaps I should ‑‑ well, let's leave it at that for now.
LISTNUM 1 \l 1538 MR. KOCH: All right.
LISTNUM 1 \l 1539 Mr. Chairman, I am in your hands. I was about to move to a new area. I don't know what time you were anticipating for the morning break.
LISTNUM 1 \l 1540 I am happy to continue.
LISTNUM 1 \l 1541 THE CHAIRPERSON: Mr. Koch, I will take you up on your suggestion. We will commence at a quarter to 11:00.
‑‑‑ Upon recessing at 1025 / Suspension à 1025
‑‑‑ Upon resuming at 1044 / Reprise à 1044
LISTNUM 1 \l 1542 THE CHAIRPERSON: Mr. Koch, please proceed.
LISTNUM 1 \l 1543 MR. KOCH: Thank you, Mr. Chairman.
LISTNUM 1 \l 1544 I would like to turn now to another element of your proposal, which is the proposal to uncap.
LISTNUM 1 \l 1545 A major new element of your proposal is to uncap services in areas where there is a competitor present. Correct?
LISTNUM 1 \l 1546 MR. BIBIC: That's correct. I just would add that it is a particular type of competitor, a facilities‑based competitor. So, for example, an access independent over‑the‑top provider being present in a particular area wouldn't qualify for uncapping. Therefore, in that sense it's a conservative test in our view.
LISTNUM 1 \l 1547 MR. KOCH: We will get into some of the details of the test in a moment, Mr. Bibic. Thanks for that.
LISTNUM 1 \l 1548 You refer to this as the competitive presence test. Correct?
LISTNUM 1 \l 1549 MR. BIBIC: That's correct.
LISTNUM 1 \l 1550 MR. KOCH: As I understand your proposal, your test for a competitive presence is met, as you say, if there is a facilities‑based competitor in an exchange?
LISTNUM 1 \l 1551 MR. BIBIC: That is correct.
LISTNUM 1 \l 1552 MR. KOCH: Clearly, you include within that concept a competitor operating entirely on its own transmission facilities?
LISTNUM 1 \l 1553 MR. BIBIC: That is correct. So, for example, Vidéotron operating on its cable platform, Rogers operating on its cable platform, Cogeco and Shaw would be the most obvious ones.
LISTNUM 1 \l 1554 MR. KOCH: And you also include within that concept a competitor that relies heavily on unbundled network elements, including local loops. Correct?
LISTNUM 1 \l 1555 MR. BIBIC: I am not sure why you added the word "heavily," but we do rely on competitors who rely on unbundled local loops. So, on the residential side, for example, the former Call‑Net, now Rogers Telecom, would be one.
LISTNUM 1 \l 1556 MR. KOCH: You also include within the concept a competitor offering service via fixed wireless. Is that correct?
LISTNUM 1 \l 1557 MR. BIBIC: I believe that's correct, yes.
LISTNUM 1 \l 1558 MR. KOCH: But not mobile wireless?
LISTNUM 1 \l 1559 MR. BIBIC: That's correct.
LISTNUM 1 \l 1560 MR. KOCH: In terms of just fixed wireless, whether they are offering service within an exchange, what part of the radio equipment would be in the exchange for you to consider that they are offering service in the exchange? Could it be that we have a fixed wireless network where the network is primarily in one exchange but the radio extends to, for example, a building on the border of the next exchange? Would that building to which the core network extends be considered to then bring that other exchange within the competitive presence test?
LISTNUM 1 \l 1561 MR. ROWE: Mr. Koch, it is really about where the customer is that is the key element of our proposal.
LISTNUM 1 \l 1562 MR. KOCH: In that example the answer would be yes?
LISTNUM 1 \l 1563 MR. ROWE: Yes.
LISTNUM 1 \l 1564 MR. KOCH: In terms of the extent of facilities or extent of presence of a competitor in an exchange to meet your test, I take it, as I understand your proposal, if we took the first example of a facilities‑based competitor operating on their own network, if for example their network extended to even one building in an adjacent exchange, that adjacent exchange, for the purpose of your test, would meet the competitive presence test. Correct?
LISTNUM 1 \l 1565 MR. BIBIC: I don't think that's correct. We are talking about particular individual exchanges, so I am not sure where the adjacent exchange comes in to our test.
LISTNUM 1 \l 1566 If, in the exchange under question, there is a facilities‑based competitor operating there with its own end‑to‑end facilities, then under our proposal, that service, in this case for example it might be residential local service offered by a cable company in that exchange, then our residential service in that exchange would become uncapped.
LISTNUM 1 \l 1567 THE CHAIRPERSON: Sorry to interrupt, could we get the noise problem straightened out at the back of the room? Some people at the back are being distracted by some noise that is coming possibly out of the interpreters' booth or possibly somewhere else. Could we please have somebody look after that?
LISTNUM 1 \l 1568 Sorry, Mr. Koch.
LISTNUM 1 \l 1569 MR. KOCH: My understanding, though, if you had a competitor, for example, a wire line competitor operating in the business market and wanted to extend its network to one building within an exchange, let's say it's a building at the border of the exchange, that exchange in which that building is located under your test would meet the competitive presence.
LISTNUM 1 \l 1570 Correct?
LISTNUM 1 \l 1571 MR. BIBIC: For the purposes of the service in question. So if it were a business prime exchange service, yes.
LISTNUM 1 \l 1572 If it were an intra‑exchange private line service, yes. But the adjacent exchange wouldn't be uncapped unless that competitor or another competitor were in that exchange.
LISTNUM 1 \l 1573 MR. KOCH: Right. Forgive me, that was my error in confusing the issue of adjacent exchanges. I was trying to describe a likely physical situation or a possible physical situation where a competitor is in an exchange and then also extends its facilities to another exchange.
LISTNUM 1 \l 1574 I am talking about local exchange services for purposes of these questions, Mr. Bibic.
LISTNUM 1 \l 1575 So, if it served just one building in an exchange, then that exchange would qualify for the competitive presence test for that service. You have provided us with that information.
LISTNUM 1 \l 1576 Can you clarify, as well, I take it, then, that would be irrespective of how many customers it had in that building?
LISTNUM 1 \l 1577 MR. BIBIC: Let me go through the elements of the test. It's fairly important.
LISTNUM 1 \l 1578 In your example, business primary exchange service of the incumbent would be uncapped in an exchange if the facilities‑based competitor were in that exchange offering service to customers in that exchange ‑‑ in your example, the customer is in a building ‑‑ and actually had at least one customer in the exchange.
LISTNUM 1 \l 1579 Now, the services would be uncapped throughout the exchange on the basis that once a competitor has made a decision to enter an exchange, we have seen that in most cases the networks of the competitors actually extend throughout all or most of an exchange.
LISTNUM 1 \l 1580 In the case of competitors who rely on unbundled loops, if they are co‑located in a wire centre, every business served by that wire centre in your example becomes addressable for that competitor.
LISTNUM 1 \l 1581 That is the rationale behind our test and the three specific elements of the test: The presence of the facility, offering of service and the securing of at least one customer.
LISTNUM 1 \l 1582 MR. KOCH: So one customer in one building in an exchange, whether that is probable or not, would qualify that exchange for uncapping. Correct? I think that is consistent with your answer.
LISTNUM 1 \l 1583 MR. BIBIC: In theory and on paper, yes. The reality is that companies or competitors don't enter to secure but one customer. So we do have to kind of take a look at the real world when you consider these things, but on principle or on paper in theory, yes.
LISTNUM 1 \l 1584 MR. KOCH: At paragraph 86 of your evidence ‑‑ I don't think we need to go there ‑‑ you state that where such alternative facilities are present, market forces are sufficient to constrain prices and consistent with objective 3, regulatory prescriptions are not needed in addition.
LISTNUM 1 \l 1585 That is basically the rationale for the uncapping test. Correct?
LISTNUM 1 \l 1586 MR. BIBIC: The rationale is a little bit more detailed than that. I mean, you have reached the end point okay, but essentially what we are saying is if you look at the demand conditions, customers have a choice, have exhibited a choice under our test.
LISTNUM 1 \l 1587 In fact, in terms of business primary exchange services, the Commission has clearly ruled that competitor business primary exchange services are in the same market as those of the incumbents. Barriers to entry are low or gone if the competitors have entered. So we have gone through a demand side analysis, as is typical in these cases under competition theory or even in decision 94‑19, there is evidence on the record of that.
LISTNUM 1 \l 1588 What we said is once you have looked at the demand side conditions, have satisfied yourselves that they are met ‑‑ and I am not going through all the detail because I know you don't want me to, but I will kind of skip over it.
LISTNUM 1 \l 1589 MR. KOCH: You are right about that.
LISTNUM 1 \l 1590 MR. BIBIC: Right. Once you have gone through the demand side conditions, what is left to examine is whether or not supply conditions are met and the entry of a facilities‑based competitor indicates that the supply side conditions have been met and, hence, we propose that there should be uncapping.
LISTNUM 1 \l 1591 We are not proposing forbearance here, just uncapping.
LISTNUM 1 \l 1592 MR. KOCH: It is interesting you refer to the demand conditions. You are saying that your rationale includes some assumptions regarding the demand conditions, but there is no element of the test that addresses demand conditions.
LISTNUM 1 \l 1593 You haven't, for example, proposed a market share threshold or anything like that?
LISTNUM 1 \l 1594 MR. BIBIC: I wouldn't jump to the end point. We are making no assumptions about the presence of demand conditions.
LISTNUM 1 \l 1595 We have gone through the analytical framework customarily used in examinations like this, whether or not they be in competition law or under the Commission's framework in 94‑19 and other decisions, and we have put evidence on the record that, for example, take business primary exchange services, as I said, the Commission decided in decision 2006‑15 that the business primary exchange services offered by competitors are in the same market. So that is one key factor.
LISTNUM 1 \l 1596 The other key factor is on the residential side, for example, when a cable company enters an exchange, it is offering a service that again is in the same market. If it enters another exchange, it is entering with the same product. So, we are making no assumptions when the cable companies, for example, are rolling across exchanges, they are offering services that are in the market, and when customers buy their services, and they are buying them in droves, especially on the residential side, and we already have a lot of evidence on the business side, just take a look at the monitoring report, that indicates that demand conditions are there, customers have choice, customers are exercising their choices. So there are no assumptions; there is evidence.
LISTNUM 1 \l 1597 What is left, in our view, in order to trigger an uncapping decision, is the satisfaction that there is actually a facilities‑based competitor that is there.
LISTNUM 1 \l 1598 MR. KOCH: My question, though, was very simple, which was the test is based on a supply condition.
LISTNUM 1 \l 1599 MR. BIBIC: Correct. When you have gone through the analytical framework, at the end of it, the bright line test is a supply condition test.
LISTNUM 1 \l 1600 MR. KOCH: Thank you. The objective 3 that you reference at paragraph 86 where you say:
"Since market forces are sufficient to constrain prices, consistent with objective 3, regulatory prescriptions are not needed in addition." (As read)
LISTNUM 1 \l 1601 The objective 3 that you reference is your objective that regulation be efficient and proportional. Correct?
LISTNUM 1 \l 1602 MR. BIBIC: I believe objective 3 says that ‑‑
LISTNUM 1 \l 1603 MR. KOCH: I would be happy for you to look at it if you wanted to.
LISTNUM 1 \l 1604 MR. BIBIC: Objective 3 says where regulation is necessary, it should be efficient in proportion to its purpose and should interfere with market forces to the minimal extent possible. You forgot the last part there.
LISTNUM 1 \l 1605 MR. KOCH: But in terms of the efficiency, you point out that the ILEC information regarding where competitors have entered remains imperfect. Correct?
LISTNUM 1 \l 1606 MR. BIBIC: Could you repeat that? I apologize, I didn't ‑‑
LISTNUM 1 \l 1607 MR. KOCH: The ILECs don't have the information to be able to indicate to the Commission precisely ‑‑ I mean, you can do it on a general basis ‑‑ but precisely in which exchanges there may be a competitive presence?
LISTNUM 1 \l 1608 MR. BIBIC: As I sit here today, I can't, but we have proposed a manner in which the Commission could go about collecting that data.
LISTNUM 1 \l 1609 In fact there are two proposals on the table. There is the Bell proposal, which would have the competitors continue to fill out a form that is filled out by all telecom service providers, I believe, and filed quarterly with the Commission. On the business side it would need to be amended slightly.
LISTNUM 1 \l 1610 Then through those quarterly filings, the Commission could determine where the facilities‑based competitors are present.
LISTNUM 1 \l 1611 Telus has a slightly different variation of a proposal which is it would be up to the incumbent to come forward and say, look, we have evidence that a competitor has entered a particular exchange.
LISTNUM 1 \l 1612 Mechanically, that is how it would be done, one or the other or another mechanism that we might develop or the Commission might develop as a result of this proceeding.
LISTNUM 1 \l 1613 MR. KOCH: So either more information has to be provided by competitors, and presumably then that information would have to be in some way communicated to the ILEC. Correct?
LISTNUM 1 \l 1614 MR. BIBIC: That is not entirely correct that more information would have to be provided.
LISTNUM 1 \l 1615 On the residential side, the form that is filed already could be ‑‑ the existing form, I think it is form 213, although I am not an expert in these filings ‑‑
LISTNUM 1 \l 1616 MR. KOCH: I don't know the number of the form either.
LISTNUM 1 \l 1617 MR. BIBIC: Competitors already file this form 213, which would indicate where they are present in the exchange. So that would cover the residential side.
LISTNUM 1 \l 1618 On the business side, the form would have to be modified slightly simply to indicate is the competitor providing a business primary exchange service, a digital service, an IX intra‑exchange private line service. Other than that, simply taking the information that the business competitors already file with the Commission, but disaggregating it a little bit, that is all that would need to be done under our proposal.
LISTNUM 1 \l 1619 MR. KOCH: Under Telus' proposal you explained it would be almost a reverse onus?
LISTNUM 1 \l 1620 MR. BIBIC: That is my understanding, but of course you will have an opportunity to ask them what their proposal is. But I believe it involves the ILECs saying, look, I know from being in the market that the competitors have entered the exchange and here is some information to establish that.
LISTNUM 1 \l 1621 MR. KOCH: In the event that your proposal were to reign or be accepted, then there would be some information regarding services that competitors are offering that would have to be communicated to the ILEC. Correct? In order to make it work, for you to know where you are uncapped, you would have to know, would you not?
LISTNUM 1 \l 1622 MR. BIBIC: I think we would just do it exactly ‑‑ I imagine we could do exactly the way we do it with the IXPL, interexchange private line, forbearance system where information is filed by competitors. The Commission reviews it and says: pay on this interexchange private line where there is a competitor and we, therefore, declare that that private line, interexchange private line rules this forborne.
LISTNUM 1 \l 1623 In this case, we would ‑‑ the decision would simply be facilities based competitors present in this exchange as a result so the particular service offered in that exchange becomes uncapped. It would be the same thing.
LISTNUM 1 \l 1624 MR. KOCH: Okay, but in that sentence, there is some information which is the particular service being offered in that exchange. Correct?
LISTNUM 1 \l 1625 MR. BIBIC: Correct.
LISTNUM 1 \l 1626 MR. KOCH: That would be new information provided as a result of competitors filing information to the ILECS. Correct?
LISTNUM 1 \l 1627 MR. BIBIC: It's not new information. It's information the Commission already collects.
LISTNUM 1 \l 1628 I have a sense we're having a debate over a point that we don't need to debate. Perhaps I am not understanding the question.
LISTNUM 1 \l 1629 MR. KOCH: Well, this would be information that you say you don't have. Correct?
LISTNUM 1 \l 1630 MR. BIBIC: Well, we could collect it ourselves like the way Telus is proposing.
LISTNUM 1 \l 1631 MR. KOCH: Okay, but you don't know precisely in which exchange, which services are being offered by competitors. Correct?
LISTNUM 1 \l 1632 MR. BIBIC: In fact, we have a very good sense of where our competitors are from just operating in the marketplace, but for the purposes of the mechanics of our test, we have decided to develop a proposal where the Commission would satisfy itself that the competitor is present.
LISTNUM 1 \l 1633 MR. KOCH: Right. But it then has to communicate to you what service the competitor is provided, otherwise you don't know which service is uncapped. Correct?
LISTNUM 1 \l 1634 MR. BIBIC: Well, the Commission has to rule that the service becomes uncapped.
LISTNUM 1 \l 1635 MR. KOCH: Right.
LISTNUM 1 \l 1636 MR. BIBIC: We know where the competitors are, clearly, but the Commission would have to rule. It's a price cap mechanism after all.
LISTNUM 1 \l 1637 MR. KOCH: We are going around in circles, so I'll make it easier on everyone listening to us and move on.
LISTNUM 1 \l 1638 Now, I take it the bottom line rationale and I know I have a tendency to go to the bottom line and you like to go up from the bottom line, is that your position is whoever market forces are sufficient to protect consumers or customers, all prices will be uncapped. And that's, if you like, at paragraph 71 of your evidence.
LISTNUM 1 \l 1639 I don't know that we have to go there, but that's the core or rationale, is it not, that your proposal was that under your competitive presence test, market forces are sufficient to protect consumers. Correct?
LISTNUM 1 \l 1640 MR. BIBIC: The last sentence you've expressed is correct. The previous one that went it's not "all services". It's the services that are the subject of competition.
LISTNUM 1 \l 1641 MR. KOCH: Right.
LISTNUM 1 \l 1642 MR. BIBIC: That would be uncapped.
LISTNUM 1 \l 1643 MR. KOCH: Right. Now, you are familiar, I expect you're well familiar, Mr. Bibic, with the test for forbearance set out in the Telecommunications Act?
LISTNUM 1 \l 1644 MR. BIBIC: I am.
LISTNUM 1 \l 1645 MR. KOCH: Okay. And you're aware that under Section 34.2 the Commission is required to forbear where a service or class of services is subject to, and the language is: "Competition sufficient to protect the interests of users."?
LISTNUM 1 \l 1646 MR. BIBIC: That is correct.
LISTNUM 1 \l 1647 MR. KOCH: Okay. Remarkably similar to your uncapping test of, or rationale, that market forces are sufficient to protect customers. Correct?
LISTNUM 1 \l 1648 MR. BIBIC: We do believe that in areas where there are facilities based competitors, market forces are sufficient to discipline prices.
LISTNUM 1 \l 1649 MR. KOCH: So, essentially the claim you make for the competitive presence test is the same as that under Section 34 of the Act. Would you not agree with me?
LISTNUM 1 \l 1650 MR. BIBIC: I am not here to debate forbearance of regulated services nor to turn this into a review in application for the local forbearance decision. I am here to advocate Bell's position with respect to the price cab proposal.
LISTNUM 1 \l 1651 So, I actually disagree that Section 34 has anything to do with this.
LISTNUM 1 \l 1652 MR. KOCH: You will agree with me that your proposed ‑‑ well, I think you've already agreed with me that it's ‑‑ the test itself measures supply conditions and it's irrelevant to the functioning of your test.
LISTNUM 1 \l 1653 In fact, how many consumers must maybe taking a particular service from a competitor in an exchange. Correct?
LISTNUM 1 \l 1654 There could be one as you explained, or there could be 300,000?
LISTNUM 1 \l 1655 MR. BIBIC: The test as expressed in streamline form doesn't have a particular number of competitors ‑‑ of customers, excuse me. However, there is evidence on the record which indicates the extent to which competitors both on the business and residential side have secured customers and, in some cases, hundreds of thousands customers.
LISTNUM 1 \l 1656 There is also some statistics in the Commission September 1st Decision of this year with respect to VOIP, which indicates how many connections there are for the competitors as well as projections going forward in 2007‑2008 for non‑allied VOIP services.
LISTNUM 1 \l 1657 So, there is quite a lot of evidence on the record as well as in this document the CRTC reported on.
LISTNUM 1 \l 1658 MR. KOCH: But it doesn't form any part of your test?
LISTNUM 1 \l 1659 MR. BIBIC: No. I disagree. It formed part of the analytical framework which lead us to proposing the test which measures or identifies the last element, which is the supply condition.
LISTNUM 1 \l 1660 So, we have gone over that before, but I don't agree that it doesn't ‑‑ it completely ignores the demand side.
LISTNUM 1 \l 1661 MR. KOCH: And certainly the test is inconsistent and I know your position that you're not here to debate forbearance, but I suggest that your test looks a lot like forbearance.
LISTNUM 1 \l 1662 The test of just whether there is a competitive presence is very different from the criteria for forbearance that the Commission established for local services in the Decision 2006‑15 Correct?
LISTNUM 1 \l 1663 MR. BIBIC: Well, obviously, the test that we're proposing for uncapping is not the same as the test laid down by the Commission for forbearance, but the two tests, in our view, can clearly coexist together. You know these are ‑‑ it's a different inquiry, different rules and different consequences.
LISTNUM 1 \l 1664 So for example, actually if I can borrow kind of the way it's expressed in my other competitor's submission Telus, they describe the kind of the view that there ought to be a seamless transition from full regulation to full deregulation or forbearance if you will, and in between a relaxation of the regulatory prescriptions as competition clearly is taking hold and exerting its competitive vigour.
LISTNUM 1 \l 1665 And it's in that respect that I firmly believe that the two tests can live together.
LISTNUM 1 \l 1666 So, for example, take the product market on, with our test today, all we are examining are products offered.
LISTNUM 1 \l 1667 The only thing that qualifies our services offered by facilities based competitors whereas in the local forbearance examination can take into account services offered by all competitors, including voice over IP over the top providers as well as potentially, although I don't know wireless services ‑‑ that's the subject of a separate Commission inquiry ‑‑ on a geographic side our test today has a smaller geographic area, which is the exchange, whereas the local forbearance geographic areas, the local forbearance region over which we have to lose 25 per cent, much harder to do. So, there is a transition.
LISTNUM 1 \l 1668 In terms of the threshold, all you need is one competitor for cross and exchange for uncapping whereas for local forbearance you need to lose 25 per cent share loss. Harder to do and hence, kind of a gradual seamless transition from full regulation to forbearance and that the end result, the end result is clearly different.
LISTNUM 1 \l 1669 With forbearance, you meet the harder test, you have forbearance under our proposal. All that's done is you lift the uncapping rules, you still have tariff approval, you still have a quality of service regime, you still have promotions rules, you still have win back rules, you still have an amputation test, you still have rules on destandardization and withdrawal.
LISTNUM 1 \l 1670 So, it's a different inquiry, different consequences and the two tests can coexist, in our view.
LISTNUM 1 \l 1671 MR. KOCH: I certainly agree with you that there are many different aspects to the test and one of the different aspects is that your test focuses on the exchange level rather than the forbearance test which focuses on a different geographic entity.
LISTNUM 1 \l 1672 You're aware that one of the concerns the Commission had with respect to the exchange level and the forbearance context, and I don't want to engage in a circular debate with you over whether or not this is forbearance or it's not, but was that using an exchange is likely more prone to anti competitive behaviour by the ILEC.
LISTNUM 1 \l 1673 You are familiar with that, are you not?
LISTNUM 1 \l 1674 MR. BIBIC: You're referring to the local forbearance decision?
LISTNUM 1 \l 1675 MR. KOCH: Yes. We can go to the paragraph that ‑‑
LISTNUM 1 \l 1676 MR. BIBIC: Bo. It's okay. We are submitting that geographic market would be a more appropriate market certainly although perhaps not exclusively, in our view.
LISTNUM 1 \l 1677 But, certainly for price cab purposes, I happen to disagree with the view that one should define markets as a consequence of fears about anti competitive behaviour and targeting. That's not the purpose of a geographic market definition.
LISTNUM 1 \l 1678 First you start with defining a proper market, both on the product and geographic side and then you assess the state of competition which might include the potential for anti‑competitive behaviour.
LISTNUM 1 \l 1679 As far as targeting goes, I don't think that there is any ‑‑ if I can borrow from economic theory or competition law theory, there is nothing inherently anti‑competitive at all in targeting in the sense of matching, at least matching your competitor's price in a particular area.
LISTNUM 1 \l 1680 So I guess it's a way to say that I don't agree with the geographic market analysis and local forbearance, but again I'm not here to debate that because that is for another day and that decision has been made. What we are proposing is that the exchange is an appropriate market for uncapping purposes.
LISTNUM 1 \l 1681 MR. KOCH: So you disagree with what the Commission said about the propriety of using a local exchange, but you acknowledge it did have that concern in the forbearance context and indeed in this case you are proposing to use exactly that geographic market.
LISTNUM 1 \l 1682 Is that correct?
LISTNUM 1 \l 1683 MR. BIBIC: Keep in mind, Mr. Koch, that again it is very important to recognize that it is a different inquiry.
LISTNUM 1 \l 1684 Putting aside my views on the appropriateness of the geographic market definition in local forbearance, the result of the examination is quite different. In a local forbearance examination what you are looking at is removal of the rules, including removal of the imputation test requirements.
LISTNUM 1 \l 1685 I'm not so sure how you get to that same concern in a price cap hearing where under our proposal the imputation test requirements remain and so there is not going to be a potential for pricing below cost in an anti‑competitive manner.
LISTNUM 1 \l 1686 So we are not proposing it. It's out of scope. The fact is, whether or not we are capped or uncapped, the imputation test rules remain, whereas in the forbearance analysis those are gone.
LISTNUM 1 \l 1687 MR. KOCH: I would like to ask you to turn to an interrogator response that you provided to MTS Allstream. It is the response to MTS Allstream 8 August 06‑6, it's supplemental. I'm going to ask you to turn to page 3 of 4 of that response.
LISTNUM 1 \l 1688 THE CHAIRPERSON: Give us the number again, please, Mr. Koch?
LISTNUM 1 \l 1689 MR. KOCH: It is 6, MTS Allstream‑6 asked to The Companies, supplemental response.
LISTNUM 1 \l 1690 MR. KOCH: I want to make sure you have that, Mr. Bibic.
LISTNUM 1 \l 1691 On page 3 of 4 you were asked to provide an estimate of the overall revenues of your companies that would in effect be uncapped under your proposal. So if the competitive test that you are proposing to the Commission were to be implemented, what percentage of The Companies ‑‑ or of the revenues for the relevant services would in fact be uncapped.
LISTNUM 1 \l 1692 Is that correct? That is your understanding of the question?
LISTNUM 1 \l 1693 MR. BIBIC: Yes, that is my understanding of the answer to that question.
LISTNUM 1 \l 1694 MR. KOCH: All right.
LISTNUM 1 \l 1695 MR. BIBIC: It doesn't include SaskTel.
LISTNUM 1 \l 1696 MR. KOCH: All right.
LISTNUM 1 \l 1697 MR. BIBIC: It is focused on Ontario, Québec and the Atlantic provinces. That is generally across residential and business primary exchange services and they are our estimates of course.
LISTNUM 1 \l 1698 MR. KOCH: All right. They are estimates, as you pointed out. You don't have perfect certainty regarding the presence of competitors, but you are pretty confident that you know to what extent they have made inroads.
LISTNUM 1 \l 1699 Is that correct?
LISTNUM 1 \l 1700 MR. BIBIC: That is correct.
LISTNUM 1 \l 1701 MR. KOCH: All right.
LISTNUM 1 \l 1702 MR. BIBIC: I stand by these numbers, as far as estimates go certainly.
LISTNUM 1 \l 1703 MR. KOCH: All right.
LISTNUM 1 \l 1704 And what this shows, so that we are all on the same page, is that if your test were accepted, then in Ontario and Québec ‑‑ let's deal with Bell Canada firstly ‑‑ 83 percent of the relevant residential PES revenues would be uncapped.
LISTNUM 1 \l 1705 Is that correct?
LISTNUM 1 \l 1706 MR. BIBIC: That is correct, with one small qualification. I think that 83 percent number would include Bell Canada and the Ontario and Québec exchanges that are now part of Bell Aliant.
LISTNUM 1 \l 1707 MR. KOCH: All right.
LISTNUM 1 \l 1708 In the case of business PES we are looking at 85 percent of the revenues would be uncapped if your proposal were accepted?
LISTNUM 1 \l 1709 MR. BIBIC: That's correct. I mean, I don't find it surprising if you compare Ontario and Québec with the Atlantic provinces for example, certainly there has been significant competitive entry in Ontario and Québec, not everywhere, but in a large part of Ontario and Québec, and there has been very vigourous entry in the Atlantic provinces, but not throughout all of the Atlantic provinces, so you see the differences between the 83 percent and the 54 percent between Ontario and Québec and the Atlantic provinces on the other hand isn't surprising.
LISTNUM 1 \l 1710 So yes ‑‑
LISTNUM 1 \l 1711 MR. KOCH: You are anticipating where my surprise lies. It doesn't lie in the difference between Ontario and Québec and Atlantic Canada. I am suggesting to you that in Ontario and Québec the effect of your proposal is that a very high percentage, 85 percent in the example of business PES, would all of a sudden become uncapped if your proposal were accepted by the Commission.
LISTNUM 1 \l 1712 You have already given me your answer that you ‑‑
LISTNUM 1 \l 1713 MR. BIBIC: That is correct, and all of the other rules would remain in place, Mr. Koch.
LISTNUM 1 \l 1714 MR. KOCH: ‑‑ you stand behind the numbers.
LISTNUM 1 \l 1715 MR. KOCH: All right.
LISTNUM 1 \l 1716 Now, if we combined your proposal for rate deaveraging and uncapping in exchanges where there is a competitive presence, you would achieve significant price inflexibility, would you not?
LISTNUM 1 \l 1717 MR. BIBIC: In areas that are uncapped we certainly would have an appropriate degree of pricing flexibility in order to respond to competition.
LISTNUM 1 \l 1718 MR. KOCH: All right. You would have ‑‑ well, my question was: You don't agree with me that it would be significant if you were both able to de‑average across exchanges within a rate band and have that extent of your revenues uncapped?
LISTNUM 1 \l 1719 MR. BIBIC: Sure, it would be significant.
LISTNUM 1 \l 1720 MR. KOCH: Presumably it is significant, otherwise it's not worth coming here and making the proposal to the Commission.
LISTNUM 1 \l 1721 I mean, first ‑‑
LISTNUM 1 \l 1722 MR. BIBIC: I agreed that it was significant, important. I wouldn't agree with the last part.
LISTNUM 1 \l 1723 MR. KOCH: You would be able to price differently for the same services in two exchanges within the same rate band. That much is accomplished by the deaveraging proposal.
LISTNUM 1 \l 1724 Is that correct?
LISTNUM 1 \l 1725 MR. BIBIC: That is correct.
LISTNUM 1 \l 1726 MR. KOCH: All right.
LISTNUM 1 \l 1727 As we discussed earlier, you would be able to, if necessary, drop your prices in an exchange where a competitor was making inroads into your market share.
LISTNUM 1 \l 1728 Is that correct?
LISTNUM 1 \l 1729 MR. BIBIC: Mr. Koch, the ‑‑
LISTNUM 1 \l 1730 MR. KOCH: To meet. To meet. I'm just talking about meeting competition.
LISTNUM 1 \l 1731 MR. BIBIC: Mr. Koch, going back to the previous question, I know based on the evidence on the record, as well as it was debated in the local forbearance hearing, our competitors price differently in different exchanges and different provinces, and they price according to customer needs, demands, wants, customer demographics. We heard Cogeco talk about that.
LISTNUM 1 \l 1732 So, yes, we are asking for the flexibility to do the same to respond to our competition where we see it where there is competition in the form of facilities‑based competition, so it is conservative in that sense.
LISTNUM 1 \l 1733 MR. KOCH: Two things are going on here. One is, your answer with respect regarding what competitors do is not responsive to my question, but the other thing that is happening is you are again jumping ahead.
LISTNUM 1 \l 1734 I have just been asking you about the deaveraging proposal and saying: In the case of your deaveraging proposal, if accepted ‑‑ and that doesn't hinge on the competitive presence test ‑‑ you would be able to price differently in different exchanges throughout the same rate band, and you could lower your prices to meet competition.
LISTNUM 1 \l 1735 You have told me, in fairness, why you might want to do that, but I'm just asking you to confirm that that would be the effect of your deaveraging proposal.
LISTNUM 1 \l 1736 MR. BIBIC: Yes, I will confirm that subject to respecting all the other rules that remain in place, including, which we went over before, the win‑back rule, the promotions rules and the imputation test. But subject to that, yes, we could do that.
LISTNUM 1 \l 1737 MR. KOCH: And you would not be required to drop your prices in order to, for example, in a particular city you would ‑‑ in order to drop your prices in that city you would not be required, if we got rid of the prohibition on rate deaveraging, to similarly drop your prices where competition had not made inroads.
LISTNUM 1 \l 1738 Is that correct? That is the whole flexibility you are seeking, to be able to ‑‑
LISTNUM 1 \l 1739 MR. BIBIC: Well, what do you mean by where competition has not taken hold? Are you referring to areas that don't pass the competitive networks test?
LISTNUM 1 \l 1740 MR. KOCH: I am not going yet to the competitive test.
LISTNUM 1 \l 1741 MR. BIBIC: So I'm not sure I agree with your premise though, so let's talk a little bit about it.
LISTNUM 1 \l 1742 MR. KOCH: Let's take it a step back and just say you could drop your prices to meet competition in one geographic area and there would be no requirement on you to drop them in another geographic area within the same rate band.
LISTNUM 1 \l 1743 Is that correct?
LISTNUM 1 \l 1744 MR. BIBIC: Correct, there wouldn't be a requirement.
LISTNUM 1 \l 1745 For example, if we had a rate band and we lower our price in one area of the rate in order to meet that particular competitor, we may not be lowering the price at all or to same extent in another area of the rate band, depending on what the competitor or what the competitive dynamics are in that other area, but the baseline from which we start, Mr. Koch, are rates which we have already established for us are amongst the lowest in the world, have been approved by the Commission, and are just and reasonable, frankly by definition, because they have been approved.
LISTNUM 1 \l 1746 So yes, we would have that flexibility and it is all within the context of a continued regulation under the Telecom Act because we are not talking about forbearance.
LISTNUM 1 \l 1747 MR. KOCH: Not only would you not be required to drop your rate in another geographic area, but in fact under your proposal where there is a competitive presence, if there is a competitive presence in a second geographic area, your rate in that area would not be subject to a price cap.
LISTNUM 1 \l 1748 Is that correct? You have told me all the other regulatory rules that you would still be subject to, but it would not be subject to a price cap.
LISTNUM 1 \l 1749 Is that correct?
LISTNUM 1 \l 1750 MR. BIBIC: Correct. They will be subject to two things. It would be subject to, one, customer demand, needs or wants. We should be focusing a little bit on the customer here too and not just competitors. And it would be subject to what is going on competitively in the marketplace. Again, we might have a different competitor in that other area in the rate band so we can't ignore that either.
LISTNUM 1 \l 1751 MR. KOCH: All right.
LISTNUM 1 \l 1752 But there would be no regulatory rule restricting you from raising your price to those other customers? There would be no price cap remaining?
LISTNUM 1 \l 1753 MR. BIBIC: We would be uncapped as a result of the entry of a facilities‑based competitor. If you look at the evidence that the competitors have filed in this proceeding ‑‑ and I could point it out specifically ‑‑ the competitors have indicated in interrogatory that by the time the next price cap regime rolls around the market will be quite competitive and in fact they indicate ‑‑ I think the exact words are "the prices can only go down" or "the trend is down", but I can point you to the exact words if it would be helpful.
LISTNUM 1 \l 1754 So in theory yes, but in practice we see the trend going down and that is what the competitors believe as well.
LISTNUM 1 \l 1755 So at a certain point in time we take the view that one has to rely on market forces to determine what the appropriate price in any given area will be.
LISTNUM 1 \l 1756 It's not unheard of. I would point to the U.K. where they recently ‑‑ July of this year ‑‑ completely eliminated the retail price control mechanism they have, despite a finding that British Telecom has significant market power in the fixed narrow band retail services market.
LISTNUM 1 \l 1757 So our proposal, in our view, isn't overly dramatic or revolutionary. It is a reasoned proposal, borrowing from TELUS again, getting us from full regulation to deregulation in a seamless way.
LISTNUM 1 \l 1758 MR. KOCH: To avoid the practical argument, Mr. Hariton agreed that the constraint on raising prices from ‑‑ other than the market obviously ‑‑ the constraint on raising prices in other exchanges would emanate from the price control.
LISTNUM 1 \l 1759 Is that correct? Other than market forces, and we can disagree on how strong those market forces are. The constraint would come otherwise from price controls.
LISTNUM 1 \l 1760 Is that correct?
LISTNUM 1 \l 1761 MR. BIBIC: No. The constraint would come from price controls where an area were not uncapped, where an area were to remain ‑‑ if an area were to remain capped because there isn't a facilities‑based competitor, then price controls would remain under our proposal in the form of a constraint on the revenues in the basket as well as the individual rate element constraint, but in areas that are subject to uncapping as a result of the presence of competition, competition will determine the appropriate pricing level and that is quite normal in competitive markets.
LISTNUM 1 \l 1762 MR. KOCH: As we have seen from your interrogatory response, those areas where there would be no cap remaining represent roughly 85 percent in the case of business PES and 83 percent in the case of residential PES of Bell's revenues.
LISTNUM 1 \l 1763 Is that correct?
LISTNUM 1 \l 1764 MR. BIBIC: That is because facilities‑based competitive entry has been widespread throughout Ontario and Québec.
LISTNUM 1 \l 1765 MR. KOCH: Thank you, Mr. Chairman. Those are my questions.
LISTNUM 1 \l 1766 THE CHAIRPERSON: Thank you, Mr. Koch.
LISTNUM 1 \l 1767 Madam la secrétaire...?
LISTNUM 1 \l 1768 COMMISSIONER LANGFORD: Mr. Chairman, could I ask one question following up on Mr. Koch's ‑‑
LISTNUM 1 \l 1769 THE CHAIRPERSON: Please do, Commissioner Langford.
LISTNUM 1 \l 1770 COMMISSIONER LANGFORD: ‑‑ first question in the second half of this morning.
LISTNUM 1 \l 1771 I just want to be clear on one thing, as this is a logical break time. I hope I'm not interrupting anyone's flow.
LISTNUM 1 \l 1772 When Mr. Koch began after the break, approximately 45 minutes ago, to talk about this area he got into the area of the exchange and why that was an appropriate area or perhaps wasn't an appropriate area. There is one question following on that I would like to put to you.
LISTNUM 1 \l 1773 Suppose that this facilities‑based entrant which would trigger an uncapping in the exchange as you propose were a cable company, is it your position that the roll‑out of cable infrastructure mirrors precisely the exchanges of incumbent telephone companies, or duplicates, perhaps would be a better word, precisely?
LISTNUM 1 \l 1774 MR. BIBIC: No. No, it doesn't duplicate. It doesn't overlap in its entirety, but what we found when we did the analysis, especially when we were here last year at this time we had done the analysis, and we found a couple of things.
LISTNUM 1 \l 1775 One, the cable companies do tend to enter on an exchange basis and they declare themselves as entering on an exchange basis and when they do enter we found that more or less, with some exceptions, they tend to cover large parts if not all of our exchanges.
LISTNUM 1 \l 1776 I would point out that to the extent that there is a mismatch between the cable network or platform and the incumbent platform in an exchange that would even magnify to a significant degree when you talk about areas larger, like the local forbearance region or the LIRs, where you not only have one potential competitor across that wide geographic swath but you can have multiple areas with much larger mismatch than across an exchange.
LISTNUM 1 \l 1777 COMMISSIONER LANGFORD: But without getting into forbearance ‑‑ I take it your position is we are not talking forbearance this morning so let's not.
LISTNUM 1 \l 1778 Let me posit this example and perhaps you can give me a response to it.
LISTNUM 1 \l 1779 Let's assume we have two exchanges, we will call them "A" and "B", and they are in an urban setting. You of course as the incumbent are in both. They are your exchanges. Let's assume we have Cable Co., which is heavily, perhaps ubiquitously in exchange "A" , but only slightly, for some reason, in "B".
LISTNUM 1 \l 1780 Would this test of yours apply to "B" as well as "A"?
LISTNUM 1 \l 1781 MR. BIBIC: Our test would apply to both "A" and "B" and prices would be uncapped in both "A" and "B". And the reason ‑‑ and I see where you are going, is that there is a larger swath or portion of "B" that doesn't have the cable competitor.
LISTNUM 1 \l 1782 COMMISSIONER LANGFORD: That's right.
LISTNUM 1 \l 1783 MR. BIBIC: We would nevertheless propose that "B" be uncapped, because to the extent that the incumbent were to try to raise prices for example in "B", that would simply induce competitor entry. Now, we might not have a situation where the cable company suddenly expands its network, but they could come in through unbundled loops.
LISTNUM 1 \l 1784 Rogers Telecom certainly does that in areas where they don't have a cable network, so any pricing action in the form of increased prices would induce entry and that is kind of the analytical framework that for example the Competition Bureau would use to analyze market power.
LISTNUM 1 \l 1785 As well, we can't forget that there would be a competitive choice most likely in an urban area from over‑the‑top VoIP providers because I would imagine since there are exchange there is therefore a broadband connection and so customers could subscribe to broadband and get an over‑the‑top VoIP provider.
LISTNUM 1 \l 1786 Wireless would be an option. Again, I know that is being examined in the sense of is it in the same market, but wireless services would also be available since it is an urban market.
LISTNUM 1 \l 1787 COMMISSIONER LANGFORD: But the fact of the matter is that until this fictitious cable company has the time and the money to roll‑out its network through "B" under this scenario a good deal of the customers in "B" could be unprotected, at least for a while.
LISTNUM 1 \l 1788 MR. BIBIC: Yes, in terms of fictitious Cable Co., as you put it, yes, but in actual fact, as I said earlier, with some exceptions we found that cable cos tend to cover most of our exchanges.
LISTNUM 1 \l 1789 COMMISSIONER LANGFORD: You will recall in the forbearance proceeding that TELUS made a proposal which would have matched the infrastructure of cable companies as the forbearance test, the geographic forbearance test.
LISTNUM 1 \l 1790 Yours doesn't do that here today. It doesn't really match the cable company infrastructure, assuming that is what we are dealing with, as you made this particular application to uncap. It doesn't match it as all. What it does is match by exchange.
LISTNUM 1 \l 1791 If you want perfect fairness and a comfort level among the regulators that those residences that are not passed by the cableco would not find themselves paying higher prices in an uncapped world, why wouldn't you have just twigged this slightly and matched TELUS' earlier test rather than use the exchange test?
LISTNUM 1 \l 1792 MR. BIBIC: I guess I will answer it with three ways or three points.
LISTNUM 1 \l 1793 The first is our exchange proposal comes from the fact ‑‑ and I apologize for repeating myself, but again they mostly cover exchanges.
LISTNUM 1 \l 1794 Two, in terms of providers who use unbundled loops once they collocate in wire centres in the exchange, they pretty much covered the entire addressable base that we have. So there is a perfect match there. That is point one.
LISTNUM 1 \l 1795 The second point ‑‑ in fact, I only have two.
LISTNUM 1 \l 1796 The second point is that we also factored in kind of administrative complexity of managing this. At the end of the day what you are really looking at is uncapping the incumbent's prices. So we thought it was more appropriate to look at it from the perspective of the incumbent's network.
LISTNUM 1 \l 1797 So the examination is on the prices of the incumbent that will be uncapped.
LISTNUM 1 \l 1798 If you did it by way of the cable company network, you are doing two things. One is you start to have to define services and price uncapping by virtue of where the cable company is, not where we are when it is our prices that are being uncapped. And you are ignoring the fact that there are other types of facilities‑based competitors out there, which are the unbundled loop providers as well.
LISTNUM 1 \l 1799 COMMISSIONER LANGFORD: I am not really ignoring it. I am just narrowing my examples down. I am cognizant of the facts of the world.
LISTNUM 1 \l 1800 Isn't there something strange about this proposal overall?
LISTNUM 1 \l 1801 You make a proposal which says in essence there is competition in an exchange, even if it isn't throughout the whole exchange. It is facilities‑based. And to meet this competition we may have to lower prices. So give us the ability to raise prices.
LISTNUM 1 \l 1802 I don't understand that.
LISTNUM 1 \l 1803 Why is uncapping the answer to a competitive equation?
LISTNUM 1 \l 1804 MR. BIBIC: The answer to a competitive equation, in my submission, Commissioner Langford, would be that we should rely on market forces and having regulatory rules for the sake of having regulatory rules wouldn't be I submit the most efficient or appropriate way to regulate.
LISTNUM 1 \l 1805 So it stems from a view, a firmly held view, that if competitive market forces are in place, then we should rely on market forces, and we don't need the regulatory rules in place any more.
LISTNUM 1 \l 1806 Keep in mind that in areas that don't meet the test, we are certainly not advocating the removal of any of these rules. This is what is done in other places, so it is not ‑‑ it is a good proposal, a well‑balanced proposal, but it has a basis in what has happened elsewhere as well.
LISTNUM 1 \l 1807 COMMISSIONER LANGFORD: I understand that argument if you are asking for forbearance, because then you would be able to go up and down at will. But if you are asking for uncapping as a way to meet competitive entry and competitive pressures, that seems to me to be asking for the wrong tool to remedy the wrong problem.
LISTNUM 1 \l 1808 I just don't get it. I don't understand fundamentally why this would be the solution.
LISTNUM 1 \l 1809 I understand your desire to de‑average. That is very clear. But here you are saying we have competitive entry. We may only have it because it is on an exchange basis. It may not be a pure match. So give us the right to raise prices at will.
LISTNUM 1 \l 1810 You can see why we might be just a little uncomfortable about those residential subscribers outside the pure match; why we might be more comfortable with the TELUS forbearance geographic test where you have to match it to the backbone of the competitor.
LISTNUM 1 \l 1811 So I don't understand it.
LISTNUM 1 \l 1812 If you were saying to us look, give us the right to lower prices where there is a facilities‑based backbone that matches ours, whether or not we would agree with it, it would seem to me to make some logical sense in a competitive world.
LISTNUM 1 \l 1813 But you are saying give us the right to raise prices.
LISTNUM 1 \l 1814 I'm afraid when I combine that with the idea that the match of infrastructures may not be exact, I'm a bit confused as to what your proposal is all about.
LISTNUM 1 \l 1815 MR. BIBIC: I never indicated that prices wouldn't go up, sir. I indicated simply that we should rely on market forces.
LISTNUM 1 \l 1816 Your colleagues, for example, at Ofcom in the U.K. have grappled with the very same issue and they balanced ‑‑
LISTNUM 1 \l 1817 COMMISSIONER LANGFORD: You have said that ‑‑
LISTNUM 1 \l 1818 MR. BIBIC: It is important to answering your question, Mr. Langford.
LISTNUM 1 \l 1819 What they have balanced is concerns about significant market power on the one hand with concerns about having overbearing regulation on the other hand ‑‑ and those are their words; they are not mine ‑‑ which stifles the development of competition and innovation ‑‑ their words again, not mine.
LISTNUM 1 \l 1820 It comes down to a fundamental examination of how one should regulate where market forces are present. That is why we are suggesting as we move from full regulation ‑‑ well, you have heard me ‑‑ as we move from full regulation to deregulation we should have a transitionary step.
LISTNUM 1 \l 1821 COMMISSIONER LANGFORD: I appreciate the background and the instruction on what is going on elsewhere, but I must say I remain slightly confused. But there will be other opportunities.
LISTNUM 1 \l 1822 Just one last question.
LISTNUM 1 \l 1823 Mr. Koch was kind of putting together near the end deaveraging and this competitive presence, uncapping element, these two elements.
LISTNUM 1 \l 1824 Is this an all or nothing application or is it severable?
LISTNUM 1 \l 1825 If were to say, for example, without in any way tipping anyone's hand ‑‑ I haven't got the power to tip any hand.
LISTNUM 1 \l 1826 If we were to say hypothetically okay, we will give you your competitive presence in the exchange but we are not giving you deaveraging, would your application fall because it's all of the piece? Or is it severable? Can you live with part and not all?
LISTNUM 1 \l 1827 MR. BIBIC: We have put together a proposal which we feel kind of hangs together quite well and is coherent. It is for the Commission to decide what portions to accept. I would hope that you accept all of it.
LISTNUM 1 \l 1828 The Commission has certainly been known to accept none of our proposals or some of our proposals. We make our best case and we put it in your hands, and we hope that you agree with us for the most part.
LISTNUM 1 \l 1829 COMMISSIONER LANGFORD: So it is severable, is what you are saying.
LISTNUM 1 \l 1830 MR. BIBIC: I can't answer that, Commissioner Langford, without a more detailed understanding of where you might go.
LISTNUM 1 \l 1831 So you are balancing on capping with deaveraging. But what happens, for example, to: Is it the exchange that is being accepted? Would our proposal on the type of competitor that qualifies be accepted? What about the X factor?
LISTNUM 1 \l 1832 It is more complicated than simply answering one or the other.
LISTNUM 1 \l 1833 COMMISSIONER LANGFORD: Let me put it very specifically, because I don't want to go outside of where Mr. Koch took us. There will be other witnesses.
LISTNUM 1 \l 1834 When you discussed with Mr. Koch the notion of deaveraging working with this test on an exchange‑by‑exchange basis, is it your position that you have to have both those elements to this application? Or could in fact you function with one or the other but not both?
LISTNUM 1 \l 1835 MR. BIBIC: Being a mere regulatory lawyer, I think I would probably have to ask that of people like Messrs. Cope and Sabia. As I sit here today, I would have a hard time right now telling you which one is more important of the two ‑‑
LISTNUM 1 \l 1836 COMMISSIONER LANGFORD: I'm not asking which one is more important. Sorry to interrupt.
LISTNUM 1 \l 1837 I just want to know whether you could operate with one but not the other.
LISTNUM 1 \l 1838 MR. BIBIC: It would be possible to operate with one and not the other, or vice versa. We could have deaveraging without uncapping. We could have uncapping without deaveraging.
LISTNUM 1 \l 1839 The Commission could decide that and we would operate.
LISTNUM 1 \l 1840 So if it wasn't a question of ‑‑
LISTNUM 1 \l 1841 COMMISSIONER LANGFORD: No, no, I wasn't looking for preference. I am simply wondering whether they were severable in that way.
LISTNUM 1 \l 1842 I know you don't desire them to be, but operationally you could do it.
LISTNUM 1 \l 1843 MR. BIBIC: I apologize for not understanding your question.
LISTNUM 1 \l 1844 I believe they are operationally severable.
LISTNUM 1 \l 1845 COMMISSIONER LANGFORD: And I assure you if you didn't understand my question, the fault lies probably not at your table.
LISTNUM 1 \l 1846 Thank you very much.
LISTNUM 1 \l 1847 Thank you, Mr. Chairman.
LISTNUM 1 \l 1848 THE SECRETARY: Thank you, Mr. Koch.
LISTNUM 1 \l 1849 I would like to invite Counsel Dunbar and Counsel Engelhart, a representative of Québecor Media, Cogeco Cable Canada, Rogers Communications and Shaw Communications, referred to as "The Competitors", to come forward, please.
CROSS‑EXAMINATION / CONTRE‑INTERROGATOIRE
LISTNUM 1 \l 1850 MR. ENGELHART: Thank you, Mr. Chair. I am Ken Engelhart, on behalf of The Competitors.
LISTNUM 1 \l 1851 To my left is David McKeown, and to my right is David Watt, who will be assisting me.
LISTNUM 1 \l 1852 Good morning, Mr. Bibic, Dr. Hariton and panel.
LISTNUM 1 \l 1853 The last question by Commissioner Langford was perhaps a good segue into my first question, because I want to understand operationally how it would work to have rate deaveraging but not forbearance.
LISTNUM 1 \l 1854 As I understand it, you want to be able to charge different prices in different exchanges in the same band, and indeed to charge different prices to different people in the same exchange, but I want to know operationally, technically, mechanically, how that would work when you are not forborne, when you still have a tariff filing requirement.
LISTNUM 1 \l 1855 Because a tariff is a piece of paper that has a price on it, but you have a regime where you can charge everybody different prices.
LISTNUM 1 \l 1856 Can you explain operationally how that would work?
LISTNUM 1 \l 1857 MR. BIBIC: I take it, when you say operationally, that you mean in the context of demonstrating compliance with tariffing rules and price cap constraints, not that Bell Canada is going to have to figure out a way to bill its customers.
LISTNUM 1 \l 1858 Which one?
LISTNUM 1 \l 1859 MR. ENGELHART: The former.
LISTNUM 1 \l 1860 MR. BIBIC: The combination of our proposal as well as answers to interrogatories addresses many elements of that question, Mr. Engelhart, and it gets very complicated. I am by no means a compliance expert, but at a high level what we would be doing is filing tariffs with ranges, and there would be two types of ranges ‑‑ and these are proposals we have made in the context of the Rate Range Public Notice, which you are undoubtedly familiar with.
LISTNUM 1 \l 1861 So there would be a confidential rate range ‑‑ and imagine that it is $10 to $30. That would be the confidential rate range, $10 being the minimum and $30 being the maximum.
LISTNUM 1 \l 1862 Only Bell Canada or Bell Aliant, SaskTel, would know ‑‑ the Commission and the incumbent would know that the confidential range is $10 to $30.
LISTNUM 1 \l 1863 Within that confidential range we would file a publicly known range, say $15 to $25. So everyone else, including yourselves, would know that there is a public range, $15 to $25, which is a subset of a broader confidential range, and the incumbent could price anywhere within the $15 to $25 range without running afoul of the tariffing rules, because that would have been approved. The flexibility would have been given to us to do that.
LISTNUM 1 \l 1864 And at the time of filing our rate range proposal we would have demonstrated that, in all respects, the proposal would have been in compliance with whatever price cap constraints would have been in place at the time.
LISTNUM 1 \l 1865 So, at a high level, that's how we would suggest that we mechanize ‑‑ mechanistically, that is how it would work from a price cap point of view.
LISTNUM 1 \l 1866 MR. ENGELHART: So your proposal for rate deaveraging in this proceeding, in a context where you are not forborne in a given area, is really dependent on the approval of your proposal in the Range of Rates Proceeding.
LISTNUM 1 \l 1867 Is that correct?
LISTNUM 1 \l 1868 MR. BIBIC: It is dependent on ‑‑ I don't want to tie it expressly to the acceptance of our very specific proposal in the Rate Range Proceeding in all of its respects, but in order to make that flexibility operational, I believe it would be dependent on the flexibility to have ranges.
LISTNUM 1 \l 1869 MR. ENGELHART: For your VoIP offerings, the Commission has permitted you to have a range of rates, but has stated that at any given point in time there must be a rate. So it could be anywhere between the lower bound and the upper bound, but there is a single price at any given point in time.
LISTNUM 1 \l 1870 If a range of rates proposal such as that were permitted by the Commission in the Range of Rates Proceeding, that would make your deaveraging proposal a lot more complicated, wouldn't it?
LISTNUM 1 \l 1871 MR. BIBIC: I am not sure what you mean by complicated. That doesn't, in my view, constitute deaveraging at all.
LISTNUM 1 \l 1872 In the case of Bell Digital Voice Light, there is a range known to Bell and to the Commission, but the prohibition against deaveraging applies to that service. So whatever the price point is that we choose for that service within the range is the price point in all parallel ‑‑ similar rate bands.
LISTNUM 1 \l 1873 With Bell Digital Voice, there is a slight differentiation ‑‑ well, it's not slight, it is important in the sense that we can de‑average between Ontario and Quebec, but that is not the type of deaveraging that we are suggesting we be given the flexibility to engage in in this proceeding.
LISTNUM 1 \l 1874 MR. ENGELHART: What if the Commission said: As long as you are regulated, as long as you have tariffs, any given customer can only be charged a price that has been identified to us?
LISTNUM 1 \l 1875 If you did that, would it not be necessary to have a range of different tariffs or different prices for different customers, and then you would have to pick one?
LISTNUM 1 \l 1876 I will turn that around and put it into a question.
LISTNUM 1 \l 1877 If the Commission made you have an explicit price, before you could charge a customer that price, would you still want to have this deaveraging flexibility, or would it become mechanically or administratively too complex?
LISTNUM 1 \l 1878 MR. BIBIC: Could you repeat that question?
LISTNUM 1 \l 1879 I'm sorry, Mr. Engelhart.
LISTNUM 1 \l 1880 MR. ENGELHART: Sure. If, contrary to your proposal in the Range of Rates Proceeding, the Commission said: No, you have to identify a price ‑‑
LISTNUM 1 \l 1881 Now, that price could be in a smaller area than an exchange. It could even be in an area as small as a house, but you have to tell us what the price is in any given area, and then charge that price in that area.
LISTNUM 1 \l 1882 If that was the rule that the Commission imposed on you, would you still want deaveraging, or would it become too administratively complex?
LISTNUM 1 \l 1883 MR. BIBIC: I think that our proposal would be much easier to manage, from a price cap constraints compliance point of view.
LISTNUM 1 \l 1884 If you took it down to the household level, which, at one point, you said in your question, you could literally have millions of tariff filings, and I don't think it is reasonable to expect that we would be filing millions of tariffs, down to the household level, for any particular area.
LISTNUM 1 \l 1885 So the rate ranges would reduce the number of tariff filings that we would have to make, and it still could be done, as I said in my first answer to your first question, in a way that demonstrates compliance with all of the rules, including the imputation test rule and the price cap constraints.
LISTNUM 1 \l 1886 MR. ENGELHART: Thank you.
LISTNUM 1 \l 1887 I want to turn for a moment to your long distance telephone service, by way of an example.
LISTNUM 1 \l 1888 You would agree with me that, for your long distance telephone service, Bell is completely deregulated and not subject to any rule on deaveraging?
LISTNUM 1 \l 1889 MR. BIBIC: I don't believe we are subject to a rule on deaveraging, but we are not completely deregulated, as you know. That is why there is a forbearance application that was filed by Bell Canada with respect to removing the basic toll constraints.
LISTNUM 1 \l 1890 MR. ENGELHART: When I go to your website and I look at your rates for long distance service, I see that you have a number of different plans. There is a 10 cent a minute plan, there is 5 cent a minute plan, they have different upfront payments, et cetera, but what I don't see on your website is any limitation to any geographic area. They all seem to be available throughout your operating territory.
LISTNUM 1 \l 1891 Would you agree with me that your long distance plans are available throughout your operating territory?
LISTNUM 1 \l 1892 MR. COLLYER: Good morning. There isn't a geographic delimiter, per se, to your question. Our point of differentiation on our rate plans is basically the regions or countries called, in the case of an international long distance plan, and the rates contained therein.
LISTNUM 1 \l 1893 However, what we do is develop specific plans, which we make available territory‑wide, but they may actually be in response to regional competitors.
LISTNUM 1 \l 1894 MR. ENGELHART: So they are in response to regional competitors, but they are available territory‑wide?
LISTNUM 1 \l 1895 MR. COLLYER: That is correct, yes.
LISTNUM 1 \l 1896 MR. ENGELHART: Similarly, I have been to your website to look up your ExpressVu television service. Again, would you agree with me that this service is completely deregulated, and you are allowed to charge different rates in different geographic areas for this service?
LISTNUM 1 \l 1897 MR. BIBIC: I believe that's right.
LISTNUM 1 \l 1898 MR. ENGELHART: Again, though, when I look on your website, I see many different packages and options, but would you agree with me that they all seem to be available to all customers across Canada, and that there is no geographic deaveraging for your ExpressVu service?
LISTNUM 1 \l 1899 MR. COLLYER: There isn't geographic de‑average, per se. Certainly what we do is, for the Quebec market we have specific programming packages that obviously speak to the language and cultural needs of the Quebec market, and New Brunswick, and areas of high francophonie.
LISTNUM 1 \l 1900 MR. ENGELHART: But those services, at those rates, would be available for a francophone customer in Saskatoon, as well, would they not?
LISTNUM 1 \l 1901 MR. COLLYER: That is correct, yes.
LISTNUM 1 \l 1902 MR. ENGELHART: I have also been to your website to look at your high‑speed internet service. When I looked at that last week, I saw that you charge $20 a month for the first three months, and then $46.95 per month thereafter. But, again, this rate seemed to be available everywhere where customers can obtain high‑speed DSL service.
LISTNUM 1 \l 1903 Would you agree with me that you do not engage in any geographic rate deaveraging for your high‑speed service?
LISTNUM 1 \l 1904 MR. COLLYER: I wouldn't agree with that. We actually have a specific rate for the Quebec marketplace that is different. I believe it is $2 cheaper than it is in Ontario.
LISTNUM 1 \l 1905 MR. ENGELHART: That would apply throughout the entire province?
LISTNUM 1 \l 1906 MR. COLLYER: That is correct, yes, where we can provide high‑speed service.
LISTNUM 1 \l 1907 MR. ENGELHART: Could you have a look at paragraph 162 of your evidence, please?
LISTNUM 1 \l 1908 In the first sentence you say that differential pricing is widespread in competitive markets, to the point of being ubiquitous.
LISTNUM 1 \l 1909 If differential pricing is ubiquitous in competitive markets, why is it that you don't seem to engage in any sort of geographic differential pricing for your internet, long distance and satellite services, even though you are fully entitled to under the regulatory rules?
LISTNUM 1 \l 1910 MR. BIBIC: Mr. Engelhart, you are focusing on the geographic deaveraging component, and in each case, in each example, you have asked about the geography, but our competitors in the telecommunications industry engage in differential pricing, including yourselves, including Cogeco.
LISTNUM 1 \l 1911 For example, in Ontario there is a different price than there is in Quebec, and there is flexibility there to price differently in different cities in Ontario.
LISTNUM 1 \l 1912 You know yourself, quite well, from your own company, that if you buy Maclean's magazine, it is $5 or $6 if you buy it at the newsstand, and it can go down to 62 cents if you subscribe for over a year.
LISTNUM 1 \l 1913 Those are forms of deaveraging.
LISTNUM 1 \l 1914 You can look at what you do on the Rogers' home phone business, where you can get a $60 credit if you are a new customer, which is something that Bell certainly couldn't engage in.
LISTNUM 1 \l 1915 When I negotiate my automobile insurance rates, I can guarantee that I am not paying the same rate as you are paying, or as somebody else who is driving the same car and for the same amount of time as me. It all depends on the competitor and on my statistics.
LISTNUM 1 \l 1916 It is widespread. There is a significant amount of deaveraging that we could engage in, but that we cannot as a result of the regulatory rules.
LISTNUM 1 \l 1917 MR. ENGELHART: You keep saying that, but what I am trying to figure out is why you in fact don't do it for high‑speed and for ExpressVu and for long distance.
LISTNUM 1 \l 1918 In fact, as far as I know, we don't say that, for Maclean's magazine, there is a cheaper price for people in Kingston that is not available in Ottawa. We don't care where you live.
LISTNUM 1 \l 1919 Yes, there is a different newsstand price and there is a different subscription price.
LISTNUM 1 \l 1920 You have put your finger on it, Mr. Bibic.
LISTNUM 1 \l 1921 I am trying to figure out, if this rate deaveraging is so ubiquitous, why don't we see it in long distance? Why don't we see different long distance price discrimination?
LISTNUM 1 \l 1922 Can you tell me where you use your ability to rate de‑average in the long distance market? How does that manifest itself?
LISTNUM 1 \l 1923 MR. ROWE: If I might comment on the business segment, rate deaveraging is, in fact, very common, particularly on the medium and large business side, where customers use pricing frameworks, which are published, as a starting point for discussion, and then, clearly, on the basis of their needs, their buying power, et cetera, they negotiate a price point.
LISTNUM 1 \l 1924 I think it is very common in those markets.
LISTNUM 1 \l 1925 MR. ENGELHART: Maybe you have a better sales force for your business long distance service than we do, but it seems like all of our customers are hugely concerned that no one else is getting a better deal than them, and they want all sorts of "Most Favoured Customer" clauses, et cetera, put into their contracts.
LISTNUM 1 \l 1926 You don't find that for your business customers?
LISTNUM 1 \l 1927 MR. ROWE: We find that for some business customers that have a large buying power in the marketplace, but I would comment that that's not all customers.
LISTNUM 1 \l 1928 MR. ENGELHART: In the residential space, Mr. Rowe, can you tell me where in your long distance business you take advantage of your ability to rate the average?
LISTNUM 1 \l 1929 MR. ROWE: Actually, it would be Mr. Collyer that would speak to that.
LISTNUM 1 \l 1930 MR. ENGELHART: Thank you.
LISTNUM 1 \l 1931 Mr. Collyer?
LISTNUM 1 \l 1932 MR. COLLYER: Where we do it is in the variety of plans that we have out in the marketplace.
LISTNUM 1 \l 1933 I believe, currently, that our billing systems have 26 or 27 different rate plans that are loaded up. Each one of them has different price points, of which the majority of the rating points to ‑‑
LISTNUM 1 \l 1934 For example, we will take domestic. We have various blocks of time plans, depending on what your needs are as a customer. The more you buy, the better effective or commuted price point you get.
LISTNUM 1 \l 1935 For those customers who wish to pay as they go, we have various per minute price plans, depending on whether the customer is calling within Bell Ontario or Bell Quebec territory, to the United States, within the rest of Canada, and then, certainly, internationally.
LISTNUM 1 \l 1936 We have a variety of tiers of pricing internationally, depending on how important, particularly, route pricing is.
LISTNUM 1 \l 1937 I would say that is a relevant example.
LISTNUM 1 \l 1938 MR. BIBIC: The fact of the matter is that our various competitors aren't rolling out across our entire territory in a homogeneous way. That is the first point.
LISTNUM 1 \l 1939 Individual competitors themselves aren't rolling out their services in a homogeneous way from a pricing point of view.
LISTNUM 1 \l 1940 So deaveraging is more than simply the geographic dimensions. In the case of Rogers Home Phone, the poor fellow who signed up a year ago may not have got the free phone that you're giving away right now to the new customer. That is a form of deaveraging and, by the way, I don't think it's unfair that one customer gets a phone and not another.
LISTNUM 1 \l 1941 And who knows? Maybe there would be a lot more innovation on the pricing point of view, would it not, for the prohibition against deaveraging.
LISTNUM 1 \l 1942 MR. ENGELHART: Mr. Bibic, if you're patient, I will return to that Rogers customer with the phone, but right now I want to ask Mr. Collyer some more about long distance business.
LISTNUM 1 \l 1943 You've got 26 or 27 different plans. I don't disagree with the fact that there is a lot of different plans. Some you pay more upfront and you get a cheaper per minute rate and some you get to call free to Europe and some you get this, that and the other thing.
LISTNUM 1 \l 1944 But with those 26 or 27 different plans, are there any of them where you say, well, people in Kingston can have it, but people in Sherbrooke can't have it?
LISTNUM 1 \l 1945 MR. COLLYER: No, we do not.
LISTNUM 1 \l 1946 MR. ENGELHART: Is there any of them where you say, well, Mr McEwen can have it, but Mr. Watt can't have it?
LISTNUM 1 \l 1947 MR. COLLYER: No, we do not.
LISTNUM 1 \l 1948 MR. ENGELHART: They're pretty much available to anybody who wants them. Aren't they?
LISTNUM 1 \l 1949 MR. COLLYER: That is correct, yes.
LISTNUM 1 \l 1950 MR. ENGELHART: And similarly, for your ExpressVu satellite service, Mr. Collyer, do you have any examples where you're using your power to rate the average in that market?
LISTNUM 1 \l 1951 MR. COLLYER: None come to mind.
LISTNUM 1 \l 1952 MR. ENGELHART: And how about your high speed internet market. Can you give me any examples where you use your power to rate the average there?
LISTNUM 1 \l 1953 MR. COLLYER: Other than the example that I previously mentioned with respect to the differential in price between the Quebec market and the Ontario market, no, I cannot.
LISTNUM 1 \l 1954 MR. ENGELHART: Now, if you could have a look at paragraph 163 of your evidence, you say there that:
"Uniformed pricing can lead to economic inefficiency in three ways."
LISTNUM 1 \l 1955 In paragraph 163, you state in the third sentence:
"In an industry characterized by high fixed and common costs, mark‑ups of incremental costs are especially important so that all costs may be recovered and so that companies stay financially viable."
LISTNUM 1 \l 1956 You go on to say in the fifth sentence that:
"In the absence of such differential mark‑ups and hence, differential prices, recovering fixed and common costs becomes more difficult and may reduce output from levels that could otherwise be achieved."
LISTNUM 1 \l 1957 Do you think that your long distance service as high fixed and common costs?
LISTNUM 1 \l 1958 MR. HARITON: I believe so, Mr. Engelhart. I don't have a custody to hand, but I believe that would be true, yes.
LISTNUM 1 \l 1959 MR. ENGELHART: Do you believe that your failure to engage in geographic or other rate the averaging for your long distance service has threatened the financial viability of that service because of your inability to recover fixed and common costs?
LISTNUM 1 \l 1960 MR. BIBIC: I don't know the answer to the question although rates have gone down significantly since competition. So, there is an indication that, you know, competition doesn't lead to lower prices.
LISTNUM 1 \l 1961 So, I think the financial parameters of that business are certainly much different than they used to be, I suspect.
LISTNUM 1 \l 1962 MR. ENGELHART: I know that, Mr. Bibic, but what I want to know is why have you not engaged in rate the averaging for your long distance service, given the importance of rate the averaging in recovering fixed and common costs and maintaining your financial viability?
LISTNUM 1 \l 1963 MR. BIBIC: I don't agree that we haven't engaged in rate the averaging. We have engaged in rate the averaging in the form of the very narrow way that you've defined it, but clearly there is a different price for different buckets, for different types of calls and to analogize it to ‑‑ it's not on all floors with the local service business.
LISTNUM 1 \l 1964 So, for example, the new customer versus the old customer, that's the averaging. The averaging across to meet different competitive forces that's the averaging. It's not simply an issue of saying, well, just because you have 20 price points, but everyone ‑‑ anybody can get anyone of those 20 price points you're not engaging in the averaging and, therefore, you would never do it in a local service business.
LISTNUM 1 \l 1965 MR. ENGELHART: I think it is. Let's take your local service example for a moment.
LISTNUM 1 \l 1966 You have a proposal before the Commission right now that you remove the $55.00 installation charge and charge everybody 0.80 $ more.
LISTNUM 1 \l 1967 The Commission will do with that as it does, but assume for a moment that the Commission approves it, assume for a moment that the Commission feels that that's an appropriate proposal, would there be any rule that you are aware of that would prohibit you from saying in a local telephone market every new Bell Telephone customer gets the first three months for $20.00 or $15.00 or $10.00 and thereafter pays the going rate, the current tariff rate?
LISTNUM 1 \l 1968 In other words, is there anything in the rule against the averaging that would prevent you from giving a lower rate for the first three months to all customers in the entire band?
LISTNUM 1 \l 1969 MR. BIBIC: Of course, the win‑back rule would prevent that specific promotion, Mr. Engelhart.
LISTNUM 1 \l 1970 MR. ENGELHART: What if you didn't offer them the first three months? What if you said, look, anybody can come just like really with your high speed service that I found on the internet?
LISTNUM 1 \l 1971 Everybody in band B who, right now, is paying $23.00 a month for telephone service gets their first three months for $18.00 and not only don't you pay the $55.00 box upfront, we're actually going to give you a bit of a break for your first three months, but it applies to everybody in band B.
LISTNUM 1 \l 1972 Is there anything in the rule against rate the averaging that would prohibit that?
LISTNUM 1 \l 1973 MR. BIBIC: I guess this line of questioning shows why you and I aren't marketers, but I don't think that would make much sense, I suspect.
LISTNUM 1 \l 1974 I mean, there is nothing preventing us from saying right now we are going to impose a limited time promotion lowering our price to everybody in band B by $3.00 for the sake of, I suppose, gaining a few new customers, so we would get around the promotion rules which say that promotions can't be designed to win back customers, but I suspect, maybe my colleagues can help me out here, that that wouldn't make much business sense.
LISTNUM 1 \l 1975 MR. ENGELHART: My problem here, Mr. Bibic, is not as a marketer, but apparently as an advocate because I haven't explained myself very clearly.
LISTNUM 1 \l 1976 My proposal, you referenced a Rogers offer that gives a cheaper rate for new customers. I, for referenced a Bell Sympatico high speed offer that gives a cheaper rate for new customers.
LISTNUM 1 \l 1977 The way both of those services work, as I understand it, is not everybody in band B, just brand new customers in band B, folks that are taking up Bell service, either because they didn't have a phone before or because they had somebody else's phone before, they now want to take your phone and just like with your ExpressVu service and just like with the Rogers service that you referred to, these new customers get a cheaper rate for three months and then, they pay the same rate that everyone else paid.
LISTNUM 1 \l 1978 Would there be anything in the rule against the averaging that would prevent you from offering that to everyone in band B?
LISTNUM 1 \l 1979 MR. BIBIC: It could be done so long as it wasn't perceived or if the Commission was convinced that the promotion didn't involve an attempt to win back customers, then, yes.
LISTNUM 1 \l 1980 But if it were deemed as a way to entice only new customers in an effort to violate the win‑back rules, then I believe under the promotions restrictions that couldn't be done.
LISTNUM 1 \l 1981 So, it's possible, but not guaranteed.
LISTNUM 1 \l 1982 MR. ENGELHART: And if it wasn't a time limited offer, but in fact, a permanent change to your tariff at least until such time as your tariff was changed, would you agree with me that the promotions rules wouldn't be involved at all?
LISTNUM 1 \l 1983 MR. BIBIC: That's correct, although competitive dynamics would certainly be involved and we would have to factor in.
LISTNUM 1 \l 1984 Mr. Rowe and Collyer can help me out here, but we would have to factor in the different competitors who we face in the different cities that all happen to be, for example, in Band B and what they are doing in their respective territories.
LISTNUM 1 \l 1985 Mr. Engelhart, you are looking at me quizzically. We all know that Vidéotron's pricing in Band B in Québec is not the same as Rogers pricing in Band B in Ontario. So we have to factor obviously not only regulatory rules in our marketing decisions, but the competitive environment.
LISTNUM 1 \l 1986 MR. ENGELHART: All right.
LISTNUM 1 \l 1987 You have mentioned that Cogeco has different prices in Québec and Ontario; you have mentioned that Vidéotron has different prices in Québec than Rogers has in Ontario.
LISTNUM 1 \l 1988 Can you tell me what your competitors are doing by way of rate deaveraging that would not be cured by you have a rule that said you have to charge the same rate throughout a band in each province.
LISTNUM 1 \l 1989 Can you tell me, if that was the rule, what your competitors are doing today that would be something that you couldn't respond to.
LISTNUM 1 \l 1990 MR. BIBIC: In other words, is your question saying: If Bell were allowed to have different prices ‑‑ so the prices would have to be the same in Band B in Ontario, but not necessarily the same as the pricing for Band B in Québec, however the pricing for Band B in Québec would have to be the same.
LISTNUM 1 \l 1991 Is that what you are suggesting?
LISTNUM 1 \l 1992 MR. ENGELHART: Yes, just like with Bell Digital Voice. If that was the deaveraging rule that you had, what is it your competitors are doing today that you couldn't do?
LISTNUM 1 \l 1993 MR. BIBIC: I can't predict where competitors will go in pricing innovation and service innovation.
LISTNUM 1 \l 1994 MR. ENGELHART: That's why I said today.
LISTNUM 1 \l 1995 MR. BIBIC: Well, I don't know. I just don't know if Cogeco, for example, is pricing differently in Ontario ‑‑ I know it is pricing differently in Ontario and and Québec in some cases.
LISTNUM 1 \l 1996 I don't know if it's pricing differently within Ontario, but I do remember the representative from Cogeco indicating in a line of questioning from Chairman French that they do take into account demographics and customer demands on a market‑by‑market basis, and I believe Monsieur Despatie of Vidéotron said that at one point, too.
LISTNUM 1 \l 1997 So I, as I sit here today, don't know what my competitors are going to do.
LISTNUM 1 \l 1998 You are asking me to agree with you that regulatory rules could be put in place that give us more flexibility. True. I don't know if it is sufficient flexibility to respond to market forces.
LISTNUM 1 \l 1999 MR. ENGELHART: Well, it just seems that you go around saying that it is so ubiquitous, all this rate deaveraging is ubiquitous, everybody does it. It reminds me of my kids, you know, everyone else has a TV in their room, but then you start calling the other parents up and it turns out to be one other student.
LISTNUM 1 \l 11000 Where is all this rate deaveraging in our industry? You have made a fair point that there are some provincial differences, but where is all this rate deaveraging?
LISTNUM 1 \l 11001 At Rogers, we tend to charge everybody the same price for Maclean's Magazine or for our local phone service, certainly within a province.
LISTNUM 1 \l 11002 So tell me what your competitors are doing out there by way of local telephone rate deaveraging today.
LISTNUM 1 \l 11003 I agree with you the future is unclear, but I'm not getting all these examples of people rate deaveraging in the businesses that we are talking about.
LISTNUM 1 \l 11004 MR. BIBIC: I guess we have a different understanding of what "rate deaveraging" means. All the activities that Rogers engages in where they have special promotions, albeit for a limited time I suppose, for new customers is rate deaveraging.
LISTNUM 1 \l 11005 MR. ENGELHART: Well, could you file a tariff saying ever new Bell customer for local phone service gets a VTech phone?
LISTNUM 1 \l 11006 MR. BIBIC: That might be perceived as a win‑back offer and violate the promotions rules.
LISTNUM 1 \l 11007 MR. ENGELHART: But it's not win‑back if it's every new customer. The guy might be moving here from California, he might have never had a phone before and figured it was time to take the plunge. So wouldn't you agree with me that as long as you charge that same price throughout all of Band B, that price being free VTech phone for any new customer, you could file that tariff. That doesn't violate the rule against deaveraging.
LISTNUM 1 \l 11008 MR. BIBIC: One of the restrictions in Decision 2005‑25, which is the revised promotions decision, is that the offer must be generally available ‑‑ so yes on that count ‑‑ but cannot be limited to win‑back. So it all depends on the Commission's perception of whether or not offering VTech phones to new customers would be tantamount to a win‑back offer, given that new customers, in most of the cases I suspect, would be coming from somewhere else. Sure, they may be coming from outside the territory, but in many cases they will be coming from your company.
LISTNUM 1 \l 11009 MR. ENGELHART: Well, I am really not talking about win‑back promotions, but to make this quicker let's accept that there may be a problem with the win‑back rules in the VTech phone scenario, there may be a problem in the promotions rules with the VTech phone scenario, but as you pointed out to Mr. Koch, you haven't come here to argue about those rules, you have come here to argue about the rule against deaveraging.
LISTNUM 1 \l 11010 So would you agree with me that there is nothing in the rule against deaveraging that prevents you from making the VTech phone offer to all new customers?
LISTNUM 1 \l 11011 MR. BIBIC: Mr. Engelhart, I know I'm not here to argue about things that aren't in our scope, but how can I possibly answer your question about what we can and can't do in isolation without taking into account what we really can and can't do given the overall regulatory framework.
LISTNUM 1 \l 11012 Is the rule that is preventing me from doing what you are suggesting we could do the deaveraging rule per se, the prohibition against deaveraging per se ‑‑ no ‑‑ but taken into tally the combination of the two and the potential violation of the win‑back restriction and the promotions rules would prevent us from engaging in the type of promotion you are putting to me, as well as the fact that there is actual competitive reality that the marketing people have to respond to.
LISTNUM 1 \l 11013 It is not all about regulatory, we do have to put promotions or pricing offers through the regulatory machine as well, but it is not just about that.
LISTNUM 1 \l 11014 MR. ENGELHART: No, but Rogers doesn't say you can only get the VTech phone if you have blue eyes and blonde hair. We don't say you can only get the VTech phone if you live on the sunny side of the street. Everybody can get the VTech phone when they sign up.
LISTNUM 1 \l 11015 So as long as you are willing to do that too, would you agree with me that the rule against rate deaveraging is not an impediment?
LISTNUM 1 \l 11016 MR. BIBIC: Neither you nor I know where marketing offers will go and it may be that is how the market develops.
LISTNUM 1 \l 11017 Now, when Rogers offers Rogers Home Phone using its own facilities as opposed to the Rogers Telecom business it is facing one primary competitor, being Bell, as well as all the other competitors that we both face, like wireless operators and Voice over IP operators. On the other hand, Bell Canada, across its entire territory faces a number of competitors, not all of whom have homogeneous product offerings in terms of pricing structure.
LISTNUM 1 \l 11018 MR. ENGELHART: Let me ask you again a bit about your ExpressVu satellite service.
LISTNUM 1 \l 11019 Would you agree with me that there is high fixed and common costs for that service?
LISTNUM 1 \l 11020 MR. COLLYER: Yes, we would.
LISTNUM 1 \l 11021 MR. ENGELHART: Do you think that your failure to engage in rate deaveraging for your ExpressVu satellite service has threatened the financial viability of that service because of your inability to recover fixed and common costs?
LISTNUM 1 \l 11022 MR. BIBIC: I don't know. I don't know.
LISTNUM 1 \l 11023 MR. ENGELHART: Why have you not engaged in rate deaveraging for your ExpressVu satellite service, given the importance of rate deaveraging in recovering your fixed and common costs and maintaining your financial viability?
LISTNUM 1 \l 11024 MR. BIBIC: Would you repeat the question, Mr. Engelhart.
LISTNUM 1 \l 11025 MR. ENGELHART: Why have you not engaged in rate deaveraging for your ExpressVu satellite service given its importance in recovering your fixed and common costs and maintaining your financial viability?
LISTNUM 1 \l 11026 MR. BIBIC: I don't know.
LISTNUM 1 \l 11027 MR. ENGELHART: Do you think that your Sympatico high speed service has high fixed and common costs?
LISTNUM 1 \l 11028 MR. BIBIC: I suspect they do.
LISTNUM 1 \l 11029 MR. ENGELHART: Do you believe that your failure to engage in geographic rate deaveraging, or any rate deaveraging, for your Sympatico high speed service has threatened the financial viability of that service because of your inability to recover fixed and common costs?
LISTNUM 1 \l 11030 MR. BIBIC: I believe Mr. Collyer indicated that we do engage in geographic rate deaveraging for Sympatico services.
LISTNUM 1 \l 11031 MR. ENGELHART: $2.00 different in Quebec, quite so. Is that what has saved the financial viability of that service?
LISTNUM 1 \l 11032 MR. BIBIC: That was a response to the competitive dynamic in Quebec.
LISTNUM 1 \l 11033 MR. ENGELHART: For your local phone service, you actually can have four different rate bands: Band A, Band B, Band C and Band D. In fact, if you get to the outer reaches of the provinces, there is E, F and G.
LISTNUM 1 \l 11034 You don't do anything like that with your Sympatico high speed service. Why has that not made it difficult for you to recover fixed and common costs and to maintain your financial viability for Sympatico high speed service?
LISTNUM 1 \l 11035 MR. BIBIC: I suspect that primarily the pricing for Sympatico service is that ExpressVu services are being driven by the competitive marketplace, and that is what is determining how those prices are set. There is no restriction, deaveraging, win‑back promotions or otherwise. So there is the flexibility there to do what is necessary to respond to the competitive marketplace.
LISTNUM 1 \l 11036 I don't think that the notion of differential pricing is that radical. It does occur quite often without in most industries or any industry, I suspect, these types of rules.
LISTNUM 1 \l 11037 MR. ENGELHART: You keep saying that but you can't really give me any examples.
LISTNUM 1 \l 11038 MR. BIBIC: I gave you examples with Cogeco.