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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TELECOMMUNICATIONS COMMISSION
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT:
Review of price cap framework /
Examen du cadre de plafonnement des prix
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 13, 2006 Le 13 octobre 2006
Transcripts
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
Contents.
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Transcription
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Telecommunications Commission
Conseil de la radiodiffusion et des
télécommunications canadiennes
Transcript / Transcription
Review of price cap framework /
Examen du cadre de plafonnement des prix
BEFORE / DEVANT:
Richard French Chairperson / Président
Helen del Val Commissioner / Conseillère
Elizabeth Duncan Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Stuart Langford Commissioner / Conseiller
ALSO PRESENT / AUSSI PRÉSENTS:
Marielle Giroux-Girard Secretary / Secrétaire
Bob Noakes Staff Team Leader /
Chef d'équipe du personnel
Stephen Millington Legal Counsel /
Rachelle Frenette Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 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.
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 1025 / 6989
CRTC‑12 Undertaking to Telus
Communications Company
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 -
ERRATA
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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)
5781 Then:
"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.
‑‑‑ Pause
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.
‑‑‑ Pause
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?
‑‑‑ Pause
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?
‑‑‑ Pause
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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.
6228 Counsellor.
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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.
‑‑‑ Pause
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."
(As read)
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.