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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TELECOMMUNICATIONS COMMISSION
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT:
Review of 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
Transcripts
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
Contents.
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Transcription
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Telecommunications Commission
Conseil de la radiodiffusion et des
télécommunications canadiennes
Transcript / Transcription
Review of 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
Review Panel
COMPANIES-1 Opening Statement Submitted by 301 / 2033
Bell Aliant, Bell Canada, and
Saskatchewan Telecommunications
(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
à 0858
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?
‑‑‑ Pause
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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.