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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 13, 2006 Le 13 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 13, 2006 Le 13 octobre 2006
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PREVIOUSLY AFFIRMED: BERNIE LEFEBVRE 863 / 5755
PREVIOUSLY AFFIRMED: TERESA GRIFFIN‑MUIR 863 / 5755
PREVIOUSLY AFFIRMED: KELVIN SHEPHERD 863 / 5755
Cross-examination by TELUS 864 / 5760
Cross-examination by The Consumer Groups 873 / 5836
ASSERMENTÉ: MICHEL MESSIER 923 / 6236
AFFIRMED: DAVID WATT 923 / 6236
ASSERMENTÉ: JEAN BRAZEAU 923 / 6236
ASSERMENTÉ: DENNIS BÉLAND 923 / 6236
Examination-in-chief by The Competitors 924 / 6243
Cross-examination by The Companies 926 / 6273
Cross-examination by TELUS 965 / 6533
Cross-examination by The Consumer Groups 1026 / 6996
Cross-examination by BCOAPO 1057 / 7213
- v -
EXHIBITS / PIÈCES JUSTICATIVES
No. PAGE / PARA
BELL Total number of payphones 862 / 5752
CANADA‑1 Bell Canada has in service
and the number that are
profitable by type of set
and configuration (i.e. whether
the phone accepts cash, cards
or a combination of the two)
‑ Response to undertaking CRTC‑8
‑ Abridged and confidential
THE Telecom Decision CRTC 2003‑26
COMPANIES‑8 dated 28 April 2003 933 / 6323
THE Globe and Mail ‑ B4 ‑ News
COMPANIES‑9 article entitled "Rogers cranks
up phone push" dated
10 October 2006 939 / 6362
THE Tribute communities publicity
COMPANIES‑10 entitled "Imagine a year of
Rogers for Free" 956 / 6463
TELUS‑3 Cogeco Cable Inc. Total
Digital Telephony Subscribers
and New Digital Telephony
Subscribers, Quarterly Graph
from 31 Aug. 2005 to 31 May 2006 967 / 6553
TELUS‑4 Cogeco Cable Inc. press
release entitled "Customer
growth fuels near doubling
of net income" 971 / 6579
TELUS‑5 Cogeco Cable Inc. press
release entitled "Cogeco
Cable reports substantial
growth and expects sustained
improvements for fiscal 2007" 974 / 6599
- vi -
EXHIBITS / PIÈCES JUSTICATIVES
No. PAGE / PARA
TELUS‑6 Shaw news release entitled
"Shaw Communications Inc.
announces third quarter
results and initial
Digital Phone growth" 981 / 6646
TELUS‑7 Shaw news release
(June 30, 2006).
Shaw Communications increases
guidance and dividend based
on continued positive third
quarter results 988 / 6710
TELUS‑8 Investor Presentation Shaw
update on Shaw Communications
Inc. ‑ February 22, 2006 995 / 6754
TELUS‑9 Press release entitled
"Rogers Launches Residential
Phone Service in more
Communities across Ontario" 1000 / 6795
TELUS‑10 Rogers Communications Reports
Strong Second Quarter 2006
‑ results 1003 / 6824
TELUS‑11 City Fido Home & mobile
service geographic map 1010 / 6890
TELUS‑12 Urban Fido ‑ screen shot
dated Oct. 11, 2006 1017 / 6941
- vii -
UNDERTAKINGS / ENGAGEMENTS
No. PAGE / PARA
TELUS‑1 Undertaking by Cogeco to
provide 4th quarter results
of the company by
26 October 2006 if
publicaly available 1023 / 6983
TELUS‑2 Undertaking by Shaw to
provide 4th quarter results
of The Company by
26 October 2006 if
publicaly available 1023 / 6983
CRTC‑10 MTS Allstream to refer
(abridged) to the response to
interrog. MTS (CRTC)26 Jun01‑1202
1) for the years 1998 to 2002,
provide the penetration rates
for the residential optional
local services identified
therein, either as part of a
bundle or taken separately
for Manitoba. If services
were provided as part of a
bundle, provide the price
of the bundle
2) provide current percentage
of residential local exchange
service subscribers who take
at least one optional local
service for Manitoba 1024 / 6988
- viii -
UNDERTAKINGS / ENGAGEMENTS
No. PAGE / PARA
CRTC‑11 TELUS to refer to the
(confidential) response to interrog.
1) for the years 1998 to 2002,
provide the penetration rates
for the residential optional
local services identified
therein, either as part of
a bundle or taken separately
for Alberta and British
2) provide the current
percentage of residential
local exchange service
subscribers who take at
least one optional local
service for Alberta and
British Columbia respectively 1025 / 6989
CRTC‑12 Undertaking to Telus
regarding Price Cap Parameters 1056 / 7208
CRTC‑13 Undertaking to The Companies
regarding Price Cap Parameters 1056 / 7209
CRTC‑14 Cogeco, Shaw, Rogers, QMI
to list of all service
offerings that include
primary exchange service for
business and residential
customers, setting out the
rates terms and conditions
broken out by local forbearance
region as of today's date 1080 / 7382
CRTC‑15 Cogeco, Shaw, Rogers, QMI
to provide data regarding
the serving areas that remain
subject to analog, uni‑directional
technology 1127 / 7667
- ix -
UNDERTAKINGS / ENGAGEMENTS
No. PAGE / PARA
CRTC‑16 Cogeco, Shaw, Rogers and QMI
to provide information regarding
the extent to which individuals
and/or civic addresses are
currently unable to access the
high speed cable offering in the
cable provider service area and
information regarding the efforts
that would be required to provide
service to those individuals
and/or locations 1137 / 7735
- x -
THROUGHOUT VOLUME 3, 2006/10/12:
"MR. SHEPHERD" s.b. "MR. LEFEBVRE:"
"MR. LEFEBVRE" s.b. "MR. SHEPHERD:"
Gatineau, Quebec / Gatineau, Québec
‑‑‑ Upon resuming on Friday, October 13, 2006
at 0859 / L'audience reprend le vendredi
13 octobre 2006 à 0859
5748 LE PRÉSIDENT: À l'ordre, s'il vous plaît.
5749 Madam Secretary, what do you have for us this morning?
5750 THE SECRETARY: Good morning, everyone.
5751 Before we start the day, it was brought to my attention that I forgot to log in an undertaking from the CRTC on the 11th of October. It was a Commission undertaking for Bell Canada to identify the total number of pay phones Bell Canada has in service and the number that are unprofitable by type or set and configuration.
5752 The answer came in this morning as an exhibit, so it is registered as Bell Canada Exhibit No. 1. I have already distributed both the abridged and the confidential version to the panel.
EXHIBIT NO. BELL CANADA‑1: Total number of payphones Bell Canada has in service and the number that are profitable by type of set and configuration (i.e. whether the phone accepts cash, cards or a combination of the two)
‑ Response to undertaking CRTC‑8
‑ Abridged and confidential
5753 THE CHAIRPERSON: Thank you, Madam Secretary.
5754 THE SECRETARY: We will now resume with the MTS witness panel, introducing TELUS for cross‑examination.
5755 Counsel Edora, please come forward.
PREVIOUSLY AFFIRMED: BERNIE LEFEBVRE
PREVIOUSLY AFFIRMED: TERESA GRIFFIN‑MUIR
PREVIOUSLY AFFIRMED: KELVIN SHEPHERD
5756 THE CHAIRPERSON: Would you introduce yourselves, please.
5757 MR. EDORA: Good morning, Mr. Chair.
5758 I am Eric Edora. I am representing TELUS to cross‑examination the witness panel of MTS Allstream this morning.
5759 Accompanying me this morning is Dr. Jeff Bernstein, who you had the pleasure of watching yesterday testify on TELUS' behalf.
CROSS‑EXAMINATION / CONTRE INTERROGATOIRE
5760 MR. EDORA: Good morning, panel.
5761 MS GRIFFIN‑MUIR: Good morning.
5762 MR. LEFEBVRE: Good morning.
5763 MR. EDORA: I would like to start this morning by looking at your approach calculating the "X" factor in your comments. So I think that most of my questions are going to be addressed to Mr. Lefebvre, most of the questions at the beginning.
5764 Mr. Lefebvre, if you can kindly turn to page 20 of your comments at paragraph 34.
5765 MR. LEFEBVRE: All right. I have it.
5766 MR. EDORA: The very first paragraph begins:
"The approach adopted to set the 'X' factor in Decision 2002‑34 was reasonable and appropriate at the time." (As read)
5767 What I want to do this morning is, I want to understand some of the logic that MTS Allstream used to develop its "X" factor.
5768 MR. LEFEBVRE: All right.
5769 MR. EDORA: As a result, I just want to go through these paragraphs in order and understand what is going on.
5770 At the very outset I would like to say that it is my understanding that the "X" factor from Decision 2002‑34 was 3.5 percent and that was based on the marginal cost of providing residential PES services.
5771 Is that correct?
5772 MR. LEFEBVRE: That's right.
5773 MR. EDORA: Going back to your evidence, from what I understand, in the paragraphs following paragraph 34 you go through your approach for setting the "X" factor for the next price cap period, and from what I seek specifically I'm looking at paragraph 36 ‑‑ you cite studies on the productivity growth based on the total factor productivity approach.
5774 MR. LEFEBVRE: That's right.
5775 MR. EDORA: This is the TFP approach?
5776 MR. LEFEBVRE: That's right.
5777 MR. EDORA: Now, the TFP approach, from my understanding, is based on the productivity of a firm for all of its services.
5778 Is that correct?
5779 MR. LEFEBVRE: That's right.
5780 MR. EDORA: So now I'm looking at paragraph 37 and you say that:
"These studies show that scale economies are the most significant factor explaining historical TFP growth." (As read)
"At least 60 and as much as 80% of annual TFP growth has been explained by scale economies." (As read)
5782 MR. LEFEBVRE: That's right.
5783 MR. EDORA: Then I looked at paragraphs 40 and 41 and my understanding is that because you feel that economies of scale are going to be decreased in magnitude in the future that a reduction of the "X" factor of 60 percent is justified?
5784 MR. LEFEBVRE: Well, it's not so much that economies of scale are going to be decreased, but certainly output growth will and the combination of the two would be consistent with declining productivity.
5785 MR. EDORA: All right.
5786 To summarize, you review studies based on the TFP approach and these studies show that economies of scale drive 60 to 80 percent of productivity and that because of the economies of scale and other factors in the future, because of the decrease in magnitude of these factors, your approach for computing the "X" factor here is to use the TFP adjustment and then reduce the "X" factor applied to Res PES services by 60 percent?
5787 MR. LEFEBVRE: Yes. Basically what I'm doing is looking at the fact that the two main determinants are output growth in the presence of economies of scale and technology and using that relationship that has been derived at the total factor productivity level and using that for the Res PES adjustment.
5788 MR. EDORA: All right.
5789 MR. LEFEBVRE: So I am assuming that that same general relationship would apply for the more narrower base of Res primary exchange services.
5790 MR. EDORA: Mr. Lefebvre, you understand that this is an all services adjustment that you are specifically applying to Res PES?
5791 MR. LEFEBVRE: Well, I understand that it is a relationship that is determined on the basis of a total factor productivity group of studies that were looking at total output.
5792 MR. EDORA: Right. All right.
5793 This yields MTS Allstream's proposed "X" factor of 1.5 percent?
5794 MR. LEFEBVRE: That's right.
5795 MR. EDORA: All right.
5796 I would like to now turn to your proposed "X" for Category 1 competitor services, where you discuss a proposed "X" for Category 1 competitor services.
5797 I would just like to begin by confirming, in Decision 2002‑34 my understanding is that the Commission used Res PES as a proxy for the "X" for competitor services.
5798 Is that correct?
5799 MR. LEFEBVRE: Yes, that's right.
5800 MR. EDORA: I believe that MTS Allstream deal with its competitor services "X" evidence in interrogatories, so if you can please turn first to MTS Allstream CRTC Interrogatory 1202, the supplemental response filed on 4 October 2006.
5801 MR. LEFEBVRE: Sorry, that refers to CRTC 203, so I presume it is a cross‑reference to the 1202.
5802 MR. EDORA: Yes. I would like to first turn to 1202, please.
5803 MR. LEFEBVRE: All right. Yes, we have 1202 here.
5804 MR. EDORA: I am just focusing in on the Commission's question in 1202(b). My understanding on this question was that MTS Allstream was asked whether its proposed "X" of 1.5 percent that you calculated for Res PES in your comments should be applied to competitor services.
5805 So in response you referred to CRTC‑203 supplemental.
5806 MR. LEFEBVRE: That's right.
5807 MR. EDORA: So if you wouldn't mind turning to Interrogatory CRTC‑203, please, the supplemental response filed for October 2006?
5808 MR. LEFEBVRE: I have it.
5809 MR. EDORA: I am looking at the bottom of page 2 of 4 and I am just going to read for simplicity sake.
"In MTS Allstream's view, without an examination of cost levels and trends for the individual Category 1 competitor services in the context of the current price caps review proceeding, there is no basis for proposing any changes to existing Category 1 competitor service rate element constraints at this time." (As read)
5810 My reading of this question is that you say you can't use the 1.5 percent that you computed for the "X" for Res PES as a proxy because you don't know the costs of individual Category 1 competitor services.
5811 Is that correct?
5812 MR. LEFEBVRE: No, I don't think that is what we are saying at all.
5813 What we are saying here is that if we are going to look at what the "X" should be for any individual services within the competitor services basket, we need to look at the services individually and that is out of the scope and so we have no basis for proposing any "X" factor for any individual service or any rate element applicable to any competitor service.
5814 MR. EDORA: So you are proposing the continued "X" factor of 3.5 percent.
5815 Is that correct?
5816 MR. LEFEBVRE: We are saying we have no way of determining whether it should change, so we are not proposing anything "X" factor. Well, we are not proposing any changes to what is there already.
5817 MR. EDORA: What evidence are you lacking, what evidence would you require to propose a change to the "X" factor?
5818 MR. LEFEBVRE: I think you would have to look at the individual services in the basket and see if they bear any resemblance to Res PES to allow the 1.5 to be transferred over to the competitor.
5819 MR. EDORA: Would you have to examine the individual cost elements?
5820 MR. LEFEBVRE: We would have to look at the services and what the cost trends are, what the growth trends are in those services. As I said, I understand that to be out of scope.
5821 MR. EDORA: So would you agree that in Decision 2002‑34 the Commission used Res PES as a proxy for the "X" factor, even though it did not have the individual cost elements for Category 1 competitor services?
5822 MR. LEFEBVRE: I know they use the same X factor, and there may have been some reservations about extending it to that group of services. I am not sure to what extent they looked at individual costs for services in that basket in making that decision.
5823 In any event, if we were looking at resetting it, we would take a different approach. We would look at the costs before we make any changes to the X factor applicable to the services, and especially individual services within that basket. I think it's appropriate to look at what those services are, what the cost trends may be, what the growth trends in those services may be.
5824 I don't think it is necessarily appropriate just to apply that same element of Decision 2002‑34 to services in that basket.
5825 MR. EDORA: So you would say that you would use a different approach for this particular proceeding than was used in Decision 2002‑34.
5826 MR. LEFEBVRE: I would say if it was within scope, we wouldn't be looking at services within that basket and would likely propose a different X factor. We don't know. We haven't been able to look ‑‑
5827 MR. EDORA: No. My question is: You would say that you would use a different approach than used in Decision 2002‑34.
5828 MR. LEFEBVRE: Possibly.
5829 MR. EDORA: If I remember comments correctly, you said that the approach used in Decision 2002‑34 was reasonable and appropriate.
5830 MR. LEFEBVRE: No. I said that ‑‑ what we indicated back in the comments was that the approach the Commission took in 2002‑34 to set an X factor for the residence service, it was appropriate. And we agreed with the methodology of using marginal cost trend data to set the 3.5 for residence services.
5831 MR. EDORA: Thank you, Mr. Lefebvre.
5832 Mr. Chair, those are the questions of TELUS for MTS Allstream at this time.
5833 THE CHAIRPERSON: Thank you very much.
5834 THE CHAIRPERSON: No need for introductions.
5835 MR. LAWFORD: Thank you very much, Mr. Chair.
CROSS‑EXAMINATION / CONTRE‑INTERROGATOIRE
5836 MR. LAWFORD: Good morning, panel.
5837 We are going to start pretty much where TELUS left off, so you will be in familiar territory.
5838 You have proposed not only a new price cap formula but also changes to the basket structure. Is that correct?
5839 MS GRIFFIN‑MUIR: Yes, that is correct.
5840 MR. LAWFORD: Under the proposal that you have made for your price cap formula, do you feel that you can recover your not imprudently incurred ILEC costs?
5841 MS GRIFFIN‑MUIR: I would hope so, yes.
5842 MR. LAWFORD: Let's go back to the calculation of your actual X factor, if I could, for a moment.
5843 You have proposed the 1.5 productivity factor at paragraph 44. Correct?
5844 MR. LEFEBVRE: That's right.
5845 MR. LAWFORD: Can I ask you a question that was raised yesterday, Mr. Lefebvre, by counsel for Bell; just the calculation of the 60 percent reduction.
5846 Is that going to settle on 1.4 or 1.5 percent?
5847 MR. LEFEBVRE: It is 1.4.
5848 MR. LAWFORD: It is 1.4 now?
5849 MR. LEFEBVRE: That's right. If you make the calculation, it is 1.4. If you remove 60 percent of 3.5, we have rounded that to 1.5.
5850 MR. LAWFORD: Okay. So you are taking away .1 percent right now?
5851 MR. LEFEBVRE: No. I have just said that if you strictly apply the 60 percent adjustment, you actually end up at 1.4. Our proposal is 1.5.
5852 MR. LAWFORD: So is your proposal 1.5 or 1.4?
5853 MR. LEFEBVRE: Well, from our evidence it is clearly 1.5.
5854 MR. LAWFORD: So you are sticking with 1.5.
5855 MR. LEFEBVRE: I don't think we ever moved off 1.5.
5856 MR. LAWFORD: Thank you.
5857 You obtained that figure by looking at two economic studies. These are referenced at paragraph 37 in the evidence.
5858 One is by Denny and another by Kiss.
5859 I didn't get copies of the actual studies.
5860 MR. LEFEBVRE: I believe we provided copies. It might have been Consumer Groups 23.
5861 MR. LAWFORD: The portion that I'm going to refer to is referenced in an interrogatory.
5862 In those particular studies they had a range. One was 60 percent ‑‑ I think that was the Denny one ‑‑ and the other one was 80 percent of ILEC costs were attributable to scale economies.
5863 Is that right?
5864 MR. LEFEBVRE: Yes. Basically it was a decomposition of total factor productivity growth over approximately a 30‑year period, and it was found that on average during that period. It varied depending on the study and the model looked at, I believe, in the studies.
5865 It ranged from 60 to 80 percent, the contribution of scale and output growth.
5866 MR. LAWFORD: In paragraph 39 in your evidence you noted that the Commission has noted that ILEC residential lines are decreasing, on average, about 1 percent per year during the last price cap period.
5867 Is that correct?
5868 MR. LEFEBVRE: That's right. And MTS' lines are decreasing even faster.
5869 MR. LAWFORD: This is where you tie the two together. It seems that you are suggesting that the 60 percent discount of productivity from scale economies is completely lost when the local access lines are no longer growing.
5870 Is that correct?
5871 MR. LEFEBVRE: Essentially, that's right. What we are saying is that when you have negative growth, the economies of scale factor isn't positive. So you lose that effect.
5872 MR. LAWFORD: In MTS' incumbent territory in Manitoba, are you selling such things as primary access, secondary access lines, special access lines, private lines, local transport, switch usage for local calls, switch usage for toll calls, switch base ‑‑
5873 THE CHAIRPERSON: Mr. Lawford, if you are serious about this and you really want to know about these products, why don't you ask them one‑by‑one.
5874 The collectivity is very hard to answer.
5875 MR. LAWFORD: The question could be rephrased; I'm sorry.
5876 THE CHAIRPERSON: All right.
5877 MR. LAWFORD: Through the network do you have other services that you sell besides primary exchange service?
5878 MS GRIFFIN‑MUIR: Yes, we do have other services.
5879 MR. LAWFORD: Do you use the network as well to sell DSL?
5880 MS GRIFFIN‑MUIR: Yes.
5881 MR. LAWFORD: Maybe this is for Mr. Lefebvre.
5882 Do you consider any of those outputs as productivity in your productivity calculation?
5883 MR. LEFEBVRE: In the determination of the X factor, we are looking strictly at marginal cost trend data for Res PES on our exchange service.
5884 MR. LAWFORD: I am going to ask you then: Shouldn't productivity growth be calculated on the sum of these other outputs, the total sum of these outputs?
5885 I am going to refer you now to Interrogatory MTS Allstream‑CRTC‑102, at page 2.
5886 It says ‑‑ and I'm quoting:
"The TFP growth is generally dependent, not only on the rate of technological change, but also on the degree of overall economies of scale, together with the rate of growth in aggregate output."
5887 I am wondering what the word "aggregate" means if it doesn't mean all of the outputs.
5888 MR. LEFEBVRE: Well, in this respect here, these studies were done at the firm level. They are looking at total factor productivity. Total factor productivity covers all outputs, all inputs used by the firm to produce those outputs.
5889 What we are doing in terms of determining the X factor is we are looking at residence primary exchange service cost trend data. So many of those services that are covered in total factor productivity aren't even subject to price cap regulation.
5890 I think you have already heard from Mr. Hariton on this and Dr. Bernstein as well, I believe, to some degree.
5891 Total factor productivity is firm level. We are looking at something obviously much more narrowly focused on residential primary exchange services, which is appropriate for the determination of the X factor for what is regulated under price caps.
5892 MR. LAWFORD: Earlier in your evidence you stated that the Commission should not simply update the X factor based on a review of the Bell historical marginal cost, but instead ‑‑ and this is at paragraph 35 of your evidence ‑‑ and I am going to quote again:
"The X factor for the next price cap period should be based on environmental conditions that are expected to prevail during the upcoming price cap period." (As read)
5893 Is that correct?
5894 MR. LEFEBVRE: That's right.
5895 MR. LAWFORD: But you are basing your best guess for the productivity factor on a scale economy discount of 60 percent, which was arrived at, in part, from the Denny Study ‑‑ Anicus Study ‑‑ and that they, in turn, relied upon examining historical Bell Canada productivity data.
5896 Is that not correct?
5897 MR. LEFEBVRE: That's right.
5898 The issue here is, when you look back at the marginal cost trend data that has been used, it was for the period 1988, I believe, to 2001, and you are looking at a period there where, on average, residential lines were growing.
5899 The productivity studies that we are relying on look at a time period ‑‑ there are 30 or 40 years of data there that look at a time period where all outputs were growing.
5900 When you are looking at setting the X factor, the question is, do we want to update that 1998 to 2001 trend data with a few more years, or even forecast it, or do we simply just want to look at what is happening in the price cap period coming up.
5901 We know that line growth is negative. It hasn't been negative in the past. So there is a significant difference in terms of what is happening and what is expected to happen during the upcoming price cap period and the historical data that was used to generate the X factor and has been used to generate the X factor in the past.
5902 So we are recognizing that break in the historical data that we are not going to see in the price cap period.
5903 MR. LAWFORD: Isn't that sort of the point here?
5904 It seems that you are basing your position of the productivity factor ‑‑ you are inclined to do that on future estimates, and yet the productivity numbers you are using are, in a sense, derived from more ancient data, if I could put it that way.
5905 Wouldn't it be better, if we are going to be consistent with your position at paragraph 35, to use more recent productivity numbers?
5906 MR. LEFEBVRE: I think we are using reasonably recent productivity data. We have data from 1988 to 2001. The question is, is there something fundamentally different that is happening today and is expected to happen in the next few years that would suggest that that data should be adjusted, and we are saying that it should be adjusted for the line loss.
5907 MR. LAWFORD: Wouldn't it be of assistance to have the data from 2001 to the present for the productivity calculation?
5908 MR. LEFEBVRE: I guess that Bell has updated its marginal cost data for the last few years and extrapolated for it, as well, as has TELUS. So we can see what is happening to marginal cost trend data for residential primary exchange service.
5909 So we do have some information in that respect.
5910 MR. LAWFORD: Thank you.
5911 I am going to go back to paragraph 35 one more time. It says:
"The X factor for the next price cap period should be based on the environmental conditions that are expected to prevail during the upcoming price period." (As read)
5912 I have almost a theoretical question, I guess. Would environmental conditions be wide enough to include the concern over the effect of corporate restructuring into an income trust in order to save corporate income tax, which was suggested in questions by Commissioner Langford?
5913 Would environmental conditions possibly be wide enough to include that type of consideration in the new productivity calculation?
5914 MR. LEFEBVRE: It's hard to say. I am not really sure exactly how you would take that into account, or whether you should.
5915 MR. LAWFORD: Okay. Can I look now at your proposed residential services basket and its associated price cap?
5916 Here I am going to turn to paragraph 50 of your evidence.
5917 In there your proposed formula is I‑X when inflation is greater than productivity, and zero otherwise.
5918 Is that correct?
5919 MS GRIFFIN‑MUIR: That's correct, yes.
5920 MR. LAWFORD: So it is no longer I‑X.
5921 MS GRIFFIN‑MUIR: That's right.
5922 MR. LAWFORD: Under your proposal, therefore, there could be no rate reductions for the residential basket.
5923 Is that correct?
5924 MS GRIFFIN‑MUIR: That's correct. No rate reductions as a consequence of the formula.
5925 MR. LAWFORD: What if in a future price cap period ILEC productivity goes up ‑‑ it goes higher than you have estimated at 1.5? Let's say that it goes up to 6 percent. Are you not depriving customers of the benefit of future environmental conditions?
5926 MS GRIFFIN‑MUIR: I guess, hypothetically, if it increased to that extent, which we don't think for this particular set of services will take place, there would be more efficiency, yes.
5927 MR. LEFEBVRE: If I could add to that, hypothetically, it could go up to 6 percent, and, hypothetically, it could go down to minus 6.
5928 When you set the X factor, you are trying to set a reasonable offset for the price cap period. You are trying to set a fair and reasonable offset.
5929 What happens happens, I guess, in terms of productivity.
5930 MR. LAWFORD: That's right. Thank you.
5931 This is a change from I‑X, so we don't have the downside, as you have just pointed out.
5932 Have you considered, in terms of just and reasonable rates, lowering the 5 percent rate element constraint that is on there, as well, say, to 1.5 percent, in exchange for removing customers' possibility of any decrease due to the application of your formula?
5933 MS GRIFFIN‑MUIR: No, actually we didn't consider changing the individual rate element constraint. We considered 5 percent within the rate band as being reasonable.
5934 I guess, too, that you are talking about a declining base here, first of all. Then, if you look at it in terms of what inflation may actually occur, or has occurred since 1998, we are not talking significant price changes, and your question presupposes that the rates are not just and reasonable.
5935 MR. LAWFORD: No, my question, I believe, presupposes that rates could change, and that when they do change, we still have to consider whether they will be just and reasonable at the time.
5936 Perhaps I could move on and ask you questions on something quite different.
5937 I would ask you to turn to paragraph 16 of your evidence. I think it is talking about different objectives than we have been for the last little while.
5938 I am quoting:
"The Commission has a mandate to uphold the public interest and ensure that the regulatory mechanisms it adopts protect consumer interests, and that the regulatory mechanisms it adopts to protect consumer interests will address the needs of all users regardless of location or ability." (As read)
5939 And it quotes section 7, saying:
"There are dual goals of reliable and affordable telecommunications services of high quality, accessible to all Canadians, in both rural and urban areas, in all regions of Canada, and responding to the economic and social requirements of users of telecommunications services." (As read)
5940 Do you agree with that statement?
5941 MS GRIFFIN‑MUIR: Yes, we agree with that statement.
5942 MR. LAWFORD: Does MTS have high‑cost service areas in its territory?
5943 MS GRIFFIN‑MUIR: Yes, we do have high‑cost service areas.
5944 MR. LAWFORD: Do you know how many, offhand?
5945 MS GRIFFIN‑MUIR: How many areas we have?
5946 MR. LAWFORD: How many high‑cost service areas.
5947 MS GRIFFIN‑MUIR: We have bands ‑‑
5948 How many communities? Not offhand, I don't know that.
5949 MR. LAWFORD: Could you confirm for me that some of the high‑cost service areas are remote First Nations, communities in northern Manitoba?
5950 MS GRIFFIN‑MUIR: Yes, I can confirm that some of those high‑cost service areas are remote.
5951 MR. LAWFORD: I am going to refer you to MTS Allstream‑CAC‑MSOS No. 3 from August 8th.
5952 In that interrogatory MTS was asked whether it conducted any studies regarding low income households, statistics in high‑cost and non‑high‑cost service areas, and whether it had conducted any studies regarding the correlation between low income household designation and high‑cost and non‑high‑cost service areas in their service area and telephone or residential local exchange service affordability or penetration rates.
5953 MTS answered that they have not conducted any of these studies.
5954 Is that correct?
5955 MS GRIFFIN‑MUIR: That's correct.
5956 MR. LAWFORD: Is MTS Allstream aware of any available information pertaining to whether or not a higher than average proportion of remote or northern communities in residential and community organizations, resources are already required to be spent on telecommunications costs to access essential health, government, business or other essential services that are located outside their immediate community?
5957 MS GRIFFIN‑MUIR: No, I am not aware of anything.
5958 MR. LAWFORD: Do you agree that the affordability of service is still an issue for many customers in rural and remote high‑cost service areas in your territory? I like "territory."
5959 MS GRIFFIN‑MUIR: Sorry, the affordability of our service at the rates that they are currently?
5960 MR. LAWFORD: Yes.
5961 MS GRIFFIN‑MUIR: I am not aware of anything specific, but it may be the case.
5962 MR. LAWFORD: Are there any service improvement plans underway in high‑cost service areas in MTS home territory, so to speak?
5963 MS GRIFFIN‑MUIR: We have the service improvement plan that was approved in the last price caps proceeding that is going to be completed by the end of next year.
5964 MR. LAWFORD: Would it be fair to state that high‑cost service areas and non‑high‑cost service areas presently are regulated quite differently at the moment in your ILEC territory?
5965 MS GRIFFIN‑MUIR: In terms of there is a subsidy that applies to high‑cost service areas that is obviously not available for non‑high‑cost service areas, and the rates that subscribers pay in high‑cost service areas are below cost.
5966 MR. LAWFORD: I am just then going to ask you to turn to paragraph 49 of your evidence. The upshot of paragraph 49 is that in the way you have structured the basket there is no longer a distinction between high‑cost and non‑high‑cost service areas. Is that correct?
5967 MS GRIFFIN‑MUIR: Yes, that's correct. That has a lot more to do with non‑high‑cost service areas than high‑cost service areas. In the current price caps regime, we have a deferral account that is associated with non‑high‑cost.
5968 We are proposing to eliminate the deferral account and, therefore, place the same I minus X constraint on both high‑cost and non‑high‑cost.
5969 MR. LAWFORD: What would be the effect, though, of eliminating the distinction between high‑cost and non‑high‑cost service areas in your territory upon customers?
5970 MS GRIFFIN‑MUIR: I guess in a high‑cost service area, the effect could be the rates could go up, just like in non‑high‑cost service areas. However, if you look at it from the company's point of view, it is a revenue neutral proposition. I mean, for every dollar rate increase, there is a dollar subsidy loss. So, it is not something that would naturally lead to increased rates for high‑cost service area customers.
5971 MR. LAWFORD: I would like to change tact a little bit and have you refer to paragraph 46 of your evidence. Do you agree with the following statement:
"At the same time, the basket structure and associated pricing constraints should be set in the manner that protects customers in areas where competitive alternatives are limited or non‑existent." (As read)
5972 MS GRIFFIN‑MUIR: I am sorry, ask me ‑‑
5973 MR. LAWFORD: Do you agree with the statement that I read from paragraph 46?
5974 MS GRIFFIN‑MUIR: Yes, I do agree with it.
5975 MR. LAWFORD: But part of your proposal is to eliminate high‑cost service areas, in effect, and that is explained in an interrogatory, CAC‑MSOS August 8th, number 6, supplemental, which got filed on October 4th. It is the later one.
5976 In that answer, there is sub‑question E. That is where the proposal to eliminate high‑cost service areas is ‑‑ sorry, yes?
5977 MS GRIFFIN‑MUIR: Sorry, I just didn't catch the interrogatory number.
5978 MR. LAWFORD: Sorry. Number 6, but it was filed October 6th. It was supplemental to CAC, not CAC us, CAC Manitoba.
5979 MS GRIFFIN‑MUIR: Okay.
5980 MR. LAWFORD: I know there are a lot of CACs out there.
5981 So I am referring to that interrogatory and to your answer to sub‑question E.
5982 I believe that that interrogatory answer is attempting to explain the proposal to harmonize or eliminate non‑high‑cost service areas and high‑cost service areas. Is that right?
5983 MS GRIFFIN‑MUIR: Actually, I still can't find the interrogatory.
5984 MR. LAWFORD: You can't find it?
5985 MS GRIFFIN‑MUIR: Sorry.
5986 MR. LAWFORD: October 4th.
5987 MS GRIFFIN‑MUIR: October 4th.
5988 MR. LAWFORD: I apologize to the Commission while I have it looked up.
5989 The top of my interrogatory printout says MTS Allstream CAC‑MSOS 8 October 06‑1‑PN2065, supplemental, page 3 of 4.
5990 MS GRIFFIN‑MUIR: Is it CAC‑MSOS number 1, I think?
5991 MR. LAWFORD: You are correct, I am sorry. That is my fault. Sorry for misleading you. It is number 1, and it is on page 3.
5992 The question was: In this answer, are you explaining your decision to split ‑‑ not split, to put together high‑cost and non‑high‑cost service areas. Is that right?
5993 MS GRIFFIN‑MUIR: That's correct, yes. I am just not sure what your question is other than have I ‑‑
5994 MR. LAWFORD: That is all I wanted to do was get to that page.
5995 MS GRIFFIN‑MUIR: Okay.
5996 MR. LAWFORD: In that answer you restate your proposed price cap formula, I minus X where inflation is greater than productivity, otherwise zero, and the 5 percent re‑element constraint, and also no de‑averaging in the band, and you mention a price floor.
5997 You conclude at the end of that answer that:
"Combined, these constraints provide adequate protection for consumers against unwarranted rate changes." (As read)
5998 Is that correct?
5999 MS GRIFFIN‑MUIR: That's correct, yes. I think perhaps you are confused. We are not eliminating what are categorized as high‑cost servicing areas. We are just proposing the same price cap treatment for those bands that are classified as high‑cost.
6000 MR. LAWFORD: Yes, I understand. Thank you.
6001 Now I would like you to turn to a different interrogatory. Here we go. No, the same one actually, but to subsection D. It is talking about Shaw's competing residential local voice service. That is offered in Winnipeg only. Is that correct?
6002 MR. SHEPHERD: Yes, today I understand it is available only in Winnipeg.
6003 MR. LAWFORD: There is a reference, the very last part of that paragraph it says that you are also experiencing some competition from VoIP providers outside of Winnipeg.
6004 Are any of those VoIP providers offering service in high‑cost service areas?
6005 MR. SHEPHERD: It is sometimes difficult to know exactly where they are offering them. I believe they would be available in high‑cost serving areas, but I don't have specific information to identify exactly where or how many customers might be using them.
6006 MR. LAWFORD: How about for non‑high‑cost service areas, do you have any information on where they might be offering it?
6007 MR. SHEPHERD: No, again because we really have no way of accurately identifying. We know that services are being advertised, that the services are generally available, but don't have any information on specifically where or the numbers exactly that might be involved.
6008 MR. LAWFORD: In answer to sub‑question F, a page over, page 4, it is mentioned that there was limited competitive entry in the remainder of the non‑high‑cost service areas and high‑cost service areas in Allstream's incumbent service territory. I think we are talking about more facilities‑based there.
6009 Could you tell me what "limited competitive entry" means and where that might be occurring?
6010 MR. SHEPHERD: I think what I would mean by "limited," to my knowledge there isn't another facility‑based wireline provider. The limited entry would be from alternative non‑wireline providers, either the VoIP providers we just discussed or potentially some wireless substitution, but not a direct facility‑based competitor.
6011 MR. LAWFORD: That would include high‑cost service areas?
6012 MR. SHEPHERD: Yes, I believe so.
6013 MR. LAWFORD: So would it be fair to characterize competition outside Winnipeg as weak in Manitoba?
6014 MR. SHEPHERD: I would say that it is limited and certainly is not nearly as significant as it is inside Winnipeg.
6015 MR. LAWFORD: Do you agree with Mr. Hariton of Bell's statement that it is more likely that a new entrant will target lower cost entry points, probably urban centres, than more outlying regions?
6016 If you want the exact reference it is the transcript, day one, line 1175.
6017 MR. SHEPHERD: I think in our own experiences a competitor competing outside of Manitoba, that is fairly typical of what a competitor would do, is typically would go initially where they have stronger opportunities and those tend to be areas that have better cost characteristics. Urban centres would be one of them.
6018 MR. LAWFORD: All right.
6019 Then how would your proposed rate structure for residential protect customers in high‑cost service areas from the risk that rates would rise by the maximum allowable amount, 5 percent per rate element, as you meet competition in the areas where you do face it?
6020 MR. SHEPHERD: I think, as my colleague has explained, there are a couple of factors there.
6021 First, the 5 percent rate element does provide some limit. The "X" factor that we have proposed enters into the calculation, and probably the most significant factor in high‑cost areas is that there is no financial incentive for the company to raise rates due to the fact that they are subsidized.
6022 MR. LAWFORD: All right. As you know, the Commission is exploring the possibility of reducing the national subsidy requirement and the contribution collection revenue percent charge for high‑cost services areas to bring those rates in closer relation to non‑high‑cost service area rates.
6023 Would this substantially increase the price of basic local exchange services for subscribers in many rural or remote areas of Manitoba?
6024 This is part of an interrogatory, the 29th of September, from the Commission. No. 2401. That was their question that led to this question.
6025 Do you have it in front of you?
6026 The question from the Commission was: Provide MTS Allstream's view with supporting rationale on whether this sort of change would have any effect on annual local rate increases that could be considered reasonable.
6027 Do you have it?
6028 MR. SHEPHERD: We will just look for that particular answer for a second here.
6029 MR. LAWFORD: Sure.
6030 MR. SHEPHERD: I'm not sure I totally follow the question, but let me try to answer it in this way.
6031 If you look at our existing bands, Bands A through G, and the current basic exchange access rates, they range from a high in Band A of $25 per month to, I believe, a low in Band G of $20.30.
6032 So to the extent that the costs to serve Band G are significantly higher ‑‑ I believe the actual cost is closer to $66.60, is the information I have ‑‑ it would be difficult to envision a rate increase that would be affordable to recover the costs. Certainly from The Companies point of view, that would not be palatable or would meet the goals that have been laid out.
6033 MR. LAWFORD: So at the very last sentence of your answer, then, to the interrogatory, is it possible that reducing or eliminating the national subsidy requirement and contribution collection revenue percent charge would double, triple or even quadruple some rates?
6034 MR. SHEPHERD: If there was a move to totally eliminate the subsidy, yes ‑‑ and you had to recover the costs entirely from those subscribers, clearly there would be a significant increase.
6035 MR. LAWFORD: Do you think that your proposal to harmonize the two high‑cost/non‑high‑cost service areas will have any effect upon this process of trying to bring the two rates closer together?
6036 MR. SHEPHERD: I would say no, that is not the intent of the proposal.
6037 MR. LAWFORD: Can I ask you some questions, then, on a different matter, rate de‑averaging. This is at paragraphs 66 and 67 of your evidence.
6038 MR. LAWFORD: When you have found that: MTS supports the continuation of the rule against rate de‑averaging within a band.
6039 Is that correct?
6040 MS GRIFFIN‑MUIR: That is correct, yes.
6041 MR. LAWFORD: Is it your position that rate de‑averaging is not necessary, given the local forbearance framework of Decision 2006‑15?
6042 MS GRIFFIN‑MUIR: Yes, that is our position. We don't think it is necessary at this time to de‑average within a rate band.
6043 MR. LAWFORD: In your opinion, in your ILEC territory would continuing the rule against de‑averaging threaten the financial viability of the service because of your inability to recover fixed or common costs?
6044 MS GRIFFIN‑MUIR: Would de‑averaging threaten? Was that your question? Sorry?
6045 MR. LAWFORD: Yes. Does the continuation of the averaging rule threaten the financial viability of your service?
6046 MS GRIFFIN‑MUIR: No, we don't think so.
6047 MR. LAWFORD: Imagine that The Companies' or TELUS' rate de‑averaging proposals are accepted by the Commission, can you give us an opinion on what might be the effect upon consumers in your territory?
6048 MS GRIFFIN‑MUIR: I just want to make sure I understand your question.
6049 MR. LAWFORD: Sure. Accept that Bell or TELUS' rate de‑averaging proposal went in.
6050 MS GRIFFIN‑MUIR: Okay. TELUS has a few more rating constraints ‑‑
6051 MR. LAWFORD: wrinkles, yes.
6052 MS GRIFFIN‑MUIR: ‑‑ so I think I will just talk to Bell, just because it is a little simpler.
6053 MR. LAWFORD: All right.
6054 MS GRIFFIN‑MUIR: I guess hypothetically, because if you had uncapping and de‑averaging, which is the Bell proposal, hypothetically where competition comes into an exchange Bell would be able, or we all ‑‑ frankly, we would also be able, I'm assuming it applies to us, too ‑‑ would be able to lower rates in a particular exchange and raise rates where there is no competition.
6055 I gather the de‑averaging proposed, whether it is actually you are able to implement or not is a different question, but what is proposed is I could actually have different rates within the same exchange, depending whether there is competitive presence or not.
6056 So I would imagine if you are able to execute, you could have a very narrow set of customers who were subject to a rate decrease and the latitude to increase other customers rates to compensate for that.
6057 MR. LAWFORD: Thank you.
6058 Can I have you turn to a different matter now, paragraph 52 of your evidence, and we are going to talk optional services if we can, please.
6059 The way I understand your proposal, I think, is that optional services are not part of the residential services basket.
6060 Is that correct?
6061 MS GRIFFIN‑MUIR: That is correct. We propose that both bundles and optional services be removed from the basket.
6062 MR. LAWFORD: So they are completely uncapped?
6063 MS GRIFFIN‑MUIR: That's right, yes. They would not be capped any longer.
6064 MR. LAWFORD: I'm just wondering, then, that isn't represented at all in the chart that you have made of your proposal at paragraph 60 of your evidence. I think it is Figure 1.
6065 I guess it is an invisible box. It is not actually on there.
6066 Is that right?
6067 MS GRIFFIN‑MUIR: Actually, it is not capped so there is no basket for it. So it is out there with all the other ‑‑ it is regulated but uncapped.
6068 MR. LAWFORD: No footnote, no asterisk, anything to indicate that.
6069 MS GRIFFIN‑MUIR: Well, I guess we just state it outright in the evidence.
6070 MR. LAWFORD: All right.
6071 In paragraph 52 you say that you think competition is strong enough to justify uncapping these optional services.
6072 Is that correct?
6073 MS GRIFFIN‑MUIR: Yes. I guess we looked at it two ways.
6074 First, we consider optional services to be discretionary services. They don't fall within the realm of an essential service. It is the choice the customer makes and the value the customer attaches to that service.
6075 Combined with that, we considered that there has been a shift, beginning towards the end of this price cap and expected to continue into the next, of cable co‑entry in the residential market so that it lines the business service basket and the residential service basket. The type of competition that might be present, they are a little closer. And optional services has not been part of the business services basket throughout even this régime.
6076 Because of the way the services are generally sold and because they are discretionary ‑‑ if the price of a service gets too high, it is not a necessary service to make your telephone function ‑‑ we propose taking them out of the basket.
6077 MR. LAWFORD: Would it be possible that a customer could become accustomed to a discretionary service and treat it not as an essential service but as something they are expecting and wishing to continue?
6078 MS GRIFFIN‑MUIR: I guess that's probably what we would hope, actually.
6079 MR. LAWFORD: True.
6080 MS GRIFFIN‑MUIR: I think the fact remains the customer does not require that service to have telephone service. It is a choice the customer makes, and then they attach a value to the service.
6081 I'm sure if we were to double the price, the attachment might not be as great for some customers. They have the option to not use these services if they think they are too expensive.
6082 MR. LAWFORD: I am just going to do a little history here, and I believe I have figured it out.
6083 Under the first price cap period, optional local services weren't capped but that during the second they were.
6084 Is that your understanding?
6085 MS GRIFFIN‑MUIR: That is actually correct, yes.
6086 MR. LAWFORD: There is a Consumer Groups Exhibit No. 1 ‑‑ I don't know what the CRTC exhibit numbering is, Madam Secretary ‑‑ which is an interrogatory from the second price caps, two of them actually.
6087 One is The Companies‑AT&T 26 June 01‑203(d), and that makes reference to The Companies at AT&T, 26 June, No. 203.
6088 Madam Secretary, has that been passed out? Does everyone have a copy of that? Okay.
6089 MS FRENETTE: So you are referring to the Commission's exhibit, I believe, Exhibit Nos. 1 and 2?
6090 MR. LAWFORD: For the Consumer Groups.
6091 MS FRENETTE: Oh, for the Consumer Groups.
6092 MR. LAWFORD: I believe that the panel has them.
6093 MS FRENETTE: Yes. It is registered as Consumer Groups Exhibit No. 1.
6094 MR. LAWFORD: Thank you.
6095 On that there is a series of two interrogatories actually. The first one was asking about residential optional local services, and particularly part (b) of the first question asking about the date and amount of any increases. And this is a supplemental.
6096 And over the page there is a little chart and one of it is for MTS increase, item Tariff No. 399, increase of $1.00 per month in the rate for Call Waiting.
6097 A little farther down, in 424, Call Waiting Plus, an increase of $1.00 per month.
6098 That is reflected in the following thick interrogatory, I guess, which it makes reference to. In a chart on the very last page, 20 of 20, those tariff items are there.
6099 The question is: Did some optional services such as these features rise during the first price cap period at that rate of $1.00 per month, but has that service not been raised, the $12.00 per year, since that you are permitted under the second price cap?
6100 MS GRIFFIN‑MUIR: Yes. We haven't raised the rates since the last price cap.
6101 MR. LAWFORD: But it was raised when it was uncapped.
6102 MS GRIFFIN‑MUIR: That is correct, yes.
6103 MR. LAWFORD: $12 a year, because it is $1.00 per month.
6104 MS GRIFFIN‑MUIR: In some cases, yes.
6105 MR. LAWFORD: I am wondering if it is possible, then, that MTS could raise optional service prices in areas where MTS presently faces no competition, such as high cost service areas, under your plan in order to finance price lowering in regions where MTS does face competition.
6106 MS GRIFFIN‑MUIR: Well, today, actually those particular services aren't rated by high cost/non‑high cost, actually not even by band. There is just a single price. If the service is available, all customers pay that price.
6107 So as a consequence of the deferral account reduction to a calling feature, it was reduced for high cost even though the deferral account wasn't applicable.
6108 So it is more likely, just because of the way the service is offered, the increase, if there is such an increase, would apply equally to high cost and non‑high cost customers, including those customers who had competitive alternatives.
6109 MR. LAWFORD: But it is possible under your proposed rate structure that you could raise optional service rates without cap.
6110 MS GRIFFIN‑MUIR: It is possible for us to raise them. It is possible for us to lower them.
6111 MR. LAWFORD: All right.
6112 So there is not even a 5 percent rate element constraint on that because it is completely uncapped. Right?
6113 MS GRIFFIN‑MUIR: That is correct, yes. It is predicated on the nature of the service as well.
6114 MR. LAWFORD: Sure. Could you turn to paragraph 54 of your evidence.
6115 I think I understand it. It says:
"Making residential optional local services including service bundles that contain local voice services part of the uncapped services basket would simplify the regime and would increase the ILEC's pricing flexibility in accordance with the increased level of competition."
6116 Do you mean that if a service bundle including local service contains one optional service element which is uncapped, that the entire thing is uncapped, the entire bundle is?
6117 MS GRIFFIN‑MUIR: Yes. We propose that all bundles be uncapped.
6118 MR. LAWFORD: So there is not even a 5 percent rate element limit.
6119 I guess it wouldn't really apply with a bundle.
6120 MS GRIFFIN‑MUIR: On the bundle itself?
6121 MR. LAWFORD: Yes.
6122 MS GRIFFIN‑MUIR: No, there would be no rate element limit on the bundle.
6123 Now the services still continue to be available on a stand‑alone basis, and of course residential primary exchange service would continue to be subject to a 5 percent rate element constraint.
6124 MR. LAWFORD: I am just trying to figure this out.
6125 Is this sort of bundling feature, where the bundle sort of drops through the whole of this uncapped service, is that test not more lenient than Bell or even TELUS' test for uncapping?
6126 You don't even need a competitor offering or even appearing to offer service in your exchange. Correct?
6127 MS GRIFFIN‑MUIR: That is correct. I don't think it is in any way related to Bell's proposal to uncap. It is really predicated on the fact that the residential service, primary exchange service, is subject to price caps.
6128 So if the bundle offered doesn't fit either from the price or the nature of the bundle with what the customer wants, the customer can still get primary exchange service, and that primary exchange service would continue to be subject to the price cap restrictions.
6129 MR. LAWFORD: Sure.
6130 MS GRIFFIN‑MUIR: We are just talking about what is the service that we are protecting for, or how we are protecting the consumer to get affordable service. The bundle is just a way to respond to other customer needs.
6131 MR. LAWFORD: If someone took a bundle and then later, for whatever reason, you raised the price on the bundle and the consumer didn't react, then you could raise the rates for those bundles.
6132 MS GRIFFIN‑MUIR: Yes. That is true of anything actually. If the consumer doesn't react when I raise the rates, then the rates are raised and we get more revenue.
6133 MR. LAWFORD: So if they don't read their bill, they may end up paying for it.
6134 MS GRIFFIN‑MUIR: They should end up paying for it.
6135 MR. LAWFORD: How would this kind of uncapping, where you have suddenly a bundle uncapped ‑‑ how would that help protect consumers?
6136 MS GRIFFIN‑MUIR: I think it is not harming consumers.
6137 I am a bit confused. I don't know whether you are not understanding what I am saying, or ‑‑
6138 MR. LAWFORD: I guess the question comes back to the Bell question ‑‑ if I can interrupt; I'm sorry.
6139 Isn't this test for uncapping, when you are talking about bundles ‑‑ it is even more lenient than the Bell ‑‑
6140 MS GRIFFIN‑MUIR: Actually, no, it is not more lenient than the Bell test.
6141 The Bell test is the test for ‑‑ whatever they propose to be within the cap would no longer remain capped, even residential primary exchange service, if another competitor had facilities available ‑‑ like was making a competitive offer within a very narrow geographic region.
6142 So that's including residential primary exchange service.
6143 Then they would be able ‑‑ they would have a lot more flexibility than this proposal offers, because our proposal does not take residential primary exchange service out of the basket until we meet the criteria for forbearance.
6144 So the customer ‑‑ if they are paying attention to their bill, and if they are price conscious, they would make a choice at a certain point in time. If we raised the rates for a bundled offer that included Call Display, Call Answer and Local Exchange Voice Service, and we offered that at a price that was higher than buying either each of those elements separately or higher than the customer was willing to pay for primary exchange service, they could always just take primary exchange service, which would continue to be capped until there was competition sufficient for forbearance.
6145 MR. LAWFORD: So if I am unhappy with it, my choice is to go back to unbundled, because there are no competitors.
6146 You have already stated that competition is fairly weak through most of your ILEC territory, so my choice is to go back ‑‑ if I don't like the way the prices on the bundles are going, and now they are uncapped, I have to go back to the individual rate elements and order them individually.
6147 Is that correct?
6148 That's my consumer protection?
6149 MS GRIFFIN‑MUIR: Right. I think those are choices that are offered to the customer to ‑‑
6150 MR. LAWFORD: But my choice, if I want to get a lower price, and I don't like the way the prices are going on the bundles that have actually been uncapped, when you have done it, is to just go back to the individual rate elements because there are no competitors.
6151 Because you don't have a competition test in this, it is just uncapped.
6152 MS GRIFFIN‑MUIR: That's true, but typically you have the choice, so your rate is protected there.
6153 Also, typically, the bundle represents some value to the customer. That's why we market bundles.
6154 So the customer is deciding whether or not the bundle offers value to them.
6155 MR. LAWFORD: Because it seems that you are doing the same treatment for other capped services, I am going to switch tack a bit.
6156 Other capped services are discussed at paragraph 57, so I am switching over to that. They are getting the same rate treatment as the residential services basket. So instead of being I‑X, it is now I‑X where inflation is greater than productivity or zero.
6157 Is that correct?
6158 MS GRIFFIN‑MUIR: That's right.
6159 MR. LAWFORD: Is the reasoning for no rate reductions in these services the same as for the residential services basket, the reasoning that you gave in your interrogatories as to why there should be no downside?
6160 Is it the same for these services as the other capped services?
6161 You are changing the test for both, so I am assuming that the reasoning is the same.
6162 Is that correct?
6163 MS GRIFFIN‑MUIR: Right. That there would be no mandated rate reductions, yes.
6164 MR. LAWFORD: But this one is subject to a 10 percent rate element cap. Right?
6165 MS GRIFFIN‑MUIR: That's correct, yes.
6166 They are different types of services.
6167 MR. LAWFORD: Right, but this one has a higher rate element cap ‑‑ rate element restriction.
6168 MS GRIFFIN‑MUIR: Right. The proposal actually looks ‑‑ it is very similar to what it looks like in this price cap regime.
6169 MR. LAWFORD: Similar to which, sorry?
6170 MS GRIFFIN‑MUIR: The current price cap regime.
6171 MR. LAWFORD: But isn't the current price cap regime for other capped services just I‑X?
6172 MS GRIFFIN‑MUIR: Yes. I am saying the rate element constraint.
6173 MR. LAWFORD: Yes, the rate element constraint is the same, but if you are taking away the downside, have you considered lowering the rate element constraint to 5 percent, for example?
6174 MS GRIFFIN‑MUIR: No, we didn't consider lowering the rate element constraint.
6175 MR. LAWFORD: Okay. Thank you.
6176 I am going to turn quickly to pay phones. Do some of your pay phones, as Bell has testified ‑‑ do some of your pay phones make money and some lose money?
6177 Do you know?
6178 MR. SHEPHERD: I believe that some lose money, and some do make money, yes.
6179 MR. LAWFORD: But in your proposal you are not proposing a specific rate increase, are you?
6180 MR. SHEPHERD: No.
6181 MR. LAWFORD: You don't want to go to 50 cents?
6182 Now is your chance.
‑‑‑ Laughter / Rires
6183 MR. SHEPHERD: We haven't proposed any ‑‑
6184 COMMISSIONER LANGFORD: We decide, actually.
‑‑‑ Laughter / Rires
6185 MR. LAWFORD: Now is your chance to ask.
6186 COMMISSIONER LANGFORD: You can propose, but we dispose.
6187 MR. LAWFORD: I am going to ask ‑‑ and I have to, because we are here ‑‑ deferral account questions.
6188 According to your evidence ‑‑ and this is in the Roman numeral paragraph numbers of MTS' evidence. At XXI and XXII you say that the deferral account mechanism that applies within non‑high‑cost service areas should be eliminated, and that it artificially distorts the market responses and creates uncertainty and so on. Therefore, MTS is of the strong view that there should be no more deferral account.
6189 I believe earlier on, Ms Griffin‑Muir, you mentioned the deferral account when you were explaining the reason for no downside.
6190 Is that correct?
6191 What you are saying is, you don't want to have the prospect of extra money that might end up going into a deferral account, so let's just have no mandated rate reductions?
6192 MS GRIFFIN‑MUIR: Actually, I think you must have misunderstood me. We were talking about the joining of high‑cost and non‑high‑cost residential primary exchange service baskets, and what I said was, the consequence of joining them was greater on the non‑high‑cost, because our proposal was to eliminate the deferral account that had been applied in the case of non‑high‑cost serving areas of residential primary exchange service in the current price caps proceeding.
6193 MR. LAWFORD: Okay. Could I rephrase then and say: Your position against the creation of a new deferral account, is that the justification for not offering downside protection to consumers, if I could put it that way?
6194 Not having mandated rate reductions, is that the reason why ‑‑
6195 MS GRIFFIN‑MUIR: The elimination of the deferral account? No.
6196 MR. LAWFORD: Why are you saying, "If inflation is greater than productivity, then zero"?
6197 Is it because you don't want to have a new deferral account?
6198 MS GRIFFIN‑MUIR: I don't want to have a new deferral account, but that's not why.
6199 It has more to do, actually, with transitioning to competition, and just allowing market forces ‑‑ where there are sufficient market forces for rate reductions, to allow those, as opposed to having mandated rate reductions.
6200 It's not linked per se to the deferral account. The deferral account has more to do with ‑‑ as we said, it creates a lot of uncertainty as to what the consequences from the customer's perspective are, and from our perspective, and it is preferable to establish rates at whatever level they should be set at.
6201 That is how we would prefer to proceed than to accumulate monies for some other purpose that is unclear to both ourselves and our customers.
6202 MR. LAWFORD: But is it possible ‑‑ let's say that your test ‑‑ the part you have added ‑‑ let's say that the Commission sticks with I‑X. If there is no deferral account, would you support rate rebates to customers, if the productivity works out that way?
6203 MS GRIFFIN‑MUIR: It would actually turn out to be rate reductions.
6204 MR. LAWFORD: Sorry; rate reductions.
6205 MS GRIFFIN‑MUIR: No, we don't support rate reductions.
6206 What you are asking me, though, I think, is, if the Commission took our I‑X without the limitation of having no price reductions, would there be rate reductions?
6207 There may be small rate reductions, but just looking at the rate of inflation as it is today, you wouldn't expect very large rate reductions.
6208 MR. LAWFORD: Let's say it did work out that there were rate reductions. Would you ‑‑
6209 MS GRIFFIN‑MUIR: Would we do them?
6210 I guess, if they told us to.
6211 MR. LAWFORD: I guess the question is: Would you then support the deferral account mechanism?
6212 MS GRIFFIN‑MUIR: No, I would not.
6213 MR. LAWFORD: Those are my questions, Mr. Chairman. Thank you.
6214 Thank you, panel.
6215 THE CHAIRPERSON: Mr. Janigan, do I assume that Mr. Lawford has ‑‑
6216 MR. JANIGAN: He has completely exhausted our bank of questions, Mr. Chairman.
6217 THE CHAIRPERSON: Thank you very much.
6218 Madam Secretary.
6219 THE SECRETARY: Thank you very much, gentlemen. We will now proceed with the Commission's panel questions, as our consultants do not have any questions.
6220 THE CHAIRPERSON: No Commission legal questions?
6221 MS FRENETTE: No, Mr. Chairman.
6222 THE CHAIRPERSON: I don't believe that we have any further questions.
6223 I would like to thank the panel very much for their presence here.
6224 Let's take 15 minutes and get back together at 10:25.
6225 Thank you.
‑‑‑ Upon recessing at 1010 / Suspension à 1010
‑‑‑ Upon resuming at 1033 / Reprise à 1033
6226 THE CHAIRPERSON: Order, please.
6227 When the batter fouls a ball off his foot, the umpire dusts off the plate and generally delays the game while the batter recovers, and that is what we have just done for the panel. But I think they are now ready. There may even be someone to ask them questions.
6229 MR. DUNBAR: Thank you very much, Mr. Chairman. Lawrence Dunbar for The Competitors.
6230 Mr. Chairman, The Competitors are presenting a single panel of witnesses this morning consisting of representatives of Cogeco Cable Inc., Quebecor Media Inc., Rogers Communications Inc. and Shaw Communications Inc.
6231 Seated closest to the panel is Mr. Dennis Béland. He is Director of Regulatory Affairs, Telecommunications at Quebecor Media Inc., the parent company of Vidéotron.
6232 Next to Mr. Béland is Jean Brazeau, Vice‑President, Telecommunications of Shaw Communications Inc.
6233 Seated next to Mr. Brazeau is Mr. Watt, David Watt, Vice‑President, Regulatory Economics of Rogers Communications Inc.
6234 Finally, next to Mr. Watt, Michel Messier, Director, Regulatory Affairs, Telecommunications of Cogeco Cable Inc.
6235 Mr. Chairman and Madam Secretary, may we have the witnesses sworn, please?
6236 THE SECRETARY: Thank you, Mr. Dunbar. Bonjour messieurs. S'il vous plaît, si vous voulez vous lever pour l'assermentation.
ASSERMENTÉ: MICHEL MESSIER
AFFIRMED: DAVID WATT
ASSERMENTÉ: JEAN BRAZEAU
ASSERMENTÉ: DENNIS BÉLAND
6237 THE SECRETARY: Merci beaucoup.
6238 Before we proceed, I was asked to introduce the CRTC undertaking that was still pending from yesterday. So dated October 11, CRTC required to TELUS to provide the associate rate impact for each tariff service in this basket where a rate would be increased under TELUS' revenue neutral rate averaging proposal.
6239 I would like now to invite at the cross‑examination table The Companies.
6240 MR. DUNBAR: Excuse me, first I would just like to have the witnesses testify to their evidence.
6241 THE SECRETARY: You are correct.
6242 MR. DUNBAR: Thank you.
EXAMINATION‑IN‑CHIEF / INTERROGATOIRE‑EN‑CHEF
6243 MR. DUNBAR: Messrs. Watt, Brazeau and Messier, was the evidence filed by The Competitors on July 10, 2006 prepared jointly by you or under your direction?
6244 MR. WATT: It was.
6245 MR. BRAZEAU: It was.
6246 MR. MESSIER: It was.
6247 MR. DUNBAR: Mr. Béland, was the evidence filed by Quebecor Media Inc. prepared by you or under your direction?
6248 MR. BÉLAND: Yes, it was.
6249 MR. DUNBAR: Gentlemen, collectively, were the responses to the interrogatories filed by The Competitors and by your individual companies prepared either by you or under your direction?
6250 MR. WATT: Yes.
6251 MR. BRAZEAU: Yes.
6252 MR. MESSIER: Yes.
6253 MR. BÉLAND: Yes.
6254 MR. DUNBAR: And is the same true of your individual curriculum vitae filed on October 5?
6255 MR. WATT: Yes.
6256 MR. BRAZEAU: Yes.
6257 MR. MESSIER: Yes.
6258 MR. BÉLAND: Yes.
6259 MR. DUNBAR: Are the statements of fact contained in those documents true to the best of your knowledge and belief?
6260 MR. WATT: Yes, they are.
6261 MR. BRAZEAU: Yes, they are.
6262 MR. MESSIER: Yes, they are.
6263 MR. BÉLAND: Yes, they are.
6264 MR. DUNBAR: And are the positions taken on policy issues in those documents, do they accurately reflect the position of your individual companies?
6265 MR. WATT: Yes.
6266 MR. BRAZEAU: Yes.
6267 MR. MESSIER: Yes.
6268 MR. BÉLAND: Yes.
6269 MR. DUNBAR: Mr. Chairman, Mr. Watt is going to quarterback this panel in the sense that parties may address questions in the first instance. He is likely to answer them unless they are addressed to one of the other specific companies.
6270 With that, the panel is ready for cross‑examination.
6271 THE SECRETARY: Counsel Daniels, you may proceed on behalf of The Companies.
6272 MR. DANIELS: Good morning, Mr. Chair.
CROSS‑EXAMINATION / CONTRE‑INTERROGATOIRE
6273 MR. DANIELS: Good morning, panel. My name for the record again is Jonathan Daniels. With me on my left is Bob Farmer from Bell as well, a consultant of Bell.
6274 I want to begin by clarifying your understanding of the extent of the prohibition on de‑averaging. I may refer to it as the "de‑averaging rule". I think we had a little discussion yesterday, so just to be clear I am talking about the rule as it exists today, is your understanding, when I refer to the "de‑averaging rule".
6275 During cross‑examination Mr. Engelhart, your counsel, seemed to suggest that the rule against de‑averaging is strictly related to geographic distinctions.
6276 I had a discussion yesterday with the MTS Allstream panel and this came up and it seemed that they had a different understanding to the extent of the de‑averaging prohibition than their counsel Mr. Koch.
6277 Are you aware of the discussion that we had yesterday?
6278 MR. WATT: Yes, we heard much of the discussion.
6279 MR. DANIELS: Now, I think Mr. Koch's understanding of the rule was that only geographic distinctions but not distinctions based on other demand characteristics were prohibited by the prohibition on de‑averaging.
6280 How would you characterize the rule?
6281 Do you think that is an accurate description or do you think it is ‑‑ well, let me just let you answer.
6282 MR. WATT: Yes, we think that is an accurate description.
6283 MR. DANIELS: So you agree with Mr. Koch's description?
6284 MR. WATT: Yes, we do.
6285 MR. DANIELS: So I'm going to give you a couple of scenarios and I'm wondering if you can tell me whether you think they are permitted today under the existing rules.
6286 Again, as I had mentioned yesterday with MTS, let me just set out a couple of parameters so that ‑‑ these are all going to be permanent offers, so we don't have to worry about whether there is a promotion. We are not dealing with a promotion issue or anything associated with the promotion restrictions.
6287 Further, these offers, let's just assume whatever they are they are going to pass an imputation test, so we can view them as available in Bands A to D, not E to F, so there is no issue of PES. And whatever number we are talking about, let's just assume it passes an imputation test.
6288 Are you guys comfortable with that before I go on with the scenarios?
6289 MR. WATT: Yes, I think we are.
6290 MR. DANIELS: So the first one would be an offer to students, and only for students of universities or colleges that would give them a residential PES at a discount. So if Bell was to make that offer in its territory in, let's say, Band B, would that be permitted, do you think, today or does the de‑averaging rule prohibit that?
6291 MR. WATT: We don't think the de‑averaging rule prohibits that. It may be that the Commission, for reasons of discrimination, may decide that they don't want to approve such a generalized tariff, but we don't think that the geographic de‑averaging rule prohibits that.
6292 MR. DANIELS: What about an offer to all new customers and only for new customers that would give them, for example, a free phone when they took residential PES service?
6293 MR. WATT: Yes, we think you would be allowed to do that.
6294 MR. DANIELS: What about an offer to, for example, all of Rogers home phone service customers in Band B throughout Ontario and Québec, that this would be an offer that is only made to Rogers home phone customers that would give them, I guess, a free phone when they signed up for a PES service?
6295 MR. WATT: I think we would think that that would be permitted.
6296 MR. DANIELS: For my last scenario, an offer for a lower PES rate, so for local residential service a lower rate only to customers located in new subdivisions, which Mr. Collyer in his testimony for Bell the other day referred to as "greenfields".
6297 So a new subdivision, if we only had an offer ‑‑ it applied to anyone who had a house in a new subdivision, but was restricted to them, an extra discount, would that be permitted?
6298 MR. WATT: We don't think it would be disallowed under the de‑averaging rule.
6299 As I said earlier, the Commission may have other concerns with respect to that offer under subsection 27.
6300 MR. DANIELS: Now, at this point I would like to address an issue my friend Mr. Engelhart raised in his cross‑examination with The Companies panel.
6301 I think, I guess, partly because it is colourful and, well, to be quite honest, because no one can quite do justice to Ken, I am just going to read from the transcript to capture what he said.
6302 If I could get you to turn to page 157, paragraph 999. This is from the first day.
6303 MR. DANIELS: I think I'm going to take a minute here because my page reference is not matching up.
6304 COMMISSIONER NOËL: It is page 144.
6305 MR. WATT: I'm sorry, what is the page reference?
6306 MR. DANIELS: Can you just give me a second? I'm having that problem myself so I apologize for this.
6307 COMMISSIONER NOËL: If I can be of help, it is page 144, paragraph 999.
6308 Is that what you want?
6309 MR. DANIELS: Yes. Thank you. Thank you very much.
6310 I apologize, page 144, paragraph 999 of the transcript.
6311 Mr. Engelhart says here:
"Well, it just seems that you go around saying that it is so ubiquitous, all this rate de‑averaging 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.
Where is all this rate de‑averaging in our industry? You have made a fair point that there are some provincial differences, but where is all this rate de‑averaging?"
6312 On the next page it continues:
"At Rogers, we tend to charge everybody the same price for Maclean's Magazine or for our local phone service, certainly within a province."
6313 So I would like to take a moment to examine this claim by Mr. Engelhart.
6314 In doing so, I noticed that Mr. Engelhart did not mention wireless.
6315 Let me just ask you: Has Rogers ever offered a targeted offer that was directed and limited strictly to customers of one of its wireless competitors?
6316 MR. WATT: I think, as you are aware likely from the material that you distributed to us last night, Microcell brought an action against Roger Wireless and Bell a number of years ago, alleging that we were unfairly targeting their customers.
6317 MR. DANIELS: Just to be clear, this is an example of where you had an offer that was restricted and only available to Microcell to post‑paid Microcell customers and it wasn't an offer that was available to anyone else other than Microcell post‑paid customers.
6318 Is that a fair description of your offer?
6319 MR. WATT: No, that is not a fair description.
6320 Actually, I don't know if the other people have the material but it is Telecom Decision CRTC 2003‑26 that you distributed to us yesterday afternoon.
6321 MR. DANIELS: Madam Secretary, this is indicated and may I suggest I have three exhibits that we are going to use. Maybe it makes sense to pass them all out to the panel at the same time if they haven't.
6322 This one is Telecom Decision CRTC 2003‑26, which is indicated by the letter "K".
6323 THE SECRETARY: It will be The Companies Exhibit No. 8.
EXHIBIT NO. THE COMPANIES‑8: Telecom Decision CRTC 2003‑26, dated 28 April 2003
6324 MR. WATT: I guess with reference to your specific question, I draw people's attention to paragraph 19 where we made a number of responses to the Microcell allegations. In that paragraph we say Rogers had made the same offer to three other groups of customers, former RWI subscribers eligible for win‑back; business users eligible for RWI's fair share business plans; and customers of Rogers Cable who wanted to purchase a cellular phone from Rogers Wireless.
6325 MR. DANIELS: Fair enough, except then let me clarify.
6326 Was this offer available to a Bell Mobility customer who did not have Rogers cable and had never been a Rogers wireless customer before? Would they be allowed to avail themselves of this offer?
6327 MR. WATT: They certainly wouldn't qualify under the two categories "former RWI subscribers eligible for win‑back". That is given the caveat that you have put on that they hadn't previously been an RWI customer.
6328 And if they weren't a customer of Rogers Cable, if they weren't one of the two‑some‑odd‑million, they wouldn't qualify. I'm not sure about business users eligible for the fair share of business plans. Frankly, I confess I'm not familiar with that plan.
6329 MR. DANIELS: So this is one example that we have here of such an offer.
6330 Are there other examples that you are aware of in the wireless sector?
6331 MR. WATT: With respect to this offer, I would say it is a fairly broadly targeted, very broadly targeted offer.
6332 As I said, Rogers has over 2.2 million cable customers, and they were eligible for the precise offer that was being provided to Microcell users.
6333 MR. DANIELS: I guess my question was: Were there other similar offers where you have made an offer available to customers designed to match a strictly competitor, that you are aware of?
6334 MR. WATT: Yes, I am aware of instances. We, as you know, have a broadly based generalized rate offer. You can look at the website and see the wide variety of plans. They are available to everyone. You can contact us directly to receive those offers.
6335 We also then deal through dealers. Dealers also have those rate plans available to them. They also have flexibility to provide different arrangements, most generally with respect to the actual phone purchase.
6336 They are powered to deal with particular localized skirmishes that arise from time to time. These things will pop up. You will get a weekly special. TELUS will have introduced a weekly special in Edmonton, and we will respond with a weekly special in Edmonton.
6337 There certainly are activities of that nature.
6338 MR. DANIELS: Finally on this point, would you agree with me that the CRTC dismissed the complaint by Microcell of anti‑competitive conduct on the basis that because such rivalrous behaviour is to be expected in robustly competitive markets?
6339 MR. WATT: I would agree that is what they did, with the emphasis of course on the robustly competitive market, where they did identify that no particular player had more than a 28 percent market share in this market.
6340 MR. DANIELS: Now I would like to ask you a couple of questions, Mr. Watt, about cable.
6341 I would like to turn to a Globe and Mail article. This is an exhibit, marked as "E", for a Globe and Mail article dated October 10, 2006.
6342 THE CHAIRPERSON: Mr. Daniels, are you leaving this subject now and going to another subject?
6343 MR. DANIELS: No. I'm just leaving wireless.
6344 THE CHAIRPERSON: Eventually, Commissioner Langford has indicated an interest. So let us know.
6345 COMMISSIONER LANGFORD: I'm not sure of the procedure on this, quite frankly, so perhaps someone could guide me.
6346 I would like to ask some questions about this exhibit. I'm not sure. I've never wanted to ask a question about an exhibit before it has been put into the record, but I have some questions about this.
6347 I am just not entirely sure what the procedure is for doing that.
6348 MR. MILLINGTON: I think you can ask your question or just make the observation you have made to me, in writing, on the article.
6349 COMMISSIONER LANGFORD: All right.
6350 I've passed mine over to counsel with some notes on it.
6351 I just wonder what the genesis of this article is. I note that it came out on the day these proceedings began, and I note that it came out in a newspaper owned by Bell Globemedia in which BCE has something approximating an 18 or 20 percent share. These things change so quickly.
6352 I just wonder, quite frankly, because I suppose I have something of a questioning nature, whether Bell or BCE or Bell Globemedia or anybody had any influence in this article, which appears to paint Rogers and to a certain extent Vidéotron as fairly powerful rivalrous competitors.
6353 I don't mean to be insulting about this. I really don't. I just would like to be assured in my own mind of where this article came from and what inspired it.
6354 THE CHAIRPERSON: Mr. Bibic.
6355 MR. BIBIC: Mr. Chair, I would like to take this one.
6356 Commissioner Langford, I can assure you with 100 percent certainty that Bell Canada had absolutely nothing to do with that article. We have absolutely nothing to do with the editorial content in the Globe and Mail and haven't had anything to do with that even when we were 85 percent owner.
6357 In this particular case, I can assure you that that is not the case.
6358 COMMISSIONER LANGFORD: That certainly comforts me, and I thank you very much for that response.
6359 I'm sorry to delay matters.
6360 THE CHAIRPERSON: Mr. Daniels.
6361 MR. DANIELS: Turning then to this, which will be a well‑known exhibit from now on ‑‑
6362 THE SECRETARY: Please note that the exhibit is registered as The Companies Exhibit No. 9.
EXHIBIT NO. THE COMPANIES‑9: Globe and Mail ‑ B4 ‑ News article entitled "Rogers cranks up phone push" dated 10 October 2006
6363 MR. DANIELS: This article suggests that in an interview given by Phil Hartling, Vice‑President and General Manager of Rogers Home Phone, that Mr. Hartling indicated that Rogers was planning to offer tenants a special home package for tenants that would not be available to non‑tenants.
6364 Is that correct?
6365 MR. WATT: Could you point me to that section in the article, please.
6366 MR. DANIELS: Certainly. It is the second‑last paragraph of the article.
6367 Just so we are clear, the first sentence of that article says:
"As part of its more aggressive push, Rogers started advertising its Internet‑based phone service on TV and outdoor billboards."
6368 If you skip down to the last sentence on that page, it says:
"And it's reaching out to operators of large apartment buildings in Toronto to include the phone service in the rent, or to offer tenants a special phone package."
6369 MR. WATT: Yes. You would like me to describe our activities in that area?
6370 MR. DANIELS: Actually, all I really want to confirm is that you have or intend to have special offers that are available to tenants that wouldn't be available to non‑tenants.
6371 That is all we really need to confirm here.
6372 MR. WATT: I will explain what we are doing here.
6373 I think Mr. Daniels has focused on the second part of the sentence, to offer tenants a special phone package. We are not offering tenants a special phone package in the apartment buildings.
6374 Just to explain to you how we do deal with apartment buildings and condominiums, we have two forms of payment in the cable world.
6375 We have tenant‑pay, where we deal directly with the unit holder in the same fashion that we would deal with the home owner in the single family unit. These two entities pay precisely the same price.
6376 Then we have a second set of arrangements which were put in place in the early seventies to drive penetration into apartment buildings as cable was getting under way. These are generally known as bulk deals. They don't say the word "bulk" here but it ties into the first part of the sentence.
6377 In a bulk deal what we would do is go to the condo board or the management, the owner of the property, and say we would like to drive cable penetration in this building. Effectively what we do is we know that we would typically get 75 to 80 percent penetration in units.
6378 We go to the building owner and say we will provide to you for 100 percent of your units our cable service at 20 percent discount, for example. It leaves us whole. You then can provide that to your tenants, and you can either increase your rent or you could actually give it away to them for free.
6379 Typically, then, the unit holder does not pay Rogers. They receive the service in their rent.
6380 Those are the two forms. We are left whole in both cases.
6381 What we have done as we have entered into the telephony market, we have done two things in apartment buildings and condos.
6382 The second is we are offering a promotion to tenants on the tenant‑pay basis. So they are paying the same rate as you would the $29.95, including one feature, that you would in a single family unit.
6383 However, our single family unit offer includes a $10 discount for four months.
6384 What Phil was referring to here, we currently have an offer that provides a service for five months with a $10 discount. So they get an additional month discount in this case.
6385 With respect to reaching out to apartment buildings and condos with bulk offers, we have one offer currently in place, and that is where we are providing the service to the condo board and they are then charging the customers within the maintenance fee.
6386 MR. DANIELS: Mr. Watt, just to clarify, if I understood correctly, if it is a single family unit, in other words a non‑tenant, you get four months or a $10 discount or I didn't quite get the number, but the tenants get five. This has nothing to do with the bulk deal. This is just the distinction between being a tenant and being a single family unit. Did I understand that correctly?
6387 MR. WATT: You have understood that correctly. It is just a promotional offer for a tenant to pay unit holders in apartment buildings at the current time.
6388 I might add that, in our view, there is nothing that would prevent the telephone companies from making a similar offer to condo boards or landowners.
6389 MR. DANIELS: Are you aware of any special offers made by Rogers Cable that are only available to customers of satellite broadcast distribution undertakings such as ExpressVu customers? That could include, for example, free programming or free two‑year rental of a high definition PVR valued at $600 if the customer trades in their satellite dish to Rogers?
6390 MR. WATT: Over the years we have had a number of campaigns in this market once we entered the fully competitive phase and we have had, as I say, a number of bring your dish in and receive a discount or, in this case, I believe the offer that you are referring to is a fairly recent one in which we will provide the rental of a personal video recorder or PVR for free for two years.
6391 MR. DANIELS: Again, this is only available to someone who actually was an ExpressVu or I guess a Star Choice customer who brings in their dish? It is not available to a regular basic cable customer who wants to take the same services?
6392 MR. WATT: We have a variety of other promotions actually with respect to the personal video recorder that are offered to the universe of our customers.
6393 This particular one, the one obviously that is tied to bring back the dish is tied just to satellite providers. We think this is generally consistent with the win‑back cards that you have been distributing, the $100 off ExpressVu highspeed Internet and long distance to former Bell local customers. You are aware of those particular thank you cards.
6394 MR. DANIELS: We have been focusing on Rogers for a moment. What about the rest of you, have any of your companies made an offer that is only available to satellite dish owners or customers of your competitors, a special offer?
6395 MR. BRAZEAU: I am certainly not aware that Shaw has. Our pricing for our phone service is usually a single price for any customer, be they in Fort McMurray or in Vancouver, the price is similar there.
6396 MR. DANIELS: Mr. Brazeau, I am actually not talking strictly about phone service. In the example we gave it was about a cable offer for cable. So, are you aware of an offer for cable, not phone, where you give a discount or some sort of special deal that is only available to customers of competitors such as ExpressVu?
6397 MR. WATT: Mr. Brazeau is a little rattled. Star Choice falls under his portfolio and our dish offer was in part directed at them.
6398 MR. BRAZEAU: Yes, and I think my answer would be similar on the cable side. We tend to have one set of prices, and although there might be from time to time promotions, I am not aware of any promotion that is focused on returning dishes.
6399 MR. DANIELS: Mr. Béland.
6400 MR. BÉLAND: As far as Vidéotron is concerned, again, we have a variety of promotional activities. I am not aware of any specifically that were targeted or limited to subscribers of alternative television distribution services, but it is not inconceivable that we would have had promotions along those lines.
6401 MR. DANIELS: Monsieur Messier.
6402 MR. MESSIER: I am not aware personally that we made some offer directly targeting such alternative competitors for cable services.
6403 MR. DANIELS: If I could ask you to turn to The Companies' interrogatory, Companies CRTC 24‑03. If you will give us a minute.
‑‑‑ Pause / Pause
6404 MR. DANIELS: This is an interrogatory that The Companies filed on the first day of the proceeding, but I believe I have given you warning that we will be spending ‑‑ I have a couple of questions about some material in this interrogatory.
6405 I am specifically going to ask you to turn to page 10 of this interrogatory. I am interested in Table 3, which just sets out a chart. It lists the various different rates of your companies' offers and Bell Canada's offer with regard to telephony service. Do you have that handy?
6406 MR. WATT: Yes, we do.
6407 MR. DANIELS: I don't propose to take you through all the examples listed here in Table 3 and the associated examples listed in the text of pages 10 to 12 and the footnotes. In order to just move things along, I am just going to bluntly see if I can get agreement what a close reading of the examples illustrate here and see if we can save some time that way.
6408 To state what I think may be the obvious, each of you offers bigger discounts if customers take digital phone service with Internet or cable and in some cases wireless than you do offer on a stand‑alone basis. Is that a fair statement for all of you?
6409 MR. WATT: It is a fair statement for Rogers, yes.
6410 MR. BÉLAND: If I may, maybe before you get too far in the table, I would like to make some comments on the way Vidéotron's rates have been presented in the table.
6411 There is a perception, including among people in this room, regarding Vidéotron's telephony pricing being distinctly or substantially below our competitors, not only among the incumbents, but also among the other cable co's. I think this perception is driven to a large extent by tabular presentations like this one, which I don't think offer an entirely accurate perspective.
6412 To begin with, the first line of the table, "Stand‑Alone Local Telephone Line," and you give a range of Vidéotron's rates from $16.95 to $22.95, that is incorrect. Our stand‑alone local telephone line goes for $22.95. Rates below that are bundled rates, the rate you receive on your local telephone line when it is bundled with other services. So I think that is the first inaccuracy in this table.
6413 That applies, as well, to the second line, "Local Telephone Line With One Calling Feature." Here you haven't used the word "stand‑alone" so it is maybe more accurate. But what I want to make sure that people understand is that the lower end rate in the range that you have provided there is our, let's call it our maximum bundled rate.
6414 What concerns me even more, though, is when we move down the table, the last three lines. So let's begin with the third line in your table: Local telephone line, plus 5 calling features, plus North American long distance, LD calling, Bell Canada at $64.92, et cetera, Vidéotron at $52.90.
6415 That line is accurate. All right.
6416 You see that Vidéotron has discounted relative to Bell in particular. That should be a surprise to no one that that is part of Vidéotron's entry strategy in telephony to discount to the incumbent.
6417 It is the two following lines that I think lead to confusion and lead to this false perception regarding the magnitude of discounts that Vidéotron provides relative in particular to some of the other cable companies.
6418 Because what you have to understand is that the cable company approaches to telephony pricing are very different across the companies.
6419 Vidéotron has a menu approach, whereas a company like Shaw has what I would call an all‑in approach to begin with.
6420 In addition, and what people I think are particularly not aware of, is the difference between the way Vidéotron presents its bundled discounts and the way some of the other cable carriers present their bundled discounts.
6421 I will speak to the comparison between Vidéotron and Rogers.
6422 When you get telephony with Vidéotron you start at the rate of $52.90 for the package described in your third line, and you also take one of our other two main services, Internet or cable, you get an $8.00 discount. In the particular package that you have described there, you get an $8.00 discount by virtue of the fact that you also subscribe to one of our other services.
6423 But that $8.00 discount appears ‑‑ is attributed entirely to the billing line of telephony. You don't see it distributed. You don't get part of the $8.00 off on your cable or part of the $8.00 off on your Internet, you get it all off on the line on your bill that says telephony.
6424 If you have Rogers, though, Rogers works more on a percent off bundled pricing approach. So what Rogers says to you is: If you get two of our services you get "X" percent ‑‑ I'm not sure, Dave, if it's 5 or 10 percent off. Five percent. If you get three of our services, you get "Y" percent, perhaps 10 percent.
6425 MR. WATT: Yes, you get 5 percent for two; 10 percent for three; and 15 percent for four.
6426 I will turn it back to Mr. Béland.
6427 MR. BÉLAND: The problem with your table, then, is that in the case of Rogers when you move from $66.15 to $62.85, you have calculated the 5 percent savings on the telephony line of the Rogers bill, and you have only attributed ‑‑ you have only acknowledged the part of the bundling discount that corresponds to a percentage of the telephony line here.
6428 The subscriber at Rogers might be saving a lot more than $4.00 by having two services, but you are showing only the part of the savings that is calculated as a percentage of the telephony line.
6429 The way Vidéotron presents its bundling discounts is, we basically dump it all on the telephony line of the bill. It is a marketing decision. It is the way we have decided to maybe make a splash with the public. "Hey, if you get two services you get $8.00 off, if you get three services you get $16.00 off."
6430 The Rogers subscriber might also be saving a substantial amount of money by going from two to three services, but your calculation only grabs a part of that substantial savings and attributes it to the telephony line.
6431 The best way I could maybe explain the concern I have is, in Montréal at present there is a company called Cybersurf who is one of our third‑party Internet access clients, TPIA clients, and they have a bundle in the market. Their bundle is: Come to us for telephony, a VoIP service, come to us for telephony for $39.95 and we will throw in high‑speed Internet for free. That is their marketing pitch. That is how they present it.
6432 Now, if Bell were producing a comparable table for the high‑speed Internet in Montréal, you would have a column and you would have Cybersurf and the price you would have for Cybersurf's high‑speed Internet service would be zero. But that is a consequence only of the marketing pitch that Cybersurf is using in that market. No one seriously believes that they are giving away high‑speed Internet service.
6433 So I suggest to you that your means of presenting these pricing figures gives a distorted view as to the magnitude of the bundling discounts that Vidéotron subscribers receive relative to some of the other carriers.
6434 MR. DANIELS: But, Mr. Béland, in that long discussion, did I get a yes? I think I heard a yes to my question, which was just that you offer bigger discounts if customers take digital phone service with Internet or cable in your case.
6435 MR. BÉLAND: If your specific question is: Do our customers get large discounts as they add more services with us? Yes.
6436 MR. DANIELS: Thank you.
6437 I'm happy if Mr. Watt wants to speak for all four or if each one of you wants to just confirm it. I don't really think this is a hot issue, so we can ‑‑
6438 Just again, I assume all four of you do give discounts if it is cable and Internet or bundled it as opposed to not?
6439 MR. WATT: I think we have handled Vidéotron, Shaw and Rogers, so I think we should let Cogeco have an opportunity to speak to their service.
6440 THE CHAIRPERSON: Do you have a specific question for ‑‑
6441 Monsieur Messier, voulez‑vous confirmer ou infirmer la prémisse qu'ont accepté vos collègues?
6442 M. MESSIER : Bien sur, je confirme effectivement que notre service téléphonique, notre offre téléphonique, pris avec le service Internet ou pris avec le service câble et Internet, le client reçoit un rabais qui varie selon l'Ontario et le Québec.
6443 MR. DANIELS: Now I would like to ask about new customers.
6444 Again, without going through all the details here, would it be fair to say that some of you have special offers that only apply to new customers, which in Cogeco's case means that they have not taken Cogeco's phone service in the last six months, and in Shaw's case in the last two months.
6445 Let me just direct that to Mr. Brazeau and Monsieur Messier.
6446 Monsieur Messier, for Cogeco.
6447 M. MESSIER : Effectivement, notre offre, elle est disponible à un client quoi, soit pour la première fois va prendre les services de Cogéco, ou qui a quitté Cogéco depuis au moins six mois. C'est la condition pour profiter de la promotion que l'on offre.
6448 MR. DANIELS: Sorry, just give me one second.
6449 But it is only available to new customers, as you have defined them?
6450 M. MESSIER : Au niveau du prix promotionnel, oui. C'est seulement offert aux nouveaux clients.
6451 MR. DANIELS: Thank you.
6452 MR. BRAZEAU: Typically we have a 90‑day promotion that we offer to new customers.
6453 MR. DANIELS: Again, Mr. Brazeau, only new customers. Right?
6454 MR. BRAZEAU: That is correct.
6455 MR. DANIELS: In the case of Cogeco, again Monsieur Messier, does Cogeco have targeted offers that are only available to students, or at least you did last summer have an offer that was only available to students who attend a college or university in your territory in Ontario.
6456 Is that correct?
6457 M. MESSIER : Effectivement, nous avions une offre promotionnelle pour les étudiants en Ontario.
6458 MR. DANIELS: Again, that wasn't available to anyone but a student?
6459 M. MESSIER : Si vous regardez le prix, l'offre était offerte, effectivement, à 34,95 $ pour un an, aux étudiants. Le même prix était offert aussi, 34,95 $ pour tout client sur notre territoire qui prenait les services avec les deux: avec l'Internet et le câble.
6460 MR. LAWFORD: But the students didn't have to take the cable and the Internet to get that product.
6461 MR. MESSIER: I have to check.
Je pense qu'effectivement...
6462 MR. LAWFORD: I would like to turn to an exhibit we handed out. It's "B", the colourful one.
6463 THE SECRETARY: Which will be The Companies Exhibit No. 10.
EXHIBIT NO. THE COMPANIES‑10: Tribute communities publicity entitled "Imagine a year of Rogers for Free"
6464 MR. LAWFORD: Do you have that handy, the Rogers ad?
6465 MR. MESSIER: Yes, I do.
6466 MR. LAWFORD: This is an ad that my marketing folks sent to me earlier this year for the Tribute Community. As I read the ad, it seems to be offering the equivalent of a $2,100 retail value product of Rogers service when a customer buys a home from Tribute Community and the Enclave Community.
6467 Is that correct?
6468 MR. WATT: Yes, that is correct.
6469 MR. DANIELS: This offer includes a number of Rogers' services. I am not going to read them all here, but basically it covers Internet, home phone and cable bundled together.
6470 Is that correct?
6471 MR. WATT: That is correct.
6472 MR. DANIELS: What does the customer have to pay for this?
6473 MR. WATT: We don't know what the customer has to pay for this. This is an arrangement similar to the bulk arrangement that I spoke of earlier. We provide the services to the home builder and then the home builder may provide it, may offer it to the customer, the home buyer, for free. He may offer it in lieu of an upgrade in the kitchen.
6474 There is a variety of arrangement in which the builder actually makes use of this service.
6475 He pays us and then he deals with the customer as he wishes.
6476 MR. DANIELS: So it is probably included in ‑‑ I take your point. You don't know every circumstance. But generally it would be fair to say you expect it is probably part of the price of the home?
6477 MR. WATT: I think it possibly could be, yes.
6478 MR. DANIELS: I notice at the bottom here it says:
"Once the Agreement of Purchase and Sale of your new Imagination home is firm and binding, a sales representative will give you an official home owner's certificate." (As read)
6479 I take it that is a reference to sort of like a certificate, a kind of gift certificate, that the customer can give to Rogers to demonstrate that it has entitlement to this value offer.
6480 Is that correct?
6481 MR. WATT: Actually, I wouldn't actually know exactly how that works. I'm not sure.
6482 I would say, however, this is an offer of course that Aliant has made in New Brunswick, a similar arrangement. I have a copy of the ad. They actually made it slightly before we did.
6483 "Spring Blowout Kent Homes Atlantic Canada's leading home builder". And then it goes on to show similar to ours; plus Aliant. It has a picture of floor plans somewhat more colourful than our ad.
6484 It reads:
"Receive an Aliant local and high speed value package for one year, value $1,600..."
6485 Somewhat less.
"... included with the purchase of your new home."
6486 The reason I presume that the value was less is that we have cable included in ours and Aliant only has local service and high speed Internet.
"...includes local phone service with the seven most common features, plus high speed unlimited long distance calling in Canada. Certain conditions apply." (As read)
6487 So I assume these arrangements are similar.
6488 MR. WATT: I raise this issue simply to show that the telephone companies are able to make the same types of offers.
6489 I should add it is probably a little bit unfair. I can provide a copy to you and to the Commission. We didn't want to do it in advance. We weren't sure if you were going to use that particular exhibit that you had provided to us.
6490 MR. DANIELS: In the Tribute community situation here that we are looking at this ad, I would like to clarify. This is a Tribute community customer in terms of buying these services or do you view this as a Rogers customer?
6491 MR. WATT: In a sense, I would view it as a shared customer in the sense that we provide the service to the home builder for that year at his expense.
6492 But we are providing the service to the customer. We are dealing with the customer thereafter. These customers would interact with us. Frequently what is not included in here, they can take additional services from us, that they would contact us directly for.
6493 An example would be third language specialty channels. It doesn't appear to me that they are included in this package.
6494 So we would view them as a customer of ours as well.
6495 Then subsequent to the year, we would begin charging those customers.
6496 MR. DANIELS: Thank you, Mr. Chairman. That concludes all my questions.
6497 THE CHAIRPERSON: Thank you, Mr. Daniels.
6498 There is one question from Commissioner Noël.
6499 COMMISSIONER NOËL: The question is for Mr. Watt, and I am using The Companies Exhibit No. 8. That is the one with the "K" letter on it.
6500 You read part of your argument at paragraph 19, but I am taking you to paragraph 51.
6501 It says:
"In the Commission's view, the record of the present proceeding confirms that the RWI offer, and Bell Mobility offer for that matter, were targeted solely at Microcell's post‑paid subscribers and were not made available to all RWI or Bell Mobility subscribers or potential subscribers. In making their offers, RWI and Bell Mobility were accordingly discriminating in relation to the provision of a telecommunications service."
6502 What the Commission found was that it wasn't unjust discrimination but there was discrimination.
6503 MR. WATT: Yes, I take your point. I would agree ‑‑
6504 COMMISSIONER NOËL: You would agree that it was discrimination; thank you.
6505 Just another question.
6506 THE CHAIRPERSON: Madam Commissioner, he has another point he would like to make. I don't think we should hector the witness.
‑‑‑ Laughter / Rires
6507 MR. WATT: I note that paragraph 51 says "the record of the present proceeding confirms that the RWI offer" ‑‑ and I will leave out Bell ‑‑ "was targeted solely at Microcell's post‑paid subscribers".
6508 As I said earlier in paragraph 19, we did offer it to Rogers Cable subscribers ‑‑
6509 COMMISSIONER NOËL: That was your argument.
6510 MR. WATT: You may not have believed us. I can't sit here today and say I would agree with that.
6511 COMMISSIONER NOËL: We were reciting your argument in paragraph 19 actually. That is what we usually do: they said, she said, they answered, they replied. And we conclude.
6512 At the conclusion level, I think we didn't believe you.
6513 Another little point.
6514 I am puzzled ‑‑ and I am referring to The Companies Exhibit No. 10 ‑‑ when you say that these are bulk‑like agreements. They seem to be addressed at the individual purchaser because you are not sending that to the Tribute people. You are sending that to the prospective buyer.
6515 MR. WATT: Actually, the Tribute people give that to the ‑‑ they plaster that all over the model home location, and this is part of their sales pitch to sell the homes in their development.
6516 COMMISSIONER NOËL: So they eat the cost or they probably include it in the sales cost of the new house?
6517 MR. WATT: Yes. I hesitated to answer because I don't know the facts.
6518 COMMISSIONER NOËL: Plus TPS, Ontario provincial tax, what is it called, provincial tax?
6519 MR. WATT: PST.
6520 COMMISSIONER NOËL: PST. Thank you.
6521 THE SECRETARY: Thank you, gentlemen.
6522 We will now proceed with Counsels Ryan and Edora on behalf of TELUS.
6523 THE CHAIRPERSON: Mr. Ryan, I have been informed that we are going to take a five‑minute break. We will be back at ‑‑ it is nearly a 10‑minute break ‑‑ 20 minutes to 11:00.
‑‑‑ Upon recessing at 1131 / Suspension à 1131
‑‑‑ Upon resuming at 1138 / Reprise à 1138
6524 THE CHAIRPERSON: Mr. Ryan, I could say that you are well known to all of us, but we have had complaints from those listening to the audiocast on the web that they don't always know who is asking the questions. So, since it is a well‑known CRTC principle that the audience is always right, except when it is wrong ‑‑ in this case I am upholding the audience ‑‑ I would ask you to introduce yourself, please.
6525 MR. RYAN: Thank you, Mr. Chairman.
6526 My name is Michael Ryan and I appear on behalf of TELUS Communications company. With me is my co‑counsel, Eric Edora.
6527 THE CHAIRPERSON: Thank you.
6528 MR. RYAN: Mr. Chairman, unavailable to the people listening by audio is the white binder that I have asked the Secretary to distribute to you. I presume you now have that in front of you.
6529 I have provided copies to Mr. Dunbar for his own use and for the use of the panel.
6530 The exhibits that I propose to refer to are organized in this binder.
6531 THE CHAIRPERSON: So, Mr. Ryan, when you begin using these exhibits, you will give the Secretary an opportunity to tell us what number the exhibit is in terms of TELUS exhibits.
6532 MR. RYAN: Thank you, Mr. Chairman, I will.
CROSS‑EXAMINATION BY MR. RYAN:
6533 MR. RYAN: Mr. Messier, my first question is for you, if I may.
6534 My understanding is Cogeco has recently launched, and I think it is already well understood in this proceeding, a telephone service?
6535 M. MESSIER: Oui, notre service téléphonique a été lancé en juin 2005.
6536 MR. RYAN: Tell me, Mr. Messier, how is business?
6537 M. MESSIER: Actuellement, disons que les résultats seront connus demain, lundi, sur la fin de la dernìère année financière. Pour l'instant, disons que les clients considèrent que notre service est un bon service. Nous avons un certain succès dans le marché présentement; je dois le reconnaître.
6538 MR. RYAN: Aren't you being a little bit ‑‑ I mean, this is an opportunity to beat your own drum here, Mr. Messier. You sound a little bit guarded about the success you have had in the marketplace.
6539 You in fact have been very successful with your new offering, haven't you?
6540 M. MESSIER: On a un bon succès dans le sens que par rapport à ce que l'on avait annoncé au marché au niveau des "guidance", on a dépassé les "guidance". Ils ont été revisés en avril dernier. De ce point de vue, oui, nous sommes entièrement satisfaits.
6541 MR. RYAN: You are reasonably satisfied? Could I ask you to move your microphone just a little bit closer to you? I don't know if I am the only one having any difficulty quite hearing you.
6542 MR. MESSIER: Okay.
6543 MR. RYAN: In fact, could we go to the first exhibit that I included in the binder that I distributed this morning but you had an opportunity to look at this document last night I think as well, did you not?
6544 M. MESSIER: Oui, rapidement.
6545 MR. RYAN: That, would you agree with me, shows an increase in subscribership for your digital telephony service from a standing start at the end of August 2005 up to somewhere between 30,000 and 35,000 customers by May of this year?
6546 M. MESSIER: Exact.
6547 MR. RYAN: And you are going to announce some new results tomorrow, I take it, for the most recent quarter?
6548 MR. MESSIER: Yes, Monday.
6549 MR. RYAN: Could you give us some insight into what the new subscriber figure is going to be?
6550 MR. MESSIER: No, I don't think so.
6551 THE CHAIRPERSON: Just while we are waiting, what exhibit number is this, Madam Secretary?
6552 THE SECRETARY: Thank you, Mr. Chairman.
6553 It will be TELUS No. 3.
EXHIBIT NO. TELUS‑3: Cogeco Cable Inc. Total Digital Telephony Subscribers and New Digital Telephony Subscribers, Quarterly Graph from 31 Aug. 2005 to 31 May 2006
6554 THE CHAIRPERSON: Thank you. Mr. Ryan.
6555 MR. RYAN: And as you have already alluded to, Mr. Messier, the success of your offering has been such that you have had to revise upward your guidance for this offering already in 2006?
6556 M. MESSIER: Oui. Ce que nous devons dire, c'est que Cogéco a pris une approche qui était très prudente par rapport à ses prévisions, puisque nous n'avions aucune idée réelle, étant donné la première année, de ce que serait la réception des clients au niveau de ce service‑là. Donc, oui, les résultats ont fait en sorte que trimestre après trimestre, nous avons revisé les guidances au niveau du marché.
6557 MR. RYAN: Can we go, then, to page 2 of this document, which will be part of the same exhibit.
6558 There is a back‑up document on page 3, you will see, which indicates the source of the information for both graphs, as you would have seen last night, I think, when you looked at this.
6559 M. MESSIER: Exact.
6560 MR. RYAN: This document purports to present your projected number of telephony subscribers for 2006 from the vantage point of various forecasts that you have made over the past year or so. Are you with me?
6561 M. MESSIER: Oui.
6562 MR. RYAN: Would you agree that when looking at this page 2, that at the end of May 2005 you projected that you would have something less than 10,000 subscribers in 2006, 8,000 according to the table on page 3.
6563 M. MESSIER: Oui, effectivement.
6564 MR. RYAN: Then at the end of August 2005 when you launched the service, you increased that forecast from 8,000 subscribers to something just short of 40,000 subscribers?
6565 MR. MESSIER: Yes, 37,000.
6566 MR. RYAN: Then in May of this year, you increased your forecast again to 50,000 subscribers.
6567 M. MESSIER: C'était la limite supérieure, effectivement.
6568 MR. RYAN: We will see very shortly whether you have exceeded that expectation or whether you have fallen short of it, I take it?
6569 M. MESSIER: Exact. Lundi, ce sera public.
6570 MR. RYAN: Perhaps you could undertake to file that information as part of the record of the proceeding when it becomes available.
6571 M. MESSIER: Oui, certainment.
6572 MR. RYAN: Thank you.
6573 So, again, Mr. Messier, this service has been an unexpected success for the company, the level of success that you have actually achieved based on your revised forecast that you have made during the course of the year. Is that fair to say?
6574 M. MESSIER: Si on regarde sur la base des prévisions qu'on a faites, oui, ce n'était pas les attentes. Comme je l'ai dit, nous avons pris une approche qui était très prudente chez Cogéco, étant donné que c'était notre entrée dans ce marché et que nous n'avions aucune idée de ce que serait la réception réelle des clients. Nous savions que la question de pluseiurs variables allait jouer au niveau des consommateurs. L'autre critère était la question de la pénétration de notre offre de service. À la fin juin, nous étions à 50% des "home pass". Alors, cela aussi est une autre variable qui était difficile à considérer et qui a joué dans la révision. Donc, nous avons déployé plus rapidement, ce qui a emmener à réviser les guidances.
6575 MR. RYAN: I will come back to that point.
6576 Before doing that, could we go to the second document in the binder, and this is the Cogeco press release dated April 10, 2006. That is also a document you have had an opportunity to review last night, Mr. Messier. Is that right?
6577 M. MESSIER: Rapidement, oui.
6578 THE CHAIRPERSON: This one has another number, madam la secretaire?
6579 THE SECRETARY: Yes. It will be TELUS number 4.
EXHIBIT NO. TELUS‑4: Cogeco Cable Inc. press release entitled "Customer growth fuels near doubling of net income"
6580 MR. RYAN: I would like to refer to a passage on the first page of that document, Mr. Messier. It is under the heading "Continued Growth in All Major Service Categories."
6581 If we go to the fourth line, which includes the numbers of subscribers there ‑‑ we have already touched on that ‑‑ the paragraph continues:
"Our digital telephonies offering is creating a snowball effect with more customers choosing the bundled offer of two or three services." (As read)
6582 Could you explain the reference to "snowballing" and what was meant by Mr. Audet, who is quoted in that paragraph?
6583 M. MESSIER: Je dirais que comme vous le savez, notre offre de service téléphonique est une offre que les clients peuvent retenir sur une base "stand alone" et sur une base aussi principalement avec un "discount" qui est appliqué lorsqu'on prend un ou deux services. Donc, en effet, la plupart de nos clients vont prendre le service téléphonique avec d'autres services. Donc, cela a effectivement emmené un certain nombre de nouveaux clients à souscrire à d'autres services pour profiter de cet escompte et à certains clients qui avaient déjà le service de souscrire. Donc, cela a eu un impact sur nos autres services au niveau de la croissance.
6584 MR. RYAN: So it has been an advantage for you in the marketplace that you have had these other telecommunications offerings with which to bundle your telephony service. Is that fair to say?
6585 MR. MESSIER: Would you repeat? I just want to make sure.
6586 MR. RYAN: Yes. It has been an advantage to the company to be able to offer the telephony service in association with these other services that you already offer?
6587 M. MESSIER: Je ne sais dans quelle mesure on peut dire que c'est un avantage. C'est une approche que nous avons prise de créer une certaine valeur avec nos autres services, mais c'est la même approche que je vois auprès de d'autres. Ce n'est pas un avantage puisque nos compétiteurs peuvent offrir la même approche de services groupés.
6588 MR. RYAN: I understand.
6589 Could you tell me, you talked about homes passed. What percentage of cable homes passed do you now offer your voice telephony service to?
6590 M. MESSIER: Comme je l'ai dit, actuellement, on va avoir les résultats aussi lundi. Lorsqu'on a annoncé les résultats au troisième trimestre, 50% des "home pass", le service téléphonique était disponible. Ce qui laisse l'autre 50%, ce n'est pas disponible.
6591 MR. RYAN: So you had already achieved 50 per cent of homes passed during ‑‑
6592 M. MESSIER: Environ. En moyenne. Je pense qu'on va avoir les chiffres lundi.
6593 MR. RYAN: And you have continued to roll out during the most recent quarter to add more homes?
6594 M. MESSIER: Effectivement, on continue.
6595 MR. RYAN: And we will see shortly presumably just what the new figure is?
6596 M. MESSIER: Je pense que ces données‑là devraient faire partie des résultats qui seront annoncés lundi.
6597 MR. RYAN: I think in light of that, I would like to go to the next Cogeco document, which is another press release, this one dated July 10, 2006. It should be the third document in the bundle, Mr. Chairman.
6598 THE CHAIRPERSON: I'm going to guess it is going to be TELUS 5.
6599 THE SECRETARY: You are right.
EXHIBIT NO. TELUS‑5: Cogeco Cable Inc. press release entitled "Cogeco Cable reports substantial growth and expects sustained improvements for fiscal 2007"
6600 MR. RYAN: That's why we pay you the big bucks.
6601 THE CHAIRPERSON: It took two years to get that point. Thank you.
‑‑‑ Laughter / Rires
6602 MR. RYAN: Do you have that document in front of you, Mr. Messier?
6603 M. MESSIER : Oui.
6604 MR. RYAN: Can we go down to the second last paragraph on the first page, under the heading "2007 Projections Canada"?
6605 M. MESSIER : Oui.
6606 MR. RYAN: In the middle of that paragraph it is indicated by the company that the operating margin for the company ‑‑ I take this to be the company as a whole ‑‑ is 40 percent. The sentence indicates that that 40 percent should be achieved, as it says in the document, despite the launch of digital telephony in most of the corporation's networks.
6607 Are you with me?
6608 M. MESSIER : Oui.
6609 MR. RYAN: Would you say that 40 percent, especially in light of the fact that you have just rolled out your digital telephony service, is a very healthy profit margin?
6610 M. MESSIER : Je dirais que cela est dans les standards de l'industrie, oui.
6611 MR. RYAN: Would you say it is at the upper end of the standards for the industry?
6612 M. MESSIER : Je ne pourrais commenter à ce niveau. Cela dépasse mon terrain d'expertise.
6613 MR. RYAN: I noticed that Mr. Audet is quoted again in this press release in the next paragraph and he expresses confidence that the number of Canadian customers will continue to grow thanks to the company's strong offering.
6614 Is that a reference specifically to the digital telephony offering, or is that to the offerings of the company generally? It's not clear to me.
6615 M. MESSIER : Je ne saurais dire exactement ce que M. Audet voulait précisément laisser entendre à ce niveau. Je dirais que c'est pour l'ensemble des services.
6616 MR. RYAN: Could we go to page 3 of that same document?
6617 At the second bullet on the page we do see the number of 50 percent of homes passed being quoted.
6618 Is it the company's intention to roll out its digital phone service to 100 percent of its cable customers?
6619 Mr. MESSIER: One hundred percent is ‑‑ Dans notre cas, il faut considérer qu'un certain nombre de "home pass" ne sont pas "two way". La fonctionnalité de notre réseau n'est pas bidirectionnelle donc nous ne pouvons atteindre le 100% de l'ensemble de nos "home pass". Donc, un certain pourcentage doit être réduit de cela. Il est certain que notre objectif c'est... Là où notre réseau est bidirectionnel, c'est de pouvoir offrir à l'ensemble de nos clients la possibilité d'avoir le service téléphonique.
6620 MR. RYAN: Where the network is technically capable of supporting the digital telephony service there will be 100 percent coverage?
6621 M. MESSIER : C'est un objectif. Je ne dirais pas que c'est un objectif pour 2007, mais c'est un objectif à atteindre, indépendamment de l'ensemble des problèmes qu'on peut rencontrer pour déployer, puisque, comme vous le savez, Cogéco a principalement son réseau dans des régions qui sont plus faiblement densément peuplées. Dans certains échanges, nous éprouvons certaines barrières à l'entrée pour déployer ce service‑là, ce qui fait que même si le régime permet une interconnection qui est sur la base d'une région, selon le "counter connection region", nous ne pouvons dans certaines régions pouvoir offrir dans l'ensemble des échanges qui appartiennent à ‑‑ l'ensemble de notre service, malgré le fait que notre réseau est bidirectionnel, puisqu'il y a un certain nombre de problèmes compte tenu du volume pour offrir notre service. Alors, ce sont des choses sur lesquelles on travaille. On a déposé des choses auprès de la Commission. Mais, oui, c'est un objectif de se rendre à offrir...
6622 MR. RYAN: Do you have a timeframe within which you hope to achieve that objective?
6623 M. MESSIER : Comme je l'ai dit, compte tenu de la particularité de notre territoire, c'est très difficile. Il est certain que nous allons faire tous les efforts pour faire en sorte que notre service soit accessible le plus rapidement possible, mais ce serait difficile de pouvoir mettre un "time frame" présentement.
6624 MR. RYAN: Perhaps we can turn our attention to Shaw then for a few minutes.
6625 Thank you, Mr. Messier, I may come back to you.
6626 Mr. Brazeau, could you take a look at TELUS Exhibit 3, the first document in the bundle, specifically would you please go with me to page 6.
6627 MR. BRAZEAU: Yes.
6628 MR. RYAN: You have had a chance to look at that graph since yesterday evening?
6629 MR. BRAZEAU: Yes.
6630 MR. RYAN: Are you in a position to confirm, then, that the graph accurately represents your experience with their roll‑out of digital telephony service in your operating territory?
6631 MR. BRAZEAU: Yes.
6632 MR. RYAN: So you have effectively gone from a standing start of zero in February 2005 when you launched your service to slightly under 180,000 customers as of the end of May 2006.
6633 MR. BRAZEAU: That's correct.
6634 MR. RYAN: Are you in a position to provide any more updated information to us as to your current subscriber count?
6635 MR. BRAZEAU: I don't think we have made any more current customer count publicly available. We too will be filing our quarterly numbers fairly soon, so if that is of help we could, when that is available, make that available.
6636 MR. RYAN: I don't want to leave it open‑ended, but if that is done in the course of, say, the next week, would you file it as part of the record of this proceeding?
6637 MR. BRAZEAU: Let me clarify as to when we will publish our numbers and then ‑‑
6638 MR. RYAN: Would you agree that the growth of the service that is depicted on page 6 is a very healthy growth rate?
6639 MR. BRAZEAU: As compared to what?
6640 MR. RYAN: As compared to ‑‑ well, let me put the question this way then: Is the company pleased with the experience it has had so far with the roll‑out of this service?
6641 MR. BRAZEAU: So far we are pleased with the roll‑out of the service.
6642 Just note that we have been in the market for a year. It is 160,000 customers as opposed to the four million lines that are out there. So it is still really early days and we are hopeful that we will continue to be successful in this marketplace.
6643 MR. RYAN: Could we go to the fourth document in the bundle, please, which is a Shaw News Release dated July 7, 2005.
6644 THE SECRETARY: Number 7.
6645 MR. RYAN: I think the system has failed.
6646 THE SECRETARY: Correction, TELUS No. 6.
EXHIBIT NO. TELUS‑6: Shaw news release entitled "Shaw Communications Inc. announces third quarter results and initial Digital Phone growth"
6647 MR. RYAN: Could you look at the first full page of that press release? I apologize, the text is a bit small but I presume you won't have any difficulty reading it.
6648 The second full paragraph, quoting Jim Shaw, the Chief Executive Officer of Shaw. The quotation:
"Shaw's entry into the telephone business is a defining moment in our history."
6649 Could you offer any elaboration on what Mr. Shaw meant by referring to the launch of the telephony services as "a defining moment" for the company?
6650 MR. BRAZEAU: No, I could not.
6651 MR. RYAN: Further on in the same paragraph the press release, Mr. Shaw in fact, refers to the ability that digital Phone gives the company "to tap into", as he expressed it:
"... a new revenue stream leveraging off our existing infrastructure..."
6652 I presume what he is suggesting here is, you are able to penetrate the market much more quickly because you have an existing cable infrastructure over which this service will in part ride?
6653 Am I understanding him correctly?
6654 MR. BRAZEAU: Yes. I think the brand recognition and the reputation that Shaw has in its market certainly helped our penetration in the digital phone business.
6655 MR. RYAN: Also the fact, I would suggest, that you have an existing customer base for your cable service off which you can leverage?
6656 MR. BRAZEAU: Yes, I'm sure that would be of ‑‑
6657 MR. RYAN: Which would give you a distinct advantage compared to a peer start‑up in the telephony business?
6658 MR. BRAZEAU: Yes. But we mostly compete against TELUS and they also have a certain ‑‑
6659 MR. RYAN: They have been around for a while.
6660 MR. BRAZEAU: And penetration in the marketplace.
6661 MR. RYAN: Yes. At the end of the paragraph that I have just referred to, Mr. Shaw gives a subscriber count as of May 31, 2005, which is already a year ago.
6662 Would you say from the outset that that service offering was very well received in the marketplace?
6663 MR. BRAZEAU: Yes. I mean, we still have to market the product. We still have to convince customers through our marketing that switching the service provider is something that they should do.
6664 Have we been successful? Yes. But we have worked very hard at it. It is a market that demands a lot of effort.
6665 MR. RYAN: That switching process you have referred to is facilitated, of course, by the fact that number portability is available as a result of earlier Commission decisions.
6666 MR. BRAZEAU: Number portability does help, but we also have a large percentage of our customers who are taking new numbers. So portability was certainly helpful, but there are also a number of new customers. Even existing customers are prepared to accept a new number.
6667 We experienced that especially last year when there was some porting issues at TELUS. We were happy to find out that customers were prepared, again for some discount, to take a new number and leave their old numbers.
6668 MR. RYAN: Okay. Could you look on the same sheet of paper but page 2 of the press release. The first full paragraph begins again with a comment by Mr. Shaw, and three or four lines down he indicates that the company, at least as of July 7, 2005, was planning to increase capital spending in 2006 in order to accelerate digital phone growth and to support ongoing network upgrades.
6669 Do you see that passage?
6670 MR. BRAZEAU: Yes.
6671 MR. RYAN: Did that increase in capital spending on digital telephony indeed come to pass?
6672 MR. BRAZEAU: Yes, it has.
6673 MR. RYAN: Could you go, please, to page 10 of the same document, that is page 10 of the press release.
6674 MR. BRAZEAU: Yes.
6675 MR. RYAN: The second full paragraph on page 10, on the right‑hand side, begins:
"Shaw digital phone was launched first in Calgary."
6676 But the passage I am interested in is at the very end of that paragraph, where it says:
"The company expects that digital phone penetration, expressed as a percentage of basic, will be approximately 20% in three years."
6677 My understanding is that the reference to basic is a reference to basic cable?
6678 MR. BRAZEAU: Yes.
6679 MR. RYAN: If I understand this correctly then, you expect 20 percent of the customers who are taking at the time basic cable to ‑‑
6680 MR. BRAZEAU: No, sorry. I think the 20 percent is in reference to basic telephone subscribers. I think that is the universe, but I am not sure.
6681 MR. RYAN: That is quite different.
6682 Just give me one second, because I think I saw that term explained somewhere.
6683 MR. BRAZEAU: Sorry, I have been corrected.
6684 MR. RYAN: Okay.
6685 MR. WATT: I think Mr. Brazeau will confirm it, but generally in the cable industry when we see the word "basic", they are referring to basic cable subscribers.
6686 MR. RYAN: Okay.
6687 MR. WATT: So Shaw will be expecting to get in this case 20 percent of its basic cable subscribers to be subscribers to its digital phone service.
6688 He will check. That is certainly the way Rogers would look at it.
6689 MR. RYAN: So you are agreeing with me and disagreeing with Mr. Brazeau.
6690 MR. BRAZEAU: I will agree with Mr. Watt.
‑‑‑ Laughter / Rires
6691 MR. RYAN: To return to the passage then, 20 percent of basic cable subscribers ‑‑ let's assume for the moment that is the correct meaning ‑‑ will be telephony subscribers within three years.
6692 MR. BRAZEAU: That's right.
6693 MR. RYAN: And how many basic cable subscribers do you have currently?
6694 MR. BRAZEAU: You gave the number as of May 31st, which was 160,000.
6695 MR. RYAN: I'm sorry, basic cable subscribers, which I think, if you go to the bottom of page 5, is 2.1 million.
6696 MR. BRAZEAU: That's right.
6697 MR. RYAN: That sounds right?
6698 MR. BRAZEAU: That sounds right.
6699 MR. RYAN: And 20 percent of 2.1 million would be something slightly in excess of 400,000 subscribers you expect to have by May 2008?
6700 MR. BRAZEAU: That is correct.
6701 MR. RYAN: To go to the number you were thinking of earlier on, what percentage of telephones in Alberta and British Columbia would you then be serving: 20 percent of your basic cable?
6702 MR. BRAZEAU: In our operating market there would be about 4 million lines.
6703 MR. RYAN: And your market, you are saying Alberta and British Columbia? Or are you including more than Alberta and ‑‑
6704 MR. BRAZEAU: I would be including also Manitoba and Saskatchewan.
6705 MR. RYAN: All right. So you would have something in excess of 10 percent of all telephones in Alberta and British Columbia on your network.
6706 MR. BRAZEAU: That is correct.
6707 MR. RYAN: Could we go to the next document in the bundle, please.
6708 That is another Shaw news release, this one dated June 30, 2006.
6709 THE SECRETARY: This one is really No. 7.
6710 MR. RYAN: Thank you.
EXHIBIT NO. TELUS‑7: Shaw news release (June 30, 2006). Shaw Communications increases guidance and dividend based on continued positive third quarter results
6711 MR. RYAN: I would like to go directly to pages 3 and 4 of that document, please.
6712 At the top of page 3, the very top, quoting again Mr. Jim Shaw, the press release says that in fiscal 2007 you are planning again to increase your capital spending to continue roll‑out of digital phone.
6713 Does that in fact remain the company's plan?
6714 MR. BRAZEAU: Yes.
6715 MR. RYAN: In the next full paragraph Mr. Shaw is again quoted.
6716 He says:
"We remain focused on the deployment of digital phone and driving growth through new product enhancements, bundled offers, etc."
6717 Perhaps we could pause there for a second.
6718 We have already heard reference at various points in this proceeding to your bundled offers. Would you regard your ability to bundle your telephony service with the other offerings of the company, including cable and high speed Internet access, as an advantage in achieving high telephony penetration?
6719 MR. BRAZEAU: Over someone who cannot bundle?
6720 MR. RYAN: Over, say, the situation that you didn't have the ability to bundle yourselves.
6721 MR. BRAZEAU: As Michel pointed out, I think bundling is certainly a marketing strategy. It is a marketing strategy that most of the new entrants, who can, have decided to use in order to compete.
6722 I think there are certain advantages in bundling. But as I pointed out, it is a strategy.
6723 For example, TELUS does not bundle its wireless services in Ontario. It is still very, very successful. So you can have different strategies. The cable industry has decided to use a bundling strategy.
6724 Is it an advantage? I think our marketing folks would say yes.
6725 MR. RYAN: Let's look at it in two components.
6726 First of all, you have an advantage, do you not, in having other products available in your product portfolio, quite apart from bundling? It gives you an existing customer base.
6727 MR. BRAZEAU: Absolutely, and TELUS would have exactly the same advantage.
6728 MR. RYAN: And over and above that, the ability to put them together in a single package at a single price is a further advantage to the company vis‑à‑vis the situation where it couldn't do that.
6729 MR. BRAZEAU: That is correct.
6730 MR. WATT: I would just add, Mr. Ryan, that TELUS is free to file for a bundle with the Commission.
6731 MR. RYAN: Thank you.
6732 Could we go to the other side of the page, page No. 4. Toward the middle of the page, the large paragraph there, there is a passage that begins:
"The service is now available to over 55 percent of homes passed and our managed broadband network is now completing, on average, 2.7 million calls each day."
6733 That was as of June 2006.
6734 Have you progressed beyond the 55 percent level since then?
6735 MR. BRAZEAU: I think 55 is about the right number currently.
6736 MR. RYAN: The next sentence indicates that you plan to continue the rollouts throughout the remainder of fiscal 2006 and 2007 and by the end of fiscal 2007 plan to have the service available to over 80 percent of your homes passed?
6737 MR. BRAZEAU: That is correct, that's the plan.
6738 MR. RYAN: That is still the plan.
6739 Are you on track for achieving that?
6740 MR. BRAZEAU: I hesitate only because a large part of our strategy has to do with our CLEC interconnection with TELUS, and from time to time we are having difficulties meeting deadlines with our interconnection.
6741 So far we are more or less on plan, but, again, dependent on how these negotiations with TELUS progress, that could have an impact as to when we hit the 80 percent.
6742 MR. RYAN: When do you plan on hitting 100 percent? Do you plan on hitting 100 percent?
6743 MR. BRAZEAU: I don't think we will ever have 100 percent, but certainly I believe the plan is to provide our digital phone service to most of our customer base, but I think Mr. Shaw indicated in the forbearance proceeding that that will be dependent on market circumstances and how competition evolves in the marketplace.
6744 We still have to meet certain performance numbers and, as the economics of the digital phone business is impacted, that will determine really the rollout of the service.
6745 MR. RYAN: Any indication so far that the rollout of the service is having a negative impact on the financial indicators for the company?
6746 MR. BRAZEAU: As you pointed out, we have invested a lot of capital. There is significant acquisition costs. Even though it is indicated, Cogeco, there is a 40 percent margin there, I am not sure that there has been any return on that investment so far.
6747 So, we are certainly monitoring the situation, but we are hopeful that we will be able to retain our customers and that the digital phone customers will become profitable customers.
6748 MR. RYAN: You express some shyness, I think, in taking credit for what you have accomplished here and suggest that the progress hasn't perhaps been completely positive. It has, hasn't it?
6749 MR. BRAZEAU: Not at all. I am suggesting to you that getting into a new business is an expensive proposition, especially in the telephony business, as all us carriers fully understand. We need significant investments, and these investments are dependent on how long you can keep a customer.
6750 MR. RYAN: Can we go to page 1 of the document we are looking at right now, the third paragraph, quoting again Mr. Shaw, the last sentence in that paragraph, he says ‑‑ well, let me read the whole quotation:
"We are expanding our digital phone footprint and growing our customer base, improving service levels, and enhancing our product offerings to drive strong revenue and operating income growth. This focus has delivered another solid quarter of financial results for our shareholders." (As read)
6751 You will agree with me no hesitation on Mr. Shaw's part as reflected in that quote about the prospects for this service or the financial situation of the company?
6752 MR. BRAZEAU: No, absolutely not. I think all I have indicated is that given the current circumstances, given the current successes, absolutely. But if those change, I think that comment or that statement might also change.
6753 MR. RYAN: Can we go to the next document in the package, which is a slide presentation referred to as "Investor Presentation" by Shaw. It is dated February 22, 2006.
6754 THE SECRETARY: TELUS No. 8.
EXHIBIT NO. TELUS‑8: Investor Presentation Shaw update on Shaw Communications Inc. ‑ February 22, 2006
6755 MR. RYAN: You have had an opportunity to review this document, Mr. Brazeau?
6756 MR. BRAZEAU: Yes, I have.
6757 MR. RYAN: Could we go to the second page of the document, in other words, the third and fourth slides? I am looking at the slide at the bottom of the page which is stylized "Map of Part of Canada."
6758 MR. BRAZEAU: Yes.
6759 MR. RYAN: Does that map portray the operating territory within which you propose to roll out your digital phone service?
6760 MR. BRAZEAU: If you are only looking up to Sault Ste. Marie in Ontario, that would be correct.
6761 MR. RYAN: Which is, I presume, the last dot to the east on the map of Ontario there?
6762 MR. BRAZEAU: That's correct.
6763 MR. RYAN: Subject to the comments you have already made about not being certain whether you will ever achieve 100 per cent coverage, the plan at the moment is to cover this entire area, subject to where you have cable telephony operations?
6764 MR. BRAZEAU: Where we have cable plant, that would be correct. For example, in Saskatchewan, we would not be in Regina, for example, because we don't have cable plant there. But where we have cable plant, that would be certainly the strategy.
6765 MR. RYAN: Can we go over two more pages? Unfortunately, these pages aren't numbered, but I am looking at the slide that is headed "Strategic Focus." It should be the fourth page in.
6766 MR. BRAZEAU: I have that.
6767 MR. RYAN: Numero uno under the strategic focus is deployment of Shaw digital phone. Does that remain the company's prime objective?
6768 MR. BRAZEAU: I think digital phone is our number one investment and new product strategy focus for the company.
6769 MR. RYAN: Can we go to the last slide in the package that is part of the investor presentation? This is a slide headed "Summary."
6770 MR. BRAZEAU: The last slide?
6771 MR. RYAN: The last page, but the slide at the top of the page headed "Summary."
6772 MR. BRAZEAU: Yes.
6773 MR. RYAN: The second bullet there says:
"Digital phone represents substantial triple play opportunity for growth." (As read)
6774 Could you explain the reference to a "triple play opportunity?"
6775 MR. BRAZEAU: As you probably know from our offer, we focus on bundling our services to our customers. That is our marketing strategy is bundling.
6776 The digital phone adds to the Internet and to the cable services that we are offering to our customers. You have a discount if you take more than one service from us. If you use the digital phone on a stand‑alone basis, you would pay more.
6777 MR. RYAN: And the triple play opportunity for growth that is referred to here, would you think that something perhaps like the snowballing effect that Mr. Audet of Cogeco referred to?
6778 MR. BRAZEAU: Snowballing. Can you just explain what you have in mind when you say "snowballing?"
6779 MR. RYAN: I think I will decline to do that. I was going to rely on Mr. Messier's description of it. Were you able to follow that part of my cross‑examination?
6780 MR. BRAZEAU: I was, but snowballing ‑‑ I mean the triple play, as I said, is our strategy to sell our digital phone service. Our marketing folks have spent a lot of time, energy and money to determine what would be the best strategy to attack this market. It is a new market for us. This is the strategy that has been chosen.
6781 If it has a snowball effect, I am not quite sure about that, but it certainly is, we believe, an effective way for us to gain market share in the new service that we are trying to sell our customers.
6782 MR. RYAN: Thank you, Mr. Brazeau.
6783 Mr. Watt, can I pose a few questions to you, please. I would like, as with your two colleagues, to start with Document No. 1, TELUS Exhibit No. 3, page 4 of that document.
6784 At this point, you probably could ask the questions, Mr. Watt, as well as respond to them, but I have the same sort of questions for you.
6785 Attempted to portray in page 4 of this document the growth in your cable telephony service since its launch sometime around the end of 2005.
6786 Does the document accurately portray that experience up to June of 2006?
6787 MR. WATT: Yes, these are the numbers we have reported for cable telephony and that is distinction from our operations as a circuit switched telephone service provider. Obviously a portion of these subscribers are coming from migration from our circuit switched service to our cable telephony service.
6788 MR. RYAN: Now, this particular document ends in June 2006, but I understand that you have reported figures subsequent to that.
6789 Is that correct?
6790 MR. WATT: No, we haven't actually. We report figures on October 31st of this year for the third quarter. So this would be the end of our second quarter and we had grown 116,000 cable telephony subscribers net for the first six months and we were down 8,700 circuit switch telephone subscribers back in the material that is further on in the exhibit, subsequent exhibit.
6791 MR. RYAN: You can assume my questions are about your cable telephony service and not about your circuit switch service unless I indicate otherwise.
6792 In light of your answer to my question about further results can we go to a later document in the bundle. This would be the document headed "Rogers launches residential phone service in more communities across Ontario."
6793 MR. WATT: Yes.
6794 MR. RYAN: That is ‑‑
6795 THE SECRETARY: TELUS Exhibit No. 9
EXHIBIT NO. TELUS‑9: Press release entitled "Rogers Launches Residential Phone Service in more Communities across Ontario"
6796 MR. RYAN: ‑‑ Exhibit No. 9.
6797 There is reference in the second paragraph of that document which is dated August 17 to Rogers celebrating the first anniversary of Home Phone with nearly 550,000 customers.
6798 MR. WATT: Right. You would like an explanation of the 550,000.
6799 MR. RYAN: I would.
6800 MR. WATT: Okay. I was appalled when I saw this press release because I knew it would confuse people, but it is put out by ‑‑
6801 MR. RYAN: I'm not confused yet.
‑‑‑ Laughter / Rires
6802 MR. RYAN: I'm just asking you to explain the number.
6803 MR. WATT: It is put out by marketing people.
6804 So Rogers Home Phone, that ‑‑
‑‑‑ Laughter / Rires
6805 MR. RYAN: You don't have a marketing panel, do you, Mr. Watt.
6806 MR. WATT: No.
‑‑‑ Laughter / Rires
6807 MR. WATT: Rogers Home includes the subscribers to both Rogers cable telephony service and its circuit switch service, which is effectively the service that is the follow‑up to CallNet's unbundled loop service.
6808 This 550,000 figure is the sum of the two, so it is effectively the ‑‑ if you go back to the first exhibit for us, the number was roughly 164,000 cable telephony at the end of June.
6809 MR. RYAN: Yes.
6810 MR. WATT: So that would be about 390,000 circuit switch subscribers. As I said, that is down 10,000 from the beginning of the year. The sum of those two give us the 550,000 as of exactly the same date, June 30, 2006.
6811 My difficulty with the press release was, it even does more than imply that we gained all 550,000 in our first year, because it says the first anniversary in July 2006. So, as I said, this ‑‑
6812 COMMISSIONER NOËL: You just bought CallNet.
6813 MR. WATT: Pardon me?
6814 COMMISSIONER NOËL: You had just bought CallNet, so they all came up in the same year.
‑‑‑ Laughter / Rires
6815 MR. WATT: Well, I guess the deal closed on July 7th, 2005 we acquired CallNet.
6816 MR. RYAN: So the number 550,000 is a correct number, but subject to the explanation that you believe 390,000 or so of that figure would be circuit switch customers that you inherited along with your purchase of CallNet?
6817 MR. WATT: Yes. In fact, I think if you go to ‑‑
6818 MR. WATT: I was out a little bit.
6819 If you go to the other exhibit, the other Rogers exhibit ‑‑
6820 MR. RYAN: This would be the document immediately preceding the one we are looking at headed "Rogers Communications reports strong second quarter 2006 results"?
6821 MR. WATT: That would be the document.
6822 If you look at page 17.
6823 THE CHAIRPERSON: TELUS‑10.
6824 THE SECRETARY: TELUS‑10.
EXHIBIT NO. TELUS‑10: Rogers Communications Reports Strong Second Quarter 2006 ‑ results
6825 MR. RYAN: I'm with you on page 17.
6826 MR. WATT: If we go down to the bottom table under "Roger Home Phone" ‑‑
6827 MR. RYAN: Yes.
6828 MR. WATT: ‑‑ and you go I guess to the right‑hand quadrant of the thing ‑‑
6829 MR. RYAN: Yes.
6830 MR. WATT: ‑‑ the six months ended June 30th.
6831 MR. RYAN: Yes.
6832 MR. WATT: You will see "Cable telephony subscriber lines", "Total cable telephony subscriber lines 164,700".
6833 MR. RYAN: Yes.
6834 MR. WATT: Then go down below and you will see "Total circuit switch subscriber lines 382,000".
6835 The sum of those two is roughly the 550,000 that is included in the press release.
6836 MR. RYAN: So the marketing people can at least add?
‑‑‑ Laughter / Rires
6837 MR. WATT: Yes. They probably rounded up.
6838 MR. RYAN: Can we stay with the document you have just been referring to and go to page 2 of that document.
6839 MR. WATT: Yes.
6840 MR. RYAN: I'm looking at the right‑hand side of the page, page 2, the third bullet.
6841 If I understand it correctly it says:
"The combined number of local telephony lines on both the cable telephony and circuit switch platforms from Rogers Home Phone and Rogers Business Solutions..."
6842 Which I presume is the re‑branding of CallNet's circuit switch business, or is it something else?
6843 MR. WATT: Rogers Business Solutions includes the business operations of the former CallNet and it includes what Rogers called Rogers Business Solutions previously, which was Rogers offering of data services, principally high‑speed Internet, to businesses over its cable plant.
6844 MR. RYAN: What was once known as Rogers Network Services?
6845 MR. WATT: A long way back, yes.
6846 MR. RYAN: Yes.
6847 MR. WATT: That particular arm did not offer telephony services, so all of the business phone subscribers are resident on the old CallNet platforms.
6848 MR. RYAN: So the passage that I have just been referring to goes on to refer to a "total number of lines of 734,500".
6849 How does that reconcile with the 550,000 and the 160,000 that we have been looking at?
6850 MR. WATT: If we go to page 19 in the document ‑‑
6851 MR. RYAN: Yes.
6852 MR. WATT: ‑‑ and I hope the numbers add up ‑‑ you will see it is titled "Rogers Business Solutions".
6853 MR. RYAN: Yes.
6854 MR. WATT: If you go down to the second table, "Total Local line equivalents" ‑‑
6855 MR. RYAN: Right.
6856 MR. WATT: ‑‑ at the end of the six months in 2006, 187,800.
6857 MR. RYAN: Right.
6858 MR. WATT: Well, the sum of that ‑‑
6859 MR. RYAN: Add the 550,000?
6860 MR. WATT: ‑‑ and that added to roughly the 550,000 should come up to 734,500 roughly.
6861 MR. RYAN: That's helpful. Thank you.
6862 MR. WATT: And as long as things go well on the essential facilities proceeding we will hope to keep those number of lines.
6863 MR. RYAN: Just immediately prior to the sentence that I quoted to you from the third bullet there is a sentence that begins:
"Availability of voice over cable telephony service expanded through the second quarter of 2006 with service now available to approximately 90% of the homes past in cable and telecoms cable service areas."
6864 Is that accurate or does that require any massaging?
6865 MR. WATT: No, it doesn't require any massaging.
6866 Just to give people a better understanding, we offer the service over cable plant in Ontario, New Brunswick and Newfoundland. We have not yet launched the Newfoundland. We have launched in roughly, I will say, 50 percent of New Brunswick. In Ontario we are essentially ‑‑ we are approaching ubiquitous coverage in our cable territory pretty much.
6867 MR. RYAN: Do you intend to offer the cable telephony service to 100 percent of your cable customers?
6868 MR. WATT: I'm sure Mr. Rogers would say yes.
6869 MR. RYAN: Well, that's good enough for me.
‑‑‑ Laughter / Rires
6870 MR. RYAN: Do you have a problem with that, Mr. Watt?
6871 MR. WATT: I thought you were going to say that should be good enough for me.
6872 Practically speaking, there are some very small systems that we currently have in rural New Brunswick that I think we will be a long time in getting to.
6873 So I would doubt we would ever reach 100 percent. Over the next couple of years we will creep up. Once we launch in St. John's, we will be starting to creep up over the 90 percent.
6874 MR. RYAN: I understand that you are earning an operating profit in the provision of your voice‑over cable telephony service.
6875 Is that correct?
6876 MR. WATT: Could you point me to a reference here, please.
6877 MR. RYAN: Yes, page 5 of the document that we are currently looking at.
6878 As we go on, I think the numbers get harder to read.
6879 I am looking at a table headed "Summary Consolidated Financial Results". Halfway down the page there is a line item "Operating Profit After Integration and Video Store Closure Expenses"; and then a subheading "Cable and Telecom" and a sub‑subheading "Rogers Home Phone".
6880 Looking at the figure for the three months ended June 30, 2006, which is the first figure, it indicates apparently an operating profit of $4.9 million for the quarter.
6881 MR. WATT: Yes, I see that. I hesitated because I wasn't quite sure, when you phrased your question, whether you said we were showing an operating profit on our cable telephony service ‑‑ which we are definitely not ‑‑ or whether we were showing an operating profit on our phone service in total, which would be the sum of our cable telephony operations and our more established and larger volume at this time circuit switched residential phone service.
6882 MR. RYAN: All right.
6883 MR. WATT: Put those two together, we have an operating profit of $4.9 million.
6884 MR. RYAN: Do you offer your cable telephony service on a stand‑alone basis or only as part of a bundle with other Rogers services?
6885 MR. WATT: You can subscribe to Rogers cable telephony service on a stand‑alone basis.
6886 MR. RYAN: Could we change the theme, Mr. Watt, to geographic de‑averaging and go to the next document ‑‑ I say the next document; the one following TELUS Exhibit No. 9, which was the Rogers Press Release that gave you some heartburn ‑‑ and go on to the document headed "City Fido".
6887 As I look at the copy I think I gave to you, it may be that the word "City" is punched out but the word "Fido" is still there.
6888 Do you see the map of the city of Vancouver and the heading "City Fido" on the page?
6889 MR. WATT: I do.
6890 THE SECRETARY: Exhibit TELUS No. 11.
EXHIBIT NO. TELUS‑11: City Fido Home & mobile service geographic map
6891 MR. RYAN: Like Mr. Daniels who preceded me, I was a little bit puzzled when Mr. Engelhart was crossing The Companies panel by his failure to mention wireless when he was talking about geographic de‑averaging.
6892 Would you agree with me that there are plenty of examples in the wireless sector of geographic de‑averaging?
6893 MR. WATT: Generally, we offer our services on a provincial‑wide basis, the rate schedules. With respect to de‑averaging, Rogers does, by virtue of its acquisition of Fido, we do offer ‑‑ well, we actually provide two services. Their rates do not always coincide, so we will get into situations where we have different rates in different areas, in part because of offering sort of a dual stream service offering.
6894 Our rates in Atlantic Canada are I believe slightly cheaper than they are in the rest of Canada.
6895 MR. RYAN: Let's talk first about City Fido. Are you familiar with City Fido?
6896 MR. WATT: I am reasonably familiar with City Fido.
6897 MR. RYAN: Could you tell us what City Fido is or was.
6898 MR. WATT: City Fido was a service that was first introduced by Microcell.
6899 In fact, Mr. Béland can probably actually do a better job than I could on this.
6900 It was an offering that Microcell put in the marketplace when it decided to operate as a CLEC in those territories so that it could avail itself of local number portability and carve a niche out in the marketplace in this fashion.
6901 Since part of its desire was to migrate people from wireline service, it set up a rate structure which more closely mirrored wireline rate structure than the typical mobility plan. So you have zone‑based pricing in order to try and mirror the wireline service for a more flat rate pricing with buckets, local number portability and extended area service.
6902 MR. RYAN: Just a minute, Mr. Watt.
6903 What cities was City Fido offered in?
6904 MR. WATT: It was first offered in Vancouver. It was subsequently offered in Montreal and I believe it was offered ‑‑ I know it was offered, actually, in Toronto. I believe those three.
6905 I don't believe it is offered elsewhere.
6906 MR. RYAN: Was part of the customer proposition of City Fido that a different rate was available for calling within the three cities you have mentioned than Fido offered if you were outside of those three cities?
6907 MR. WATT: It would be an entirely different rate structure.
6908 MR. RYAN: Is that a "yes"?
6909 MR. WATT: That's yes. It is zoned‑based pricing operating as a CLEC, with what that brings to it, versus the typical mobility package which would have a smaller geographic area and local minute packages and then additional minute charges.
6910 There are additional minute charges with City Fido as well, but they are at a higher threshold.
6911 MR. RYAN: So if I lived in the cities of Vancouver, Montreal or Toronto at the time this offering was available, I would have had a different price proposition from Fido than if I lived in say Kamloops or Hamilton.
6912 MR. WATT: I don't think you have had any proposition in Kamloops. Mr. Béland can correct me. I don't think they offered service there.
6913 But different than in Hamilton, yes, it would be.
6914 MR. RYAN: Is my understanding correct that Rogers at some point along the way acquired Microcell?
6915 MR. WATT: Yes, it did.
6916 The only other thing I would add here is again within the City Fido plan, of course anybody who subscribed to the City Fido plan within Vancouver received the City Fido plan. It was not individual pricing to individual customers.
6917 MR. RYAN: Yes. But Vancouverites were treated differently than Hamiltonites.
6918 MR. WATT: Yes, they were.
6919 MR. RYAN: Rogers acquired Microcell at some point?
6920 MR. WATT: Yes, it did, in November 2004.
6921 MR. RYAN: Did Rogers continue the City Fido plan after the acquisition of Microcell?
6922 MR. WATT: Yes, it did.
6923 MR. RYAN: Does it continue to offer City Fido as such?
6924 MR. WATT: Yes, it does. I think it may be rebranded Urban Fido.
6925 MR. BÉLAND: If I may, if Rogers doesn't mind, I can offer a couple of comments, given that I was at Microcell at the time, because you seem to emphasize the fact that City Fido might not have been offered in Hamilton and yet it was offered in Vancouver, that sort of thing.
6926 The extent to which you seem to be suggesting that Fido at the time was engaging in geographic rate de‑averaging. I think you can temper that idea with a couple of realities.
6927 First of all, if you look, for example, at the Lower Mainland of Vancouver, where the City Fido zone appears to cover a relatively limited chunk of the Lower Mainland of Vancouver, the reality was that the Fido network covered a relatively limited chunk of the Lower Mainland of Vancouver, and my recollection was the footprint of City Fido in Vancouver, perhaps some marginal exceptions, basically equalled the Microcell Network footprint in Vancouver.
6928 In the case of Toronto versus Hamilton, my recollection, and I hope I am not revealing anything that Rogers would disagree with, but my recollection was that the intention of Microcell was in fact to expand City Fido to other urban centres beyond the three major urban centres that had already been launched, but that expansion of that service involved becoming a wireless CLEC in each of those regions, which was an extremely complex undertaking, more complex than becoming a wireline CLEC.
6929 So, I don't think any suggestion that Microcell was engaging in geographic rate de‑averaging stands up to scrutiny, given those realities.
6930 MR. RYAN: Mr. Béland, during your time with City Fido, you had a tariff, as it were, for Fido service, and you had a separate tariff for City Fido, did you not?
6931 MR. BÉLAND: Yes, but the company's intention was, and its working plan, was the expansion of City Fido to all significant urban centres in the company's footprint. So, it had not yet arrived at that point. The company was having difficulties on a variety of levels, but I don't think it can be alleged that Microcell consciously engaged in a plan of we will offer something here, but we will not offer it there.
6932 MR. RYAN: Mr. Béland, the record will speak for itself. I think you have already confirmed to me that you had two pricing propositions in the market, one with City Fido and the other was a different one. City Fido, subject to all the qualifications you have added, applied in some geographic areas, and the other tariff applied in the others.
6933 MR. BÉLAND: I think the qualifications will stand, yes.
6934 MR. RYAN: Mr. Watt, you have already confirmed that having acquired Microcell, that Rogers continued those plans?
6935 MR. WATT: Rogers did continue those plans for a variety of reasons, some of which I couldn't go into.
6936 MR. RYAN: I don't know that I am particularly interested in the reasons, but thank you anyway.
6937 You mentioned Urban Fido. I don't know if you described it as a successor to City Fido, but could you tell us what Urban Fido is?
6938 MR. WATT: I am not sure that it is a successor or whether it is the exact same thing. When I received these documents last night, when we finished up, I went and logged on to our website to see what I could learn about what the current offer was for City Fido.
6939 It popped up Urban Fido. It still showed the Vancouver map. That is the only reason for my reference to Urban Fido. I am not sure if this is the current price or not.
6940 MR. RYAN: I am going to take you then where I think you have already got to, Mr. Watt, is to the next page, and I think the final page in my bundle of documents.
6941 THE SECRETARY: TELUS No. 12.
EXHIBIT NO. TELUS‑12: Urban Fido ‑ screen shot dated Oct. 11, 2006
6942 MR. RYAN: That is a document headed "Urban Fido." That is a screen shot taken from your website as of yesterday or the day before. It suggests that you offer a package, an urban package of 400 any time minutes with unlimited incoming calls in some urban zones, at least, for $30 per month. Is that your understanding of that document?
6943 MR. WATT: That would be the base retail price. There are a number of additional prices tacked on to that.
6944 MR. RYAN: I bet there are.
‑‑‑ Laughter / Rires
6945 MR. RYAN: And that is available only in urban zones the name suggests?
6946 MR. WATT: Subject to check. I believe it is available where Fido had launched its City Fido, so that would be the Greater Vancouver, Toronto, Montreal areas.
6947 MR. RYAN: This web page offers the facility for the prospective customer of entering their postal code, according to this screen shot, to see whether they qualify or whether they are in the urban zone, and, therefore, can avail of this offer. Is that correct?
6948 MR. WATT: That is correct. I popped in my postal code and that is how I got the Toronto map to pop up.
6949 MR. RYAN: Was the news good or bad, Mr. Watt?
6950 MR. WATT: The news is good.
6951 MR. RYAN: Is it offered in Toronto?
6952 MR. WATT: It is offered in Toronto but, as you know, it is a very competitive market there. So I would want to go and check the other competitive offers to see whether the news was good or bad actually.
6953 MR. RYAN: Is there any technical reason why you couldn't offer this same service generally throughout Ontario where you have wireless coverage?
6954 MR. WATT: As Mr. Béland alluded to, there is a technical reason. Rogers Wireless ‑‑ or Fido would have to become a wireless CLEC elsewhere in the country, and frankly Rogers Wireless has looked at this probably 15 times over the last 15 years, and we have never decided that that was something that was in our best interest. It is technically complicated and there are a quite variety of issues.
6955 MR. RYAN: Let's back up a minute here. You are running essentially two brands in parallel, the Fido brand and the Rogers Wireless brand?
6956 MR. WATT: Yes, we are.
6957 MR. RYAN: The Fido brand features this urban package; the Rogers Wireless brand, does it feature a parallel package or does it not?
6958 MR. WATT: No, its pricing is structured differently.
6959 MR. RYAN: Would you have any of the technical problems that you have alluded to as inhibiting the expansion of the Urban Fido on the Rogers Wireless side if you chose to roll out this service?
6960 MR. WATT: So you are saying we would have to ‑‑ are you suggesting that Rogers Wireless would try and somehow avail itself of the CLEC arrangements that have been put in place by Fido in those locations?
6961 MR. RYAN: Well, a simpler question than that: Any reason why Rogers Wireless couldn't offer an urban package if it wanted to?
6962 MR. WATT: Couldn't offer this particular ‑‑
6963 MR. RYAN: A technical reason?
6964 MR. WATT: It would have to become a wireless CLEC.
6965 MR. RYAN: My understanding is you are running with the two brands. You have a certain pricing proposition for one, a different pricing proposition for the other, and in the first case, the Fido brand, you have a feature that is uniquely targeted at urban customers in certain cities that apparently include Toronto and Vancouver and probably include others as well?
6966 MR. WATT: That is correct. We are trying to ‑‑ effectively by offering two brands, we capture additional floor space in retail outlets, et cetera. We have the additional visibility in consumers' minds, so we offer the variety of wide broadly‑based packages.
6967 Yes, the four million people in Toronto could each equally avail themselves of City Fido, as they could avail themselves of Rogers offer in that location. The same with Vancouver and Montreal. We think this has been quite successful for us in terms of geographic de‑averaging. It is a very competitive marketplace with relatively equal market shares between The Competitors who all began competition on the same day on July 1st, 1985.
6968 MR. RYAN: Within the Rogers Wireless portfolio of services, my understanding is you have an offering called Megatime. Are you familiar with Megatime?
6969 MR. WATT: Not really. I have heard of Megatime. Is this a residential or a business offer?
6970 MR. RYAN: My understanding is that Rogers Wireless offers this as an in‑store product offering.
6971 MR. WATT: I'm afraid I am not going to be able to provide any insight into it. I simply don't know.
6972 MR. RYAN: My understanding also is, Mr. Watt, that Rogers Wireless offers Megatime at $25 for a particular bundle of minutes, 100 minutes, plus some other features, in the Province of Quebec and Ottawa, and a higher price of $30 for the same number of minutes throughout the rest of Canada. Would you be able to confirm that or are you in a position to confirm it today?
6973 MR. WATT: I am not in a position to confirm it today. I simply don't know.
6974 MR. RYAN: Those are all my questions. Thank you, Mr. Chairman.
6975 THE CHAIRPERSON: Thank you, Mr. Ryan.
6976 Madam la secrétaire, do you have anything else to add?
6977 THE SECRETARY: No comment, sir.
6978 THE CHAIRPERSON: We will get together at 2:15, please. We will continue with I guess two sets of Consumers questions for the panel.
6979 Thank you.
‑‑‑ Upon recessing at 1251 / Suspension à 1251
‑‑‑ Upon resuming at 1416 / Reprise à 1416
6980 LE PRÉSIDENT: À l'ordre, s'il vous plaît.
6981 Madam Secretary, you have some announcements?
6982 THE SECRETARY: Thank you.
6983 I have four new undertakings to present.
UNDERTAKING NO. TELUS‑1: Undertaking by Cogeco to provide 4th quarter results of the company by 26 October 2006 if publicaly available
UNDERTAKING NO. TELUS‑2: Undertaking by Shaw to provide 4th quarter results of The Company by 26 October 2006 if publicaly available
6984 MR. BRAZEAU: Madam Secretary, the numbers will be published on October 26th, so if that still works we could certainly make them available.
6985 THE CHAIRPERSON: Are they relevant on October 26th, if we were to receive them on October 26th?
6986 MR. RYAN: That would be okay.
6987 THE CHAIRPERSON: Thank you.
6988 THE SECRETARY: Noted. Thank you.
UNDERTAKING NO. CRTC‑10 (abridged): MTS Allstream to refer to the response to interrog. MTS (CRTC) 26 Jun01‑1202
1) for the years 1998 to 2002, provide the penetration rates for the residential optional local services identified therein, either as part of a bundle or taken separately for Manitoba. If services were provided as part of a bundle, provide the price of the bundle
2) provide current percentage of residential local exchange service subscribers who take at least one optional local service for Manitoba.
6989 A copy is available on the distribution table. It provides the interrogatory attachment.
UNDERTAKING NO. CRTC‑11 (confidential): TELUS to refer to the response to interrog. Telus (CRTC)26Jun01‑1202
1) for the years 1998 to 2002, provide the penetration rates for the residential optional local services identified therein, either as part of a bundle or taken separately for Alberta and British Columbia respectively
2) provide the current percentage of residential local exchange service subscribers who take at least one optional local service for Alberta and British Columbia respectively.
6990 Mr. Lawson, you may proceed.
6991 MR. LAWFORD: Thank you, Madam Secretary.
6992 THE CHAIRPERSON: For the record, this is Mr. Lawford?
6993 MR. LAWFORD: Yes, it is.
6994 THE CHAIRPERSON: He is accompanied by Mr. Janigan, for all the 333 people who are listening in webcast land. I hope you are all getting paid for this.
‑‑‑ Laughter / Rires
6995 MR. LAWFORD: Thank you very much. I think I could use a "Lawson" right now.
CROSS‑EXAMINATION / CONTRE INTERROGATOIRE
6996 MR. LAWFORD: I will just dive right in, if you don't mind, gentlemen, to your productivity calculation.
6997 We are going to turn straight to paragraph No. 10 of your submission where you indicate that the productivity offset or the "X" factor is not necessary because market forces either are present or should be present fairly soon.
6998 Is that correct?
6999 MR. WATT: Yes, that is correct.
7000 MR. LAWFORD: But the presence of competition normally is not a measure or a test of the "X" factor itself but rather a test for whether a price cap should be imposed at all, is it not?
7001 MR. WATT: I would agree that the review of the status of competition the market structure is generally conducted to see whether a price cap should be applied, and then once having determined that a price cap regulatory regime is appropriate, then a productivity offset generally is considered as the second step.
7002 MR. LAWFORD: But you are not recommending there be any productivity offset?
7003 MR. WATT: That is correct.
7004 MR. LAWFORD: So we are looking at just inflation. Is that right?
7005 MR. WATT: Well, to expand, we have suggested that for this third price cap régime, in a fashion similar to what was done in the business market in the second price cap régime, there would not be any productivity offset in the residential baskets.
7006 The Commissioning reasoning in the second price cap régime was that business rates had fallen in the first price cap régime. They thought competition was taking hold, so they didn't feel the need to apply a productivity offset.
7007 We think the circumstances are somewhat similar, or will be certainly, by May of next year; that there will be considerable competition and that prices did go down 65 cents in June so that a productivity offset need not be applied in the residential market.
7008 However, with respect to competitor services, given that there is not a competitive market and it is monopoly supplied, that a productivity offset would be required in order to pass through productivity gains to competitors.
7009 MR. LAWFORD: I am assuming you are fairly familiar with the last price caps decision, 2002‑34.
7010 MR. WATT: Yes.
7011 MR. LAWFORD: Can we look at paragraph 380 of 2002‑34, if you can get it.
7012 I can read it out for you.
"The Commission is of the view that..."
7013 This is in discussing the business market and what will be done with productivity factor or any factor at all under the Price Cap Index.
"The Commission is of the view that, given the extent to which market forces are present in the business market and the extent to which business rates were reduced in the initial price cap regime, it is not necessary to subject business services to a productivity offset."
7014 Doesn't that mean that in the first price cap business services prices were reduced, and therefore the reasoning of the Commission might have been that since they were already reduced at that time, they were low enough and they didn't need to have the productivity offset during the last price cap?
7015 MR. WATT: I certainly think that was one of the considerations.
7016 In my previous answer I was trying to express exactly what was written there.
7017 Similarly, residential prices have decreased through the elimination of the deferral account in 2006. So we view the situation as fairly analogous.
7018 MR. LAWFORD: Do you think that the ILECs, that their local service business is unable to generate any productivity gains at all over the next price cap period?
7019 MR. WATT: In contrast to our appearances in the first two price cap hearings, we haven't taken an exhaustive look at productivity offsets this time.
7020 I am not going to repeat the debate, but the telephone companies report productivity improvements at an overall level. Where those come from is a matter for debate. And then you have counterbalancing their arguments that there is loss of economies of scale, increased advertising and marketing expenses.
7021 Our position was that we felt that there was no need to have the productivity offset.
7022 MR. LAWFORD: All right.
7023 Does the local service that the cable companies are beginning to offer now generate any spin‑off or other revenues for your companies?
7024 Perhaps it is just starting to show.
7025 I'm talking about purely PES style. I guess you wouldn't call it primary ‑‑ I guess you would call it primary exchange service.
7026 Does that have spin‑off revenues for your companies?
7027 MR. WATT: What do you have in mind by spin‑off revenues?
7028 MR. LAWFORD: Optional services, other bundling.
7029 MR. WATT: Yes. Our service includes optional services, and we have a variety of prices to reflect the number of optional services taken by a customer.
7030 Those could be characterized as bundles within ‑‑
7031 MR. LAWFORD: Would your local service also spin off DSL revenues ‑‑ excuse me, Internet revenues?
7032 MR. WATT: You are asking me if our local telephone service would spin off Internet revenues?
7033 MR. LAWFORD: Yes. I guess I'm thinking of the promotion that we heard about before where if you sign up for our phone service, you are going to get your high speed Internet free.
7034 I know it's a backwards way of looking at it.
7035 MR. WATT: No, we haven't ‑‑ my answer to that would be no.
7036 MR. LAWFORD: All right.
7037 I am going to turn to optional services now, if I can.
7038 Are you of the opinion that primary exchange service ‑‑ that revenues from optional local services drives revenue gains? That is, does the fact that you have primary exchange service lead to revenue gains from optional services?
7039 MR. WATT: My answer would be yes, we could not offer the optional services without the basic local service.
7040 MR. LAWFORD: And here we are sort of referring to paragraph 16 or 26 of your evidence.
7041 Are local optional services profitable for the ILECs?
7042 MR. WATT: Sorry, could you give me that reference again, please.
7043 MR. LAWFORD: I'm looking at 16 through ‑‑ no, I'm sorry. The reference is wrong. It's in my notes in the wrong place.
7044 Just as a general question: Are optional local services profitable for the ILECs, in your opinion?
7045 MR. WATT: Yes, I believe they are.
7046 MR. LAWFORD: Are they for you now that you are offering this service?
7047 MR. WATT: I believe they are profitable for us as well.
7048 MR. LAWFORD: Is it your view that such optional services are important to customers?
7049 MR. WATT: Sorry, the question was...?
7050 MR. LAWFORD: Are the optional services important to customers?
7051 MR. WATT: Are they important to..? I'm sorry, I didn't hear you.
7052 MR. LAWFORD: To customers.
7053 MR. WATT: To customers.
7054 MR. LAWFORD: Yes.
7055 MR. WATT: Yes. Well, I should qualify that somewhat.
7056 MR. LAWFORD: Go ahead.
7057 MR. WATT: They are clearly important to the very large segment of customers who take those services. There is a portion of customers who do not take optional services.
7058 MR. LAWFORD: I'm going to turn to the Bell uncapping test and the TELUS competitive presence test. I'm making reference to both of those tests.
7059 Do you believe, from what you have heard in the last few days, that ILECs would still have significant market power under those tests and could raise prices profitably even when they have achieved their uncapping if their tests were met?
7060 MR. WATT: Yes, we believe they would.
7061 MR. LAWFORD: If the ILECs raise prices, whether due to uncapping or otherwise, would that not give you ‑‑ I mean the cable operators ‑‑ some headroom in which to raise prices in the market?
7062 MR. LAWFORD: Would it help entry as well?
7063 MR. WATT: Well, it's a bit of a complicated question, from our perspective. As you know, one of our fears in industry is that the telephone companies will raise prices in one area and then decrease prices in areas in which we are competing, et cetera.
7064 The example ‑‑ they are not present here at the table today, but a company like Persona, which operates the cable franchise in Sudbury. In Grande Prairie they bought Northern Cable. They haven't introduced a local telephone service at the current time.
7065 So for them the increased flexibility accorded the telephone company, you could argue if they increased rates for a while in Sudbury, it might upset their entry. But they also have the ability then under the price cap to then be able to come down elsewhere.
7066 In our view, they would have the economic means.
7067 MR. LAWFORD: We have been told by various of the ILECs in this proceeding that the 5 percent rate element limit which they are suggesting on many of their capped baskets would provide sufficient consumer protection, with regard to pricing at least.
7068 Are you offering, on average, compared to primary exchange service in ILECs ‑‑ what is the discount? Is it as much as 50 percent cheaper or is it less than that?
7069 MR. WATT: The pricing schemes are somewhat complicated. We went through them at some length with Mr. Daniels this morning. There are stand‑alone prices ‑‑
7070 MR. LAWFORD: Say stand‑alone.
7071 MR. WATT: Stand‑alone prices that offer, I don't know, probably 20 percent discount.
7072 Then there are bundled offers that, depending on how you attribute the bundle savings that might be reaped on other services, if you attribute it all to local service, which I wouldn't think would be right, you could come up with greater discounts.
7073 I am having trouble answering the question. There is a wide range of discounts and pricing.
7074 MR. BÉLAND: If I may, part of the reason the question is difficult to answer is that each of our companies doesn't face just one ILEC price out in the market. Each of us faces a different ILEC price in each ILEC band.
7075 In the particular case of Vidéotron, our cable network also crosses three ILEC territories: Bell, Télébec and TELUS Quebec. As you may be aware, our practice is a single averaged rate wherever we have launched telephony service.
7076 So, it is difficult to say exactly what the discount is given that the rates we face are variable, but ‑‑
7077 MR. LAWFORD: Say a range, would there be a range?
7078 MR. BÉLAND: I was just pulling up the Bell table from earlier today, the Table 3 that we looked at earlier today.
7079 In that particular example, the Vidéotron stand‑alone price actually exceeds the Bell stand‑alone price, but I suspect that is a Bell price taken in a particular band. So, the comparison might be different based on the Bell band. Our price doesn't change.
7080 MR. LAWFORD: I guess the point I am asking, then, the 5 percent rate, individual rate element constraint that a lot of the ILECs are proposing, then, is that a significant margin in telecom pricing now when you are competing against the ILECs? Is that a significant percentage?
7081 MR. WATT: Most of the marketing research that we have conducted generally indicates that more in the range of 15 percent discount now is what is required to entice a customer to switch to the new entrant.
7082 That being said, that 15 percent can be provided in a variety of manners: Straight up, in bundles, with optional services, in conjunction with Internet and wireless service, et cetera.
7083 Our takeup is related to the promotional offers up front, whether there are any install charges which we generally do not charge.
7084 MR. LAWFORD: I would like to stay with pricing because it is something that we are facing a little bit of a difficulty here in dealing with the average customer. We are thinking of the average customer here and we are trying to represent the average customer here. We are used to having interrogs into the proceedings that identify the billing impacts to average customers.
7085 This proceeding has had a lot of evidence about the ability of competition to protect customers, but we are thinking it might be more useful to have what is made available to average customers so we could see it and compare what they order and what they have to pay.
7086 We are wondering if it is possible to find out what a bill looks like for a customer that is representative of your market in local telephony. So that could be stand‑alone or it could be ‑‑ I realize it could be stand‑alone or bundled, but is there any way you could provide us with a median or average customer for either stand‑alone or profile of a median customer for either stand‑alone or bundled services to give us an idea of what prices consumers are paying for cable telephony and what services they are getting?
7087 MR. WATT: I will make the first answer on behalf of Rogers.
7088 I think there have been a variety of interrogatories posed by the Commission, both in this proceeding and in the reconsideration of the forbearance decision proceeding or reassessment, rather.
7089 We have considerable limitations in our information systems in order to be able to collect information with respect to stand‑alone customers, bundled customers of any nature. We have been able to provide some information on a number of bundles, but we don't know which of our services people are taking to receive those 5, 10, 15 percent bundles. Actually, if it is 15, we know they must have local in there because they have all four services.
7090 From Rogers' vantage point, we wouldn't be able to provide any meaningful statistics of that nature.
7091 MR. BÉLAND: I am not sure I quite understood the question because I was understanding that you wanted more to see what a bill looks like?
7092 MR. LAWFORD: Well, no, we would like to see the average set of services that a customer would take, the average looking bill, if you will, say primary exchange service and two options, which two options do they tend to take and how much would that cost?
7093 MR. BÉLAND: I am sorry, because I wasn't trying to be ‑‑ I thought your question maybe was about the structure of the bill, how the line items are presented.
7094 MR. LAWFORD: No.
7095 MR. BÉLAND: So, what does an average customer take in terms of how many services, how many optional services? Unfortunately, I didn't come with that information.
7096 MR. BRAZEAU: I think ours would be simpler just because of the offer we are making, which is $55 if you have one of our services. Most people would have a cable service. It includes six options plus a North American local calling plan, plus 1,000 minutes of international.
7097 I am not sure if that answers your question, but their bill would look more or less like that. Then there would be a subset that would have three services, but generally I think that is ‑‑
7098 MR. LAWFORD: You said $55 at the start. Is that right?
7099 MR. BRAZEAU: That is correct.
7100 MR. LAWFORD: That is helpful.
7101 Mr. Messier.
7102 MR. MESSIER: Comme vous le savez, nous, on offre une offre avec cinq fonctionalités; l'Amérique du Nord, qui est illimitée. Alors, on a une offre qui, je pense, a été * designée + pour rencontrer les besoins du consommateur moyen. On a un certain succès dans le milieu, mais plus que cela, je ne serais pas en mesure de vous donner l'information. De la façon dont on fait notre offre, on n'a pas l'information.
7103 MR. LAWFORD: Merci.
7104 So there wouldn't be information or it is difficult to get, which would enable us or consumers to see where competition is the most intense between the ILECs and yourselves on primary exchange and options? That is just not easy to get?
7105 MR. BRAZEAU: As I pointed out certainly for Shaw, the options is part of the package. So you get six options for that one price.
7106 We don't really compete on options. It is part of the package, and that is the offer we have put out in the marketplace.
7107 MR. LAWFORD: Thank you.
7108 Now I would like to turn to something which arose yesterday. From time to time the Commission has heard evidence associated with the need to establish competition through initial measures, most of which seem to fall into Dr. Weisman's category of being excessively liberal; win‑back rules, de‑averaging rules and that sort of thing.
7109 Most of these measures have been in place for some time, though, and we were just wondering why is there so little residential competition, keeping those rules?
7110 MR. WATT: I guess we think that competition is taking off now. Competition was limited to the resale of unbundled local loops for about eight years, and then the technology developed to the extent that the cable industry, in the early years of this decade, started to see the light in being able to make an economic return by going into the telephony business, and the four companies here have all launched in the past two years.
7111 So I would say that there were technological constraints, in the sense that it was not an economic proposition for the cable companies to offer local telephony until fairly recently.
7112 MR. LAWFORD: Then, if it was mostly technological, I am not understanding the concern that Dr. Weisman had over the excessively liberal rules.
7113 I guess what I am asking is, the ILECs are saying that customers are being deprived of discounts by excessively liberal policies, and we would like to know, in your opinion, what is the cost to consumers as a result of these excessively liberal requirements.
7114 MR. WATT: I don't think we would agree with Dr. Weisman.
7115 I guess one of the reasons would be the example that Mr. Engelhart went through with Dr. Krause on Tuesday of this week, when he was examining what a possible impact of the prohibition against rate de‑averaging might have.
7116 In that case, under a fairly plausible set of circumstances, having an average pricing rule caused all consumers to receive benefits that they would not otherwise have received.
7117 MR. LAWFORD: Thank you.
7118 Can you tell me some of the current barriers that competitors face in establishing a market for their primary exchange services?
7119 MR. WATT: There is a wide range.
7120 For the companies that have deployed, the barrier they face to growing more rapidly is being able to convince consumers to switch their service from the telephone company, their long‑held incumbent. That is a difficult task.
7121 Then there is the task of holding onto those customers.
7122 You may have seen, in the release of the announcement of Bell's income trust conversion, statements to the effect that they had recently ‑‑ the first edition said, "Enjoyed 100,000 winbacks," in the most recent few months, and it was subsequently revised to 50,000 winbacks.
7123 One barrier is a difficult marketing task of competing against a company that is a good provider of the same service on which you are attempting to enter into competition.
7124 Another barrier is the fact that the entrant is reliant upon the incumbent for a variety of services at the current time ‑‑ interconnecting trunks. Coupled with our good successes, we are receiving indications, which we will take up in another forum, that there may be difficulties in providing the interconnecting trunks that we have provided to Bell in our six‑month trunking forecast.
7125 These things have to be worked out. In the past, they have been barriers.
7126 I would possibly ask Mr. Brazeau to describe some of the barriers that they have encountered in that form.
7127 Some of the companies, as I was mentioning, Persona in Sudbury, et cetera, these are companies that haven't launched yet. They still face the barrier of the initial capital investment.
7128 I would add that even once you get past an initial capital investment, there continue to be ‑‑ I wouldn't call them barriers, but there continue to be substantial costs, even aside from marketing and sales.
7129 Rogers provided information to the Commission last year in the forbearance proceeding with respect to the initial fixed capital that was required, and that was in the order of $200 million. We provided in confidence to them the number of customers that that actually provided the basic infrastructure for, because, once you get past a certain threshold, there is another lumpy capital investment that is required to go to the next phase of growth, and it is another barrier or hurdle that we face.
7130 MR. BRAZEAU: I would like to add, on the facilities side, that I spent a long time being on the resale side, and we face a set of challenges as a reseller. You would think that, as a facilities‑based competitor, these challenges would all go away, but they certainly do not.
7131 One of the largest challenges we have is to interconnect our networks to the ILEC, and they own and control the PSTN, and access to the PSTN is absolutely critical for any facilities‑based carrier.
7132 When you try to negotiate terms and conditions for this interconnection, it is always a challenge. I call them. They never call me.
7133 They can certainly have a significant impact as to when you can rollout your product, and how you rollout your product. There are certain services ‑‑ because we have fully digital IP‑based technology, some of their switches cannot recognize some of the signals we are sending. Therefore, certain customer services are not available in certain areas.
7134 They certainly have a significant impact on when you rollout your product, and what kind of product you can rollout.
7135 MR. LAWFORD: Thank you.
7136 I am going to ask you to imagine that the Commission accepts either the Bell or the TELUS submission on uncapping services. It appears that you are being used a little bit as a straw man for the competition.
7137 What would you do for customers that you don't serve in the exchanges that become uncapped?
7138 Would you do anything for them?
7139 MR. WATT: The question is, in the exchanges where price cap regulation continues to be applied to the ILECs, what would we do for customers?
7140 MR. LAWFORD: If the Bell or TELUS proposals to uncap residential services go through, but you are in an exchange which has been uncapped, what would you do to protect consumers?
7141 THE CHAIRPERSON: That is a different question, Mr. Lawford.
7142 MR. LAWFORD: I apologize.
7143 THE CHAIRPERSON: Let me try and phrase the question.
7144 You can nod if you think I have it correctly.
7145 MR. LAWFORD: Please.
7146 THE CHAIRPERSON: You are present in an exchange. It meets the presence test. Certain customers in that exchange, nevertheless, are not reached by your cable VoIP product. Is there anything you can do for those customers?
7147 What would you intend to do for those customers?
7148 MR. LAWFORD: I am nodding.
7149 MR. WATT: These, of course, are customers that we do not have cable plant to.
7150 THE CHAIRPERSON: That's the premise.
7151 MR. WATT: Right.
7152 Our proposal there is, we think there is some appeal to the TELUS proposal that was put forward here, and that would be that those customers should be able to avail themselves of the regulated rate in the closest regulated geographic territory, whether that be an exchange or a local forbearance region.
7153 MR. LAWFORD: I have a follow‑up question.
7154 If the TELUS consumer protection measure, as they are calling it, went into effect, where you get the neighbouring exchange rate, do you have a difference of opinion with TELUS about who should be informing customers of this?
7155 Should the customer have to self‑inform or should they somehow be informed that they have the right to this rate?
7156 MR. WATT: Certainly from a consumer perspective, I think it would be preferable if TELUS were to inform them.
7157 But, of course, TELUS knows they are serving that customer; they may not necessarily know that there is no competitive alternative available to that customer.
7158 So I think it would be possibly difficult for them to do the informing. It may actually fall to the customer to inform the regulator or the company.
7159 But in this case I don't know if we would expect anything to happen in that area, because if you were to hypothesize that, well, they are now uncapped in this territory, so you are going to say "Well, the rates are going to go up", so that customer then will see their rates going up. Presumably possibly there would have to be some type of education campaign that made them aware of the fact that they were entitled to a different rate.
7160 I certainly see the problem. I don't have a very good solution.
7161 MR. LAWFORD: I'm not sure if you could do this without falling afoul of your marketing people or some sort of regulation as well, but would you be willing to help educate the public of that right, or would that be a competitive no‑no?
7162 MR. WATT: I will go with my answer and then Mr. Brazeau will add to it.
7163 MR. LAWFORD: All right.
7164 MR. WATT: I presume what you are thinking of there is some type of obligation on the part of the telephone company to have a bill stuffer that would make the customers aware that in this instance rates were going up, if they did not have a competitive alternative that they could apply to receive a different rate.
7165 THE CHAIRPERSON: Mr. Lawson, are you asking what the cable companies would do in this hypothesis or what ‑‑
7166 MR. LAWFORD: Lawford.
7167 THE CHAIRPERSON: Lawson, sorry.
‑‑‑ Laughter / Rires
7168 THE CHAIRPERSON: I'm sorry, gentlemen, I will get there.
7169 Are you asking what the cable company would do for the telcos customer?
7170 MR. LAWFORD: I did ask that.
7171 THE CHAIRPERSON: Or as you asking what the cable companies think the telcos should do for the telcos customer?
7172 MR. LAWFORD: I was asking what the cable companies could do for the orphan customer.
7173 I guess, would you be able to suggest anything the Commission could do to protect these orphaned customers?
7174 I should ask that as a follow‑up.
7175 MR. BRAZEAU: I think part of the answer is that ‑‑ Bell Canada has a table in one of their exhibits where it shows that the cable companies does cover most of the customers. So most of the customers would have a competitive option once we rolled out our services.
7176 As for informing customers, I think the Commission has made in the past decisions whereby they have required the carrier to add in their bills information to the effect that competition is available should the customers want to avail themselves of it. I think they could do the same thing here on a capping issue.
7177 They could also require the incumbents to use their website to inform customers also of their rights.
7178 So I think there are mechanisms by which the Commission could use to inform customers of what their rights and obligations are.
7179 MR. LAWFORD: I think we also had a discussion yesterday or the day before about how difficult it would be to try to limit the uncapping to the footprint of the cable companies.
7180 Is that also your opinion that that would be unworkable, so that the uncapping is only available to those people who truly do have a competitive alternative?
7181 MR. BRAZEAU: I think that is correct.
7182 MR. LAWFORD: All right.
7183 MR. BRAZEAU: I think the issue that Mr. Watt identified where self‑identification from the customer becomes more important under those circumstances, so you can't have a nice clean rule that would apply to a given set of customers. So self‑identification then becomes critical to that kind of regime.
7184 MR. LAWFORD: All right. Thank you.
7185 Yes, do you want to answer?
7186 MR. WATT: I was just going to say, we are the new entrant in the area and we have invested a lot of money. We are taking considerable risk. We are trying to bring the benefits of competition here in this particular scenario where we haven't quite got there yet, in our view.
7187 But the telephone companies believe that they can be uncapped and you get into this situation. The benefit of that situation goes to them. I think the obligation of doing the work to make it feasible should reside more properly with them than with us.
7188 MR. LAWFORD: Thank you.
7189 I would like to turn now to rate de‑averaging.
7190 I would like to know, is it the ability to earn back any discounts that they give in a competitive area by raising prices in a non‑competitive area that is the main reason for your opposition to rate de‑averaging? I'm speaking about the ILECs there.
7191 MR. WATT: Our opposition is that in our mind rate de‑averaging is essentially synonymous with targeted win‑back of customers.
7192 Whether the telephone companies are able to recoup the money by raising rates elsewhere, I think that would exacerbate the problem. But we think even without the ability to raise rates, it is still a very significant problem because of the large base of customers they have, and the large base of inert customers and ability to leverage that large financial pool of resources.
7193 MR. LAWFORD: I noticed in your submission that you have submitted that it would be all right to de‑average within a province.
7194 I'm just wondering why it's all right to de‑average within a province but not across a band.
7195 MR. WATT: We think that within a province is a significantly broad territory that would limit their ability to do the type of win‑back targeting that we do not think is appropriate.
7196 We think the telephone companies, in this case Bell, made a very good point, that they were facing different market situations. In fairness to them, other telephone companies had the ability to have different provincial rate schedules and it didn't seem to us to be inappropriate to grant them that same level of flexibility.
7197 We recognize we are trying to get from a monopoly environment to a competitive environment, we are trying to get to meet the forbearance test at which point there would be flexibility, so we think there are some appropriate transitional steps with additional flexibility that would be appropriate.
7198 MR. LAWFORD: I have to ask one more.
7199 I'm just thinking of Ottawa‑Gatineau region. We can have rate de‑averaging now between Ottawa and Gatineau, though, under that proposal.
7200 Is that right?
7201 MR. WATT: I am assuming that would be feasible. I am not ‑‑
7202 MR. LAWFORD: Just speaking hypothetically under that proposal.
7203 MR. WATT: I would think that would be permitted. Whether the telephone companies are doing that or not, I don't know whether they treat it as one area.
7204 As you know, you have spoken about the provincial de‑averaging. Along the lines of what I was speaking about earlier, we also have proposed an even further transitional step that would tie the rate de‑averaging to the win‑back rules, because we do see de‑averaging linked directly to win‑back, and that once the telephone companies were down to an 80 percent share competitors had a 20 percent market share in a local forbearance region, that they would be allowed to de‑average prices in the sense that that local forbearance region could have a price schedule for the same service that would be different from the rate schedule in the other local forbearance regions, so long as those prices applied throughout that entire local forbearance region, again another transitional step.
7205 MR. LAWFORD: Those are all our questions. Thank you very much.
7206 THE CHAIRPERSON: Thank you, Mr. Lawford and Mr. Janigan.
7207 THE SECRETARY: In the meantime, I will introduce two new undertakings from CRTC.
7208 One is to TELUS Communications Company, CRTC Undertaking No. 12. It relates to price cap parameters, I understand, the distribution.
UNDERTAKING NO. CRTC‑12: Undertaking to Telus Communications Company regarding Price Cap Parameters
7209 The other undertaking is undertaking CRTC No. 13 to the companies regarding price cap parameters.
UNDERTAKING NO. CRTC‑13: Undertaking to The Companies regarding Price Cap Parameters
7210 We will now proceed with counsel Macdonald from BCOAPO et al.
7211 Ms Macdonald.
7212 MS MACDONALD: Thank you, and good afternoon.
CROSS‑EXAMINATION BY MS MACDONALD:
7213 MS MACDONALD: I wanted to just clarify something that was brought up in the cross‑examination with Mr. Lawford. I wasn't clear, and this is a question to Shaw, with the package that you have, you said it was $55, that is the current package. Did you say that was with six options or one option?
7214 MR. BRAZEAU: Six options.
7215 MS MACDONALD: I wanted to ask a couple of questions about the status of competition. I am going to focus my remarks on TELUS because that is the region that I live in and work in. You don't need to turn to this interrogatory unless you wish to.
7216 Just to summarize, TELUS had said in their response to CRTC interrog 1202 that there were three service alternatives for wireline. They were Shaw, CallNet and then wireless. Because we have the advantage of you gentlemen being here, has anything happened since that interrogatory was passed? Is there another service provider that you are aware of that is providing service in the Alberta/B.C. region?
7217 MR. BRAZEAU: Certainly Cybersurf would be providing service using third party Internet access. There would likely be Primus Communications that would likely be offering services, and Vonage would probably be offering also a service. So those would be some of the additional competitors.
7218 MS MACDONALD: For those three companies, they are all over the Internet. Is that correct? They are all Internet‑based, so they would all have to have access to the Internet?
7219 MR. BRAZEAU: Yes, those would be what they call access independent service providers.
7220 MS MACDONALD: We have been speaking about market share a bit in the last while. Are you aware of what type of share that these access dependent companies would have? What order of magnitude are they serving customers? I am speaking of not long distance, not Internet, I am speaking of just residential local phone, whether bundled or stand‑alone.
7221 MR. BRAZEAU: The Commission produces a State of Competition report every year, which was released. You could get some numbers from that report.
7222 MR. WATT: I think the last monitoring report, it's something like ‑‑ give us just about a minute or two, please.
‑‑‑ Pause / Pause
7223 MR. WATT: I am looking at Table 4.2.7 in the monitoring report. You have that. It showed that in 2004 there were 418,000 competitor lines, this is residential, which was roughly a 3 percent market share. That should have been almost entirely CallNet, Futureway, people using unbundled local loops. There would have been some Vonage in there. If I had to throw out a number, 5,000 or 10,000.
7224 Then we go forward to 2005, and there has been a growth of a little bit over 500,000 lines, but we know that CallNet was 100,000 of those. We know that Vidéotron was ‑‑ and just approximate ‑‑ Vidéotron was probably 100,000 with their service and you were 25. We are up to 225. 75,300 Rogers; 350,000 for all the other players, and that would include Futureway, which is a facilities‑based provider in Toronto, and Primus uses some unbundled local loops. They are less than 100, and I am going to guess less than 150,000 lines.
7225 MS MACDONALD: You went through those figures pretty fast. Then my understanding of what you have just said is that from this report you believe that less than 100,000 lines would be from these access dependent operators like Cybersurf, Primus and Vonage?
7226 MR. WATT: They would actually be called access independent providers, and, yes, I would think somewhere between 100 and 150. There have been fragmentary public releases. These are generally private companies. Some are public, but they are public with operations principally in the United States.
7227 But I believe Vonage, we have estimated that at the end of 2005, we being the cable industry, in some submissions that they had about 35,000 subscribers. Primus, I believe, has revealed at the end of 2005 they had somewhere 20, 25 to 30,000 Talk Primus VoIP customers. So that the 60 to 70,000 with the two biggest.
7228 MS MACDONALD: That number is all across Canada, not just in B.C. and Alberta?
7229 MR. WATT: That would be all across Canada, yes.
7230 MS MACDONALD: Percentage, roughly, I know the number you have stated this morning for B.C. and Alberta is about four million customers, but I am just wondering if someone here knows the number across Canada so I can get a percentage of 100,000 lines.
7231 MR. WATT: In the report there were end of 2005 12,900,000 local residential lines. Competitors had 963,000. So, a 7.6 percent share. The over‑the‑top VoIP access independent service providers would have been a little more than 10 percent of that.
7232 So they are small. They are somewhere around 1 percent, 1 and a quarter percent.
7233 MS MACDONALD: In the same interrogatory, and again I won't ask you to turn to it unless you feel that you need to, and that was the TELUS CRTC 1202, on page 3 TELUS said that the majority ‑‑ and this is about wireless ‑‑ the majority of the populated areas of Alberta and B.C. have two wireless service providers.
7234 Because we have the gentleman here from Rogers and the Fido experience, can you tell me how long that the majority of population in B.C. and Alberta, that is what I am asking you for, how long has Rogers and Fido been in most of the populated areas of B.C. and able to provide service?
7235 MR. WATT: I don't have the precise dates, but Rogers started service, it probably started in Vancouver on July 1st, 1985. That would have been in the Vancouver Lower Mainland area. Whether they launched in Calgary/Edmonton at the same time, I don't know, but I would say within a year or two. So, certainly I would guess no later than 1988.
7236 Microcell would have entered Vancouver what, about 2000, 1999, maybe a bit earlier. 1997.
7237 MS MACDONALD: The submissions of TELUS said that 80 percent of the population would have access to one or two providers. Do you believe that for the past five years the majority ‑‑ actually, do you believe that that statement is correct? Do you believe that 80 percent of the populated ‑‑ I want to see exactly how they put it.
7238 No, they didn't say 80 percent; pardon me. They said a majority of the populated areas of Alberta and B.C. have two wireless service providers.
7239 Is that true, from your experience?
7240 MR. WATT: Yes, it is. I believe it is something in the order of 92 to 94 percent of the Canadian population has wireless service available to it, and typically all three providers are present in the same locations.
7241 There are some areas where not all three are. But for the most part, all three are in the same location.
7242 So I totally agree with those numbers.
7243 MS MacDONALD: Do you think that consumers had that advantage and that choice? Do you think they have had it for five years or do you think it has been less than that?
7244 MR. WATT: I think it has been more than five years.
7245 I think it has been more than ten years.
7246 MS MacDONALD: TELUS in their comments had provided some statistics that 5.8 percent of the households in Alberta and 71 percent of the households in B.C. had wireless only. So they didn't have a wireline at all.
7247 I wanted to get an idea of the percentages for cable. Again it was this morning that someone from the panel said 80 percent of the homes in Canada have a cable line that passes by them.
7248 I wanted to ask for clarification.
7249 Is that 80 percent of the homes that is high speed?
7250 My understanding is that it has to be high speed in order for it to have the ability to be a cable telephone line.
7251 MR. WATT: Actually, I don't know if you have it handy but The Companies‑CRTC 29 September 2403, the interrogatory that they walked us through parts of this morning, actually has some numbers on cable network statistics.
7252 Do you have that?
7253 MS MacDONALD: I might have, but my computer has died.
7254 MR. WATT: It basically says we pass by most of the homes in Canada. The number here shows 11.9 million homes and it shows that as passing by 98 percent of the Canadian TV homes.
7255 I think they are more like 12.4 million households. They are starting to count some more cottages in that number. But over 95 percent of the homes in Canada have cable pass by them.
7256 In terms of high speed Internet availability, it says in this table, which came from the CCTA a couple of years ago, that roughly 88 percent of the cable available homes could provide high speed Internet.
7257 You are somewhere in the vicinity of 85 percent of the homes in Canada that I think would have it available to them.
7258 MS MacDONALD: If a company, one of The Competitors, was providing service, then they would have the technological ability to have it, because they have high speed Internet in that cable line.
7259 MR. BRAZEAU: Yes, I think that is correct.
7260 I guess the 5 percent where we do not pass by those homes are probably those farms we heard of outside of Calgary.
7261 MS MacDONALD: All right.
7262 THE CHAIRPERSON: Ms MacDonald, in the recent proceeding that the Commission had with respect to the regulation of VoIP service, the evidence indicated that 81 percent of the households in Canada were passed by a cable company which offered them a VoIP product.
7263 And that would indeed have to be based on high speed.
7264 So 81 percent of the households are passed by a cable company with a VoIP product.
7265 MS MacDONALD: Thank you, Mr. Chairman.
7266 We also had some figures this morning from Shaw about how many subscribers. In the interrogatories it was ‑‑ actually, not in the interrogatories but in TELUS' comments they had said 160,000 customers.
7267 But this morning that number was revised upwards to about 180,000 subscribers.
7268 MR. BRAZEAU: Digital phone customers. I can't remember the date it was 165,000. The number is probably higher today.
7269 But those are digital phone customers.
7270 MS MacDONALD: I'm sorry, you said 165,000?
7271 MR. BRAZEAU: Yes, I think that was the number; 168, sorry.
7272 MS MacDONALD: One sixty‑eight.
7273 MR. BRAZEAU: As of May 31st.
7274 MS MacDONALD: And just to confirm, that is a bundled service, I believe you said this morning.
7275 MR. BRAZEAU: Yes.
7276 MS MacDONALD: And Shaw doesn't provide stand‑alone Res PES.
7277 MR. BRAZEAU: We do provide a stand‑alone product, but the price is higher for a stand‑alone product.
7278 I don't know how many customers we would have that would have a stand‑alone service.
7279 MS MacDONALD: This morning I believe it was you that said you have 4 million customers in your region ‑‑
7280 MR. BRAZEAU: No. There's two ‑‑ sorry, yes. There are 4 million lines.
7281 MS MacDONALD: Potential customers in your region of Alberta, B.C., Saskatchewan and Manitoba?
7282 MR. BRAZEAU: Yes.
7283 MS MacDONALD: So my math of 168,000 subscribers that you have now out of the potential 4 million, so you have about .04 percent.
7284 MR. BRAZEAU: We have a long way to go, yes.
7285 MS MacDONALD: There were some projections contained in the news release that was provided this morning by TELUS in their Exhibit 6. It was on page 4 and page 10 of the Shareholders Report that the TELUS counsel directed you to.
7286 You had said ‑‑ well, not you, but the Shareholders Report had said that there would be potentially 400,000 customers in three years.
7287 MR. BRAZEAU: That is correct.
7288 MS MacDONALD: This Shareholders Report, would you agree with me that generally these types of reports put a pretty positive spin on where you see your company going?
7289 MR. BRAZEAU: They try to put an accurate spin on where the company is going.
7290 MS MacDONALD: Do you agree with me that they also ‑‑ you can't tell us for sure where you are going to be in three years.
7291 Would you say that this is pretty optimistic? Would you say this is pretty pessimistic? Where would you put that projection?
7292 MR. BRAZEAU: It reflects our views on what the regulatory environment will look like. It reflects our views on how much investment we will put in marketing and in capital spending.
7293 Given those views, I think Jim Shaw would say he is very optimistic about the success of our service going forward.
7294 MS MacDONALD: If you were to have those subscribers, then 400,000 out of the 4 million in the area that you are in, you would have about 10 percent of the market.
7295 MR. BRAZEAU: Yes.
7296 MS MacDONALD: CallNet was one of the other providers of alternate service that TELUS had mentioned in their interrogatory response that I started talking about, but we don't have any numbers for them.
7297 I also am not sure whether they provide ‑‑ well, first of all, are you able to provide any numbers with respect to CallNet?
7298 MR. WATT: No, I'm not. We offer the service in Vancouver and Calgary. We don't provide disaggregated numbers for our service in those cities.
7299 In other words, they are buried inside the aggregate of I think it was 382,000 circuit switched local telephone customers that we had at the end of June this year.
7300 MS MacDONALD: That is 380,000 across Canada.
7301 MR. WATT: It is 380,000 in the greater Vancouver, Calgary, Toronto, Ottawa and Montreal areas. Actually, in the press release we saw this morning there are smaller places as well: Belleville, Napanee.
7302 But we don't offer the service right across the country.
7303 MS MacDONALD: Does CallNet have a stand‑alone, a Res PES?
7304 MR. WATT: Yes, it does.
7305 MS MACDONALD: Is that offered in Vancouver and Calgary? I believe those are the two cities you said in Alberta and B.C. that you provide service to?
7306 MR. WATT: Yes, we do.
7307 MS MACDONALD: So they offer standalone in those two cities?
7308 MR. WATT: They offer standalone local service, local telephone service.
7309 MS MACDONALD: Is that at a discount to TELUS' rate?
7310 MR. WATT: We price our local telephone service at the same levels, whether it's provided by cable telephony or circuit switched, so it is the same rate schedule and ‑‑
7311 MS MACDONALD: The same rate schedule as the incumbent in the area that you are in?
7312 MR. WATT: No.
7313 MS MACDONALD: Sorry.
7314 MR. WATT: The same across our two technology platforms, and it's $29.95 a month for local service, which includes one optional feature, and then there is a variety of steps up as you acquire or take additional optional features. And then you can take long distance services on top of that.
7315 MS MACDONALD: That is your standalone. When you say a step up, that means then it becomes a bundle?
7316 MR. WATT: No, I'm sorry I wasn't being clear. A step up, if you took two options I believe it's $33.95, if you take three it's $35.95, four $37.95, and then six $39.95, and I think that possibly caps it and you can have all the rest at that level.
7317 MS MACDONALD: I'm going to read you something. You can turn to it if you want, but I am reading the whole thing and I have one question on it.
7318 This is from Bell's initial comments and it is Attachment 1. They had a document which was entitled "A Competitive Landscape" July 10, 2006, and on page 9 ‑‑ and I will read it out ‑‑ underneath "Competition and Residential Markets" they had a quote, and the quote was:
"The consumer market for communication services is undergoing tremendous change. The combination of technological advances, new business models, demographic and behavioural shifts in the market all contribute to disruption and uncertainty in the industry."
7319 Do you agree that there is disruption and uncertainty in the industry, specifically the one referred to here, competition in residential markets?
7320 MR. WATT: I'm not sure we would characterize it as "disruption". That has a bit of a pejorative connotation, at least to my mind.
7321 We do think it is a dynamic changing industry and it is very different than it was four or five, three years ago, certainly with the advent of cable telephony providing alternative service to consumers.
7322 This is a very different market than it was prior to the entry of the cable companies with cable telephony.
7323 MS MACDONALD: Would you characterize it as uncertain?
7324 MR. WATT: Again, uncertain to me has some pejorative connotations.
7325 I think it is a ‑‑ I guess to extend it to say it is a competitive market or it becomes competitive that things are less certain than they were in the regulated world, I guess I would agree with that because prices are changing, offers are being made that weren't available in the previous environment when you used to have a rate and you would come and look at changing your rate the next year through a rate hearing.
7326 So to that extent it is certainly uncertain, but I think it is uncertain in a very, very positive way.
7327 MS MACDONALD: We have talked about the potential for Shaw to be looking at perhaps 10 percent of market share in three years. What is interesting is that despite ‑‑ earlier I had a question I asked you about wireless and your answer was that the majority of populated areas in B.C. and Alberta who had the ability to switch to a wireless and totally give up their land line, even after over five years in competition and possibly 10 years of having competition, only 5.8 percent of those people in Alberta and only 7.1 percent of the people in B.C. had switched.
7328 Given that we have already seen some experience of what can happen with competition, at least in wireless, and I would say the failure of wireless to make pretty significant inroads against TELUS, do you have any comments with respect to the uncertainty that I have talked about the market when I quoted from the attachment to Bell of where you might be in three or five years or even 10 years?
7329 MR. BRAZEAU: I think being a competitor to an ILEC is a huge challenge. Even though we own our own facilities, it is still proving to be a challenge.
7330 This market, the basic phone market, was never competitive. It is not competitive today. Who knows, it may never be competitive in the future.
7331 To the extent that I think everybody around here is suggesting that maybe some day The Competitors will have 20 percent market share, in most markets a 20 percent market share for all other competitors versus one incumbent with 80 percent market share, some people would argue that that is not really a competitive marketplace. That is not what a competitive outcome would generate.
7332 So are there some anxieties on the part of new entrants as to what the future holds for us? Absolutely. Absolutely.
7333 As we mentioned earlier, we need to have access to the PSTN. There is one company that owns the PSTN. A critical resource for all of us. And how you have access and when you have access to the PSTN will have a significant impact on your ability to compete going forward.
7334 So the good news for consumers is that as Table 4 indicated, we have the opportunity to provide competitive services to most Canadians. That is the good news. And we have started, but it is still very much early days and it will be a challenge.
7335 This proceeding is all about making sure, on the ILEc's part, that our challenge is made as large as possible. At one point in time we will have to examine whether our resources, our scarce resources, are better invested elsewhere.
7336 Those are decisions that we all have to make.
7337 MS MACDONALD: following from that, and given that wireless has, in the 5 to 10 years that they have been competing, looking at 6 to 7 percent of the market and it is uncertain where cable telephony is going to be in 5 to 10 years, wouldn't it make sense, then, to ensure that consumers are protected, and protected at the same levels that we have now, until we see exactly what does happen in 5 to 10 years?
7338 MR. WATT: Well, we think that the Commission has embarked on the right path.
7339 As you know, in the forbearance decision the Commission determined that regulation would be applied to the telephone companies until competitors had achieved the 25 percent market share and were providing competitor services at a required quality of service standard. There were a few additional transitional measures put in.
7340 We think that once those tests are passed that consumers will be in a situation where they will be protected by the competitive market.
7341 MS MACDONALD: I was actually referring to the protections that are afforded to consumers underneath the price cap. So doesn't it make sense to retain the price cap as it already has been in existence with some minor tweaking, because we don't know where we are going to be in 5 to 10 years?
7342 MR. WATT: Frankly, we agree with you there. We think that a proper price cap regime should be put in place, so regulation should be applied when regulation is required and then once it isn't required, once you pass the 25 percent test, then you would remove price cap regulation.
7343 And in certain markets, by the most recent numbers, that may well occur sometime late next year, early 2008, but until then ‑‑
7344 In the most optimistic scenario, for competition at least, you could see that by the middle of next year almost coincident with the introduction of this price cap period that there are certain locations that would be forborne, I guess.
7345 One way of looking at your question is: Should there be this transitional phase between existing price cap regulation in terms of when services are regulated, interposed in between the next regime, which is when forbearance will be applied? I think our answer to that would be that we don't think that is necessarY/
7346 MS MACDONALD: One moment, Mr. Chair, I would like to review my questions.
7347 THE CHAIRPERSON: We will take 10 minutes and gather again at 20 minutes to 4:00.
‑‑‑ Upon recessing at 1531 / Suspension à 1531
‑‑‑ Upon resuming at 1540 / Reprise à 1540
7348 THE CHAIRPERSON: We are just making sure that the cable companies' counsel is in place.
7349 He is smiling and is as calm as usual, so I think everything is all right. You can proceed.
7350 MS MACDONALD: Thank you, Mr. Chairman. Those were my questions.
7351 THE CHAIRPERSON: Thank you very much.
7352 Madam Secretary.
7353 THE SECRETARY: Thank you, Ms Macdonald.
7354 We will now proceed with Commission counsel.
7355 Ms Frenette.
7356 MS FRENETTE: I have a few specific questions to address to Mr. Brazeau.
7357 In an exchange that you had with Ms Macdonald earlier this afternoon, I am not quite sure if I understood you correctly. I thought she had asked whether you offered Shaw Digital Phone on a standalone basis, and I thought I heard you respond that you do offer a standalone product, but the price is different. It is higher.
7358 Is that correct, or am I mistaken?
7359 MR. BRAZEAU: That's correct.
7360 I think the standalone product is in the neighbourhood of $60, and there is a $5 discount if you take more than one product.
7361 MS FRENETTE: And the standalone Shaw Phone, that would not include any optional calling features.
7362 MR. BRAZEAU: No, that includes all of the features and options that I mentioned under the ‑‑
7363 THE CHAIRPERSON: In the Shaw world, there are no options.
7364 MR. BRAZEAU: That's right. It's all you can eat.
7365 CONSEILLÈRE NOËL: C'est table d'hôte.
‑‑‑ Laughter / Rires
7366 M. BRAZEAU: Table d'hôte.
7367 MS FRENETTE: I would like to briefly go over a small scenario with you.
7368 In those markets where you are present and you are the only competitive alternative to TELUS' basic exchange service, would I be correct in affirming that if a particular subscriber is unsatisfied with the ILEC's service offering, the competitive alternative would be to adhere to a $60 package?
7369 MR. BRAZEAU: Under your scenario. I don't think your scenario is ‑‑ I think there would be other competitors, to start off with.
7370 But, under your scenario, that's correct.
7371 But, remember, the $60 includes the six options. It includes the North American calling plan, and it includes the international calling plan.
7372 MS FRENETTE: Let me rephrase my question, then.
7373 The only competitive wireline alternative.
7374 MR. BRAZEAU: Facilities‑based, yes.
7375 MS FRENETTE: Facilities‑based, correct.
7376 MR. BRAZEAU: Yes, that's correct.
7377 MS FRENETTE: Thank you. Those are my questions, but I believe that my co‑counsel has a few questions, as well.
7378 MR. MILLINGTON: Thank you very much.
7379 We would like to get an undertaking from each one of your respective companies. We would like you to provide us a list of all your service offerings that include primary exchange service for business and residential customers, setting out the rates, terms and conditions, and indicate in which local forbearance regions they are being offered.
7380 We can make it as of today's date, because offers may change.
7381 I guess we can give you about a week to do that, because it might be a fair amount of work to put that together.
7382 That would go across all brands in the company, as we talked about earlier, with the Fido brand under Rogers as an example.
UNDERTAKING NO. CRTC‑14: Cogeco, Shaw, Rogers, QMI to list of all service offerings that include primary exchange service for business and residential customers, setting out the rates terms and conditions broken out by local forbearance region as of today's date
7383 MR. WATT: Do you have that request in writing, just so we know exactly what we are being asked to provide?
7384 MR. MILLINGTON: I can give it to you in writing, but I don't have it in writing.
7385 You can get it from the transcript.
7386 THE CHAIRPERSON: Could you repeat it again, Mr. Millington?
7387 MR. MILLINGTON: Sure.
7388 It is a list of all of your service offerings that include PES, bus and res customers, the rates, terms and conditions, broken down by local forbearance region, wherever they are offered.
7389 MR. WATT: Just as a clarifying question, you are saying all service offerings that include PES and res ‑‑
7390 MR. MILLINGTON: PES business and res.
7391 MR. WATT: Right. I am assuming, in the case of Rogers, that you don't want a list of our cable TV offers, wireless and high‑speed Internet, in the sense that they are associated with the local exchange service in order to obtain the 5, 10 or 15 percent discount.
7392 MR. MILLINGTON: Right. You would start off with your "Rogers at Home", and then, if you add onto it, you get greater discounts. So it would be premised, I think, wouldn't it, on where the "Rogers at Home" product is offered?
7393 MR. WATT: You mean the Rogers Home Phone Service ‑‑
7394 MR. MILLINGTON: Or "Rogers at Home", or whatever it is called.
7395 MR. WATT: What I am trying to avoid is having to give you a listing of all our cable TV, Internet and wireless offers, by local forbearance region, because you receive an associated 5 or 10 percent bundle discount.
7396 You really only want to know, I believe, where we offer our local exchange service by forbearance region, and you want to know precisely the rates of that service, and then we would tell you: With those rates, you could receive a 5, 10 or 15 percent discount, depending on the number of other Rogers services you take.
7397 Would that be sufficient?
7398 MR. MILLINGTON: It would. That's what I am looking for.
7399 MR. WATT: Okay. Thank you.
7400 COMMISSIONER NOËL: Just to be clear on that, because you mentioned under all brands, including Fido. Fido is a wireless service.
7401 MR. MILLINGTON: Good point.
7402 COMMISSIONER NOËL: You just want wireline services.
7403 MR. MILLINGTON: I want wireline, you're right.
7404 CONSEILLÈRE NOËL: Merci.
7405 MR. MILLINGTON: Do I have your undertakings?
7406 MR. BÉLAND: Yes, you do.
7407 MR. BRAZEAU: Yes.
7408 MR. WATT: Yes.
7409 MR. MESSIER: Yes.
7410 THE CHAIRPERSON: Anything else, Mr. Millington?
7411 MR. MILLINGTON: No, thank you, Mr. Chairman.
7412 LE PRESIDENT: Madame Noël, puisque vous êtes intervenue...
7413 CONSEILLÈRE NOËL: C'était seulement pour une clarification. Monsieur Béland, avant de vous laisser aller, je sais que tous vos collègues ont été interrogés longuement sur le nombre d'abonnés qu'ils ont; Cogéco, Rogers, Shaw. Chez Vidéotron, combien vous avez d'abonnés? Quel est le dernier décompte d'abonnés au service de voix sur IP? Sans dévoiler de secrets d'État, si vous avez des chiffres à dévoiler la semaine prochaine, on vous demandera de faire un "undertaking" ‑ pour parler en français.
7414 M. BÉLAND: Je crois que le chiffre qu'on a sorti publiquement, au 30 juin, c'était de 283 000 clients, mais on est en train de vérifier.
7415 CONSEILLÈRE NOËL: D'accord. Puis, vous avez des nouveaux abonnés qui s'ajoutent au rythme de combien par mois, d'après vos derniers communiqués de presse?
7416 M. BÉLAND: On prend des commandes au rythme d'à peu près 5000 par semaine.
7417 CONSEILLÈRE NOËL: Cinq mille par semaine. Puis, on est rendu à 4 mois.
7418 M. BÉLAND: Il y a quand même un taux de change. C'est un montant approximatif. On peut faire l'arithmétique, mais ce n'est pas nécessairement exact.
7419 CONSEILLÈRE NOËL: Vingt mille par mois fois trois mois, plutôt que quatre. Vous auriez ajouté entre 50 et 60 000 au chiffre de 280, c'est cela?
7420 M. BÉLAND: C'est probablement réaliste comme estimation.
7421 CONSEILLÈRE NOËL: Ce qui nous ferait un chiffre de l'ordre de grandeur de 330 000 abonnés.
7422 M. BÉLAND: Cela va être confirmé dans quelques semaines, mais c'est probablement autour de ce chiffre‑là.
7423 CONSEILLÈRE NOËL: Et vous allez nous fournir le chiffre quand vous allez l'avoir avec vos prochains...
7424 M. BÉLAND: Malheureusement, je ne connais pas la date à laquelle on va annoncer nos chiffres les plus récents. Je ne sais pas s'il y a une question de dépassement d'une date, mais je suis prêt à prendre...
7425 CONSEILLÈRE NOËL: Je pense que les gens de Shaw nous ont parlé du 31 octobre.
7426 M. BRAZEAU: Le 26 octobre.
7427 CONSEILLÈRE NOËL: Le 26 octobre. Probablement que vos gens de finances sont obligés de faire des divulgations régulières, comme pour toutes les entreprises publiques.
7428 M. BÉLAND: Oui. On pourrait peut‑être demander au conseiller, mais je croyais qu'il était question de peut‑être terminer les "undertaking" avant une certaine date.
7429 LE PRÉSIDENT: Quelle serait la date limite pour l'utilité de l'"undertaking" en question?
7430 Mme FRENETTE: Le 26 octobre.
7431 LE PRÉSIDENT: Bon, alors, si c'est avant le 26, vous faîtes un "undertaking", Monsieur Béland, sinon on va le lire dans les journaux.
7432 M. BÉLAND: Oui.
7433 CONSEILLÈRE NOËL: Alors, c'était ma question.
7434 THE CHAIRPERSON: Commissioner Langford.
7435 COMMISSIONER LANGFORD: Thank you, Mr. Chair.
7436 I am going to simply direct these questions at all of you, and you can fight for the honour of answering them, or hide under the table and hope someone else will answer. It's up to you.
7437 Some of them are very, very simple and pointed.
7438 The first one, I guess, is directed to you, Mr. Brazeau.
7439 Do you have any way of offering mobility as part of a package, any arrangement with another carrier so that you could bundle that as well?
7440 MR. BRAZEAU: We do not, so far. I think, like most carriers, we are certainly preoccupied with the issue of wireless. I think, more and more so, we will start seeing our competitors offer a quadruple play, and at one point in time the company will have to decide what strategy we will take in that area.
7441 But, so far, we are not there yet.
7442 COMMISSIONER LANGFORD: If I understood the panel ‑‑ I think it was the marketing panel, but anyway, some of the TELUS representatives earlier ‑‑ they have very limited ability to offer television at this time. You have no ability to offer mobility.
7443 Do they cancel each other out, or is one package ‑‑ from your experience in the marketing world, is one package more attractive than the other?
7444 MR. BRAZEAU: I am not sure what their limits are in offering their IP TV services. I know that we are competing fairly vigorously with Manitoba Tel with their offering, but that is for them to answer, I assume.
7445 COMMISSIONER LANGFORD: It was TELUS that made that point, that they are rolling it out, but slowly.
7446 I got the impression that there was very limited availability.
7447 MR. BRAZEAU: That's their decision.
7448 I think I mentioned this morning that TELUS, in eastern Canada ‑‑ in Ontario, for sure ‑‑ is offering only one product, and that is their wireless product. I think, so far, we haven't really seen the linkages between wireless, wireline and cable services.
7449 Will that linkage establish itself? I think it will, once you start seeing the convergence in the equipment, where the one phone will be wireless outside the home and will be wireline inside the home.
7450 I think, as the equipment converges, you will start to see more and more linkages between the wireline services and the wired services. But, so far, they are not quite there.
7451 On the cable side, on the entertainment side, I think the real linkage is the Internet. If we have a customer for Internet, I think he is predispositioned, or it will be greater for that customer to take our telephone service. It is not so much the cable that is the glue there.
7452 COMMISSIONER LANGFORD: Really?
7453 I can't speak for EastLink, but I certainly got the impression when they were before us in forbearance ‑‑ they are not part of this proceeding, and I am not entirely sure why, but when they were before us in forbearance, I was left with the impression that the very attractiveness of this kind of "one store sells all" ‑‑
7454 They had a problem with mobility, but I think they had an arrangement with Rogers, so they were covered that way.
7455 Mr. Bragg was here, and I certainly got the impression that he felt that was a very, very good bundle that he was selling, which had the full package ‑‑ the cable television, the high‑speed, the phone, and then a mobility possibility with Rogers.
7456 MR. BRAZEAU: Our experience is more toward two services, rather than three services. We are starting to see more and more three‑service ‑‑ the triple play.
7457 We are more successful, as I suggested, with tying Internet and telephone service, so far. That might change, but ‑‑
7458 COMMISSIONER LANGFORD: Do you have the sort of linkages that Mr. Watt has at Rogers, where you take an extra 5 percent off, 10 percent, 15 percent, depending on how many pieces of the puzzle people buy?
7459 MR. BRAZEAU: We try to encourage multiple products, yes.
7460 COMMISSIONER LANGFORD: To get back to my original question, do you think your inability at this point to add the fourth piece of wireless, and TELUS' inability, in most areas, to add their fourth piece of television, cancel each other out, or is one product more attractive to customers than the other?
7461 MR. BRAZEAU: I am not sure if I can ‑‑
7462 COMMISSIONER LANGFORD: I suppose you don't know if people say, "Look, if I can't get cable TV, I don't want it," or, "If I can't get mobility, I am going somewhere else."
7463 MR. BRAZEAU: We are both limited in offering a triple play. Does one cancel the other? I think, more or less.
7464 COMMISSIONER LANGFORD: Maybe. Okay. Thank you for that.
7465 Mr. Watt, a particular question to you, and this, I am sure, only displays my own ignorance, but I am stuck here and I cannot run back to the files and look, so I am going to ask you.
7466 On one of the exhibits that Mr. Ryan used earlier today, TELUS Exhibit No. 8, there is a picture of the Shaw map of Canada. It is on page 2 of that exhibit.
7467 When you draw Canada that way, the eastern extremity is the eastern extremity of Ontario, but I had never seen it without Quebec before, and it looks like Nova Scotia. A quick glance leads you to believe they have the whole country.
7468 On that map, if I understand this correctly, they go as far into Ontario as Sault Ste. Marie. Are you competitors in that part of Ontario?
7469 MR. WATT: No, we are not. Shaw provides the cable television service in Sault Ste. Marie.
7470 COMMISSIONER LANGFORD: And Thunder Bay?
7471 MR. WATT: Thunder Bay, yes.
7472 COMMISSIONER LANGFORD: And the other dots there?
7473 MR. BRAZEAU: I don't know.
7474 It's Thunder Bay, Sault Ste. Marie, and I forget what the other two dots are.
7475 MR. WATT: It's Atikokan, I believe.
7476 COMMISSIONER LANGFORD: Maybe Wawa?
7477 MR. BRAZEAU: No, I don't think it's Wawa. But I can provide the information.
7478 COMMISSIONER LANGFORD: No, I just wondered whether there was a possibility of double competition.
7479 As I said, it was my own ignorance on this point. I didn't know where the Rogers' backbone stopped. I just wasn't sure where the border was.
7480 That was the last specific question. Now I want to get a little bit general here.
7481 I was surprised when I saw the submission from The Competitors. It is not very long, and it is mostly a history lesson, which is fine, I like history. One page of history is worth a volume of philosophy, some wise man once said. But it led me to believe that maybe you are far more comfortable than we have been led to understand in earlier proceedings ‑‑ in forbearance and in VoIP.
7482 I am sure you are not comfortable sitting on those chairs all these hours, but I am thinking of it in your protected position. It led me to wonder if, maybe, Dr. Weisman wasn't onto something, that maybe it might be time to make you a little uncomfortable, not because we don't admire you, but because there might be some fallout benefits for consumers.
7483 There is just so little information here. It is very difficult for me, for example, having heard the companies, having heard TELUS, having heard marketing experts testify under oath on their plans and their goals and their ambitions, it is hard for me to walk away from the notion of de‑averaging, for example, based on kind of one paragraph, leave it the way it is or a few paragraphs of history and then a kind of leave it the way it is
7484 Assuming the win‑back rules are still in place and you have that three months to cement your customer corporate relationship, and having heard the marketers who said they would be very, very reluctant to go offering different prices to every customer, and having given us testimony that you don't do that much de‑averaging yourself, how difficult would it be for you to live in a de‑averaged world right now, and why should we deny the customers of the benefits of that?
7485 MR. WATT: As I said earlier, we view de‑averaging as essentially synonymous with targeted win‑back. You have indicated that the telephone companies said they really wouldn't go to individualized offers. I don't think that is what you heard actually from the Bell panel.
7486 Mr. Engelhart went through a lengthy discussion to show that they generally did provide generalized offers. It was in the morning of the first day. The six Bell executives generally agree they push back a little bit, indicated that in Quebec there was a $2 discount on Internet service. So, certainly not a great knowledge of targeted offers.
7487 When they came back after lunch, we heard a fairly lengthy discussion of the specific offers, the de‑averaged offers that were in the marketplace.
7488 When you read the transcript carefully, you see that it is entirely related to win‑back offers, quite open about it in the first paragraph. Then in the second paragraph they say on the acquisition front we do X, Y and Z, but in the middle of that there is discussion about, and with the win‑back, whether to have what type of term contract to associate with that.
7489 So, we are not privy to all the specific arrangements that are made with the call centre, but we do think that that would, in a large part, stop us in our tracks. I made reference earlier to the 100,000 win‑backs, 50,000 win‑backs in recent months. If you look to the assumptions underpinning the income trust conversion on page 4 of that document, they actually say:
"We have also assumed the key drivers of Bell Canada's IBIDA in 2007 would be the following trends and assumptions." (As read)
7490 Among these assumptions, Bell highlights "the stabilization of reduction in a residential NAS."
7491 So we don't sit here comfortably today. We don't think that the road ahead of us is going to be an easy one. We don't actually think the road behind us has been that easy.
7492 With respect to TELUS and their discussions of not offering the individualized services, and they went into a fairly lengthy discussion of I guess the Calgary Herald example, we think we are putting forward a reasonable proposition that would deal, we think fairly quickly, with the Calgary Herald example that was provided. We have suggested a transitional mechanism whereby, after 20 percent market share loss ‑‑ and you will know from your monitoring report that in Calgary the number was, I believe, something in the order of 17 percent at the end of 2005 ‑‑ that additional flexibility be granted within that local forbearance region, which, for the most part, would parallel the distribution area of the Calgary Herald.
7493 I think some of those situations can be addressed in that manner.
7494 But we are facing a business that has had the customers. You know the arguments. We have to win them over. If we are confronted with targeted offers that stop us in our tracks specifically with respect to our customers, and they can target their 90 percent of the market, our 10 percent, we think there is a difficult situation ahead for us.
7495 COMMISSIONER LANGFORD: But the 20 percent transitional point that you speak of in forbearance really gives them, in a way, the nuclear option. At that point there is no win‑back. I mean, from day one, you have no time to build customer loyalty. They can be right on top of that customer and trying to lure them back.
7496 This one seems to me, this transitional suggestion that they be able to de‑average, seems to fall far short of that. You still have your three‑month pad; you have won the customer over.
7497 I don't know, I mean, there is a certain amount ‑‑ people just don't want workmen in their houses every day. I am here to install your new phone from Primus, I am here to install your new phone from Rogers; I am here to install your new phone from Allstream. I mean, there is a point where I think customers take a breather.
7498 Do you not feel that you can structure the many products you have available to you and your own infrastructure, your own good name, your own goodwill, in that three‑month period, that you can fend off prices, which, yes, we did hear from one of the Bell representatives that one‑on‑one would be ideal, but we also heard that it wasn't practical at this point.
7499 We heard from the TELUS people, I think quite clearly marketing panel, that they don't want to take the risk of offending customers by offering different prices to different people, you know the sort of car dealership model that I ran by them.
7500 Do you feel you can't compete in that kind of a world? As long as you have that win‑back protection for a while, why don't you compete and why shouldn't customers get the advantage of cheaper prices?
7501 MR. WATT: One thing, as I explained earlier today, we do think the customers are getting the benefit of cheaper prices. We think they get the benefit from our cheaper price. We actually think that with the price de‑averaging rule, more customers will get the benefit of cheaper prices.
7502 I won't belabour the point, but we think that Mr. Engelhart and Dr. Krause's discussion on the first day made that point fairly clearly, that the telephone companies, it is easier to lose customers and end up in a worse economic situation that counterbalances any maintenance at the higher rate level, therefore all the customers will, at a certain point, get the benefit. That really is, we think, what the vision of competition should be, not targeted discounts to a small few. We think it should be widespread discounts.
7503 We do think we still are in a difficult situation. In their productivity studies, Bell has indicated that their productivity is going down in the future. Why? Because even this year alone, 2006, they are having a tripling of their marketing and sales expenditures, specifically in the areas of the creation of call centre save queues, and a call centre save queue is dealing one‑on‑one with the customer and it may not be ‑‑ they don't want people to think that they have to offer a different price to each of the, say, 50,000 win‑back customers. There will be one, two, three or five flavours, options that each of those customers get so you are not billing all this wide variation of prices. But it is extraordinarily effective.
7504 COMMISSIONER LANGFORD: Yet when de‑averaging helps you build your protectionist forces a little higher and a little stronger, you have jumped at the chance.
7505 When Bell wanted to de‑average between Ontario and Quebec, we didn't hear any complaint from you. My reading of that would be you didn't want to match Vidéotron's prices in Toronto. And who can blame you?
7506 As long as you could split that band, you could fight on your own turf and you could fight with higher prices rather than lower. And yet think of the customer benefits. If we had denied Bell what they sought, think of the customer benefits in Ontario where suddenly if Bell were going to fight Vidéotron, they would have to drop prices right across both the provinces and then you would have to drop prices, and then customers would be getting these bundles even cheaper.
7507 How can that be a bad thing?
7508 MR. WATT: I understand what you are saying. I think, however, Bell should be able to avail themselves of the same opportunities as the other telephone companies, and we supported that position.
7509 We do think we are on, as I say, a transitional road to forbearance and complete competition. So they have some additional flexibility in this regard.
7510 It goes hand‑in‑hand with the new service offering, that being in that case the voice‑over Internet. And here we are proposing that they be given that flexibility for the traditional circuit switched service.
7511 MR. BÉLAND: If I could add, part of the reason that our evidence ‑‑ and QMI put in its own separate evidence but was of a similar volume to the other competitors and came to similar conclusions.
7512 Part of the reason that our evidence might seem a little slim relative to the demands that you have been hearing from the ILECs is that we believe that many of the things they are asking for they already have.
7513 We discussed that at length with the examples of student promotions, bulk deals for apartment buildings.
7514 In our opinion, much of what they are asking for under the rather vague cover of de‑averaging are powers to do what they can already do through the existing tariffing process and the bundling process, tariff and bundling process.
7515 It leads us to be rather concerned that there is something more lurking behind that. The "something more" is in fact, as David suggested, the ability to engage in highly targeted activities of a winback nature.
7516 COMMISSIONER LANGFORD: But why is that a bad thing for customers as long as you have some time, I understand it ‑‑ I'm sure when they have their off‑the‑record discussions the ILECs understand this too. They have had a hundred years to build some brand loyalty and customer loyalty, and as much as they must detest winback, they must understand as well that you have to balance their hundred‑year kind of head start with something, and the Commission has tried to find a balance in different ways.
7517 It seems to me ‑‑ and I apologize, I am sort of repeating myself ‑‑ in the light of what you are saying, doesn't that three‑month protection give you some time to establish a customer relationship?
7518 From what we hear from Mr. Brazeau, I assume the same must be ‑‑ I can't be sure. You do offer some stand‑alone.
7519 But from what I hear from all of you, you are selling some pretty attractive bundles here, some pretty attractive packages.
7520 We know there is some price flexibility left in those packages. We all know price flexibility and optional services, for goodness sake.
7521 So why can't you sharpen your pencils a little and take advantage of your three‑month comfort zone and then open up a little and give consumers a chance?
7522 MR. BÉLAND: I think the three‑month comfort zone ‑‑ I don't care for the expression because it seems to suggest that we are okay with anything goes on three months plus one day.
7523 Even once the three months ‑‑ let's call it the "no contact zone" ‑‑ has expired, the no contact period has expired, it would be extremely worrisome to us and threatening to us if the incumbents were then, on three months plus one day, able to offer highly targeted offers to the customers of competitors because of their market power once again.
7524 In a fully competitive market, I would agree it is something that is more acceptable, maybe even more normal, that different players would in different circumstances target each other and that sort of thing.
7525 In a case of market dominance where the incumbent still retains in excess of 75 percent of the market, the ability to offer highly targeted tailored de‑averaged ‑‑ again that vague term "de‑averaged" ‑‑ offers to our subscribers is extremely worrisome, whether it be on the first day or the 91st day.
7526 COMMISSIONER LANGFORD: Let's look at the advantages you would still have.
7527 We all know there is an application before the Commission, but as of today, to use Bell and Vidéotron as our example, it costs $55. The customer has to pony up 55 bucks if they are going to switch back. So that's an obstacle.
7528 If you use the kind of package Mr. Brazeau is selling and you add that ‑‑ and the packages I assume you are selling ‑‑ Bell is going to have to walk a long way. You are giving the full meal deal here, and you are giving it at, Mr. Brazeau said $55, I think, and you have a variety of options but at different prices, very attractive; free hook‑up; good name brand recognition. All of your companies have been around for a good long time. You have solid infrastructure.
7529 We are not talking about forbearance. They are still filing tariffs here. They still have to come up with ‑‑ even if they go for a high‑low, they still have to work within that.
7530 They have to battle the problem of too many prices, as their marketer said, which may put them in bad odour with consumers; people feeling they are not getting the good deal.
7531 So it is not just a slam dunk for them, it seems to me.
7532 Why can't you compete with that?
7533 Why would you lose a customer, Mr. Brazeau, that you have given this wonderful deal, everything, every option, everything you have given to him for 55 bucks, no hook‑up charge, Bob's your uncle. How could you lose that customer to TELUS who is going to come in there with a range rate and a $55 bill.
7534 Actually, I don't know what TELUS' hook‑up bill is, but let's assume it is something in that neighbourhood.
7535 MR. BRAZEAU: Commissioner Langford, you seem to indicate that they have no ability to respond to our offer in the marketplace and that only through de‑averaging will they be able to respond to what we are offering.
7536 I can read off a few of TELUS' offers in the marketplace, and they are just as competitive as we are.
7537 Here TELUS says: Tariff 21461, Item 315, customers in band A, B, C and D paying $39.45 in Alberta or $41.45 in B.C.; gets a home phone line, choice of six features and no connection fees.
7538 They are also marketing through their direct mail includes a choice of 1,000 minutes of LD within Canada and the U.S. and selected international markets, or 4,000 minutes of LD within Canada and the U.S., for a total price of 60 bucks.
7539 So more or less where we are.
7540 So they are responding. Bell is responding.
7541 That's why we had problems with their de‑averaging. I think they are de‑averaging. I think they are offering many promotions in the marketplace.
7542 Our concern is that de‑averaging is just a misnomer for targeted winbacks. That is our concern.
7543 Now if you are suggesting don't worry about it ‑‑
7544 COMMISSIONER LANGFORD: I'm not suggesting don't worry about it. I'm suggesting that there is another player that is not at the table.
7545 Ms MacDonald was here and Mr. Lawford or Mr. Langford, depending on what we are calling him today, is here. But consumers aren't here. They are represented here.
7546 But what about the sort of thousands of people who just would like a better deal if they can get one?
7547 MR. BRAZEAU: I think consumers are getting a better deal. What I am concerned with is that maybe we are focusing on the short‑term benefit of what some consumers, a small subset of consumers, might be able to have because of a targeted price versus the longer‑term benefits of having a truly or ‑‑ the too often used word ‑‑ sustainable and robust competitive marketplace.
7548 I think the benefits generated under that scenario will be far greater than the benefits that a small subset of customers could benefit from today because of a targeted price.
7549 Sure, we can debate whether the rules and the regime that exists today is too protective and goes too far in protecting new entrants, but look what is happening in the marketplace. We are rolling out our services, we are providing an alternative to the incumbents, we are providing new bundling, new services. We are talking about offering 100 megs of bandwidth to customers. I mean, competition is working. That is why I think most of us would say the regime had it more or less right.
7550 I'm not surprised that the incumbents would suggest that you don't, because in the zero sum game market that we are unfortunately playing with, as they lose customers they lose market share. And nobody, nobody wants to lose market share. Nobody wants to go to the CEO one day and say "Gee, we had a great year this year, I only lost 5 percent market share." Nobody wants to do that.
7551 But if you want competition, that is sort of the dynamics that has to happen in the marketplace.
7552 COMMISSIONER LANGFORD: Is that why you have decided collectively for example ‑‑ it was like St. Paul on the road to Damascus when I read it ‑‑ that you don't want any kind of an "X" factor for productivity? Doesn't it keep prices up and doesn't that enable you then to keep your prices up? Isn't that the real reason behind not wanting an "X" factor?
7553 We have heard some fairly compelling evidence ‑‑ not from Dr. Bernstein that's for sure, but from others ‑‑ that "X" factors can be useful and the higher the better. We will hear Monday from an expert who is talking at 6 percent levels.
7554 I would have thought if you were consumer oriented and looking to help them out and knowing your historic approach to "X" factors, you would have been onboard some there and I was quite surprised. So I thought "What could that be all about?" It sounds to me like a possible explanation is you want to keep prices up so that you can have some pad when you enter and you can charge higher prices yourselves.
7555 MR. WATT: No, I think we would argue that we had taken the lead from the Commission in the previous price cap decision where an "X" factor was not applied in the business market and was applied in the residential market but not applied to have impact on the retail rates, but rather to be put into a deferral account to the extent that that productivity offset was greater than the inflation rate.
7556 We participated extensively in both the first two price cap proceedings, in fact the competitive industry in probably what was the first price cap proposal back in the review of our regulatory framework back in the fall of 1993.
7557 We have come a long way since then in terms of moving from a monopoly environment to a more competitive environment. I think as we move along that road we rely more and more on competitive forces.
7558 With respect to the other issues in the previous price proceedings, this price cap proceeding was of a more limited nature. The issues were more targeted. We put in a submission, to be helpful, on what would be called the purer price cap issues and then obviously the issue of most importance to us was the de‑averaging issue which the Commission put into this particular proceeding.
7559 COMMISSIONER LANGFORD: But is you position on the "X" factor, to be specific, a protectionist position or do you really feel there is absolutely no room for productivity gains left on the ILECs?
7560 MR. WATT: It is a very good question, because we have really wrestled with this as we have discussed it as we have listened to the testimony.
7561 On the one hand, if you take the telephone company's submissions and you take them at the starkest, I think Bell actually their numbers would suggest a negative productivity factor so that if you imposed an offset you would actually end up going the wrong direction. I know, they incumbents say "Well, in the end we go with" ‑‑ I think it was 0.5 percent, something of that nature.
7562 It is a difficult proposition, but we don't feel that we made our suggestion in a protectionist sense. We price today at substantial discounts to the telephone company. The fact that their prices might rise up to the rate of inflation, it is difficult to predict what impact that would have on our prices.
7563 We balance profitability with market growth. They are interrelated. The more customers we get, the better economics look. While it may superficially look that you would be better off with a higher price and fewer customers that is not necessarily the case. It is an intricate calculation.
7564 COMMISSIONER LANGFORD: Just to switch. The same focus coming from a different direction may seem surprising to you so I'm just giving you a little warning.
7565 Do you have on your bills a monthly network access fee or charge?
7566 Different names in different territories, but you know what I'm referring to. It sprang out of the contribution agreement, started at about $2.00 in most places and it's up around $4.00 and sometimes $6.00 in other places now.
7567 MR. WATT: I am not aware of the last number that you suggested.
7568 We do have a network access fee that is applied to our telephone service, yes, our wireline service.
7569 COMMISSIONER LANGFORD: How much is that, do you know?
7570 MR. WATT: I believe it is $4.25.
7571 COMMISSIONER LANGFORD: $4.25. How much of that actually goes to contribution?
7572 MR. WATT: I don't think we ‑‑ we do not tie it to contribution. I'm not sure why you are raising that link.
7573 COMMISSIONER LANGFORD: What are people getting for the $4.25?
7574 MR. WATT: They are getting the investment in the network that makes us able to provide the services that we do.
7575 COMMISSIONER LANGFORD: The network that you have been selling cable television over all these years, plus the $200 million add‑on.
7576 MR. WATT: There is a great deal more than just the $200 million add‑on and the cable plant. You are looking at ‑‑ you have our long distance services, our telephony services. They are not limited just to local services.
7577 As I have said earlier, the $200 million only gets us the basic infrastructure for a specific number of customers. That must be augmented.
7578 As we told you last year, looking at in the order of $200 to $300 million of variable capital costs associated with each customer and then, in addition, the quite substantial truck roll and marketing sales and acquisition costs.
7579 We spoke earlier this morning, Mr. Ryan took us through our financials, a $4 point million operating profit. That is just simply revenue minus operating expenses. $4 point million devoted towards the capital investment that we have in the ground and in the switches, et cetera, doesn't go a very long way to recouping those expenses.
7580 COMMISSIONER LANGFORD: It is my recollection ‑‑ and it is a pretty clear one though I stand to be corrected if I'm wrong ‑‑ that when those fees started to pop up on bills ‑‑ and not just yours ‑‑ they were around $2.00 I think, maybe a bit more. They had little messages on the bills saying: CRTC has set up a contribution scheme to subsidize high‑cost areas ‑‑ I think we asked you to remove those. We asked providers to remove those messages ‑‑ and therefore we have added this fee. The implication being it's those guys in government that did it.
7581 So the message came off after a while and the fee stayed and the fee grew, but your contribution liabilities have been shrinking.
7582 In fact, if I had to guess, if you really were tying it to contribution ‑‑ and I don't think anybody in this room should be smiling, but you know everybody is doing the same thing as far as I know. I don't know anyone who has waived it ‑‑ it would probably be around $1.25, maybe $1.30, something like that.
7583 It would seem to me that there is an area where you have a lot of flexibility. There is an area where you could drop $3.00 of your $4.25 if TELUS and Bell get into some de‑averaging. There is $3.00 right away that you could drop. But I don't see anybody dropping it in this super competitive market.
7584 It is just one of the little indicia that I watch. Everybody comes in here and tells us: Oh, the competition is killing us, it's murder, you have to protect us, you have to help us or, if you are an ILEC, you have to give us more tools.
7585 I'm sorry to take it out on you, but you guys just happen to be here and handy.
7586 Why doesn't anyone drop this charge?
7587 MR. WATT: I guess, if you took my numbers at $4.9 million for operating income in the quarter, and said 550,000 customers times 4, that would be $2 million per month times 3 months. That is $6 million, were you to eliminate ‑‑ reduce your rates in whatever form, by eliminating that charge, by lowering your rates, et cetera.
7588 We just took our $4.9 million operating profit down to a negative $1.1 million. So I think you can appreciate why we wouldn't be eager to step forward with that.
7589 COMMISSIONER LANGFORD: I think you could appreciate why consumers would be very keen on your experimenting in some of those areas, and they are probably anxiously awaiting the day when they can see whether Dr. Weisman's theories work.
7590 MR. WATT: I can understand that, but I think that consumers appreciate that companies have to have the resources to invest in the facilities to provide the services to them.
7591 I am not suggesting that anybody views Rogers as a charity, but we have to recover revenue from consumers to recover our costs, to remain in business. That is the way our system works.
7592 COMMISSIONER LANGFORD: Do you have to recover them quite so quickly?
7593 MR. WATT: Well ‑‑
7594 MR. WATT: What I was going to say is that, most of the time, Rogers is accused of taking on too much debt and not recovering its costs quickly enough.
7595 COMMISSIONER LANGFORD: I suppose it depends on whether you are a shareholder or a consumer as to how you would look at that.
7596 Thank you. I have your answers.
7597 Thank you, Mr. Chair. Those are my questions.
7598 THE CHAIRPERSON: Commissioner del Val.
7599 COMMISSIONER del VAL: Thank you.
7600 Mr. Watt, I was just looking at the digital telephony subscribership, and Mr. Brazeau named some examples of where the ILECs have been, what he called, just as competitive. Then, I also note that the price of your digital telephony is not cheap, and yet the increase of telephony subscription is quite significant.
7601 When you are successful in winning over a digital telephony subscriber, what do they usually tell you is the reason for their switching?
7602 MR. WATT: Generally it is price. Price is the principal reason. There is a certain percentage that say the convenience of one‑stop shopping and a single bill, but price is typically the answer.
7603 I think you are looking at our price with the one feature of, say, $29.95, and then comparing that to telco prices with the feature and saying we are not particularly cheap. With our cable telephony offers, obviously, and our cable footprint, the majority ‑‑ the vast majority of our customers take at least one other service from us, or two. So they do avail themselves of the 5 percent discount.
7604 So if you are a typical wireless customer with an average bill of, say, $60, that 5 percent is $3 off the wireless portion, plus the 5 percent discount on the local phone service.
7605 So we do start to see our price falling.
7606 COMMISSIONER del VAL: When you talk about price, it is the price of the entire bundle ‑‑ bundle is probably not a good ‑‑ the package of, say, cable, Internet and telephony that the subscriber takes?
7607 I could be wrong, because I understood that your telephony package is about ‑‑ if it were on a standalone basis, it would be $60.
7608 MR. WATT: I'm sorry, I think that would be the Shaw proposal. I was talking about Rogers in its cable footprint area, and Rogers' offer.
7609 The $60 ‑‑ and correct me if I am wrong ‑‑ but it is $60 on a standalone basis. It is $55 with Shaw cable. Rogers is priced differently.
7610 That gets you the basic service plus six optional features, plus long distance.
7611 COMMISSIONER del VAL: Yes.
7612 MR. WATT: At Rogers, we separate it out. We offer a local service with one optional local feature for $29.95. Then you can add features. And then we have a $20, or $18.95, long distance plan for North America.
7613 If you add ours up, all of the piece components, we would probably be very close to Shaw's price, but we offer people the ability to de‑bundle the narrow local telephony offer.
7614 COMMISSIONER del VAL: Mr. Brazeau, with the Shaw price, why do people tell you they switch?
7615 MR. BRAZEAU: I think that David was right, most customers would switch because of price.
7616 I think there is a slight difference with Shaw's focus. We have tried to differentiate ourselves somewhat on customer service, and it is a significant focus for the company. We try to persuade customers that their experience at Shaw will be different from TELUS, or any other carrier for that matter.
7617 We have tried to focus on customer service, but I think the primary reason for our switch would be because of price.
7618 COMMISSIONER del VAL: Your package is in the fifties. Right?
7619 MR. BRAZEAU: The standalone product is $60. That includes the North American and local calling plan, it includes your LD, and it includes international calling, plus features.
7620 If you buy an extra service from us, it goes down to $55.
7621 COMMISSIONER del VAL: Mr. Watt, you said twice that the targeting, if the de‑averaging prohibition were lifted, "would stop us in our tracks."
7622 What do you envisage happening?
7623 MR. WATT: What I would envision happening is that we would more carefully target our customer acquisition programs. We would likely have additional contractual terms, trying to tie that customer for a longer period of time, so that we would not be in the situation where we had incurred the acquisition cost, only then to lose the customer.
7624 It would slow the intensity of our sales offer. That is what I think would happen.
7625 THE CHAIRPERSON: So why should we, as public policy‑makers, care?
7626 MR. WATT: I think you would like to see us established as sustainable, long‑term, viable, vibrant competitors, and we think that the protections that you are affording currently are appropriate in a situation or a marketplace where the 100‑year‑old incumbent still enjoys over 75 percent market share.
7627 COMMISSIONER del VAL: Those are my questions. Thank you, Mr. Watt.
7628 Thank you, Mr. Chair.
7629 THE CHAIRPERSON: Mr. Watt, you are basically making an infant industry argument to us.
7630 You are basically telling us, notwithstanding the corporate strength of the three corporations, that Mr. Béland is worried ‑‑ and Mr. Brazeau has painted a touching picture of your fragility in the face of TELUS, and you have told us that Bell or TELUS could stop you in your tracks.
7631 You are right, we would like you to be aggressive, effective competitors, but the question before the house is not whether it will be more difficult for you to acquire more customers, or more difficult for you to currently keep your customers, but whether the benefits, medium and long‑term, of an effective competitive market can only be served by the preservation of the current controls.
7632 That is the question that we have to answer, as opposed to the question that you have to answer.
7633 I suggest to you that slowing the intensity of your sales offering might be a fairly modest price for the more intense competition that would ensue if we lifted the controls.
7634 I am giving you a chance here to try to articulate for us, in terms that we can defend, as opposed to those which obviously speak to your immediate, short‑term corporate interests, which are perfectly legitimate, but aren't such as to permit us to make a public policy argument in a more general nature, so that everyone would nod and say: That's right. He has to protect those fledglings.
7635 MR. WATT: I think we would have significantly decreased aggressiveness. The corporation, we have lots of demands on our capital. We would have the option of putting more resources into our video and Internet operations.