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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 / SUJET:
Review of regulatory framework for wholesale
services and definition of essential service /
Examen du cadre de réglementation concernant les services
de gros et la définition de service essentiel
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 11, 2007 Le 11 octobre 2007
Transcripts
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
Contents.
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Transcription
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Telecommunications Commission
Conseil de la radiodiffusion et des
télécommunications canadiennes
Transcript / Transcription
Review of regulatory framework for wholesale
services and definition of essential service /
Examen du cadre de réglementation concernant les services
de gros et la définition de service essentiel
BEFORE / DEVANT:
Konrad von Finckenstein Chairperson / Président
Barbara Cram Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Elizabeth Duncan Commissioner / Conseillère
Helen del Val Commissioner / Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
Marielle Giroux-Girard Secretary / Secrétaire
Robert Martin Staff Team Leader /
Chef d'équipe du personnel
Peter McCallum Legal Counsel /
Amy Hanley Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 10, 2007 Le 10 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
RESUMED: SALVATORE IACONO 447 / 2957
RESUMED: WILLIAM TAYLOR
RESUMED: PAUL ANDERSON
RESUMED: DENIS HENRY
RESUMED: MIRKO BIBIC
RESUMED: SERGE BABIN
RESUMED: MARGARET SANDERSON
RESUMED: PETER WATERS
Cross-examination by MTS Allstream (Cont'd) 631 / 4109
Cross-examination by Primus 889 / 6032
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
MTS-4 Telecom Decision CRTC 90-27 and 699 / 4621
Telecom Decision CRTC 92-8
MTS-6 BCE Nexxia Inc. financial 723 / 4786
statements for year ending
December 31, 1999
MTS-7 BCE Nexxia Inc. financial 723 / 4786
Statements for year ending
December 31, 2000
MTS-8 Two tables entitled "Bell Quebec" 764 / 5128
And "Bell Ontario"
CRTC-4 List of services prepared by 788 / 5299
Commission Staff
MTS-9 ERG Opinion on Functional 798 / 5381
Separation
MTS-10 Document entitled "Price Cap 813 / 5485
Review and Related Issues",
prepared by Dr. William E. Taylor
PRIMUS-1 Excerpt from the Ontario Energy 901 / 6126
Board Act
PRIMUS-2 Affiliate Relationships Code for 901 / 6126
Electricity Distributors and
Transmitters
CRTC-5 The Monitoring Report 2007 917 / 6288
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Thursday, October 11, 2007
at 0835 / L'audience reprend le jeudi
11 octobre 2007 à 0835
RESUMED: SALVATORE IACONO
RESUMED: WILLIAM TAYLOR
RESUMED: PAUL ANDERSON
RESUMED: DENIS HENRY
RESUMED: MIRKO BIBIC
RESUMED: SERGE BATIN
RESUMED: MARGARET SANDERSON
RESUMED: PETER WATERS
LISTNUM 1 \l 1 \s 41004100 THE CHAIRPERSON: Good morning. Let's resume.
LISTNUM 1 \l 14101 Ms Song, I would appreciate if this morning we could move a bit quicker than yesterday. You took an awful long time to establish the dates, that it took six years to get the various mandated orders. I think we can establish it by just asking is it true that it started on such a date and was issued on such and such a date and move into the substance.
LISTNUM 1 \l 14102 MS SONG: Thank you, Chairman. I will endeavour to do so.
LISTNUM 1 \l 14103 MR. BIBIC: Mr. Chairman, if I may, a very quick point as a preliminary housekeeping matter.
LISTNUM 1 \l 14104 We have a response to Ms Cram on the 41 percent and we can file it.
LISTNUM 1 \l 14105 The quick answer is Appendix 2 of the Monitoring Report indicates that alternative TSPs are defined as including incumbent TSP out‑of‑territory operations such as Bell Canada in B.C. and Alberta.
LISTNUM 1 \l 14106 We have it.
LISTNUM 1 \l 14107 THE CHAIRPERSON: Thank you. Would you just file it with the secretary.
LISTNUM 1 \l 14108 MR. BIBIC: Okay.
EXAMINATION (CONT'D) / INTERROGATOIRE (SUITE)
LISTNUM 1 \l 14109 MS SONG: Thank you, Mr. Chair.
LISTNUM 1 \l 14110 We also have provided an exhibit to the Bell panel with respect to the Monitoring Report. However, I will get a copy of that and address that with the panel a little later on.
LISTNUM 1 \l 14111 At paragraph 147 of Bell et al's 15th March evidence ‑‑ if you could kindly turn to that.
‑‑‑ Pause
LISTNUM 1 \l 14112 COMMISSIONER DUNCAN: Excuse me, Ms Song, what was the paragraph number?
LISTNUM 1 \l 14113 MS SONG: 147, Commissioner Duncan.
LISTNUM 1 \l 14114 COMMISSIONER DUNCAN: Thank you.
‑‑‑ Pause
LISTNUM 1 \l 14115 MS SONG: Okay, does everyone have that?
LISTNUM 1 \l 14116 So I will simply read out paragraph 147. It says that:
"Bell et al proposed that in the event that the Commission mandates wholesale access to an essential facility which can be used to provide multiple retail services, the Commission should place a restriction on the use of the facility to ensure that absent the access supplier's consent it can only be used to provide the retail service where there is a need for a remedy to address abuse of significant market power in a particular retail market."
(As read)
LISTNUM 1 \l 14117 It is actually the latter part of that quote that I have some questions about.
LISTNUM 1 \l 14118 So I would like to understand how the Commission would determine to use Bell et al's words, "whether there is a need for a remedy to address abuse of significant market power in a particular retail market."
LISTNUM 1 \l 14119 What kind of behaviour would satisfy what Bell et al mean by "abuse of significant market power"?
LISTNUM 1 \l 14120 MR. BIBIC: We mean that in the sense of the essential facilities test we have proposed, that denial of access would result in a substantial lessening of competition.
LISTNUM 1 \l 14121 MS SONG: So you mean that the Commission would have to find that there was actual denial of service?
LISTNUM 1 \l 14122 MR. BIBIC: Well, under the ex post test that we have proposed, yes, and under an ex ante test, I think it would have to be a little bit more forward‑looking.
LISTNUM 1 \l 14123 MS SONG: Could you provide an example of that?
LISTNUM 1 \l 14124 MR. BIBIC: Of what, of the definitions?
LISTNUM 1 \l 14125 MS SONG: Of the kind of behaviour that you are speaking about in this section of your evidence.
LISTNUM 1 \l 14126 MR. BIBIC: Sure. I can describe that using an example.
LISTNUM 1 \l 14127 Take a scenario where Bell Canada is the only local service provider in an exchange and no one else is providing service, and a CLEC comes along and wants to start competing for residential local service using unbundled loops, and the incumbent were to say no and deny access, under that scenario I could see the Commission saying: Well, loops are essential facilities in that exchange.
LISTNUM 1 \l 14128 A counter example would be there is also a cable company also providing service there, in which case denial of loops, if that were to happen, wouldn't result in a substantial lessening of competition.
LISTNUM 1 \l 14129 MS SONG: Would acts to increase rivals' costs satisfy abuse of significant market power?
LISTNUM 1 \l 14130 MR. BIBIC: I think ‑‑ well, you are getting into kind of abuse of dominance issues which are addressed through sections 78 and 79 of the Competition Act and the Bureau had a lot to say on that issue with respect to its Telecom Abuse Bulletin.
LISTNUM 1 \l 14131 We meant it here in the context of denial of access resulting in a substantial lessening of competition for the purposes of an essential facilities definition.
LISTNUM 1 \l 14132 MS SONG: So I just want to understand. Are you saying that you would have to find behaviour that would meet the test of sections 78 and 79 of the Competition Act in order to satisfy this criterion of a remedy?
LISTNUM 1 \l 14133 MR. BIBIC: No, Ms Song. I think I am trying to say that this has nothing to do with sections 78 and 79. We made that statement in the context of the definition of an essential facility.
LISTNUM 1 \l 14134 I mean just to put it ‑‑ to put another example. I gave you an example where denial of access to loops may constitute a finding of essentiality.
LISTNUM 1 \l 14135 What we are trying to say here is if in that exchange there is no residential telephony competition and denial of access to loops were to result in a substantial lessening of competition, the Commission could mandate access to loops to provide residential telephony but not access to the same loop to provide a retail internet service if the retail internet market were competitive.
LISTNUM 1 \l 14136 MS SONG: It was my reading of your evidence that your initial proposal at least in this proceeding was that the Commission use the Bureau's TAB framework; correct?
LISTNUM 1 \l 14137 MR. BIBIC: We proposed in our submission an essential facilities definition very similar to that set out in the Bureau's TAB.
LISTNUM 1 \l 14138 MS SONG: Right. So after the transition period, which is what I think this paragraph relates to, paragraph 147 says that the Commission should intervene only where there is a need for a remedy to address abuse of significant market power.
LISTNUM 1 \l 14139 My understanding was that your initial proposal was that that analysis should take place in accordance with the Bureau's TAB, and now you are telling me that that is not the case, that you have changed your position in that regard?
LISTNUM 1 \l 14140 MR. BIBIC: No, we did not change our position, Ms Song.
LISTNUM 1 \l 14141 What we were saying is the Commission would have to make a finding of essentiality and we propose they use the same definition of an essential facility that the Bureau proposed in the TAB.
LISTNUM 1 \l 14142 Now, the Bureau would use its definition for purposes of finding abuse of dominance. We were proposing they use that same definition, that the Commission use that same definition but for the purposes of finding essentiality.
LISTNUM 1 \l 14143 MS SONG: Mm‑hmm.
LISTNUM 1 \l 14144 MR. BIBIC: That is all we meant.
LISTNUM 1 \l 14145 MS SONG: I am not sure we are talking about the same thing, Mr. Bibic. I am trying to understand in what circumstances after the transition period would it be appropriate for the Commission to re‑mandate access to a facility and you are saying in paragraph 147 that that would only arise where there is a need to remedy an abuse of significant market power.
LISTNUM 1 \l 14146 MR. BIBIC: Well, Ms Song ‑‑
LISTNUM 1 \l 14147 MS SONG: So I am trying to understand what behaviour satisfies the criterion of a finding of abuse of significant market power.
LISTNUM 1 \l 14148 MR. BIBIC: Ms Song, I came here to speak on behalf of the company. I have an overall responsibility for this evidence.
LISTNUM 1 \l 14149 So I am trying to explain that in that event our position is that the Commission, to determine essentiality, would simply use the test of an essential facility which we have proposed.
LISTNUM 1 \l 14150 Yesterday, we went through one with Mr. Engelhart, which is at one of the interrogs we filed. I can't remember the number.
LISTNUM 1 \l 14151 If the Commission were to adopt an ex ante structure, we proposed a definition of an essential facility in our opening statement. That is really what we are saying. That is the test the Commission would use after the transition period to determine essentiality.
LISTNUM 1 \l 14152 MS SONG: But isn't it a component of your proposal that there be some kind of conduct in a retail market, that that is another component of your test for essentiality? That is what I am trying to drive at. I don't want general statements about your test for essentiality.
LISTNUM 1 \l 14153 I would like to know specifically in relation to your criterion of dominance or whatever it is in the retail market what kind of behaviour would the Commission have to find in order to satisfy your criterion.
LISTNUM 1 \l 14154 MR. BIBIC: Well, the answer is in the test that we have proposed. It is denial of access.
LISTNUM 1 \l 14155 MS SONG: That's it, that's all, denial of access?
LISTNUM 1 \l 14156 MR. BIBIC: Correct.
LISTNUM 1 \l 14157 MS SONG: Thank you.
LISTNUM 1 \l 14158 Now, moving on, it is my understanding that in its business segment operations Bell Canada has a small and medium business unit, a Bell West unit which operates west of Ontario and an Enterprise Unit; correct?
LISTNUM 1 \l 14159 MR. IACONO: Yes, that is correct, Ms Song.
LISTNUM 1 \l 14160 MS SONG: And what class of customers is served by the Enterprise Unit?
LISTNUM 1 \l 14161 MR. IACONO: The Enterprise Unit, that is the unit that I am currently working in. We deal with customers that have operations across the country, very large business basically.
LISTNUM 1 \l 14162 MS SONG: All right. So regardless of location?
LISTNUM 1 \l 14163 MR. IACONO: Yes. Most of them are national.
LISTNUM 1 \l 14164 MS SONG: And you would agree with me that Bell Canada through its Enterprise Unit is the most significant competitor in that market, in that segment of the business market as defined by Bell Canada?
LISTNUM 1 \l 14165 MR. IACONO: Well, we are certainly an important competitor and there are several others as well.
LISTNUM 1 \l 14166 MS SONG: Does it have the largest market share in that segment of the market?
LISTNUM 1 \l 14167 MR. IACONO: For some products yes, for some products no.
LISTNUM 1 \l 14168 MS SONG: And what products are you referring to as being products for which you are the most significant competitor?
LISTNUM 1 \l 14169 MR. IACONO: Well, I am looking at, for example, legacy services, Frame Relay, services such as those. Clearly, we are not the largest player in terms of market share.
LISTNUM 1 \l 14170 IP services, which is on the newer, obviously, connectivity type services, we obviously have significant capabilities but so do the major competitors.
LISTNUM 1 \l 14171 MS SONG: Yes. And what would that market share estimate be ‑‑
LISTNUM 1 \l 14172 MR. IACONO: I don't have the ‑‑
LISTNUM 1 \l 14173 MS SONG: ‑‑ in the higher speed data access services market?
LISTNUM 1 \l 14174 MR. IACONO: I don't have the market shares with me here.
LISTNUM 1 \l 14175 MS SONG: Do you have any idea, Mr. Iacono?
LISTNUM 1 \l 14176 MR. IACONO: In some segments we are probably ‑‑ just looking at ‑‑ I am just going from memory.
LISTNUM 1 \l 14177 If I look at IP VPN, for example, I think we are definitely the largest in terms of IP VPN circuits but I recall from some material that MTS Allstream is not too far behind Bell in terms of number of circuits in the IP VPN.
LISTNUM 1 \l 14178 MTS Allstream has a very significant MPLS network and a full suite of services, and in fact, I believe in some cases MTS Allstream has some services that Bell is not currently offering in the IP space.
LISTNUM 1 \l 14179 So, you know, it is hard to generalize. It depends on the particular product area that one is looking at.
LISTNUM 1 \l 14180 MS SONG: Yes. I am actually looking for a number but you are not ‑‑ you don't know off the top of your head, you can't provide us with an estimate?
LISTNUM 1 \l 14181 MR. IACONO: No, I can't, not off the top of my head.
LISTNUM 1 \l 14182 MS SONG: Would you undertake to do so for the markets that you have mentioned?
LISTNUM 1 \l 14183 MR. BIBIC: Subject to confidentiality if the Commission ‑‑ we could provide what we have to the Commission in confidence.
LISTNUM 1 \l 14184 MS SONG: Thank you.
LISTNUM 1 \l 14185 But the fact is that in 2006, according to your 2006 Annual Report, the Enterprise Unit alone accounted for revenue totalling approximately $2.5 billion; correct?
LISTNUM 1 \l 14186 MR. IACONO: Yes, that is correct and that comprises two broad categories of portfolios. One is the connectivity, which is all of the ‑‑ well, the connectivity services ranging from basic access to the very hi‑speed bandwidth access and that is about half of the revenues.
LISTNUM 1 \l 14187 The other half is all of the newer ICT professional services, security services.
LISTNUM 1 \l 14188 It is a growing business, and our proportion relative to the overall market in the ICT space of that is still quite small.
LISTNUM 1 \l 14189 So the $2.5 billion is a big number, but it comprises a very vast portfolio of connectivity, managed services, professional services, infrastructure services, equipment, et cetera.
LISTNUM 1 \l 14190 MS SONG: It is Bell's position ‑‑ and I want to return to the aspect of its test that requires that the owner of the facility, which is claimed to be essential, must also be dominant in downstream retail markets.
LISTNUM 1 \l 14191 Clearly, the state of competition in retail markets is a key component in your proposal.
LISTNUM 1 \l 14192 Is that correct?
LISTNUM 1 \l 14193 MR. BIBIC: That's correct.
LISTNUM 1 \l 14194 MS SONG: I want to turn now to Bell et al.'s argument that there is competition sufficient to protect the interests of users in retail business markets.
LISTNUM 1 \l 14195 In order to assist the Commission, I would like to focus on the argument set out at pages 9 to 23 of Bell's July 5th Supplementary Evidence.
LISTNUM 1 \l 14196 As I read pages 9 to 23 of Bell et al.s' Supplementary Evidence, there are essentially two aspects to the argument that there is competition sufficient to protect the interests of users in retail business markets.
LISTNUM 1 \l 14197 The first is the presence of other telephone companies in business telecommunications markets and, in particular, in the large to very large segments of business telecommunications markets, and those points are set out, I believe, at pages 9 to 15.
LISTNUM 1 \l 14198 The second is the potential of cable, electrical utility and wireless service providers to enter into the small and medium business segment of business telecommunications markets.
LISTNUM 1 \l 14199 Are you following me so far?
LISTNUM 1 \l 14200 MR. BIBIC: Yes.
LISTNUM 1 \l 14201 MS SONG: At this time I would like to focus on the first aspect, the arguments and the evidence that you set out at pages 9 to 15.
LISTNUM 1 \l 14202 Again, as I read pages 9 to 15, you are relying principally on bidding, or a request for proposal, or RFP activity as evidence of the fact that there is competition sufficient to protect the interests of users in retail business markets.
LISTNUM 1 \l 14203 Correct?
LISTNUM 1 \l 14204 MR. BIBIC: Correct.
LISTNUM 1 \l 14205 MS SONG: So this bidding activity, and the competitors that are mentioned at pages 9 to 15, are present in the enterprise segment of retail business telecommunications markets. Correct?
LISTNUM 1 \l 14206 Typically or primarily.
LISTNUM 1 \l 14207 MR. IACONO: Primarily, yes.
LISTNUM 1 \l 14208 MS SONG: You don't cite any market share evidence, at least in this part of your July 5th Supplementary Evidence. Correct?
LISTNUM 1 \l 14209 MR. BIBIC: Correct. We didn't think we needed to.
LISTNUM 1 \l 14210 MS SONG: The evidence that you do cite is a list of 18 competitor press releases from a three and a half year period, between January 13, 2004 and June 5, 2007. Correct?
LISTNUM 1 \l 14211 MR. IACONO: Yes. Those 18 were shown as examples of bids won by competitors that were made public by competitors through their websites.
LISTNUM 1 \l 14212 There are obviously a lot more that were not necessarily made public.
LISTNUM 1 \l 14213 MS SONG: Including your own.
LISTNUM 1 \l 14214 MR. IACONO: Yes. In fact, we provided a few in response to the deficiency response, I believe ‑‑ or deficiency argument. We provided 5 or 6 ‑‑ I am going from memory ‑‑ as examples ‑‑
LISTNUM 1 \l 14215 MS SONG: Of your own?
LISTNUM 1 \l 14216 MR. IACONO: ‑‑ of our own, yes.
LISTNUM 1 \l 14217 MS SONG: We will discuss the wholesale facilities and services leased by competitors that actually enable even this level of bidding activity on the part of competitors, but, if I understand you correctly, Mr. Iacono, you are not claiming that these 18 press releases are at all representative of overall bidding activity in the enterprise segment. Correct?
LISTNUM 1 \l 14218 MR. IACONO: That's correct.
LISTNUM 1 \l 14219 In fact, we noted that these were illustrations based on publicly available press releases.
LISTNUM 1 \l 14220 MS SONG: Right, and in your interrogatory responses, I think you couch this evidence by saying that they are only examples.
LISTNUM 1 \l 14221 MR. IACONO: That's correct.
LISTNUM 1 \l 14222 MS SONG: What would be representative, in fact, is the number that we have already discussed, the $2.5 billion in 2006 alone, garnered from the segment of the business market.
LISTNUM 1 \l 14223 Would you agree with me?
LISTNUM 1 \l 14224 MR. IACONO: Certainly, the $2.5 billion would not be representative of bidding activity.
LISTNUM 1 \l 14225 MS SONG: Perhaps not bidding activity alone, but my understanding is that the $2.5 billion revenue figure does, in fact, encompass multi‑year contracts, one, pursuant to bids, or contract renewals in the enterprise segment. Correct?
LISTNUM 1 \l 14226 MR. IACONO: Yes.
LISTNUM 1 \l 14227 As I said before, though, covering services that are way beyond connectivity, as well. So it is a broad, broad portfolio, a full suite of services.
LISTNUM 1 \l 14228 MS SONG: In order to assist the Commission and this public process, will Bell Canada provide, for the same three and a half year period that is covered by your July 5th Supplementary Evidence, the number of RFPs that Bell Canada bid on and won in that period?
LISTNUM 1 \l 14229 MR. IACONO: I think we had that discussion through the deficiency response, and I will leave it to Mr. Bibic to comment, or counsel.
LISTNUM 1 \l 14230 MR. DANIELS: Excuse me. I am sorry to interrupt, but this actually was an issue of a deficiency response we had at argument. The Commission has ruled on that actual request already.
LISTNUM 1 \l 14231 So I think we have already had this discussion, and the Commission has already ruled on it.
LISTNUM 1 \l 14232 MS SONG: There was a deficiency process, and Commission Staff declined to order that Bell produce that information, but I am asking you now, today, because you have put the issue of bidding activity squarely in your evidence, that you provide that information in order to put these 18 press releases, over a three and a half year period, in context.
LISTNUM 1 \l 14233 Will you do that?
LISTNUM 1 \l 14234 MR. IACONO: Ms Song, if I could refer you to paragraph 9 of page 11 of the July Supplementary Evidence, the pages that you raise, it is very clear there that, for example, in a recent Commission decision ‑‑ and I could probably think of a couple of others where the Commission itself has considered ‑‑ and I quote:
"The Commission, therefore, considers that evidence of rivalrous behaviour, primarily in the form of bid responses, is sufficient to demonstrate that the market is competitive enough to warrant forbearance." (As read)
LISTNUM 1 \l 14235 Now, that was in a forbearance context. My point is, the issue of "Does bidding and bidding activity represent an indication of competitive activity" has been determined, number one.
LISTNUM 1 \l 14236 Number two, I also want to cite, by way of an important example ‑‑ government bids, for example, be they federal government, provincial government or municipal government, follow extremely rigorous bid processes. All one need do is go on the MERX site and you can see the kind of processes that those bids entail, and several businesses of a smaller size than obviously the federal government use very similar principles to make procurements.
LISTNUM 1 \l 14237 We procure all types of things at Bell Canada, and we use RFP processes for many of our procurement requirements, be they network related, where we have a choice, or be they pen and paper.
LISTNUM 1 \l 14238 Those processes are well established. Large organizations, in particular, have ‑‑ they have to have very tight procurement processes in order to ensure that they give the proper incentives to potential suppliers to be as competitive as possible.
LISTNUM 1 \l 14239 MS SONG: Mr. Iacono, I am not contesting the fact that you have brought this evidence forward as an indicia of competitiveness in retail business markets, what I am asking you is, if you are going to put this kind of evidence in issue, then I think it is incumbent upon you, the most significant competitor in the enterprise segment of the business market, to come forward with at least the number of RFPs that you have bid on and the number of RFPs that you have won.
LISTNUM 1 \l 14240 MR. BIBIC: Well, Ms Song, our position ‑‑
LISTNUM 1 \l 14241 THE CHAIRPERSON: Ms Song, I am confused here. I thought the interjection from the Competition Bureau ‑‑ I'm sorry, who are you representing?
LISTNUM 1 \l 14242 MR. DANIELS: Sorry, I'm representing The Companies.
LISTNUM 1 \l 14243 THE CHAIRPERSON: The Companies, okay. Well, this has already dealt with interrogatories, and so therefore I really don't quite understand on what basis you feel you can pose a question now in cross‑examination.
LISTNUM 1 \l 14244 MS SONG: Well, I was not certain whether the commissioners, themselves, had had an opportunity to consider this issue. It's our companies position that, if this evidence is to be tested, that we should know of the total amount of RFPs that occurred during that period, how many ‑‑
LISTNUM 1 \l 14245 THE CHAIRPERSON: You surely don't expect me to disavow the Commission. If the Commission ruled on it in whatever form, that's the Commission's decision.
LISTNUM 1 \l 14246 MS SONG: All right, I will move on, then, Mr. Chair.
LISTNUM 1 \l 14247 Now, I believe I have read Bell Aliant's interrogatory responses correctly, that it does not have any out‑of‑territory operations. Correct?
LISTNUM 1 \l 14248 MR. HENRY: That's correct.
LISTNUM 1 \l 14249 MS SONG: Bell Canada, in its out‑of‑territory operations, does it lease any facilities from cable companies?
LISTNUM 1 \l 14250 MR. BIBIC: We don't think so, but I don't know for actual fact.
LISTNUM 1 \l 14251 MS SONG: All right. If you come to believe otherwise, you will let me know?
LISTNUM 1 \l 14252 MR. BIBIC: Absolutely.
LISTNUM 1 \l 14253 MS SONG: It's my understanding that you are a partner in Inukshuk Wireless Partnership?
LISTNUM 1 \l 14254 MR. BIBIC: That's correct.
LISTNUM 1 \l 14255 MS SONG: And Inukshuk holds 323 licences across Canada in the 2.3 gigahertz and 3.5 gigahertz bands. Correct?
LISTNUM 1 \l 14256 Does that number sound about right to you?
LISTNUM 1 \l 14257 MR. BIBIC: There's a large number of licences, so I don't think there's much need to quibble with the number of licences we have. The reason I was hesitating is I thought our licence spectrum was in the 2.5 gigahertz band.
LISTNUM 1 \l 14258 MS SONG: You are referring to Inukshuk now, when you say "our"?
LISTNUM 1 \l 14259 MR. BIBIC: Correct.
LISTNUM 1 \l 14260 MS SONG: Okay, I could be mistaken, but I'm fairly sure it's 2.3 and 3.5. But, in any event, regardless of the numbers, this is spectrum that is capable of utilizing Wi‑Max technology. Correct?
LISTNUM 1 \l 14261 MR. BIBIC: Well, it's pre‑Wi‑Max right now, but we expect that, ultimately, there will be a Wi‑Max standard over that spectrum.
LISTNUM 1 \l 14262 MS SONG: All right.
LISTNUM 1 \l 14263 Did Mr. Babin have something to add to that response?
LISTNUM 1 \l 14264 MR. BIBIC: No.
LISTNUM 1 \l 14265 MS SONG: Okay.
LISTNUM 1 \l 14266 And in its out‑of‑territory operations, does Bell Canada, today, use Wi‑Max to provision last‑mile access connectivity between a customer premises and, say, Bell West's central offices?
LISTNUM 1 \l 14267 MR. BABIN: Yes, we do, Ms Song.
LISTNUM 1 \l 14268 MS SONG: And where would that be?
LISTNUM 1 \l 14269 MR. BABIN: In the Bell West territory, out of territory for the ILEC.
LISTNUM 1 \l 14270 MS SONG: Sorry, for the ILEC? What does that mean?
LISTNUM 1 \l 14271 MR. BABIN: Out of our ILEC territory, which is Ontario and Quebec ‑‑
LISTNUM 1 \l 14272 MS SONG: Yes.
LISTNUM 1 \l 14273 MR. BABIN: ‑‑ we do use Wi‑Max as a last‑mile facility.
LISTNUM 1 \l 14274 MS SONG: Right. But my question had to do with your out‑of‑territory operations.
LISTNUM 1 \l 14275 MR. BABIN: That's right. Our out of territory is in Bell in the West, is out of territory of Ontario and Quebec ‑‑
LISTNUM 1 \l 14276 MS SONG: Right.
LISTNUM 1 \l 14277 MR. BABIN: ‑‑ and we do use Wi‑Max technology for last‑mile facilities.
LISTNUM 1 \l 14278 MS SONG: All right.
LISTNUM 1 \l 14279 You also mention satellite technology as a potential access technology?
LISTNUM 1 \l 14280 MR. BABIN: Yes.
LISTNUM 1 \l 14281 MS SONG: Does you Bell West unit use satellite service to provision last‑mile access connectivity?
LISTNUM 1 \l 14282 MR. BABIN: Not that I'm aware.
LISTNUM 1 \l 14283 MS SONG: Okay.
LISTNUM 1 \l 14284 I would like to move on now to Bell et al's position on interconnection services. I believe that you have included interconnection services not as essential facilities or services per se, but services that may still require regulation for technical or social reasons. Correct?
LISTNUM 1 \l 14285 MR. HENRY: That's correct.
LISTNUM 1 \l 14286 MS SONG: You would limit, however, mandated interconnection to only those services that are related to and ancillary to local and toll interconnection. Correct?
LISTNUM 1 \l 14287 MR. HENRY: That's correct.
LISTNUM 1 \l 14288 MS SONG: But that would extend to services ancillary to both toll and local interconnection. Correct?
LISTNUM 1 \l 14289 MR. HENRY: Yes.
LISTNUM 1 \l 14290 MS SONG: Okay. However, it is your company's position that IP interconnection arrangements need not be mandated. Correct?
LISTNUM 1 \l 14291 MR. HENRY: Sorry, which interconnection arrangements?
LISTNUM 1 \l 14292 MS SONG: Internet protocol, IP to IP interconnection.
LISTNUM 1 \l 14293 MR. HENRY: Well, it depends what kind of IP interconnection you are talking about, but I think perhaps Mr. Babin can talk to the specific.
LISTNUM 1 \l 14294 If you are talking CLECs offering local service on an IP basis, and that kind of IP to IP interconnection, I believe there are many technical issues associated with that that perhaps Mr. Babin could talk to.
LISTNUM 1 \l 14295 MS SONG: Well, actually, before Mr. Babin elaborates, I just want to know whether it's your proposal in this proceeding that IP to IP interconnection services be mandated or whether that falls under your negotiation principles.
LISTNUM 1 \l 14296 MR. HENRY: Well, ultimately, they could be mandated, if it's for the purpose of CLEC to CLEC, or CLEC to ILEC, but a CLEC that's offering local service on an IP platform. So, ultimately, that could be mandated. But the problem is that there are many, many technical issues, again, that Mr. Babin can speak to, that have prevented us from getting to the point of reaching some kind of industry consensus on this.
LISTNUM 1 \l 14297 MS SONG: And when you say "CLEC to CLEC IP interconnection" is that ‑‑
LISTNUM 1 \l 14298 MR. HENRY: Well, I'm distinguishing it from the Internet ‑‑
LISTNUM 1 \l 14299 MS SONG: Right.
LISTNUM 1 \l 14300 MR. HENRY: ‑‑ because Internet IP pairing, I mean, that's done today and there's no Commission intervention. And the web works just fine without out.
LISTNUM 1 \l 14301 MS SONG: Right. So your position would be that IP interconnection for the purposes of providing voice services, data services, at whatever speed, that would all fall under mandated interconnection. Correct?
LISTNUM 1 \l 14302 MR. HENRY: Yes.
LISTNUM 1 \l 14303 MS SONG: What kind of services would not be covered by specifically, and perhaps Mr. Babin can explain what kind of IP interconnection to provide what kind of services would not be mandated in your proposal.
LISTNUM 1 \l 14304 MR. HENRY: Well, I think I have answered that. In the Internet world, there are pairing arrangements around the world that have been entered into without regulatory intervention. Unless and until there were a problem that were ever to develop, I don't see why we would be looking for a solution to a problem that doesn't exist.
LISTNUM 1 \l 14305 On the voice side, if you have a CLEC that operates on an IP basis wanting to interconnect with a CLEC that operates on a TDM basis, well, that is something that, ultimately, could be mandated. It is something that has been looked at and is being looked at actively in CISC.
LISTNUM 1 \l 14306 As I say, the reason it hasn't happened yet is there are a multitude of technical reasons which, again, I think Mr. Babin could explain.
LISTNUM 1 \l 14307 MS SONG: Right. For example, when you say there's a multitude of issues that take a long time to resolve, one example of that would be the length of time it took to resolve the IP interconnection guidelines issue, which was first brought forward to the CISC.
LISTNUM 1 \l 14308 In, I believe, the early part of 2004, the Commission directed that the parties achieve negotiated resolution of that issue by November 2005. It wasn't until, I believe, the latter part of 2006 that something was put forward to the Commission, and finally approved by the Commission. So that's the kind of time that we are looking at to these kinds of negotiations taking to resolve.
LISTNUM 1 \l 14309 MR. BABIN: Yes. I would add, Ms Song, it's not really negotiations, it's really industry discussions. I mean, if you look around North America, there is actually a very limited number of IP interconnections between CLECs and ILECs.
LISTNUM 1 \l 14310 The standards are continually evolving and, as you know, as you mentioned, the Technical Bulletin 14 was approved back in April of this year, and the team have recommended, through work on TIF 19, to come up with those guidelines. But as I said, the protocols and the standards continue to evolve.
LISTNUM 1 \l 14311 Now, to do IP‑to‑IP interconnection within your own network, very easy because you know what is on each end of that interconnection. But dealing with a multiple group of various companies, different technologies, different technology vendors, it is very difficult to land on a standard, and that is really the discussion that is going on.
LISTNUM 1 \l 14312 And I might add as well, since October last year there has been a lot of submissions and a lot of contributions by all members of this committee through CISC. Bell has contributed nine submissions, TELUS has contributed six, FCI Broadband has contributed four, and I might add MTS Allstream have been at the meetings but haven't contributed changes to move these standards forward.
LISTNUM 1 \l 14313 So, you know, there is a lot of discussion, it is not an unwillingness to come up with a standard, it is really coming up with a consensus and working with the electronic manufacturers to come up with that standard.
LISTNUM 1 \l 14314 THE CHAIRPERSON: Do I understand you, the issues are technical, not business then?
LISTNUM 1 \l 14315 MR. BABIN: That is correct, Mr. Chair.
LISTNUM 1 \l 14316 THE CHAIRPERSON: Yes, but I mean is it tested. You suggested we adopt it, all deals with business, not with technical incumbencies. So assuming that these technical ones could be solved, do you expect to be able to workout a business arrangement and supply these services?
LISTNUM 1 \l 14317 MR. BIBIC: The answer, for the most part, is yes. But, under our proposal, we acknowledge that there could be some issues that are industry‑wide and just can't be resolved because they are technical or they are based on standards and they are just not commercial. In which case, the Commission could step in and say, let us mandate a solution for all.
LISTNUM 1 \l 14318 MS SONG: I would like you to now turn to your Appendix 10, to your 15 March evidence please.
LISTNUM 1 \l 14319 Is everyone with me?
LISTNUM 1 \l 14320 MR. BIBIC: We are.
LISTNUM 1 \l 14321 MS SONG: In this appendix Bell et al cite two examples; one from the broadcasting industry and the other from I believe the transportation industry of possible precedent models that could be followed, correct?
LISTNUM 1 \l 14322 MR. BIBIC: Correct, they were just examples.
LISTNUM 1 \l 14323 MS SONG: Right. And I have to ask, in the broadcasting example, are programming undertakings and distribution undertakings, in addition to being suppliers one to the other, are they also competitors?
LISTNUM 1 \l 14324 MR. BIBIC: Well, I suppose there could be vertically integrated distribution undertakings. I know, that Rogers, for example, is both programming undertaking and a distribution undertaking.
LISTNUM 1 \l 14325 MS SONG: Right. But when they are negotiating distribution agreements the unit or the entity, affiliate of Rogers that is coming forward seeking a distribution agreement with another distribution undertaking, are they considered to be competitors in the same relevant market?
LISTNUM 1 \l 14326 MR. BIBIC: I could see them not being competitors. I mean, I am not as familiar with broadcasting as I am with telecom, but..
LISTNUM 1 \l 14327 MS SONG: Right. And in the transportation example, similarly my understanding is that the negotiation model takes place between shippers and carriers?
LISTNUM 1 \l 14328 MR. BIBIC: Yes, I have more familiarity with that, not more, but I have some familiarity with that and that is correct.
LISTNUM 1 \l 14329 MS SONG: Okay. And I assume that you would also agree with me that shippers and carriers, again, are not competitors?
LISTNUM 1 \l 14330 MR. BIBIC: Typically not.
LISTNUM 1 \l 14331 MS SONG: Okay. And is MTS Allstream a customer of yours?
LISTNUM 1 \l 14332 MR. BIBIC: Yes.
LISTNUM 1 \l 14333 MS SONG: One of your biggest?
LISTNUM 1 \l 14334 MR. ANDERSON: Yes, they are.
LISTNUM 1 \l 14335 MS SONG: It is one of your biggest customers and is also one of your biggest competitors in retail business markets, correct?
LISTNUM 1 \l 14336 MR. BIBIC: Yes.
LISTNUM 1 \l 14337 MS SONG: Now that, to me, seems like a distinguishing feature between the telecom industry and the two examples that you cite, you would agree with me?
LISTNUM 1 \l 14338 MR. BIBIC: Would you repeat the question please, Ms Song?
LISTNUM 1 \l 14339 MS SONG: So the fact that in the two examples that you cite the negotiations are happening between entities who are not competitors in the same relevant market is a salient fact that we need to consider in determining how your negotiation model is going to work?
LISTNUM 1 \l 14340 MR. BIBIC: Well, we believe the negotiation model will work because we are going to have an incentive to reach arrangements with our big customers.
LISTNUM 1 \l 14341 MS SONG: All right.
LISTNUM 1 \l 14342 MR. HENRY: I might add, the Commission has expedited hearing processes today between competitors and they encourage parties to negotiate. And as a result of having that very process, parties often do negotiate and often do settle before it gets to the hearing, and very much they are competitors.
LISTNUM 1 \l 14343 MS SONG: Yes, and I think the Commission has in its own records how much time it does actually take to resolve competitor disputes.
LISTNUM 1 \l 14344 MR. HENRY: For the expedited hearings? The expedited hearings are very fast.
LISTNUM 1 \l 14345 MS SONG: There is lead‑up to expedited hearings ‑‑
LISTNUM 1 \l 14346 MR. HENRY: They often get settled very fast, even before you get there.
LISTNUM 1 \l 14347 MS SONG: Right.
LISTNUM 1 \l 14348 MR. ANDERSON: If I could add, Ms Song. Sorry, if I could just add to that.
LISTNUM 1 \l 14349 MS SONG: No problem, Mr. Anderson.
LISTNUM 1 \l 14350 MR. ANDERSON: You are quite right, that Allstream is one of our largest customers. And when you look at the model of negotiate first, I think what we believe is that two parties sitting down and trying to make an arrangement is a much simpler and streamlined process than dealing within a much broader spectrum, which would include Commission involvement and so on. So we are confident.
LISTNUM 1 \l 14351 I mean, as we talked about yesterday, wholesale is a very important business for us, so we are not interested in being uncooperative.
LISTNUM 1 \l 14352 MS SONG: Sorry, your comment that bilateral party‑to‑party negotiations would work better than if the Commission were involved and overseeing the negotiation, I am just trying to understand that. Is that what you are saying?
LISTNUM 1 \l 14353 MR. ANDERSON: I think from a starting point where two parties are sitting down, working through a particular issue, whatever that might be, and coming to an arrangement I think is a good starting point. Absolutely, the Commission has a very strong role and would get involved as required.
LISTNUM 1 \l 14354 MS SONG: Right. I want to turn back to perhaps a specific example, specific examples that you yourselves have raised yesterday. I believe Mr. Bibic mentioned the example of negotiations occurring in the wholesale arm of your business with respect to forborne services. Do you recall those statements?
LISTNUM 1 \l 14355 MR. ANDERSON: Yes, I do.
LISTNUM 1 \l 14356 MS SONG: And what forborne services are you referring to there or were you referring to?
LISTNUM 1 \l 14357 MR. ANDERSON: Forborne services is voice and data, so that could be long distance, digital private line on the data side are a couple of examples on both voice and data.
LISTNUM 1 \l 14358 MS SONG: Right. And to use the language of the Commission and of the industry, you are referring there to interexchange private line services amongst other things?
LISTNUM 1 \l 14359 MR. ANDERSON: Correct.
LISTNUM 1 \l 14360 MS SONG: All right. And my understanding is that interexchange private line or IXPLs are forborne on a section by section basis, cross‑section by cross‑section basis?
LISTNUM 1 \l 14361 MR. ANDERSON: That is my understanding as well.
LISTNUM 1 \l 14362 MS SONG: And the Commission forebears from regulating IXPLs ‑‑
LISTNUM 1 \l 14363 MR. ANDERSON: In those instances.
LISTNUM 1 \l 14364 MS SONG: ‑‑ when there is actually an alternate source of supply on that cross‑section, correct?
LISTNUM 1 \l 14365 MR. ANDERSON: I would agree with that.
LISTNUM 1 \l 14366 MS SONG: So you would agree with me that the dynamics involved in that negotiation are driven by the fact that there is an alternate source of supply for that facility, correct?
LISTNUM 1 \l 14367 MR. ANDERSON: Yes. But I would also say, in sitting down with any large customer, I don't care if it is in wholesale or retail or otherwise, I think the fact that you can't look at one specific situation in isolation. I mean, you look at the overall customer relationship and work accordingly. As I said earlier, we are not interested in being uncooperative.
LISTNUM 1 \l 14368 MR. BABIN: And, Ms Song, if I can just add. I mean, I have been in the business for over 20 years, I have been on the competitive side and I have negotiated with ILECs and there is an incentive for them to negotiate around services, last mile facilities, transport facilities, IXPLs, so I have seen it, I have negotiated myself.
LISTNUM 1 \l 14369 MS SONG: Right. And I was merely trying to point out that when you talk about forborne services and negotiations occurring in your wholesale arm for forborne services, the fact that there is an alternate source of supply for IXPL is a driving factor in those types of negotiations.
LISTNUM 1 \l 14370 MR. BIBIC: Well, Ms Song, you jumped from technical to forborne services.
LISTNUM 1 \l 14371 On the technical services front, we suggest that we should negotiate first regime. If it doesn't work, the Commission can step in. That is the whole point of negotiate first.
LISTNUM 1 \l 14372 On non‑essential services, we are coming at it from the perspective that both parties will have a willingness and an openness to negotiate. I suspect that in the business side of your client's business that they would too.
LISTNUM 1 \l 14373 For example, in Hong Kong, once wholesale regulation was scaled back, it took the incumbent three to four months to negotiate arrangements with CLECs for the supply of GAS and things like local loops.
LISTNUM 1 \l 14374 MS SONG: Mr. Anderson also mentioned in an earlier statement that he felt that party‑to‑party, without the intervention of the Commission, would work fine. Have I represented your evidence correctly?
LISTNUM 1 \l 14375 MR. ANDERSON: Yes, I simply said that two parties sitting down and initially trying to work through an arrangement is a good starting point.
LISTNUM 1 \l 14376 As I will just reinforce, the Commission, obviously, as we have outlined in our evidence and proposals, has a very strong role, as required.
LISTNUM 1 \l 14377 MS SONG: I would like to go back to an example that Mr. Iacono raised yesterday as having been an example of successful, I believe, multi‑party negotiations in relation to Tariff Notice 6767D, and the establishment of the wholesale bundled HSA and GAS internet access services, if you will permit me.
LISTNUM 1 \l 14378 It is my understanding that in those negotiations or leading up to those negotiations there was a significant degree of Commission intervention that actually led up to those negotiations. Is that correct, Mr. Iacono?
LISTNUM 1 \l 14379 MR. IACONO: Yes, I wasn't involved in that prior to that, but I do understand that there were files and tariff notices ‑‑ not tariff notices, but applications going back to 2001‑2002. I don't remember the exact dates, but, sure.
LISTNUM 1 \l 14380 MS SONG: So, with respect to that bundled internet service, the Commission ‑‑
LISTNUM 1 \l 14381 MR. BIBIC: Ms Song, sorry to interrupt, what do you mean by bundled internet service? I was reading the transcript yesterday and I got bogged down on that point. I just want to make sure we are all clear before we answer the question.
LISTNUM 1 \l 14382 MS SONG: Actually, I think it is pretty clear because we are talking about your tariffed HSA and GSA service.
LISTNUM 1 \l 14383 MR. BIBIC: It is not bundled though.
LISTNUM 1 \l 14384 MS SONG: What do you mean by bundled?
LISTNUM 1 \l 14385 MR. BIBIC: Our HSA and GAS service provides access ‑‑ it goes from the premise back to the central office.
LISTNUM 1 \l 14386 MS SONG: Right.
LISTNUM 1 \l 14387 MR. BIBIC: So, when you say "bundled" I don't know what you mean.
LISTNUM 1 \l 14388 MS SONG: It is the end‑to‑end, or to use Mr. Anderson's word, it is a dedicated internet access service.
LISTNUM 1 \l 14389 MR. BIBIC: What do you mean by end‑to‑end? From which end to which end? I wasn't going to bring this up, but you are using the word "bundled" again, and I just want to make sure nothing turns on it before we answer your question.
LISTNUM 1 \l 14390 MS SONG: I don't have it in front of me, but ‑‑ here it is.
LISTNUM 1 \l 14391 I think what I mean, and just to be clear for the Commission, is that it is not an unbundled service. As I believe Mr. Anderson confirmed yesterday, it would be of no use to a competitor who wants to collocate and use part of its network in order to provide the internet access service to the end use customer.
LISTNUM 1 \l 14392 MR. BIBIC: But, you see, even with GAS and HSA, you go back from the premise, you go back to the central office, and from the central office back through the transport part, you have to buy other elements, either your own self‑supplied, or from the incumbent.
LISTNUM 1 \l 14393 So, you could use GAS and part of your network, and that is why I just want to make sure we are clear on the terminology.
LISTNUM 1 \l 14394 MS SONG: Yes, and I think we are clear. I think we are both talking about the fact that the HSA and GAS service involves both an access and transport component.
LISTNUM 1 \l 14395 Moving on with my example, what I wanted to say is that prior to the negotiations, the Commission actually directed Bell to disclose costing information with respect to the ADSL service. It is my understanding that this costing information revealed that the prices that Bell Canada originally proposed to wholesale competitors for the ADSL service were at mark‑ups ranging from 100 to 600 per cent. Do you have any information that would contradict this?
LISTNUM 1 \l 14396 MR. IACONO: No. I do recall, though, those exchanges because I obviously had to read some of that prior to sitting down with industry to do the negotiations.
LISTNUM 1 \l 14397 We were able to conduct those negotiations without reference to cost studies; we filed the tariffs without reference to cost studies. There were issues, there were some organizations wanted to do this on a cost plus 15 per cent mark‑up basis, i.e. cat 1, category 1, and we filed it as a category 2 and it was approved as a category 2.
LISTNUM 1 \l 14398 MS SONG: Right, but in your normal bilateral negotiations without Commission intervention, that kind of relevant information as to your actual costs and the actual mark‑ups that you are incorporating into your negotiated proposals would not apply.
LISTNUM 1 \l 14399 MR. IACONO: Typically suppliers don't reveal their mark‑ups to their customers. You don't, your client doesn't when it is negotiating with its customers. I mean, that is just normal business practice.
LISTNUM 1 \l 14400 MR. BIBIC: Ms Song, did it take a long time? Yes. Did it get done? Yes. Is GAS/HSA an essential service? No. Even your client agreed, as the Commission pointed out in its orders approving these tariffs, that MTS supported the immediate adoption of Bell Canada's proposed tariff items.
LISTNUM 1 \l 14401 As far as GAS and HSA, MTS Allstream submitted that they should be classified as category 2 competitor services.
LISTNUM 1 \l 14402 MS SONG: Thank you.
LISTNUM 1 \l 14403 I would like to move off of your negotiate first proposal now, and discuss with you some of the terminology that we have been using in our discussions today.
LISTNUM 1 \l 14404 When we are talking about access, and this follows up on Mr. Bibic's intervention just now, we are talking about the component of the network that connects the customer's premises to a central office. Correct?
LISTNUM 1 \l 14405 MR. BIBIC: In our case, yes.
LISTNUM 1 \l 14406 MS SONG: The transport component involves the facility and services ancillary to the facility that connect to central office to other central offices. Is that correct?
LISTNUM 1 \l 14407 MR. BABIN: I would add, Ms Song, not necessarily the central office. It would be whatever the point of presence is for whichever carrier is taking that access. So, it is a point of presence, transport between points of presences or COs or central offices would be considered transport.
LISTNUM 1 \l 14408 MS SONG: Right. In the case of your own networks, you have not only access to each and every, let's say, commercial building in your operating territories, but also between central offices, points of presence in a fairly dense configuration. Correct?
LISTNUM 1 \l 14409 MR. BABIN: I would just clarify the access. When you say in the incumbent territory, it is generally copper access or low density loop access. We don't have fibre to every commercial building in our operating territory and that is something we would build on a case‑by‑case basis, as any competitor would do.
LISTNUM 1 \l 14410 MS SONG: I am glad you bring up fibre.
LISTNUM 1 \l 14411 So, of course you would not build a fibre access facility to the 7‑Eleven in a small town in Ontario. Correct?
LISTNUM 1 \l 14412 MR. BABIN: Likely not.
LISTNUM 1 \l 14413 MS SONG: And that is why you don't have fibre to every building that in your operating territory. Correct?
LISTNUM 1 \l 14414 MR. BABIN: Correct.
LISTNUM 1 \l 14415 MS SONG: But if there is sufficient potential revenue and customers in a building, such as a building in downtown Ottawa, you would surely provision that with a fibre facility. Correct?
LISTNUM 1 \l 14416 MR. BABIN: Correct, and I think that the discussion isn't whether you lease facilities or build. It is whether you can recover, as you said, enough revenue to recover the costs of building that facility or that lateral connection.
LISTNUM 1 \l 14417 As we talked about yesterday, there are other carriers that have facilities running in front of buildings, and we have done some analysis, and we have shown on the record that there are ways of recovering costs, depending on the services you provide to those customers.
LISTNUM 1 \l 14418 MS SONG: I do want to discuss with you how you decide whether you are going to provision a building with copper or fibre, but I just wanted to talk a little bit about the architecture at this point, but thank you, Mr. Babin.
LISTNUM 1 \l 14419 It is also my understanding that there is a link component that is required to connect the access facility or component to the transport facility or component, correct, when it comes to services like CDN, I am not sure for Ethernet and perhaps DSL. Correct?
LISTNUM 1 \l 14420 MR. BABIN: That is correct, connects links in our central office would connect the access to the competitor's co‑location.
LISTNUM 1 \l 14421 MS SONG: Now I would like to understand, using some specific examples, when Bell Canada, in its operating territory ‑‑ sorry, Bell Canada, Bell Aliant, SaskTel and Télébec would provision specific types of access and transport facilities, because I do think that it is important to bring out that you don't have fibre to every building and that there is a reason for that. So, I would like to understand what that reason is.
LISTNUM 1 \l 14422 We will do that using specific examples.
LISTNUM 1 \l 14423 Let's say you have the bank customer, and you are familiar with that because you have many bank customers. Correct?
LISTNUM 1 \l 14424 MR. IACONO: Yes, we do.
LISTNUM 1 \l 14425 MS SONG: I spoke about the example of the 7‑Eleven, but let's take the branch office, say a branch office in ‑‑
LISTNUM 1 \l 14426 THE CHAIRPERSON: Indian Head.
LISTNUM 1 \l 14427 MS SONG: Indian Head. Well, the only problem with that example, of course, is that it is not in any of their operating territories.
LISTNUM 1 \l 14428 MR. BIBIC: SaskTel is part of this panel.
LISTNUM 1 \l 14429 MS SONG: Excuse me. All right, then, we will take Indian Head.
LISTNUM 1 \l 14430 I don't think any of the major chartered banks are actually headquartered in Indian Head. I think that is fair to say. But, of course, the major chartered banks are all located in Bell Canada's ‑‑ headquartered in Bell Canada's operating territory, I believe, even the Bank of Nova Scotia. Correct?
LISTNUM 1 \l 14431 MR. IACONO: That is correct.
LISTNUM 1 \l 14432 MS SONG: So, I would like to stick to an Ontario example, being a central Canadian myself.
LISTNUM 1 \l 14433 Let's say you have a branch of the bank in Perth, Ontario. Would you provision or would that kind of a building, stand‑alone branch office in Perth, Ontario, be provisioned using a fibre facility?
LISTNUM 1 \l 14434 MR. BABIN: That would depend on the services you are selling to that customer, obviously. As I said, it is about recovering enough revenues from that customer. If it is hi‑speed, if it is, you know, hi‑speed data services and hi‑speed access to the internet, perhaps it might make sense to construct a lateral fibre connection to that building if there is fibre passing in front of the building.
LISTNUM 1 \l 14435 It would all depend on the services you could sell to that customer.
LISTNUM 1 \l 14436 MS SONG: And what kind of services would you have to reasonably be capable of serving to that little branch office in Perth, Ontario, in order to decide to provision that with fibre facilities?
LISTNUM 1 \l 14437 MR. BABIN: Well, hi‑speed services, obviously. So, DS‑1, DS‑3 services, which are the time division multiplex type services, TDM legacy type services or Ethernet, Ethernet 10 meg, 100 meg or 1 gig. It would be the higher band width services.
LISTNUM 1 \l 14438 Certainly not for one voice line, but for hi‑speed services, definitely.
LISTNUM 1 \l 14439 MR. IACONO: Ms Song, typically for those types of situations, DSL services more than sufficiently serve the needs of the branch. Other IP‑VPN access services, et cetera, you know, an IP Centrex, an IP key system, an IP PBX interconnected with PSTN connectivity linking back to head office.
LISTNUM 1 \l 14440 So, there is a variety of ways of providing branch office locations. In fact, that is how the solutions are actually designed, be they for in territory operations or be they out of territory where we are, say, operating in Edmonton or Alberta generally or Saskatchewan. So, we will provision services through third parties where it makes sense to do it through third parties or, in some cases, we will provision using our own network.
LISTNUM 1 \l 14441 So, there is a variety of ways of provisioning and meeting the requirements of the branch locations of a large company.
LISTNUM 1 \l 14442 MS SONG: It all hinges on the requirements of the customer and primarily, I am hearing, their data needs. Correct?
LISTNUM 1 \l 14443 MR. IACONO: Well, data and voice, because typically they are integrated systems. MST Allstream or Rogers, to the extent that Rogers provisions customers of that type, face the same solution possibilities and solutions‑based dimensions.
LISTNUM 1 \l 14444 You provision, or design a solution based on what the customer's needs ultimately are. So, typically they have voice and they have data, and they integrate.
LISTNUM 1 \l 14445 MS SONG: Right. But if you have your Perth, Ontario branch, and the Perth, Ontario branch has ten employees and the ten employees need a phone line with dial tone and they need to access their e‑mails, I am hearing that you might probably provision that with DSL, copper‑based DSL rather than a fibre facility.
LISTNUM 1 \l 14446 MR. IACONO: DSL or DSL alternatives, yes.
LISTNUM 1 \l 14447 MR. BABIN: I would also add that I think your initial assumption was this was a branch network. Several locations. So, you would have to look at it as an entire deal. You may provision based on future needs as well.
LISTNUM 1 \l 14448 I think Mr. Iacono is correct. Probably a DSL‑type service would suffice, but it depends on the future needs and it depends on all of the locations as part of a total deal.
LISTNUM 1 \l 14449 MS SONG: Currently would you be provisioning that branch office in certain cases with CDN as opposed to DSL where you are dealing with lower capacity needs?
LISTNUM 1 \l 14450 MR. BIBIC: CDN we would use potentially out of territory, but in territory you are referring to ‑‑
LISTNUM 1 \l 14451 MS SONG: I am talking about your in territory now. So, in territory, would you typically be providing the Perth office with CDN as opposed to DSL where you have lower capacity, lower data band width needs?
LISTNUM 1 \l 14452 MR. IACONO: CDN doesn't apply to retail customers. It applies to wholesale customers in terms of the tariff and the rating structure.
LISTNUM 1 \l 14453 Equivalent services would typically be used.
LISTNUM 1 \l 14454 MS SONG: Right. I am talking about using a dedicated digital network access line as opposed to a DSL which is a packetized network access line ‑‑
LISTNUM 1 \l 14455 MR. IACONO: Again, it depends on the specific needs of the customer. So, it can vary from one customer to the next, and it can vary, in fact, for any given customer from one location to the next, depending on what they need to do from those locations.
LISTNUM 1 \l 14456 MS SONG: But typically in your in territory operation. I am not talking, Mr. Iacono ‑‑ I know you have responsibilities over the entire country for enterprise customers, but in territory, when you are deciding how to provision a specific customer location with lower capacity data and voice needs, you would typically be provisioning that using DSL as opposed to digital network access facilities. Correct?
LISTNUM 1 \l 14457 MR. IACONO: As I said typically means typically, yes, but in some cases it could be something else. It depends on the customer's requirements.
LISTNUM 1 \l 14458 In fact, I can think of some situations where they don't need internet connectivity or IP connectivity and a basic business line will do in a particular location for that particular customer. Can you generalize from that? No. It varies one customer to the next.
LISTNUM 1 \l 14459 MS SONG: Let's move to downtown Ottawa, then. This downtown Ottawa of the bank has many more employees, perhaps 50, 60, 70 employees, and in addition to providing retail banking services, the bank provides business banking services, there are financial advisory services. There is a full suite of services being offered to the bank's own customers at this downtown Ottawa location.
LISTNUM 1 \l 14460 It is reasonable to assume, I believe, and you will correct me if I am wrong in my assumption, that at this particular location the customer's needs would be different in terms of band width than your Perth location for the same customer. Correct?
LISTNUM 1 \l 14461 MR. IACONO: Yes, I think that would be a safe assumption, yes.
LISTNUM 1 \l 14462 MS SONG: For that kind of a location, customer location, how would you be provisioning that in territory?
LISTNUM 1 \l 14463 MR. IACONO: Again, you would use the appropriate facilities in terms of services, be they DS‑3 based or otherwise. I will ask Mr. Babin to give you the technical side of this because I am not a technician, unfortunately, but, again, it depends on the band width requirements, number of users, scaleability requirements, growth requirements of the customer. So, you would provision with the higher capacity services and features.
LISTNUM 1 \l 14464 MS SONG: So, higher capacity, either DSL, CDN or Ethernet in territory?
LISTNUM 1 \l 14465 MR. IACONO: Well, not CDN because CDN doesn't apply to retail, but the network equivalent of CDN, which is DNA, et cetera, but at a much higher price.
LISTNUM 1 \l 14466 MS SONG: All right.
LISTNUM 1 \l 14467 And then let's move to downtown Montreal or downtown Toronto where the headquarters of this bank are located and there you have perhaps thousands of employees, there are intense requirements for data transmission because of the amount of financial and other information, perhaps there are even trading desks at this downtown location.
LISTNUM 1 \l 14468 How would you typically provision that kind of a customer location?
LISTNUM 1 \l 14469 MR. IACONO: I will use the term "big pipes" but I will ask Mr. Babin to explain.
LISTNUM 1 \l 14470 MR. BABIN: Well, it would be likely fiber. In many cases these customers are also looking for redundancy, and so they may go to another carrier and get a separate fiber into their location so they have a redundant network in the case of fiber failure, fiber cuts, which happen quite often. The customer remains in service.
LISTNUM 1 \l 14471 So likely fiber with high capacity bandwidth on that fiber.
LISTNUM 1 \l 14472 MS SONG: All right.
LISTNUM 1 \l 14473 And just to stay on the technical side, perhaps you can help me understand.
LISTNUM 1 \l 14474 My understanding is that when you are talking about fiber, use of fiber transmission facilities, that translates into what we call Ethernet services and that those services come at very hi‑speeds, 10 megabits per second, 100 megabits per second, or gigi or 1000 megabits per second; correct?
LISTNUM 1 \l 14475 MR. BABIN: Not necessarily, Ms Song. I mean fiber, you can use the traditional TDM services on fiber as well ‑‑
LISTNUM 1 \l 14476 MS SONG: Mm‑hmm.
LISTNUM 1 \l 14477 MR. BABIN: ‑‑ SONET‑type facilities, not necessarily Ethernet.
LISTNUM 1 \l 14478 MS SONG: Okay.
LISTNUM 1 \l 14479 MR. BABIN: Certainly, from my experience in having been, again, on the other side, building to customer locations fiber facilities, we have done that. We used to do that prior to the CDN decision in 2005.
LISTNUM 1 \l 14480 Today, with CDN, as we talked about yesterday, many out‑of‑territory incumbents now use CDN services. There is no incentive to build.
LISTNUM 1 \l 14481 MS SONG: Okay. So your comments just now had to do with competitors, correct, not your in‑territory ILEC operations?
LISTNUM 1 \l 14482 MR. BABIN: Correct, out‑of‑territory ILEC operations.
LISTNUM 1 \l 14483 MS SONG: And your responsibilities are what in the company, sorry?
LISTNUM 1 \l 14484 MR. BABIN: At Bell Canada I run all the operations for Bell Canada. I also run field services for Ontario and Quebec.
LISTNUM 1 \l 14485 MS SONG: All right, so in territory.
LISTNUM 1 \l 14486 MR. BABIN: And I have experience in out‑of‑territory as well.
LISTNUM 1 \l 14487 MS SONG: Okay. I was trying to focus on your in‑territory operations ‑‑
LISTNUM 1 \l 14488 MR. BABIN: Okay.
LISTNUM 1 \l 14489 MS SONG: ‑‑ but thank you for the clarification.
LISTNUM 1 \l 14490 MR. BABIN: You are welcome.
LISTNUM 1 \l 14491 MS SONG: However, I guess you indicated that you could run lower speed services on fiber facilities but the maximum speeds achievable on Ethernet ‑‑ sorry, fiber facilities running Ethernet are, as I said, 10 megabits, 100 megabits per second, 1000 megabits per second?
LISTNUM 1 \l 14492 MR. BABIN: No, you can actually run higher speeds with TDM technology as well.
LISTNUM 1 \l 14493 MS SONG: Mm‑hmm.
LISTNUM 1 \l 14494 MR. BABIN: There are rings across Canada. There are metropolitan fiber rings in Montreal, in Toronto, out west, that actually have equivalent speed facilities, equivalent to 1 gig Ethernet.
LISTNUM 1 \l 14495 MS SONG: So 1 gig Ethernet would be 1.5 ‑‑ sorry, 1000 megabits per second?
LISTNUM 1 \l 14496 MR. BABIN: Yes. You have got OC, the optical network, OC‑48, so C‑192s ‑‑ I don't want to get too technical here, Ms Song, but you can actually provide TDM‑type facilities outside of ‑‑ it doesn't have to be Ethernet, I guess is my point.
LISTNUM 1 \l 14497 MS SONG: Right. But the DS‑0/DS‑1 run at 56 kilobits per second and DS‑1 facilities run at 1.54 megabits per second ‑‑
LISTNUM 1 \l 14498 MR. BABIN: That is correct.
LISTNUM 1 \l 14499 MS SONG: ‑‑ which are lower speeds than the ‑‑
LISTNUM 1 \l 14500 MR. BABIN: Right.
LISTNUM 1 \l 14501 MS SONG: ‑‑ lower Ethernet?
LISTNUM 1 \l 14502 MR. BABIN: That is correct.
LISTNUM 1 \l 14503 MS SONG: Okay. All right.
LISTNUM 1 \l 14504 Now, I would like to talk about what distinguishes Ethernet from DSL from a customer experience perspective if you are able to explain that to me and to the Commission panel.
LISTNUM 1 \l 14505 MR. BABIN: It depends on the services that are riding over those facilities.
LISTNUM 1 \l 14506 DSL is a technology that runs over a copper facility at speeds up to ‑‑ in today's environment you can get up to 15 or 20 megabits per second.
LISTNUM 1 \l 14507 Ethernet is a packet‑switch network technology. It is also a protocol and you can get equivalent services over that facility, and depending on how it is designed and how it is architected, there are different experience levels, and depending on the applications that you are running, different experience levels using that facility.
LISTNUM 1 \l 14508 MS SONG: Right. But my understanding is that DSL, for example, is asynchronous, which means that the maximum speeds ‑‑ sorry.
LISTNUM 1 \l 14509 ADSL is asynchronous, which means that the maximum speeds to download information to the user is much higher typically than the maximum speeds at which the user, the end‑use customer, can upload information?
LISTNUM 1 \l 14510 MR. BABIN: Yes. You had started your question with DSL, not ADSL, but there are symmetrical DSL services as well that have the same speed upstream and downstream. So it depends on the experience.
LISTNUM 1 \l 14511 In many cases when you are just using the internet to download information, you actually don't need upstream capability.
LISTNUM 1 \l 14512 If it is synchronous‑type applications like Tele‑Education, you would usually use symmetrical services like SDSL.
LISTNUM 1 \l 14513 MS SONG: Right. And that all depends on the customer's needs, for example. So for the branch office ADSL may be fine but when you move to the downtown Toronto office, I am assuming you are not provisioning that whole office with its 1,000 employees using DSL facilities necessarily?
LISTNUM 1 \l 14514 MR. BABIN: Well, we have many large clients that use DSL as an access to our Virtual Private Network and I know Allstream does the same.
LISTNUM 1 \l 14515 It depends on the needs of the customer and it depends on how many users. It depends on the bandwidth required by the applications. There are many factors that affect a decision of what facility you are going to use on the customer's premises.
LISTNUM 1 \l 14516 MS SONG: Right, but I was actually talking about the downtown Toronto location.
LISTNUM 1 \l 14517 MR. BABIN: Again, it would depend. There are downtown locations that we would provision using DSL as an access into our IP VPN, for example, network.
LISTNUM 1 \l 14518 MS SONG: Yes. I am trying to ask you to stay with the example, which was of the headquarters of the bank office. I am not talking about any old downtown branch location.
LISTNUM 1 \l 14519 MR. BABIN: That was in downtown Montreal you had mentioned, I think, not Toronto. Is that the example you are talking about?
LISTNUM 1 \l 14520 MS SONG: No, I think I was talking Toronto actually.
LISTNUM 1 \l 14521 MR. BABIN: Okay.
LISTNUM 1 \l 14522 MS SONG: But I don't think it much matters except that I am not sure that there are any major chartered banks with headquarters in Montreal anymore.
LISTNUM 1 \l 14523 So I am asking about that particular example of the headquarters of a bank that has many thousands of employees. Would you be provisioning all the users in that location, in that kind of a customer location, using DSL facilities?
LISTNUM 1 \l 14524 MR. BABIN: Likely not. You would probably use fiber, as I said earlier.
LISTNUM 1 \l 14525 MS SONG: Thank you. Okay.
LISTNUM 1 \l 14526 And what other limitations are there to an ADSL service as compared to an Ethernet service?
LISTNUM 1 \l 14527 MR. BABIN: I am not sure I understand the question. Limitations with respect to what?
LISTNUM 1 \l 14528 MS SONG: What are the technical differences that distinguish ADSL from Ethernet?
LISTNUM 1 \l 14529 MR. BABIN: They are very different protocols.
LISTNUM 1 \l 14530 MS SONG: Yes, they are very different protocols. DSL is much slower typically, correct?
LISTNUM 1 \l 14531 MR. BABIN: It would depend on which DSL you are using.
LISTNUM 1 \l 14532 MS SONG: Right. So the highest speed DSL is much slower than the highest speed Ethernet service, correct?
LISTNUM 1 \l 14533 MR. BABIN: That would be correct, yes.
LISTNUM 1 \l 14534 MS SONG: Right. And my understanding is that with DSL there are also latency or delay problems due to the fact that typically it is a much slower service than the hi‑speed Ethernet services, correct?
LISTNUM 1 \l 14535 MR. BABIN: That would not necessarily be the case. It would depend on the network configuration, the network architecture. There are dedicated DSL services where you can have speeds, guaranteed speeds above a certain level.
LISTNUM 1 \l 14536 MS SONG: Right. And my understanding is that DSL is also distance sensitive, correct?
LISTNUM 1 \l 14537 MR. BABIN: That is correct.
LISTNUM 1 \l 14538 MS SONG: Right. And what distinguishes Ethernet from a DNA or a CDN DS‑0 or DS‑1 service from a customer experience perspective?
LISTNUM 1 \l 14539 MR. BABIN: Well, CDN is an access facility, so that is just competitive digital network access. So it is a loop. CDN is a loop. It is like an unbundled loop, effectively, that can be used for higher speeds. CDN is dedicated. If it is a CDN DS‑1, which is a 1.5 meg service, or a DS‑3, it is a dedicated facility.
LISTNUM 1 \l 14540 MS SONG: Right. So I think you were talking about the technical difference between DNA or CDN and Ethernet.
LISTNUM 1 \l 14541 So you are talking there about the fact that Ethernet is a packetized protocol whereas DNA actually creates a virtual ‑‑ sorry, not a virtual, a dedicated channel in whatever physical facility you are running the DNA service over; correct?
LISTNUM 1 \l 14542 MR. BABIN: You said DNA. I think you meant CDN. The CDN facility is dedicated, yes.
LISTNUM 1 \l 14543 MS SONG: Okay.
LISTNUM 1 \l 14544 MR. BABIN: But you can run Ethernet over that as well.
LISTNUM 1 \l 14545 MS SONG: Right.
LISTNUM 1 \l 14546 My understanding is that Ethernet technology is a more efficient technology from a technical or technological perspective, because it allows carriers to fully utilize the capacity on that facility, rather than creating dedicated channels, which, when not in use, are not in use, but cannot be used for other applications or other uses. Correct?
LISTNUM 1 \l 14547 MR. BABIN: The CDN is a dedicated facility, so if your bandwidth requirements are less than what your equipment is on the CDN facility, then, yes, you are not using the facility all the time.
LISTNUM 1 \l 14548 MS SONG: All right. Thank you very much, Mr. Babin, for helping me through this section.
LISTNUM 1 \l 14549 I would like to move on to another area.
LISTNUM 1 \l 14550 Your companies have stated on the record of this proceeding, I believe, that most of the fibre facilities used to support next generation services were constructed by your companies in the last 10 years. Correct?
LISTNUM 1 \l 14551 MR. BIBIC: Do you have a reference in our evidence?
LISTNUM 1 \l 14552 It's quite possible, but I can't remember.
LISTNUM 1 \l 14553 MS SONG: You cannot remember that. Okay.
LISTNUM 1 \l 14554 MR. BIBIC: It is the last 10 years bit that ‑‑
LISTNUM 1 \l 14555 Did we say that in our evidence?
LISTNUM 1 \l 14556 MS SONG: Do you think it could be longer than that?
LISTNUM 1 \l 14557 MR. BIBIC: I don't know. You suggested that we said it in our evidence, but I just can't remember.
LISTNUM 1 \l 14558 MS SONG: How about turning up Appendix 6, paragraph 76 of your March 15th evidence.
‑‑‑ Pause
LISTNUM 1 \l 14559 MS SONG: Do you see that?
LISTNUM 1 \l 14560 MR. BIBIC: We see that.
LISTNUM 1 \l 14561 MS SONG: You are with me, Mr. Bibic?
LISTNUM 1 \l 14562 MR. BIBIC: I have the paragraph.
LISTNUM 1 \l 14563 MS SONG: You are aware that MTS Allstream has stated in its evidence ‑‑ and I don't think I need to take you through it, but the reference is MTS Allstream‑CRTC‑12 April 07‑203 ‑‑ that the establishment of fibre networks to provide next generation services such as Ethernet has taken place over a much longer period than 10 years. Correct?
LISTNUM 1 \l 14564 Are you aware of that in our company's evidence?
LISTNUM 1 \l 14565 MR. BIBIC: I am not aware of that in your company's evidence.
LISTNUM 1 \l 14566 MS SONG: Then I would ask you to turn up that interrogatory.
LISTNUM 1 \l 14567 It is MTS‑A‑CRTC ‑‑
LISTNUM 1 \l 14568 MR. HOFLEY: Mr. Chairman, is there an exhibit number for this?
LISTNUM 1 \l 14569 THE CHAIRPERSON: Madam Secretary, are you going to distribute something?
LISTNUM 1 \l 14570 THE SECRETARY: It is on the pre‑filed record, right?
LISTNUM 1 \l 14571 MS SONG: Yes, I believe so.
LISTNUM 1 \l 14572 THE SECRETARY: Could you repeat the question number?
LISTNUM 1 \l 14573 MS SONG: MTS Allstream‑CRTC‑12 April 07, No. 203.
‑‑‑ Pause
LISTNUM 1 \l 14574 THE SECRETARY: We don't have that, I'm sorry.
LISTNUM 1 \l 14575 MS SONG: I apologize.
LISTNUM 1 \l 14576 THE CHAIRPERSON: Ms Song, what turns on the 10 years that you are trying to establish?
LISTNUM 1 \l 14577 MS SONG: Pardon me, Mr. Chairman?
LISTNUM 1 \l 14578 THE CHAIRPERSON: What turns on whether it is 10 years or 12 years since these facilities have been established?
LISTNUM 1 \l 14579 MS SONG: What am I trying to establish?
LISTNUM 1 \l 14580 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 14581 MS SONG: I am trying to establish that these networks were actually constructed over a period of almost 20 years, rather than 10 years.
LISTNUM 1 \l 14582 MR. BABIN: Maybe I could add, Mr. Chairman, that the last 10 years is when we have started to deploy fibre closer to the customer.
LISTNUM 1 \l 14583 If you understand the network, there is the feeder network portion, which is coming from the central office and going out to a business park or a subdivision, and then there is the distribution network beyond that.
LISTNUM 1 \l 14584 Twenty years ago we were deploying fibre, but it was really just to concentrate copper loops and bring it back into the central office on fibre, it wasn't to provide next gen services.
LISTNUM 1 \l 14585 Over the last 10 years the technology is now available to provide higher speeds, next gen‑type services closer to the customer.
LISTNUM 1 \l 14586 MS SONG: Right.
LISTNUM 1 \l 14587 MR. BABIN: That's why the reference is to 10 years, because prior to that the fibre was really deployed for interoffice trunking or transport, not out, closer to the customer.
LISTNUM 1 \l 14588 That was, actually, for the purposes of voice traffic.
LISTNUM 1 \l 14589 MS SONG: Mr. Babin, you are conceding, then, that the deployment of fibre in your ILEC networks may have commenced as early as 20 years ago.
LISTNUM 1 \l 14590 MR. BABIN: As I said, fibre in order to relieve feeder, which is not necessarily driving customer next gen services. It is really for the purposes of transporting copper loops back into the central office.
LISTNUM 1 \l 14591 Really, all it is is a concentrator, a digital loop concentrator. That is what we deployed, and I was at Bell at the time of deploying those, and they were strictly digital loop carrier systems, not hi‑speed, next gen services.
LISTNUM 1 \l 14592 The other area for fibre was in transport facilities between offices ‑‑ between central offices ‑‑ and that was really to carry voice traffic.
LISTNUM 1 \l 14593 MR. BIBIC: The sentence in paragraph 76 is in reference to fibre to support next gen services.
LISTNUM 1 \l 14594 MS SONG: Right.
LISTNUM 1 \l 14595 If I understand correctly ‑‑ and I realize that you are much better able to speak to this than me ‑‑ what you are talking about, in part, when you say fibre networks in what you have just said ‑‑ you are talking, in part, about the equipment and other facilities that are required to augment that fibre network in order to provide next generation services.
LISTNUM 1 \l 14596 My question had more to do with: When did you actually put the fibre in the ground?
LISTNUM 1 \l 14597 That fibre is very expensive to put in the ground, is it not?
LISTNUM 1 \l 14598 MR. BABIN: It depends if the duct structures are already there or not, but, generally, to put in a transport facility and dig up streets and put in conduit, it is expensive, yes.
LISTNUM 1 \l 14599 MS SONG: The point that I would like to get at is: When did you actually start putting that fibre in the ground?
LISTNUM 1 \l 14600 MR. BABIN: As I said, we started to relieve feeder networks 20 years ago ‑‑ 1986 or 1987 perhaps ‑‑ and that was strictly to relieve feeder cables and prevent digging up streets and adding a lot of copper.
LISTNUM 1 \l 14601 But these were, as I said, digital loop concentrators, which strictly took 500 copper loops and aggregated them into several DS‑1s.
LISTNUM 1 \l 14602 MR. IACONO: Ms Song, if I may add a very quick comment from a colour and context viewpoint, because I was at Bell, obviously, at the time ‑‑ I was not on the engineering side. I never was and I never will be, but I do remember the conversations about fibre and the economies achievable through fibre utilization.
LISTNUM 1 \l 14603 So, at the end of the day, it was all about maximizing efficiency, which, in turn, given the regulatory context of that particular day, or time, or era, had implications with regard to: the lower our costs overall to carry traffic, the better off everyone is, including consumers.
LISTNUM 1 \l 14604 Otherwise, more inefficient utilization of resources would mean higher costs, which would have implications downstream from a tariffing point of view.
LISTNUM 1 \l 14605 So it really was an efficiency perspective, clearly not tied to next gen services, because, quite frankly, I don't think next gen services existed at the time, in terms of the way we define them today.
LISTNUM 1 \l 14606 MS SONG: I think you have confirmed what my client says on the record of this proceeding, which is that the actual laying of fibre in your in‑territory networks began as early as 20 years ago. Right?
LISTNUM 1 \l 14607 MR. BABIN: I think the statement, Ms Song, was that the ILECs' transport and access fibre facilities are ubiquitous, i.e., they are everywhere.
LISTNUM 1 \l 14608 In certain areas, as I said, we did deploy fibre to relieve feeder network. In those areas there would be fibre. We would have had to overbuild fibre if we were going even further to provide Nex Gen services closer to the customer. We would also have to build fibre to get into business buildings to offer services, higher speed services, as we talked about for that bank head office. That would have to be build. You know, today, we actually lease fibre out west from other carriers that have fibre.
LISTNUM 1 \l 14609 So there are options out there, and not just the ILEC fibre. There's lots of fibre in the ground today.
LISTNUM 1 \l 14610 THE CHAIRPERSON: Mr. Babin, please, can you answer the question and not give us a lecture.
LISTNUM 1 \l 14611 MR. BABIN: Sure.
LISTNUM 1 \l 14612 THE CHAIRPERSON: It was a very specific question. She asked you: did you start laying fibre 20 years ago?
LISTNUM 1 \l 14613 MR. BABIN: Yes.
LISTNUM 1 \l 14614 THE CHAIRPERSON: The answer is yes ‑‑
LISTNUM 1 \l 14615 MR. BABIN: Yes.
LISTNUM 1 \l 14616 THE CHAIRPERSON: ‑‑ so let's get on, let's not waste time with commercials.
LISTNUM 1 \l 14617 MR. BABIN: Okay.
LISTNUM 1 \l 14618 MS SONG: So I have provided to your counsel previously, and I would ask you to turn up, Telecom Decision CRTC 90‑27.
LISTNUM 1 \l 14619 Madam Secretary, I would like to mark that as an exhibit.
LISTNUM 1 \l 14620 THE SECRETARY: This will be MTS Exhibit No. 4.
LISTNUM 1 \l 14621 MS SONG: Thank you. And also Telecom Decision CRTC 92‑8.
EXHIBIT MTS‑4: Telecom Decision CRTC 90‑27 and Telecom Decision CRTC 92‑8
LISTNUM 1 \l 14622 MS SONG: Given the progress that we have made in our discussion, I won't take you through those decisions, but those decisions do confirm the early date at which Bell Canada, for one, began laying fibre in its network.
LISTNUM 1 \l 14623 Now, there is a follow‑up question, however, to this, and it would be that it's my understanding that, for at least part of this period, Bell Canada was rate‑of‑return regulated. Correct?
LISTNUM 1 \l 14624 MR. HENRY: Yes, that's correct.
LISTNUM 1 \l 14625 MS SONG: Right. And then for, I believe, a few years there in the late‑nineties it was ‑‑ or, sorry, early‑nineties, it was spit rate base regulated. Correct?
LISTNUM 1 \l 14626 MR. HENRY: I think split rate base came in '95.
LISTNUM 1 \l 14627 MS SONG: Right. And part of the laying of the fibre would have been covered from the utility segment of the spit rate base. Correct?
LISTNUM 1 \l 14628 MR. HENRY: I'm not sure what you mean by "covered" by it. It had to be assigned to ‑‑ some of it had to be assigned to the utility segment. To the extent that it was used to provide legacy voice services, yes. To the extent that it was intended to be used for other purposes, it was assigned to the competitive segment.
LISTNUM 1 \l 14629 MS SONG: Right. But Mr. Babin has just finished explaining to me that, at the time that the fibre was being laid ‑‑ and at that time ‑‑ the only services that were envisaged were legacy services, not Nex Gen services. Correct?
LISTNUM 1 \l 14630 MR. HENRY: In the early nineties, yes. Towards the mid‑ to late‑nineties, there was, we all know, the Beacon initiative which was envisage, and, in fact, it never materialized.
LISTNUM 1 \l 14631 MS SONG: Okay, thank you very much.
LISTNUM 1 \l 14632 There has been a reference already in the hearing to date to, I believe, the problem of remotes, and, in fact, I may have referred to that myself in our discussion yesterday. So the problem that I'm speaking of is the issue in relation to ADSL services, where an end‑use customer is served off of a so‑called remote.
LISTNUM 1 \l 14633 So you are familiar with that issue, gentlemen?
LISTNUM 1 \l 14634 MR. BIBIC: Yes. Do you mean a voice remote or a data remote when you say "remote", though?
LISTNUM 1 \l 14635 MS SONG: I'm not sure that I understood that there was a difference, but let's say both data and voice remote.
LISTNUM 1 \l 14636 MR. BIBIC: Okay.
LISTNUM 1 \l 14637 MS SONG: Okay?
LISTNUM 1 \l 14638 MR. BIBIC: Well, something may turn eventually when you get to the other questions, so we will wait.
LISTNUM 1 \l 14639 MS SONG: Right. And you will bring the necessary clarification when we get to that.
LISTNUM 1 \l 14640 Now, my understanding is that a remote is basically ‑‑ can be as small as a green box on a street corner. Correct?
LISTNUM 1 \l 14641 MR. BABIN: Yes.
LISTNUM 1 \l 14642 MS SONG: Right. That's typically what they are, these cabinets that stand in the ‑‑ metal cabinets that stand on street corners?
LISTNUM 1 \l 14643 MR. BABIN: Yes, generally brown, but you would see them on the street corners, yes.
LISTNUM 1 \l 14644 MS SONG: Okay. I thought they were green in my neighbourhood, but...
LISTNUM 1 \l 14645 And the remote ‑‑ sorry, the customer's premises are connected to the remote by copper facilities, typically. Correct?
LISTNUM 1 \l 14646 MR. BABIN: Correct.
LISTNUM 1 \l 14647 MS SONG: All right. But the distinction is that from the remote back to the central office, the facility that connects remote to the central office is fibre. Correct? It's fibre link?
LISTNUM 1 \l 14648 MR. BABIN: The fibre connects the remote, but there's also copper facilities there, as well. Generally, the remotes would be deployed to provide higher services.
LISTNUM 1 \l 14649 MS SONG: Right. So are you saying that the old copper facility in your operating territory would not be ripped out?
LISTNUM 1 \l 14650 MR. BABIN: Correct.
LISTNUM 1 \l 14651 MS SONG: Okay. Do you still attach equipment to that copper facility?
LISTNUM 1 \l 14652 MR. BABIN: Absolutely, yes.
LISTNUM 1 \l 14653 MS SONG: Okay.
LISTNUM 1 \l 14654 MR. BABIN: Customers that are using copper facilities would remain connected. When we deploy a remote, when a customer orders the Nex Gen services, like ADSL, they would be connected to that remote one at a time.
LISTNUM 1 \l 14655 MS SONG: Okay. You are saying "one at a time", and once you have connected all of the customer locations that are connected to that remote, what do you then do?
LISTNUM 1 \l 14656 MR. BABIN: Let me clarify, Ms Song. One at a time, as they order services.
LISTNUM 1 \l 14657 MS SONG: Oh, I see. Okay.
LISTNUM 1 \l 14658 Once you have signed up all the customers, what do you then do with the customer prime equipment that you have ‑‑ sorry, what do you then do with the equipment that's located in your CO that's connected to the fibre?
LISTNUM 1 \l 14659 MR. BABIN: It remains in the CO.
LISTNUM 1 \l 14660 MS SONG: All right.
LISTNUM 1 \l 14661 Now, as I understand it, there is a problem that affects competitors in particular with respect to serving customers that are served off of these remotes. Could you explain that problem for the panel?
LISTNUM 1 \l 14662 MR. BIBIC: This is where, I think, something may turn on whether or not you are referring to a voice remote or a data remote. Are you referring to a potential problem in the delivery by competitors of voice services or Internet services?
LISTNUM 1 \l 14663 MS SONG: Let's talk about Internet services, first of all.
LISTNUM 1 \l 14664 MR. BIBIC: We are not aware of any ‑‑ well, okay, so your problem's with respect to the provision by competitors of Internet services when Bell has data remotes deployed?
LISTNUM 1 \l 14665 MS SONG: Well, when the customers are served off a remote as opposed to on a continuous copper loop between the central office and the customer location, yes.
LISTNUM 1 \l 14666 MR. BIBIC: Okay, and the competitor wants to offer DSL?
LISTNUM 1 \l 14667 MS SONG: Yes, but it doesn't want to subscribe to your HSA or GAS ADSL tariff.
LISTNUM 1 \l 14668 MR. BABIN: Well, in that case, there are situations where are no copper facilities available to that remote location and, you know, I think it's an issue in a very small number of cases. In fact, this year, if I recall, in Ontario, out of all the unbundled loop requests that we received in the first quarter, there was 1.3 percent of them that were considered held order, i.e there was not a copper loop there. But in many ‑‑ in all the other cases, there are copper facilities available.
LISTNUM 1 \l 14669 My point would be the presence of a remote offering DSL services in that neighbourhood does not mean there are no longer copper facilities available. As I said, we move the customers over as they order services. We don't have large market shares of DSL. There's cable companies that are offering hi‑speed, as well.
LISTNUM 1 \l 14670 So it does mean there's still copper facilities in the majority of cases where there are remotes.
LISTNUM 1 \l 14671 MS SONG: Did you have anything to add, Mr. Babin.
LISTNUM 1 \l 14672 MR. BIBIC: No.
LISTNUM 1 \l 14673 MS SONG: No, okay.
LISTNUM 1 \l 14674 MR. BIBIC: I had a question for him, that's all.
LISTNUM 1 \l 14675 MS SONG: Okay.
LISTNUM 1 \l 14676 So you said that in your view, this problem only affects 1.3 percent of competitor requests for loops, and that's throughout the Province of Ontario? Is that correct?
LISTNUM 1 \l 14677 MR. BABIN: In the first quarter of this year 1.3 percent of the unbundled loop requests could not be fulfilled in Ontario.
LISTNUM 1 \l 14678 MS SONG: Right. But that statistic, of course, is all requests for unbundled local loops, not just requests for locations where you have more intensely deployed remotes, correct?
LISTNUM 1 \l 14679 MR. BABIN: Yes, it is 1.3 per cent of all orders received for unbundled loops in Ontario in the first quarter of this year.
LISTNUM 1 \l 14680 MS SONG: Yes, so that includes markets where you don't even have any remotes, correct?
LISTNUM 1 \l 14681 MR. BABIN: I would have to check that, I am not sure.
LISTNUM 1 \l 14682 MS SONG: All right, well you will get back to me on that.
LISTNUM 1 \l 14683 MR. BIBIC: When there is a problem that you mention, the competitor can either lease HSA, GAS or get access to third‑party internet services today. So there are choices.
LISTNUM 1 \l 14684 MS SONG: Well, if the competitor in question wants to use a portion of its network, I believe the answer that we established already yesterday was that HSA or GAS is not going to help him, that is not the appropriate solution. We are talking about unbundled access in order to provide facilities‑based competition in DSL markets.
LISTNUM 1 \l 14685 So I just want to get back to Mr. Babin with respect to his 1.3 per cent figure.
LISTNUM 1 \l 14686 It is my understanding that in Windsor, for example, Bell Canada has said that this problem can affect 25 per cent of customer locations. Windsor being one of those markets apparently where remotes have been more intensely deployed. Could that be, Mr. Babin?
LISTNUM 1 \l 14687 MR. BABIN: I am not familiar with the Windsor. But I just found the 1.3 per cent reference was in the Bell Canada‑PRIMUS 10, 12 of April, 2007, and it was as a percentage of the total number of inward orders for unbundled loops.
LISTNUM 1 \l 14688 MS SONG: Right, including for markets that don't have any remotes ‑‑
LISTNUM 1 \l 14689 MR. BABIN: Correct.
LISTNUM 1 \l 14690 MS SONG: ‑‑ deployed in them? All right.
LISTNUM 1 \l 14691 And my understanding is that co‑location in these remotes is not the answer, because we are talking about a little cabinet on a street corner, correct? Is co‑location possible?
LISTNUM 1 \l 14692 MR. BABIN: Well, that is correct. I think it was discussed in CISC committee and it was deemed to be, by all members of the CISC, that it was not practical to build another remote next door to the remote.
LISTNUM 1 \l 14693 MS SONG: Yes. And my understanding is that this very issue is in fact the issue, or at least a portion of the issue in Tariff Notice 6622, which I discussed with you yesterday, and that has been outstanding for six, seven, perhaps more years than that, correct?
LISTNUM 1 \l 14694 MR. ANDERSON: That is correct. I know there were a couple reviews of it and there has been no resolution at this point.
LISTNUM 1 \l 14695 MS SONG: Right. And so competitors who currently, under the Commission's local competition framework, have the right to collocate in a central office are out of luck when it comes to customers served off of remotes, correct?
LISTNUM 1 \l 14696 MR. BIBIC: No.
LISTNUM 1 \l 14697 MS SONG: Well, Mr. Bibic, apart from your point about they can always subscribe to the retail HSA and GAS service or use TPIA, right, that is what you were going to tell me?
LISTNUM 1 \l 14698 MR. BIBIC: Correct. And if they also want to provision voice, there may not be a problem at all.
LISTNUM 1 \l 14699 MR. IACONO: And, Ms Song, just to clarify, HSA or GAS are not retail services, because they are just simply providing the connectivity. There is no ISP component to it.
LISTNUM 1 \l 14700 MS SONG: Right. And TPIA also has the same limitation as HSA and GAS, in that a competitor who wants to provision the service on a facilities‑based competition basis, again that would be of no avail to it, correct? That is my understanding.
LISTNUM 1 \l 14701 MR. BIBIC: I don't know.
LISTNUM 1 \l 14702 MS SONG: Okay, again I will perhaps have the opportunity to ask that question of somebody who does.
LISTNUM 1 \l 14703 All right. I want to turn back to paragraph 147, which we started off with this morning. This is in your March 15 evidence. But I want to focus on a different aspect of that quotation.
LISTNUM 1 \l 14704 Are you with me again?
LISTNUM 1 \l 14705 MR. BIBIC: Not quite yet. Okay.
LISTNUM 1 \l 14706 MS SONG: I want to focus on the statement that the Commission should place a restriction on the use of the facility to ensure that, absent the access supplier's consent, it can only be used to provide the retail service where there is a need for ‑‑ to address abuse of significant market power in a particular retail market.
LISTNUM 1 \l 14707 So I want to focus on the restriction on use that you intend to impose on competitors that lease your facilities and services.
LISTNUM 1 \l 14708 Now, it is my understanding that currently unbundled local loops can be obtained by competitors to provide downstream internet as well as voice services, correct?
LISTNUM 1 \l 14709 MR. BIBIC: Correct.
LISTNUM 1 \l 14710 MS SONG: And in your proposal, what restriction on use of the unbundled local loops should be imposed on competitors in accordance with paragraph 147 of your evidence?
LISTNUM 1 \l 14711 MR. BIBIC: Well, under our proposal, as we discussed yesterday, loops would be determined to be nonessential, subject to a phase out. If a competitor came in and said in a particular exchange loops are essential, the Commission would have to look at what the product market is where the competitor is alleging that there is an issue.
LISTNUM 1 \l 14712 MS SONG: Right. And I think you have already said that you don't think there is an issue in retail internet access?
LISTNUM 1 \l 14713 MR. BIBIC: That is correct.
LISTNUM 1 \l 14714 MS SONG: Right. So in your proposal, if the Commission did say that unbundled local loops were essential in certain markets, you wouldn't allow a competitor to use that unbundled local loop in order to provision internet access services to a downstream competitor?
LISTNUM 1 \l 14715 MR. BIBIC: Well, you use the words we "wouldn't allow" and I can't agree with that. What we are suggesting is that if the retail internet market is competitive in the exchange, but the voice market is not, the Commission could find in that exchange that there should be mandated access to loops for voice. But the Commission would not mandate use of that loop for internet, whether or not we would reach an agreement to allow the competitor, on terms acceptable to both, to also use that loop for internet. It would be up to the market to decide.
LISTNUM 1 \l 14716 MS SONG: Right. It would be a prohibition, so you are suggesting that the Commission should impose on the use of the unbundled local loop?
LISTNUM 1 \l 14717 MR. BIBIC: I mean, I haven't really thought through exact words that would be used to implement it, but ultimately the effect of the mandated order would be to allow use of the loops for voice only.
LISTNUM 1 \l 14718 MS SONG: All right. And let us say, you know, just as you, Bell Canada, had no inkling that next generation services would emerge, let us say that at the application layer, as I believe was mentioned earlier on in this hearing, at the application layer there is some technological innovation that allows unbundled local loops to be used to provide some other service that none of us here know about or have any knowledge of, at least at this point. Let us say that happened.
LISTNUM 1 \l 14719 So under your model if somebody came to you and said, I want to use the unbundled local loop to provide advanced home security services. Your answer to that would be, no, you can't have it, right?
LISTNUM 1 \l 14720 MR. BIBIC: I believe I said quite the opposite. I said we would entertain a commercial negotiation. Restriction on use is not unheard of in the Commission. There used to be a voice restriction on cable internet access and now there is a multicast of a broadcasting restriction. That is the type of restriction on use we are talking about.
LISTNUM 1 \l 14721 MS SONG: Right. But if you did deny access to that loop for the purposes that the competitor would like to use it for, say perhaps because you yourself think it is an interesting idea to compete in that retail market and you don't see it to be in your interest to grant your competitor access to that loop, let us just say, if you will follow me in that example.
LISTNUM 1 \l 14722 You are saying that you would deny, perhaps. The competitor would then have to make an application of some kind to the Commission and that would take however long it took. Meanwhile, I guess, the customer of the competitor would be out of luck. Correct?
LISTNUM 1 \l 14723 MR. BIBIC: Dr. Church yesterday gave a long answer to this issue, which I was here and heard and endorse.
LISTNUM 1 \l 14724 The market will sort that out. I mean, what you left out in your hypothetical is what the retail market is in question and whether or not the so‑called denial, in your words, lead to a lessening of competition or harm the consumer.
LISTNUM 1 \l 14725 MS SONG: But the point I am driving at is that the Commission has typically looked at factors such as technological neutrality and in the policy direction that has been re‑emphasized.
LISTNUM 1 \l 14726 Is that kind of a rule technologically neutral, when we can't envisage at this point what technological advances could emerge?
LISTNUM 1 \l 14727 MR. BIBIC: Ms Song, I am going to keep my comments really brief, but the policy direction instructs reliance on market forces, and markets typically work like this. Somebody has a great idea and needs somebody to manufacture it for them, or a manufacturer needs somebody to distribute it for them, or somebody who is a distributor needs somebody to retail it for them. I mean, this is how the market functions.
LISTNUM 1 \l 14728 THE CHAIRPERSON: Let me just understand this. I am getting lost here.
LISTNUM 1 \l 14729 In Ms Song's example, we are talking about a restriction, and she now says presumably we have mandated access but subject to this restriction, and now she comes along with a new invention that is caught by that restriction.
LISTNUM 1 \l 14730 Wouldn't, under your proposal, then that entail really a new determination by the Commission as to whether the use of your facility for that new use is essential or not? Wouldn't you go through the whole process again?
LISTNUM 1 \l 14731 MR. BIBIC: Absolutely.
LISTNUM 1 \l 14732 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 14733 MS SONG: I would also like to ask with respect to Ethernet or next generation services, where there is a significant amount of technological innovation that is still ongoing, I believe Ethernet technology and transport protocols can be used to provide a panoply of downstream retail services, including voice, wide area network, remote LAN access, probably many others that Mr. Babin could fill in for me. But the point is that it can be used for a number of downstream retail services.
LISTNUM 1 \l 14734 Again, it is my understanding that with Ethernet, the great power of that technology is that all of that kind of traffic becomes packetized and it all streams down a big pipe and utilizes the capacity on the transmission facility in the most efficient way possible.
LISTNUM 1 \l 14735 So, my question is: When you are dealing with this restriction on use, how do you apply that in practice to an Ethernet facility which a competitor, like you ‑‑ I mean, you are not separating out your voice and data traffic, I am assuming, on these Ethernet facilities ‑‑ how do you distinguish between, separate out the voice and the data traffic on that facility?
LISTNUM 1 \l 14736 MR. BIBIC: Contractually. So, if the Commission has mandated a restriction on use because the mandated access is going to be to remedy a particular downstream problem, the user should be using the facility at mandated rates in order to provide just that, and there are models the Commission has used before where you can have the user self‑declare that through senior officer affidavits that that is all they are using the facility for.
LISTNUM 1 \l 14737 Depending on the product market there is a way to actually technically verify on the network what the facility is being used for, and ultimately there will be a contractual arrangement or a contractual relationship, even through tariff, between the two parties. If that is breached, then there are remedies for breach of contract.
LISTNUM 1 \l 14738 MS SONG: My question wasn't a legal ‑‑ I don't think it was a legal question. It is how do you, from a technology perspective, how do you determine what is voice, what is data, and if the facility is being used to transport both types of traffic?
LISTNUM 1 \l 14739 MR. BIBIC: Take an example where access to DS‑3, there is mandated access to DS‑3 loops for the purposes of providing high capacity data services to your bank in Toronto, and the user comes up with some whiz bang way of offering TV over that ‑‑ you can tell I am not a technologist ‑‑ it shouldn't without reaching a commercial agreement with the access provider.
LISTNUM 1 \l 14740 There may not be a way of actually determining whether or not that is being done. I don't know, you might be able to observe it in the marketplace, but ultimately it is up to the user to just respect the restriction.
LISTNUM 1 \l 14741 MS SONG: So, the restriction is that the Ethernet facility, for example, could only be used to provide voice services. Correct?
LISTNUM 1 \l 14742 MR. BIBIC: If that is where the problem is, or data, if that is where the retail market problem is, or both, if there is a retail market in both.
LISTNUM 1 \l 14743 MS SONG: So, the competitor goes to the customer and says, I have got this big fat pipe that I can give you, but I'm sorry, I can only use to it provide voice services to you.
LISTNUM 1 \l 14744 MR. BIBIC: We are covering ground we covered yesterday with Mr. Engelhart now. Or the competitor can go to another provider or they can come to us and reach a broader arrangement.
LISTNUM 1 \l 14745 What we try to do is design a proposal that respected the policy direction's instruction to regulate where necessary in an efficient and proportionate manager and in a least intrusive manner. That is the policy underpinning of the restriction.
LISTNUM 1 \l 14746 MS SONG: Mr. Chairman, at the outset of this session this morning there was an issue that was discussed between the panel and MTS Allstream. We had arranged to discuss it at a break, and I am wondering if ‑‑
LISTNUM 1 \l 14747 THE CHAIRPERSON: It sounds to me like a wonderful time for a break. Why don't we have a ten‑minute break and you can discuss it with Bell.
LISTNUM 1 \l 14748 MS SONG: Thank you very much.
‑‑‑ Upon recessing at 10:30 a.m.
‑‑‑ Upon resuming at 10:46 a.m.
LISTNUM 1 \l 14749 THE CHAIRPERSON: Ms Song, were you able to resolve things with the company over the break?
LISTNUM 1 \l 14750 MS SONG: I believe so, Mr. Chairman. However, I seem to have misplaced some paper. I apologize, I am going to have to locate that.
LISTNUM 1 \l 14751 THE CHAIRPERSON: Okay.
‑‑‑ Pause
LISTNUM 1 \l 14752 MS SONG: Thank you, I am back.
LISTNUM 1 \l 14753 Panel members, I would like you to turn up Bell Aliant, Bell Canada answer to interrog from the Bureau, 12 April '07, number 24.
LISTNUM 1 \l 14754 MR. BIBIC: Is that number 24?
LISTNUM 1 \l 14755 MS SONG: Yes, but it is Bell Aliant Bell, not the companies, as you have entitled it there.
LISTNUM 1 \l 14756 MR. BIBIC: Correct. We have it.
LISTNUM 1 \l 14757 MS SONG: Great. I just would like you to help me understand this answer. In answering this question, are you referring to how the companies, Bell Aliant and Bell Canada, decide on the size of facility that it will build in its in territory operations?
LISTNUM 1 \l 14758 MR. BIBIC: That is correct.
LISTNUM 1 \l 14759 MS SONG: So, the companies decide on the size of network access facility to be built based on its own internal criteria, serving area concept in urban areas and non‑urban concept in rural regions. That is what you explain in this answer. Correct?
LISTNUM 1 \l 14760 MR. BIBIC: Yes. There was a submission in confidence on the provisioning guidelines called "Access 2000," attachment number 1 to the interrogatory response.
LISTNUM 1 \l 14761 MS SONG: So, whenever there is a new building, a new development that comes up within your territory, you go through this analysis to determine is it copper, is it fibre, what capacity do we reasonably expect will be required by this particular customer location. Correct?
LISTNUM 1 \l 14762 MR. BIBIC: Correct.
LISTNUM 1 \l 14763 MS SONG: The decision is not whether to build. The decision is really how big a pipe do I build to that particular location. Correct?
LISTNUM 1 \l 14764 MR. BABIN: No, there are decisions whether we do build or not. Examples, greenfields in Ontario or Quebec, we have made decisions not to build based on economics.
LISTNUM 1 \l 14765 MS SONG: So there you are talking about greenfields in terms of fiber facilities; correct?
LISTNUM 1 \l 14766 MR. BABIN: Just serving actually, copper or fiber facilities.
LISTNUM 1 \l 14767 MS SONG: Okay. And what regions would that be in, rural, remote regions; correct?
LISTNUM 1 \l 14768 MR. BABIN: No, there are actually regions just north of Toronto, Richmond Hill, Markham, areas we have made decisions not to build.
LISTNUM 1 \l 14769 MS SONG: You are making decisions not to build to residential customers?
LISTNUM 1 \l 14770 MR. BABIN: Correct.
LISTNUM 1 \l 14771 MS SONG: Okay. Any other type of customers?
LISTNUM 1 \l 14772 MR. BABIN: Well, there would be decisions depending on enterprise customers where we may not bid on businesses.
‑‑‑ Pause
LISTNUM 1 \l 14773 MS SONG: Okay. And is that a relatively isolated instance, Mr. Babin?
LISTNUM 1 \l 14774 MR. BABIN: Which instance are you talking about?
LISTNUM 1 \l 14775 MS SONG: Not building to residential developments in your territory.
LISTNUM 1 \l 14776 MR. BABIN: It depends on the territory. The example is FCI Broadband, which is now acquired by Rogers, would go into certain subdivisions north of Toronto and we would make a decision not to build in that subdivision as well.
LISTNUM 1 \l 14777 MS SONG: Right. So relatively isolated instances, right?
LISTNUM 1 \l 14778 MR. BABIN: Yes, in residential.
LISTNUM 1 \l 14779 MS SONG: All right. Great. All right.
LISTNUM 1 \l 14780 I would like to now refer to Appendix 9 of your evidence, your March 15th evidence, and to two MTS Allstream interrogatories:
‑ the first being Bell Canada/MTS Allstream 12April07‑158;
‑ the second being Bell Canada/MTS Allstream 12April07‑159; and
‑ the third being Bell Canada/Bureau 12April07‑25.
‑‑‑ Pause
LISTNUM 1 \l 14781 COMMISSIONER del VAL: Ms Song, can you please repeat the ‑‑ is it Appendix 9?
LISTNUM 1 \l 14782 MS SONG: Yes, it is Bell et al's March 15th evidence. I believe it is Appendix 9.
LISTNUM 1 \l 14783 COMMISSIONER del VAL: Thank you.
‑‑‑ Pause
LISTNUM 1 \l 14784 MS SONG: Finally, if you will turn up material previously provided to counsel for Bell et al, the financial statements of BCE Nexxia Inc. for the years ending December 31st, 1999 and December 31st, 2000.
LISTNUM 1 \l 14785 Madam Secretary, I would like to mark those as exhibits. Thank you.
LISTNUM 1 \l 14786 THE SECRETARY: I am marking the BCE Nexxia Inc. December 31st, 1999 as Exhibit No. 6 and the next one, December 31st, 2000, Exhibit No. 7.
EXHIBIT MTS‑6: BCE Nexxia Inc. financial statements for year ending December 31, 1999.
EXHIBIT MTS‑7: BCE Nexxia Inc. financial statements for year ending December 31, 2000.
LISTNUM 1 \l 14787 MS SONG: So taking the BCE Nexxia Inc. financial statements for the year ending December 31st, 1999, I would like to very quickly walk through these financial statements.
LISTNUM 1 \l 14788 But before I do, you will please confirm for me that Bell Nexxia Inc. was at this point in time an unregulated affiliate of Bell Canada; correct?
LISTNUM 1 \l 14789 MR. BIBIC: Yes, we can use BCE Nexxia and Bell Nexxia interchangeably. Yes.
LISTNUM 1 \l 14790 MS SONG: And BCE Nexxia Inc.'s business was to provide data, advance network access and solutions to customers across Canada; correct?
LISTNUM 1 \l 14791 MR. HENRY: I believe that is the case.
LISTNUM 1 \l 14792 MS SONG: So it operated in your traditional operating territories of Ontario and Quebec as well as in other provinces across the country?
LISTNUM 1 \l 14793 MR. HENRY: That is my recollection.
LISTNUM 1 \l 14794 MS SONG: Now, if you will go to the statement of loss which is at page 2 of 10 and happens to be the third page of Exhibit No. 6.
LISTNUM 1 \l 14795 The top line is revenue. You will see that $545 million.
LISTNUM 1 \l 14796 The second line is cost of sales.
LISTNUM 1 \l 14797 Could you just explain to me what those costs of sales included?
LISTNUM 1 \l 14798 MR. BIBIC: No, we have no knowledge.
LISTNUM 1 \l 14799 MS SONG: Could you please go to page 5. These are the notes to the financial statements.
LISTNUM 1 \l 14800 I am assuming that since I did provide this to you two days ago that you have reviewed these financial statements.
LISTNUM 1 \l 14801 MR. BIBIC: Ms Song, I only ‑‑
LISTNUM 1 \l 14802 MR. DANIELS: Ms Song, I believe you provided it to us last night.
LISTNUM 1 \l 14803 MS SONG: Oh! Sorry.
LISTNUM 1 \l 14804 MR. BIBIC: 9:15 p.m.
LISTNUM 1 \l 14805 MS SONG: Last night. Sorry.
LISTNUM 1 \l 14806 Have you reviewed these financial statements?
LISTNUM 1 \l 14807 MR. BIBIC: I read them over last night after I got them but I wasn't around at the time and no one on the panel has intimate familiarity with BCE Nexxia ‑‑
LISTNUM 1 \l 14808 MS SONG: Right.
LISTNUM 1 \l 14809 MR. BIBIC: ‑‑ or the financials of BCE Nexxia.
LISTNUM 1 \l 14810 MS SONG: So perhaps you can't tell me specifically what these costs of sales involved in terms of whether it is CDN or Ethernet or unbundled loops or whatever it was that is entailed but you will correct me at a later point if your understanding is that these costs of sales did not include direct costs of purchasing services from your ILEC affiliates across Canada? Will you do that?
LISTNUM 1 \l 14811 MR. BIBIC: You would like us to confirm that these costs of sales do not include acquiring services from the Bell Canada parent?
LISTNUM 1 \l 14812 MS SONG: Well, I think my question was a little convoluted, so I will rephrase.
LISTNUM 1 \l 14813 Page 5 of 10 of your financial statements say that:
"BCE Nexxia purchases most of its network products and services from Bell Canada and other related companies. See Note 8." (As read)
LISTNUM 1 \l 14814 Do you see that in the middle of page 5?
LISTNUM 1 \l 14815 MR. BIBIC: Yes, I see it now.
LISTNUM 1 \l 14816 MS SONG: And I am suggesting to you that the line cost of sales on your statement of loss for the year ending December 31st, 1999 refers to purchases from Bell Canada and your other regulated affiliates, and you will confirm for me if you come to a different understanding of that line of your statement of loss.
LISTNUM 1 \l 14817 MR. BIBIC: We will do our best to find out, keeping in mind the passage of time.
LISTNUM 1 \l 14818 MS SONG: Mr. Bibic, are you telling me that you cannot get that information?
LISTNUM 1 \l 14819 MR. BIBIC: Ms Song, I really don't know. It is 1999. The people who may be familiar with this may no longer be around.
LISTNUM 1 \l 14820 If I undertake to provide you with something, I will do my best. We always do.
LISTNUM 1 \l 14821 MS SONG: Tell me if you think it is something other than direct costs to your ILEC affiliates.
LISTNUM 1 \l 14822 All right?
LISTNUM 1 \l 14823 MR. BIBIC: You have asked the question, and we will undertake to inquire for the answer.
LISTNUM 1 \l 14824 MS SONG: Thank you.
LISTNUM 1 \l 14825 Going down this page, then, we see that your gross margin was $198 million, approximately. That is before any other expenses. Correct?
LISTNUM 1 \l 14826 MR. BIBIC: What page are you on now?
LISTNUM 1 \l 14827 MS SONG: I am back on the Statement of Loss.
LISTNUM 1 \l 14828 MR. BIBIC: Yes, I see that.
LISTNUM 1 \l 14829 MS SONG: Then, after you deduct all of your other expenses associated with carrying on this business, your loss before interest and income tax is $70 million, and your net loss for the year alone is $41.7 million.
LISTNUM 1 \l 14830 Do you see that?
LISTNUM 1 \l 14831 MR. BIBIC: I do.
LISTNUM 1 \l 14832 MS SONG: At this time, Mr. Bibic, BC Nexia was a wholly‑owned subsidiary of Bell Canada. Correct?
LISTNUM 1 \l 14833 That is confirmed by, again, Note 1 of your Notes to the Financial Statements.
LISTNUM 1 \l 14834 An indirectly wholly‑owned sub of Bell Canada. Correct?
LISTNUM 1 \l 14835 MR. BIBIC: That's correct.
LISTNUM 1 \l 14836 MS SONG: So all of the equity in this company is being provided by your parent company. Correct?
LISTNUM 1 \l 14837 Perhaps if you looked at the Balance Sheet that would help you, under "Shareholders' Equity".
‑‑‑ Pause
LISTNUM 1 \l 14838 MS SONG: It is Page 1 of 10, the second page of the exhibit.
LISTNUM 1 \l 14839 MR. BIBIC: I see the share capital, and I am looking at Note 7 to see what it says about Shareholders' Equity.
LISTNUM 1 \l 14840 MS SONG: All right.
LISTNUM 1 \l 14841 MR. BIBIC: I have no reason to think that the Shareholders' Equity didn't all come from Bell Canada. If it didn't, we will correct the record.
LISTNUM 1 \l 14842 MS SONG: The point is, this particular affiliate was not going out to the public financial markets for financing at this time. Correct?
LISTNUM 1 \l 14843 MR. BIBIC: Bell would be.
LISTNUM 1 \l 14844 MS SONG: Yes, but this company was not. Correct?
LISTNUM 1 \l 14845 MR. BIBIC: I can only presume that that is the case, but I do not know.
LISTNUM 1 \l 14846 MS SONG: All right.
LISTNUM 1 \l 14847 I would now like to go to Exhibit No. 7, Madam Secretary, the BC Nexia Inc. Financial Statements for the year ended December 31, 2000.
LISTNUM 1 \l 14848 THE SECRETARY: I'm sorry, you will have to repeat the exhibit title.
LISTNUM 1 \l 14849 If I am correct, it is not Exhibit No. 7, it is Exhibit No. 8.
LISTNUM 1 \l 14850 Oh, you are referring back. I'm sorry.
LISTNUM 1 \l 14851 MS SONG: So it is Exhibit No. 7, Madam Secretary?
LISTNUM 1 \l 14852 THE SECRETARY: Yes.
LISTNUM 1 \l 14853 MS SONG: Thank you.
LISTNUM 1 \l 14854 Do you have that in front of you now?
LISTNUM 1 \l 14855 MR. BIBIC: Yes, we do.
LISTNUM 1 \l 14856 MS SONG: Again, turning to the Statement of Deficit, which is on Page 2 of 9 ‑‑ it appears to be the fourth page of the exhibit ‑‑
LISTNUM 1 \l 14857 MR. BIBIC: I have it.
LISTNUM 1 \l 14858 MS SONG: Again, the top line is "Revenues", $880.6 million. "Cost of Sales", $761 million. "Gross Margin", $119 million. "Net Loss", for the year alone, $190 million.
LISTNUM 1 \l 14859 By the end of your second year of operation, it would appear that you have bled $231 million.
LISTNUM 1 \l 14860 Do you see that?
LISTNUM 1 \l 14861 MR. BIBIC: Where do you refer to 231?
LISTNUM 1 \l 14862 MS SONG: If you turn over the page, sir ‑‑
LISTNUM 1 \l 14863 MR. BIBIC: I see that.
LISTNUM 1 \l 14864 MS SONG: You add up your cumulative net losses, and you have a total bleed of $231 million.
LISTNUM 1 \l 14865 If you turn over the page to the Statement of Cash Flows ‑‑
LISTNUM 1 \l 14866 I apologize. Before I do that, could you turn back to the first page of your Statement of Deficit?
LISTNUM 1 \l 14867 I want to compare your 2000 Statement of Deficit to ‑‑
LISTNUM 1 \l 14868 MR. BIBIC: Which page are you on, Ms Song?
LISTNUM 1 \l 14869 MS SONG: Statement of Deficit for the year ended December 31, 2000.
LISTNUM 1 \l 14870 MR. BIBIC: Which page?
LISTNUM 1 \l 14871 MS SONG: The page that you were just at, Page 2 of 9, at the bottom of the page.
LISTNUM 1 \l 14872 MR. BIBIC: Oh, I see.
LISTNUM 1 \l 14873 MS SONG: Yes, it is the same page we were on.
LISTNUM 1 \l 14874 I want to compare the revenues and cost of sales in 2000 as opposed to revenues and cost of sales in 1999.
LISTNUM 1 \l 14875 It would appear that BC Nexia's cost of sales actually increased in the period between 1999 and 2000.
LISTNUM 1 \l 14876 Would you agree with me, just from eyeballing these figures?
LISTNUM 1 \l 14877 MR. BIBIC: I would.
LISTNUM 1 \l 14878 MS SONG: I would then ask you to go back to Page 4 of 9, which is the Statement of Cash Flows.
LISTNUM 1 \l 14879 If you go down to the line "Investing Activity" ‑‑
LISTNUM 1 \l 14880 MR. BIBIC: Yes.
LISTNUM 1 \l 14881 MS SONG: ‑‑ the first subheading is "Purchases of Capital Assets".
LISTNUM 1 \l 14882 Do you see that?
LISTNUM 1 \l 14883 MR. BIBIC: I do.
LISTNUM 1 \l 14884 MS SONG: It appears that you managed to spend $121 million in 2000 on the purchase of capital assets.
LISTNUM 1 \l 14885 Can you tell me what those assets might have been?
LISTNUM 1 \l 14886 MR. BIBIC: No.
LISTNUM 1 \l 14887 MS SONG: All right. Would you undertake to find out for me?
‑‑‑ Pause
LISTNUM 1 \l 14888 MR. BIBIC: The reason I hesitate is because it will require a lot of work to locate the people, and I will have to get them to pull everything up, I suppose.
LISTNUM 1 \l 14889 I am no forensic auditor, but I would imagine there would be a lot of work involved in this.
LISTNUM 1 \l 14890 I am starting to hesitate because the more we pile on the undertakings, the more difficult this will be.
LISTNUM 1 \l 14891 MR. HOFLEY: Mr. Chairman, perhaps if we understood the relevance of this, we might be able to gauge whether or not an undertaking is appropriate.
LISTNUM 1 \l 14892 THE CHAIRPERSON: Ms Song, what do you have to say?
LISTNUM 1 \l 14893 MS SONG: Mr. Chairman, we are going through these statements because they establish, in part, the economics of a competitor's operations, and that is relevant to this proceeding, since these very companies have put in issue the economics of competitor operations. I would like to use Bell Canada and its affiliates' own experience as a backdrop to the questions which I will be getting to next with respect to Appendix 9.
LISTNUM 1 \l 14894 THE CHAIRPERSON: Do you want this information so that, presumably, in your final submission you can draw out the differences, in terms of investments that your company has to do in this tariff if it was ‑‑ vis‑à‑vis Bell? That's what you are driving at?
LISTNUM 1 \l 14895 MS SONG: The position of Bell et al has been that it is feasible for competitors to duplicate their own ubiquitous ILEC networks ‑‑
LISTNUM 1 \l 14896 THE CHAIRPERSON: Right.
LISTNUM 1 \l 14897 MS SONG: ‑‑ and we have evidence already filed on the public record of this tribunal with respect to what those economics actually are for competitors. We believe that this is directly relevant to the issue of the feasibility of duplication, which my friends insist is the case of their ubiquitous networks.
LISTNUM 1 \l 14898 THE CHAIRPERSON: So with respect to this specific undertaking, you are now trying to find out...?
LISTNUM 1 \l 14899 MS SONG: I'm not asking for an itemized list, Mr. Chairman.
LISTNUM 1 \l 14900 THE CHAIRPERSON: So more or less, let's clarify what you are asking for.
LISTNUM 1 \l 14901 MS SONG: Yes. I would like to understand what kinds of things were being purchased, in terms of capital assets, in this time period.
LISTNUM 1 \l 14902 MR. BIBIC: Could we focus that question to what kind of assets need to be purchased for Bell West today? This is a company that doesn't exist, as I understand it ‑‑
LISTNUM 1 \l 14903 MS SONG: Bell Nexxia.
LISTNUM 1 \l 14904 MR. BIBIC: ‑‑ with investment seven years ago.
LISTNUM 1 \l 14905 MS SONG: Yes. This is not a predecessor to Bell West, is it?
LISTNUM 1 \l 14906 MR. BIBIC: No, but the company doesn't exist and it's seven‑year‑old information ‑‑
LISTNUM 1 \l 14907 MS SONG: Right.
LISTNUM 1 \l 14908 MR. BIBIC: ‑‑ and we may not be able to find what we spent $121 million on in 2000.
LISTNUM 1 \l 14909 MS SONG: What I would like to know is were you purchasing or investing in network access facilities at this time? Were you building fibre? Were you building access and transport facilities? Those are general questions which I would find it very difficult to believe that you can't find the answers to at this date.
LISTNUM 1 \l 14910 THE CHAIRPERSON: Sorry, I'm just trying to follow up the relevancy. You are trying to establish whether it can be duplicated or not. Surely that's going to be done on the basis of today's costs, not on the basis of the costs in 2000.
LISTNUM 1 \l 14911 What Mr. Bibic suggested, if he gives you Bell West data of today, wouldn't that be much more relevant than Bell Nexxia information that's seven years old?
LISTNUM 1 \l 14912 MS SONG: Mr. Chairman, thank you for that, but I'm not trying to establish so much the costs of building today, I'm trying to establish that, at the time that BCE Nexxia was operating as a competitor in this time period, with the losses that it was incurring on a year‑over‑year basis, could it, and did it, actually invest in network access facilities as The Companies says all competitors should now be doing, today.
LISTNUM 1 \l 14913 COMMISSIONER CRAM: Your point, if I understand, Ms Song, is that, primarily, the assets were infrastructure, telephony infrastructure. Is that correct?
LISTNUM 1 \l 14914 MS SONG: Actually, I don't have any basis to know that. I think it is relevant to know whether that was, in fact, what this money was being spent on. That isn't precisely the issue. I don't think we have anything in front of us that would allow us to conclude that, and I'm merely asking the Bell et al panel to inform of us that relevant fact.
LISTNUM 1 \l 14915 COMMISSIONER CRAM: Wouldn't that normally be in the report to shareholders?
LISTNUM 1 \l 14916 MS SONG: It may well be, Commissioner.
LISTNUM 1 \l 14917 COMMISSIONER CRAM: And would you be satisfied with that level of information?
LISTNUM 1 \l 14918 MS SONG: Absolutely.
LISTNUM 1 \l 14919 COMMISSIONER CRAM: I'm sure Bell Canada has that.
LISTNUM 1 \l 14920 MR. BIBIC: Well, are you referring back to, at this period of time, the report to shareholders of BCE Nexxia?
LISTNUM 1 \l 14921 COMMISSIONER CRAM: Yes.
LISTNUM 1 \l 14922 MR. BIBIC: Then, this was a private company owned by Bell, so there would be no publicly available annual report to shareholders like there would be for Bell Canada.
LISTNUM 1 \l 14923 COMMISSIONER CRAM: I would think there would be, but...would there not be a report to Bell saying how much infrastructure was purchased?
LISTNUM 1 \l 14924 MR. BIBIC: Well, we can look for that, but I suspect this is the level of detail.
LISTNUM 1 \l 14925 COMMISSIONER CRAM: Okay.
LISTNUM 1 \l 14926 THE CHAIRPERSON: Well, I think, Mr. Bibic, if I understand what Ms Song is trying to establish, I mean, it's slightly relevant, as far as I would say. It's not totally irrelevant, so I think you should do your best to answer to the level of specification that she just modified, in effect. So it's the type of information that would be contained in a report to shareholders, if this was a public company.
LISTNUM 1 \l 14927 MR. BIBIC: Okay.
LISTNUM 1 \l 14928 CONSEILLERE NOEL : Monsieur Bibic, pouvez‑vous nous préciser, quand vous allez nous répondre, à quelle date Bell Nexxia a été liquidée et la raison qui était derrière la décision de liquidation?
LISTNUM 1 \l 14929 M. BIBIC : D'accord. Je prends l'engagement.
LISTNUM 1 \l 14930 MS SONG: Can you tell us today why it was folded?
LISTNUM 1 \l 14931 MR. BIBIC: I can't, no.
LISTNUM 1 \l 14932 MS SONG: All right.
LISTNUM 1 \l 14933 Now, we have already spoken today about your now business unit, Bell West. You will recall that discussion, gentlemen?
LISTNUM 1 \l 14934 MR. BIBIC: Which discussion?
LISTNUM 1 \l 14935 MS SONG: The discussion of Bell West, which I referred to earlier on this morning.
LISTNUM 1 \l 14936 MR. BIBIC: No, I don't recall, but...
LISTNUM 1 \l 14937 MS SONG: All right. Well, you do have a business unit ‑‑
LISTNUM 1 \l 14938 MR. BIBIC: Yes, of course.
LISTNUM 1 \l 14939 MS SONG: ‑‑ called Bell West.
LISTNUM 1 \l 14940 MR. BIBIC: Of course.
LISTNUM 1 \l 14941 MS SONG: All right. My understanding is that at one point Bell West was called Bell Intrigna ‑‑
LISTNUM 1 \l 14942 MR. BIBIC: Correct.
LISTNUM 1 \l 14943 MS SONG: ‑‑ it then became Bell West ‑‑
LISTNUM 1 \l 14944 MR. BIBIC: Correct.
LISTNUM 1 \l 14945 MS SONG: ‑‑ and that those were separate corporate entities, distinct corporate entities from Bell Canada.
LISTNUM 1 \l 14946 MR. BIBIC: Correct.
LISTNUM 1 \l 14947 MS SONG: All right.
LISTNUM 1 \l 14948 MR. BIBIC: But I don't believe it is today.
LISTNUM 1 \l 14949 MS SONG: That's right.
LISTNUM 1 \l 14950 MR. BIBIC: Okay.
LISTNUM 1 \l 14951 MS SONG: Exactly. It's a unit of Bell Canada.
LISTNUM 1 \l 14952 MR. BIBIC: Today, correct.
LISTNUM 1 \l 14953 MS SONG: Yes. Okay. Because of that, your financials, if I look at your annual reports, for example, I'm talking about Bell Canada's annual reports ‑‑ or BCE's annual reports, do not separate out the financial for Bell West, your western operating unit. Correct?
LISTNUM 1 \l 14954 MR. IACONO: I believe that's correct, yes.
LISTNUM 1 \l 14955 MS SONG: All right. And Bell West, just to clarify, is a competitor in primarily business telecommunication markets in your territories west of Ontario...and I'm going over ground I went over this morning because that is what I was discussing with you. Correct?
LISTNUM 1 \l 14956 MR. IACONO: Yes.
LISTNUM 1 \l 14957 MS SONG: All right.
LISTNUM 1 \l 14958 Now, in a similar vein to the review that we have just done of the Bell Nexxia Inc. financial statements, I would like to ask you to provide to the Commission and to MTS Allstream not the financial statements, a statement of the annual revenues, direct cost of sales and annual network investment for the period between 1999 and today.
LISTNUM 1 \l 14959 Will you undertake to do that?
LISTNUM 1 \l 14960 MR. HOFLEY: Mr. Chairman ‑‑
LISTNUM 1 \l 14961 THE CHAIRPERSON: Mr. Hofley ‑‑ go ahead.
LISTNUM 1 \l 14962 MR. HOFLEY: Mr. Chairman, I don't understand how or why The Companies would provide confidential information to MTS Allstream. We can debate whether this is relevant. Obviously, it's within the Commission's powers to ask that it be provided to the Commission, but to provide confidential information to a competitor strikes me as well beyond anything I have seen in this proceeding.
LISTNUM 1 \l 14963 If we were going to go there, then I would like to open up the record, the confidential record of MTS Allstream that's been presented, and put it on the public record.
LISTNUM 1 \l 14964 THE CHAIRPERSON: Why is all of this coming up at this point in time? Why wasn't this dealt with at interrogatories beforehand? I am somewhat at a loss why this comes up at this point in time.
LISTNUM 1 \l 14965 MS SONG: Mr. Chairman, we do believe that this is an issue that should be brought before the panel. I can't frankly answer why it wasn't dealt with during the interrogatory stage but this, as I think we have already discussed with respect to Bell Nexxia, which operated in Ontario and Quebec as opposed to Bell West, which is truly a competitor out of territory operation, we believe that this information is relevant.
LISTNUM 1 \l 14966 THE CHAIRPERSON: But how do you answer Mr. Hofley's question? You have submitted whatever information you did and you claimed it confidential at the other table I understood it. You are a competitor to Bell West in the western territory. So if he now undertakes, he will file it subject to confidentiality. The only thing you are going to get is a statement, but the main numbers of which you are interested in will be held confidential for obvious reason, because you are competing with each other. So I am not quite sure where this is all going to get us.
LISTNUM 1 \l 14967 MS SONG: Well, I am not hearing from Mr. Hofley quite yet that he is alleging that there would be some prejudice that outweighs the public interest in disclosure of this information on the public record. But if you are concerned ‑‑
LISTNUM 1 \l 14968 THE CHAIRPERSON: Well, okay, but let us clarify that. I assumed that was implicit in his answer. Mr. Hofley, does that do you any injustice?
LISTNUM 1 \l 14969 MR. HOFLEY: I can confirm that. And in fact, Mr. Chairman, there certainly is much greater public interest in this Commission and the parties here having access to confidential information on the record in direct answer to CRTC interrogatories, which we have been denied.
LISTNUM 1 \l 14970 So to suggest that this is somehow different than all the rest of the information, which is much more relevant and has been maintained on the confidential record, is frankly surprising.
LISTNUM 1 \l 14971 MS SONG: Well, Mr. Chairman, if I could just address that point. If the concern is about current information, and I believe that most of the confidentiality claims that have been maintained by the Commission in the interrogatory process had to do with current network access lines, current business, future plans, and if that is the concern then that can be addressed. It would be my submission that that can be addressed by Bell West providing historical information.
LISTNUM 1 \l 14972 Surely, the disclosure of information that is years old could not amount to any prejudice.
LISTNUM 1 \l 14973 THE CHAIRPERSON: And when you say historical information what did you have in mind?
LISTNUM 1 \l 14974 MS SONG: So if Mr. Hofley and his client can establish that there would be prejudice from current financial information, then we would be satisfied with a lesser period, 1999 to say 2003.
LISTNUM 1 \l 14975 THE CHAIRPERSON: I think we will take a five‑minute break. The panel will consult, thank you.
LISTNUM 1 \l 14976 MS SONG: Thank you, sir.
‑‑‑ PAUSE
LISTNUM 1 \l 14977 COMMISSIONER CRAM: Can I just ask one question? MTS would have the data on Bell, as I called it yesterday, enigma, would they not? And so when did MTS get out of Bell Intrigna?
LISTNUM 1 \l 14978 MR. PEIRCE: Mr. Peirce for this point, Commissioner Cram. We have financial information for certain of the years in question. There are issues that have been raised about the ability for us to produce that information, which we are not going to be able to resolve today.
LISTNUM 1 \l 14979 I think where we are is that if we come around to the panel viewing confidentiality as being important, what we think is important is that the information related to direct cost of sales, which are of course telco costs, and network investment, are directly relevant to the argument being put directly in issue by the companies that pose to see the end decision and otherwise that there is no incentive to build, but that there is the possibility of a business case for profitable duplication of the network.
LISTNUM 1 \l 14980 COMMISSIONER CRAM: Thank you.
‑‑‑ Upon recessing at 11:25 a.m.
‑‑‑ Upon resuming at 11:30 a.m.
LISTNUM 1 \l 14981 THE SECRETARY: Order please.
LISTNUM 1 \l 14982 THE CHAIRPERSON: First of all, just going back for one second to the Bell Nexxia statement. Ms Song, if you look at Exhibit 7, you presumably saw on the note 4 there is a breakout of the capital assets and it tells you how much were the network assets and how much, et cetera. So I am not quite sure why you are asking Bell to provide further information.
LISTNUM 1 \l 14983 I think the information you are looking for is there.
LISTNUM 1 \l 14984 But that being the case, on the other one, in terms of Bell West, given that all of this turns on the issue of disincentive, that is a present mandated rule, et cetera, that information would be useful for the panel, and I think if Bell could make it available, subject to whatever confidentiality they want to claim up to the latest available, we will appreciate it.
LISTNUM 1 \l 14985 Obviously then we will rule on the confidential request that you put in, and we would rule in such a way as not to impede your competitive position.
LISTNUM 1 \l 14986 MS SONG: Thank you, Mr. Chairman.
LISTNUM 1 \l 14987 THE CHAIRPERSON: Mr. Hofley, I understand you wanted to make some other remark?
LISTNUM 1 \l 14988 MR. HOFLEY: No, I think you have made your decision, Mr. Chairman, but just so I understand, we would file 1999 to date?
LISTNUM 1 \l 14989 THE CHAIRPERSON: I think the financial statement for your division, which you call Bell West, up to the latest available, subject to whatever confidentiality you want to claim.
LISTNUM 1 \l 14990 MR. HOFLEY: We would file that with the Commission only?
LISTNUM 1 \l 14991 THE CHAIRPERSON: Yes. We would then rule if all of it, any part of it or nothing should be made available, taking into account the competitive position of the parties.
LISTNUM 1 \l 14992 MR. HOFLEY: Mr. Chairman, I do have one thing to note, and I will confess that I haven't had the time to confer with the person who just gave me this, but my understanding is ‑‑ and I am going to be corrected in a second by a kick ‑‑ is that in companies MTS 156 in round 1, information was sought of this nature and was provided to the Commission in confidence.
LISTNUM 1 \l 14993 I am not aware of the deficiency claim or ‑‑
LISTNUM 1 \l 14994 MR. DANIELS: I would just like to clarify. The answers that you are looking for, the information was filed as part of our monitoring report requirements we think since 2000, and that is the same information as the information that is being sought here.
LISTNUM 1 \l 14995 I think that is the clarification that we were looking for. In terms of being in the Commission's possession, the information is already in the Commission's possession, but it was filed, to be fair, not as Bell Intrigna statements but as the reference to the monitoring reports which contain that information.
LISTNUM 1 \l 14996 THE CHAIRPERSON: First of all, you assume that the left hand knows what the right hand does, but besides that, this is part of this proceeding, this specific request. I ask you to file it, subject to whatever confidentiality. We will then deal with it.
LISTNUM 1 \l 14997 If Ms Song is not satisfied with our ruling, she can obviously have, then, whatever remedy she wants to pursue.
LISTNUM 1 \l 14998 MR. HOFLEY: Thank you, Mr. Chairman.
LISTNUM 1 \l 14999 THE CHAIRPERSON: Okay, proceed.
LISTNUM 1 \l 15000 MS SONG: Thank you.
LISTNUM 1 \l 15001 I would like you to now turn up Bell Canada/Bureau 12 April 07‑25, which I referred to earlier.
LISTNUM 1 \l 15002 As I read this interrogatory and, more specifically, the answer that Bell Canada has provided that this interrogatory, this describes the analysis or the reasoning that is used by Bell Canada in order to decide when and what capacity of facility to build in its out of territory operations. Is that correct?
LISTNUM 1 \l 15003 MR. BABIN: That is correct.
LISTNUM 1 \l 15004 MS SONG: Are you talking about how you decide currently and in all relevant times past?
LISTNUM 1 \l 15005 MR. BABIN: Currently, yes. This is the process that Bell West uses today.
LISTNUM 1 \l 15006 MS SONG: Would it have been a different process, say, in 1999?
LISTNUM 1 \l 15007 MR. BABIN: No. The same process, looking at the economics, looking at the services and the revenues provided by customers.
LISTNUM 1 \l 15008 MS SONG: Just so that we can understand that a little better, what this interrogatory response says at page 3 of 4 ‑‑ do you see that?
LISTNUM 1 \l 15009 MR. BABIN: Yes.
LISTNUM 1 \l 15010 MS SONG: It says that:
"Bell Canada considers a number of factors when considering network investment. It examines the customer's needs with respect to number of locations, timing and band width requirements and performs a lease versus build analysis. Bell Canada also examines the capital and expense requirements, contract terms and rates, the availability of build capital and the rate for leasing the facilities from other providers. Significant metric utilized in Bell Canada's evaluation is the pay back period, which refers to the length of time required to recover its investment." (As read)
LISTNUM 1 \l 15011 I would like to understand what you mean by "pay back period." Just to speed things along, my understanding of the pay back period is that it is a function of the potential revenue to be generated from the customer location, and the costs of building out the facility in question. Is that, generally speaking, what you mean by the pay back period?
LISTNUM 1 \l 15012 MR. BABIN: Generally speaking, that is correct, yes.
LISTNUM 1 \l 15013 MS SONG: Of course, the potential revenue is a function ‑‑ we are talking about your out of territory operations. The potential revenue would, in turn, be a function of the existing market price. Correct?
LISTNUM 1 \l 15014 MR. BABIN: Correct.
LISTNUM 1 \l 15015 MS SONG: For retail services?
LISTNUM 1 \l 15016 MR. BABIN: Sure, yes.
LISTNUM 1 \l 15017 MR. IACONO: Ms Song, existing market price, as well as expectations regarding future price movements. So, typically a good business case will make assumptions regarding how costs and prices will change over time, as well as how demand will change over time.
LISTNUM 1 \l 15018 MS SONG: You would expect, of course, that it is possible, I would assume that your models would envisage, that once you enter as a competitor, that market price may well go down. Correct?
LISTNUM 1 \l 15019 MR. IACONO: It is possible, yes.
LISTNUM 1 \l 15020 MS SONG: You wouldn't expect it to go up, would you?
LISTNUM 1 \l 15021 MR. IACONO: In some cases, sure.
LISTNUM 1 \l 15022 MS SONG: Static or go down?
LISTNUM 1 \l 15023 MR. IACONO: No, you are putting words in my mouth. I didn't say static or go down. I said prices can go up, sometimes they do. That is reality of markets, number one.
LISTNUM 1 \l 15024 Number two is the notion of a discounted pay back or a pay back period is pretty standard. Your client obviously does pay back period analyses as well.
LISTNUM 1 \l 15025 MS SONG: What if the costs of construction exceeds all potential revenue over the acceptable pay back period?
LISTNUM 1 \l 15026 MR. BABIN: We would look at other options such as lease facilities or buy facilities from somebody else.
LISTNUM 1 \l 15027 MS SONG: So, the decision would be unacceptable pay back period, insufficient expectation of revenue, too expensive to build. So, we are not going to build. Correct?
LISTNUM 1 \l 15028 MR. BABIN: Correct.
LISTNUM 1 \l 15029 MR. BIBIC: At that point in time.
LISTNUM 1 \l 15030 MS SONG: You then examine other options, and I suppose as an out of territory competitor, the other options involve leasing facilities from other providers, most notably the former monopoly in that territory. Correct?
LISTNUM 1 \l 15031 MR. BABIN: Correct.
LISTNUM 1 \l 15032 MS SONG: What if the cost of leasing exceeds the potential revenue to be generated in the fiscal period or in the period in question?
LISTNUM 1 \l 15033 MR. IACONO: It sounds like a pretty poor business proposition that you probably shouldn't be doing in the best interests of your shareholders.
LISTNUM 1 \l 15034 MS SONG: So, it is don't serve, and I am not putting words in your mouth there, am I?
LISTNUM 1 \l 15035 MR. IACONO: Right. No bid situations, no respond. Some potential business is just not worth doing business because you are not going to be able to do so doing money, and that again is a reality of life and of business.
LISTNUM 1 \l 15036 MS SONG: If the cost of leasing exceeds potential revenue, you would assume that the cost of building would exceed potential revenue, and the consequence to the retail customer, I would suggest to you, is negative in that situation?
LISTNUM 1 \l 15037 MR. IACONO: Not necessarily. If the customer is not willing to pay price commensurate with value delivered, then from the business provider perspective there is no business to be done there.
LISTNUM 1 \l 15038 So, it comes down to how much does a customer value a particular solution. If the price needs to be higher commensurate with the value being received, but the customer is not willing to it, then the market doesn't clear, i.e. there is no sale, there is no purchase, that happens every day.
LISTNUM 1 \l 15039 MR. BIBIC: But perhaps, Ms Song, in your laboratory experiment, the customer will get well served by any number of other providers who would be quite prepared to put in a bid and offer service.
LISTNUM 1 \l 15040 MS SONG: I am not talking about a lab experiment, though. I am talking about the real world.
LISTNUM 1 \l 15041 Just getting back to Mr. Iacono's point ‑‑
LISTNUM 1 \l 15042 MR. BIBIC: In the real world there are options for end users.
LISTNUM 1 \l 15043 MS SONG: We will, I think, talk about other options later on in this proceeding, but Mr. Iacono, let's just assume that you are talking about the same retail service offering to the end user customer, and the competitor is vying for that business and the former monopoly already has that business.
LISTNUM 1 \l 15044 If the competitor decides it can't build, it can't serve because leasing costs exceed potential revenues, then all I am saying is that the customer, therefore, would have no choice, no price competition, perhaps no differentiating product offerings as between that competitor and the former monopoly.
LISTNUM 1 \l 15045 MR. IACONO: I think your premise is extremely facile. I really don't accept it.
LISTNUM 1 \l 15046 MR. TAYLOR: Think about what ‑‑
LISTNUM 1 \l 15047 MS SONG: Sorry, just before you jump in, Dr. Taylor, and I will allow you to do that, what aspect of my question do you find facile?
LISTNUM 1 \l 15048 MR. IACONO: The whole thing, with all due respect.
LISTNUM 1 \l 15049 MS SONG: And what specifically?
LISTNUM 1 \l 15050 MR. IACONO: You are basically portraying a situation where the former monopoly, who could turn out to be MTS Allstream, the former monopoly is essentially holding a customer hostage is really what you are getting at, and, you know, that is not how markets work.
LISTNUM 1 \l 15051 MR. TAYLOR: Just let me add that the economic problem in your hypothetical is that the market price that the customer has to pay is so low that the competitor can't lease and beat that price and can't build and beat that price.
LISTNUM 1 \l 15052 Well, there certainly are good circumstances under which that customer is doing well, thank you. It is receiving a lower price than it would get if everyone had to build, for example.
LISTNUM 1 \l 15053 MS SONG: You are talking about in a monopoly environment it is getting a lower price. Is that what you are referring to, Dr. Taylor?
LISTNUM 1 \l 15054 MR. TAYLOR: Is getting a price sufficiently low, in your hypothetical, that one can't build or lease, in your hypothetical, to beat that price. It is not necessarily a bad price.
LISTNUM 1 \l 15055 THE CHAIRPERSON: Can you just clarify, Ms Song said something that struck me as not necessarily obvious. She stated that the lease price exceeds the revenue. You obviously can't lease and you also obviously wouldn't buy.
LISTNUM 1 \l 15056 I would have thought that whether you buy or not is dependent on more factors than just on this one customer and the potential revenue from that customer.
LISTNUM 1 \l 15057 MR. TAYLOR: That is right, these are network decisions, so the decision to build is generally not, though sometimes, a build to a single building or something like that, but depends upon other services and other customers that one can serve in such construction.
LISTNUM 1 \l 15058 MS SONG: In appendix 9 of your March 15th evidence, gentlemen, you say at paragraph 7 that your costs of providing service diminished as a result of the CDN decision. Correct?
LISTNUM 1 \l 15059 MR. BIBIC: Correct.
LISTNUM 1 \l 15060 MS SONG: As a result, did you lower your prices to customers?
LISTNUM 1 \l 15061 MR. IACONO: Again, that is a very broad question. I don't know if we lowered prices in terms of price tables, but there are different ways of providing values, there are different ways of providing price reductions through bundled offers, for example, et cetera.
LISTNUM 1 \l 15062 If you look at in a general way, and I am not trying to not be helpful, I don't have an answer to give you because I can't answer it.
LISTNUM 1 \l 15063 MR. TAYLOR: And this is a competitive market. We are not a rate‑of‑return regulated firm. What Bell West competes against are prices that are in the market, and because Bell West's costs may have gone down doesn't mean in a competitive market that necessarily its prices would.
LISTNUM 1 \l 15064 Now, if its competitor's costs went down as well, one would expect to see the market price fall.
LISTNUM 1 \l 15065 MS SONG: Mr. Iacono's point, I think, was that he can't tell me whether in individual cases the prices that you charge to your retail customers went down, but I think that perhaps that is where the financial statements may come into play, as that will tell you whether your overall revenues increased or decreased.
LISTNUM 1 \l 15066 MR. IACONO: Again, revenues are a function of price and quantity, and quantity has various dimensions to it and price has various dimensions to it. So, you can't really conclude, based on revenues alone, what prices are doing.
LISTNUM 1 \l 15067 MS SONG: Can you tell me right now if your revenues in fact did increase for Bell West?
LISTNUM 1 \l 15068 MR. IACONO: Again, we will wait and see how we end up with the submission that we have agreed to take a look at for the Commission.
LISTNUM 1 \l 15069 MS SONG: Can I ask you, then, what did you do with all that extra cash that you had from your CDN cost savings?
LISTNUM 1 \l 15070 MR. IACONO: I can't answer that question. I don't know.
LISTNUM 1 \l 15071 MS SONG: Can you undertake to find out and tell me?
LISTNUM 1 \l 15072 MR. BIBIC: I don't think we trace a dollar ‑‑ is that possible, Mr. Iacono?
LISTNUM 1 \l 15073 MR. IACONO: The savings weren't that huge. They certainly weren't as large in aggregate as what your competitors saved in Ontario and Quebec from the CDN decisions. Again, that is well known.
LISTNUM 1 \l 15074 MR. TAYLOR: Money in a firm is fungible. So, the fact that costs went down for Bell West doesn't mean that you can trace that reduction in cost to any particular other action that Bell West may take to invest or to pay dividends or to do other things. It all flows into the pot.
LISTNUM 1 \l 15075 MS SONG: You do make some sweeping statements in your appendix 9 about your decreased incentives, but I will leave it at that for a moment.
LISTNUM 1 \l 15076 MR. BIBIC: Ms Song, nine other parties have said the same thing and your client has also said that it did not invest in building any self‑supplied local access after the CDN decision. So, I think it is fairly well established on the record. They are not sweeping statements.
LISTNUM 1 \l 15077 MS SONG: Mr. Bibic, that is not an answer to my question, but I thank you for your contribution.
LISTNUM 1 \l 15078 MR. BIBIC: It is a response to your categorization of our evidence.
LISTNUM 1 \l 15079 MS SONG: Moving on, I believe at ‑‑ just bear with me one moment.
‑‑‑ Pause
LISTNUM 1 \l 15080 MS SONG: Turning back to the Bureau's interrogatory number 25 to Bell Canada, which we had before, again, I am looking at the same passage on page 3 of 4, and there is a statement just before the one that I had previously read into the record that:
"Under Bell Canada's current provisioning practices, Bell Canada will only consider investing in its own facilities in locations where requiring access at speeds greater than DS‑1." (As read)
LISTNUM 1 \l 15081 To put it another way, unless the location requires DS‑3 or higher, you are not going to build, right, that is what you are saying there?
LISTNUM 1 \l 15082 MR. BABIN: That is correct.
LISTNUM 1 \l 15083 MS SONG: Can you tell me why that is.
LISTNUM 1 \l 15084 MR. BABIN: It is all around priortization of capital and we have made a guideline decision for Bell West that we would not invest in fibre facilities given the low rates of CDN, and so we would lease CDN in those facilities as opposed to building our own facilities.
LISTNUM 1 \l 15085 MS SONG: So I would like to now ask you to turn up our interrogatory number 158, Bell Canada/MTS Allstream 12April07‑158.
‑‑‑ Pause
LISTNUM 1 \l 15086 MS SONG: Are you with me?
LISTNUM 1 \l 15087 MR. BABIN: Yes.
LISTNUM 1 \l 15088 MS SONG: All right, thank you.
LISTNUM 1 \l 15089 This interrogatory refers to your paragraph 9 of Appendix 9, and paragraph 9 of Appendix 9 deals with the 20 buildings in which you actually have access facilities or to which you actually have an access facility that you acquired from, I believe, a now defunct provider.
LISTNUM 1 \l 15090 And you say there that the costs of connecting those access facilities ‑‑ I mean you actually have fiber to these buildings and you say that the costs of connecting those access facilities to the customers' premises within those same buildings outstripped the costs of simply leasing CDN access facilities from an ILEC; right?
LISTNUM 1 \l 15091 MR. BABIN: That is correct.
LISTNUM 1 \l 15092 MS SONG: All right. So if I understand what you are saying correctly, the costs that you are referring to here are the costs of what you call augmentation, right, to augment that fiber facility so you actually connect the customer at its location and whatever electronics and equipment you need to install into your point of presence; correct?
LISTNUM 1 \l 15093 MR. BABIN: Yes.
LISTNUM 1 \l 15094 MS SONG: All right. And those costs are so great that you cannot invest ‑‑
LISTNUM 1 \l 15095 MR. BABIN: I think our position, Ms Song, is that the CDN pricing is so low that the economics of build versus lease favour leased facilities on CDN.
LISTNUM 1 \l 15096 MS SONG: Right, and I think you are confirming by using the negative exactly what I just said; correct?
LISTNUM 1 \l 15097 MR. BABIN: We have also shown in what is on the record payback periods that you can actually build lateral facilities and we have done our own analysis around retail services that you can actually pay back between one and four DS‑1s depending on the lateral connections, in TELUS‑2 that we have responded to.
LISTNUM 1 \l 15098 MS SONG: All right. So just so that I get a clear answer on the record, you are saying here and to me now, you are saying in your evidence and in my interrogatory and here now to me that the costs of just simply augmenting that access facility are so great that it doesn't make sense for you to do that?
LISTNUM 1 \l 15099 MR. BIBIC: Well, paragraph 9 says that in part. It also references the fact that in some of those 20 buildings we were near the buildings and had to build an additional drop to the building.
LISTNUM 1 \l 15100 MS SONG: Right. Again ‑‑
LISTNUM 1 \l 15101 MR. BIBIC: So that wasn't ‑‑
LISTNUM 1 \l 15102 MS SONG: Those are even more significant than just putting customer prime equipment, equipment in your point of presence?
LISTNUM 1 \l 15103 MR. BIBIC: Well, it is an additional cost ‑‑
LISTNUM 1 \l 15104 MS SONG: Right.
LISTNUM 1 \l 15105 MR. BIBIC: ‑‑ compared to situations where you are already in the building.
LISTNUM 1 \l 15106 MS SONG: And just to be specific, if you turn over to page 2 of interrogatory number 158, you actually list the specific costs that you are talking about to connect these customers that are in buildings to which you actually have fiber facilities.
LISTNUM 1 \l 15107 And you list them as building cabling ‑‑ so that would be the cabling inside the building ‑‑ building electronics, electronics required at the central office co‑location site, as well as route‑specific fiber splicing and grooming activity; right?
LISTNUM 1 \l 15108 MR. BABIN: That is correct.
LISTNUM 1 \l 15109 MS SONG: All right.
LISTNUM 1 \l 15110 Now, I assume that in‑territory these very same costs that you claim need to be covered in order for you to invest in connecting these customers via your own facilities, these types of costs are already incorporated into your own wholesale CDN tariffs; correct? They are not unique to your competitor operations, right?
LISTNUM 1 \l 15111 MR. BIBIC: Yes, but we don't have anyone in our territory to buy CDN from.
LISTNUM 1 \l 15112 MS SONG: No, no, that is not what I am asking, Mr. Bibic.
LISTNUM 1 \l 15113 You do have a CDN tariff in‑territory, do you not?
LISTNUM 1 \l 15114 MR. BIBIC: Yes, which is ‑‑
LISTNUM 1 \l 15115 MS SONG: Yes, and what I am asking you ‑‑
LISTNUM 1 \l 15116 MR. BIBIC: But others don't in our territory.
LISTNUM 1 \l 15117 MS SONG: ‑‑ is: Do you claim these kinds of costs, fiber splicing, putting in building electronics, putting in electronics required at the central office, these are costs that you incorporate into your wholesale CDN tariffs in‑territory when you provide CDN service to your wholesale competitors?
LISTNUM 1 \l 15118 MR. BIBIC: I am not a costing expert, so I don't know the specific elements that are built into our CDN costs.
LISTNUM 1 \l 15119 MS SONG: Right. Well, you will undertake to find out for me then, will you, sir?
LISTNUM 1 \l 15120 MR. BIBIC: Okay. So you would like to know if the items listed in the last sentence of paragraph (a) of this response are things that are included in the cost space of our CDN tariff in‑territory?
LISTNUM 1 \l 15121 MS SONG: Right.
LISTNUM 1 \l 15122 MR. BIBIC: Okay.
LISTNUM 1 \l 15123 MS SONG: Yes. And if there are some that are and some that aren't, you will let me know?
LISTNUM 1 \l 15124 MR. BIBIC: Yes.
LISTNUM 1 \l 15125 MS SONG: Thank you.
‑‑‑ Pause
LISTNUM 1 \l 15126 MS SONG: All right. I had also provided to you yesterday evening another exhibit. It doesn't have a title but it contains two tables, one entitled "Bell Quebec" and the other "Bell Ontario."
LISTNUM 1 \l 15127 Madam Secretary, I would like to mark that as an exhibit.
LISTNUM 1 \l 15128 THE SECRETARY: It will be Exhibit No. 6 ‑‑ no, no, no, sorry ‑‑ No. 8.
EXHIBIT MTS‑8: Two tables entitled "Bell Quebec" and "Bell Ontario."
LISTNUM 1 \l 15129 MS SONG: No. 8.
LISTNUM 1 \l 15130 Okay, gentlemen, do you have that?
‑‑‑ Pause
LISTNUM 1 \l 15131 MS SONG: Are you with me, gentlemen?
LISTNUM 1 \l 15132 MR. BIBIC: Yes.
LISTNUM 1 \l 15133 MS SONG: Okay, thank you.
LISTNUM 1 \l 15134 This Exhibit No. 8 contains information that is available on the BCE website as of October 9th, 2007, and as I understand it, it reflects the number of agreements that Bell Canada has with building owners with respect to access to specific buildings within their territory.
LISTNUM 1 \l 15135 Does that look right to you?
LISTNUM 1 \l 15136 MR. IACONO: Yes, Ms Song. I actually went on the website this morning and this is, by province, the MDU agreements filed or on the website pursuant to Telecom Decision CRTC 2003‑45.
LISTNUM 1 \l 15137 MS SONG: Right. And just to clarify, these are only the written agreements, correct?
LISTNUM 1 \l 15138 MR. IACONO: I am sorry?
LISTNUM 1 \l 15139 MS SONG: These are the written agreements? These numbers reflect where you have a written agreement, correct?
LISTNUM 1 \l 15140 MR. IACONO: Yes. The notes on the website describe that.
LISTNUM 1 \l 15141 MS SONG: Right. Good. I just want to clarify that because it is not apparent in the exhibit.
LISTNUM 1 \l 15142 MR. IACONO: It is not apparent from the exhibit, no.
LISTNUM 1 \l 15143 MS SONG: Right. All right.
LISTNUM 1 \l 15144 And actually, what surprises me about this information is actually how few agreements there appear to be because you are saying that you have agreements to 268 buildings in Quebec and 935 buildings in Ontario, and surely, that can't even be an infinitesimal percentage of the total number of buildings in Ontario and Quebec?
LISTNUM 1 \l 15145 MR. IACONO: These are MDU agreements. I am certainly no expert on this, but these are MDU agreements, with a very, very specific meaning of what an MDU agreement is, and, as I understand it, other parties are also supposed to be filing and posting on their websites similar agreements. I don't know if they do or not.
LISTNUM 1 \l 15146 These, to the best of my knowledge ‑‑ the agreements that are listed, in terms of specific cities for each province, and the actual location, with address ‑‑ I looked at a few ‑‑ to the best of my knowledge, this is complete in terms of ‑‑
LISTNUM 1 \l 15147 MS SONG: I am not suggesting that it is not complete, sir.
LISTNUM 1 \l 15148 My point, actually, is ‑‑
LISTNUM 1 \l 15149 MR. IACONO: Ms Song, if I may, just so everyone understands, MDUs are Multiple Dwelling Units, for those who may not be familiar with them.
LISTNUM 1 \l 15150 THE CHAIRPERSON: Are these for buildings or for building owners?
LISTNUM 1 \l 15151 Could one agreement cover more than one building?
LISTNUM 1 \l 15152 MR. IACONO: To the extent that the owner of the building has more than one building.
LISTNUM 1 \l 15153 They are listed, I believe, Mr. Chairman, address by address.
LISTNUM 1 \l 15154 THE CHAIRPERSON: I see.
LISTNUM 1 \l 15155 MS SONG: Mr. Chairman, my understanding is that the numbers you see in this table relate to specific buildings.
LISTNUM 1 \l 15156 It is not the number of agreements that Bell Canada has, say, with Olympia & York, there is one number per building.
LISTNUM 1 \l 15157 Mr. Iacono, what I was going to ask you is: You have access to more than 935 MDUs in Ontario and 268 MDUs in Quebec. Correct?
LISTNUM 1 \l 15158 MR. IACONO: Again, perhaps I should read the notes that are on the website, because they are instructive.
LISTNUM 1 \l 15159 Note 1 is:
"As the Incumbent Local Exchange Carrier, Bell Canada provides local exchange service to most MDUs in Ontario and Quebec."
LISTNUM 1 \l 15160 No. 2:
"Service is provided under Bell Canada's CRTC‑approved Terms of Service..."
LISTNUM 1 \l 15161 Then, No. 3:
"Local Exchange Carriers requesting information on any other specific locations are requested to contact their Bell Canada Carrier Services Group representative by normal channels." (As read)
LISTNUM 1 \l 15162 These are specific agreements with the multiple dwelling unit owners, pursuant to the CRTC decision.
LISTNUM 1 \l 15163 I don't know, I have not reviewed the decision in detail this morning, considering the late time at which we received the initial exhibit, but my understanding is that the agreements have a very specific meaning and interpretation relative to the Commission's requirement for us to have these on the public record, and they are.
LISTNUM 1 \l 15164 It is all a matter of public record, so it is easily verifiable.
LISTNUM 1 \l 15165 MS SONG: Right.
LISTNUM 1 \l 15166 I don't want to give you the impression that I am saying that this is somehow not complete, I think it probably is.
LISTNUM 1 \l 15167 I take your point that you are not sure exactly what MDU means. For example, it could refer to commercial buildings, as opposed to residential dwelling units.
LISTNUM 1 \l 15168 MR. IACONO: Yes, I would have to do a deeper dive to understand exactly what types of buildings are covered here, but just looking at the website picture, it looks like an apartment building to me.
LISTNUM 1 \l 15169 MS SONG: Right, but you will perhaps undertake to clarify that, since these are your agreements.
LISTNUM 1 \l 15170 MR. IACONO: We would be pleased to.
LISTNUM 1 \l 15171 MS SONG: Thank you.
LISTNUM 1 \l 15172 The question that I was asking you, to which I did not get an answer, and therefore I will repeat it, is: You have access, currently, to more than 935 MDUs, however they are defined by Bell Canada, in Ontario. Correct?
LISTNUM 1 \l 15173 MR. IACONO: Yes. That's what I was getting at when I read the note, because it does say very explicitly that Bell, as the incumbent carrier, provides local exchange service to most MDUs in Ontario and Quebec.
LISTNUM 1 \l 15174 We don't necessarily have agreements with most MDUs in Ontario and Quebec. We have 935 in Ontario, and 268, by way of agreements, and other organizations, other companies, have agreements. Some of them, presumably, have quite a few, as well. I don't know, I haven't gone to their websites.
LISTNUM 1 \l 15175 MS SONG: What you are saying is, for buildings other than the 935 that you have listed in this table, you don't need an agreement to gain access to the facilities in those buildings. Correct?
LISTNUM 1 \l 15176 MR. IACONO: No, I don't think you can conclude that. If I am a building owner ‑‑
LISTNUM 1 \l 15177 In fact, my wife and I have a little building. It is not an MDU by any stretch of the imagination, but I don't have an agreement with anyone. Maybe I should.
LISTNUM 1 \l 15178 I don't have an agreement, though, with Bell or with anyone else.
LISTNUM 1 \l 15179 MS SONG: Yes, that was my question.
LISTNUM 1 \l 15180 I am asking you specifically, not about you and your building ‑‑ or your wife's building ‑‑ I am asking you specifically, for those buildings that aren't listed here, how do you gain access to those buildings?
LISTNUM 1 \l 15181 I am asking you: Do you need an agreement to gain access to the buildings, or do you just say, "I need access to the building to fix this or that"?
LISTNUM 1 \l 15182 Is that how it works?
LISTNUM 1 \l 15183 MR. IACONO: To be honest, I don't know. As I said, I would have to go in and look at all of the details associated with what precisely these agreements are for and what they entail, and I have not had the time to do that.
LISTNUM 1 \l 15184 MR. HENRY: Ms Song, if I might add, it is a condition in the Commission's Decision 2003‑45 that any LEC that has access to a multi‑unit dwelling makes sure that the customer has choice to any other LEC.
LISTNUM 1 \l 15185 That is a Condition of Service, and the Commission has said that if that becomes a problem, it will entertain complaints and it will utilize section 42 of the Act to force building owners to provide that access to others.
LISTNUM 1 \l 15186 MS SONG: Sir, that wasn't my question. Maybe I will ask it this way, because I suspect that perhaps you think I am going somewhere where I really am not going.
LISTNUM 1 \l 15187 Maybe I will just ask you: How many commercial buildings do you have access to in Ontario?
LISTNUM 1 \l 15188 MR. BIBIC: I believe that Mr. Iacono just answered that he doesn't know, as he sits here today, the answers to your specific questions.
LISTNUM 1 \l 15189 MS SONG: Pardon me?
LISTNUM 1 \l 15190 MR. BIBIC: I believe that Mr. Iacono said that he doesn't know the answers to your specific questions.
LISTNUM 1 \l 15191 MS SONG: I haven't asked the specific question of how many commercial buildings do you have access to currently.
LISTNUM 1 \l 15192 MR. BIBIC: The answer is that we don't know.
LISTNUM 1 \l 15193 MS SONG: Mr. Iacono doesn't know.
LISTNUM 1 \l 15194 Will you undertake to find out for me, please, and let me know?
LISTNUM 1 \l 15195 MR. IACONO: I will certainly do my best to do so.
LISTNUM 1 \l 15196 MS SONG: And the same for Quebec, please.
LISTNUM 1 \l 15197 MR. IACONO: All right.
LISTNUM 1 \l 15198 COMMISSIONER del VAL: Ms Song, I have a follow‑up question.
LISTNUM 1 \l 15199 So what if Bell has access to 6,000 buildings? Where do you want to go from there?
‑‑‑ Pause
LISTNUM 1 \l 15200 MS SONG: Thank you, Commissioner del Val ‑‑
LISTNUM 1 \l 15201 MR. BIBIC: Ms Song, with respect to the undertaking we gave, I am going to take it back.
LISTNUM 1 \l 15202 In Companies‑Rogers April 12th, No. 3, we responded to a similar question. The companies do not keep an inventory of the specific commercial buildings where they have established network connections.
LISTNUM 1 \l 15203 So it has been asked, and we have given an answer. We weren't aware of it as we jumped and accepted the undertaking.
LISTNUM 1 \l 15204 MS SONG: That undertaking has to do with how many buildings do you have network access to, and my question was ‑‑ I thought my question was: not access in terms of access facilities; how many commercial buildings in your Ontario and Quebec operating territories do you have the right to enter into.
LISTNUM 1 \l 15205 That was my question.
LISTNUM 1 \l 15206 MR. BIBIC: Ms Song, if we don't have an inventory of the network connections to buildings that we have, it is less likely the case that we could answer your question.
LISTNUM 1 \l 15207 COMMISSIONER del VAL: Can we just, Ms Song ‑‑
LISTNUM 1 \l 15208 MS SONG: Yes, Commissioner del Val. The point that I am driving at is that, typically ‑‑ my understanding is that, typically, where a competitor requires access to a commercial building, the building owner will, in almost all circumstances, require that a written agreement be entered into.
LISTNUM 1 \l 15209 The fact that a written agreement is required necessarily entails negotiation, delay, and a more significant administrative burden on a competitor vis‑à‑vis a monopoly operating in its traditional operating territory.
LISTNUM 1 \l 15210 What surprises me by the figures available on BCE's website is how few buildings the incumbent, Bell Canada, appears to have entered into.
LISTNUM 1 \l 15211 We know ‑‑ and it is not my intention to provide evidence here today, but I am trying to respond to the Commissioner's question.
LISTNUM 1 \l 15212 It is our understanding that exactly the opposite prevails for us.
LISTNUM 1 \l 15213 Again, in order to put the number of buildings here into context, I don't think it's a leap to say that Bell Canada probably does have access to all commercial buildings. I don't know what the number of all commercial buildings in Ontario and Quebec is, but it would be a fairly significant number.
LISTNUM 1 \l 15214 THE CHAIRPERSON: I am now really befuddled.
LISTNUM 1 \l 15215 Mr. Iacono read out from the website saying that they have access to all commercial buildings or MDUs in their territory. You, as an incumbent, must know in Manitoba what is the story. Presumably, MTS has access to all of them.
LISTNUM 1 \l 15216 So what are you now trying to establish with this line of questioning? I mean, Bell admitted that they have access. It seems logical that an incumbent has access to most of them. When a new one comes in, there's an extra burden, which, you suggested, the competitor has to negotiate an agreement.
LISTNUM 1 \l 15217 If that's the point you are trying to establish, I think you already have established it, so why are we digging further into this?
LISTNUM 1 \l 15218 I'm sorry, I just do not follow your line of questioning or what you are trying to establish. Maybe you can clarify.
LISTNUM 1 \l 15219 MS SONG: Well, I think it is time to move on, Mr. Chairman, but, you know, in order to establish the fact that Bell Canada, in its traditional operating territory, can just basically walk into a building, as opposed to having to negotiate a written agreement every time they want to walk into a building, I thought that it was relevant to know how many buildings, in total, are there, commercial buildings are there in total, just to put these numbers into context. But I will now move on.
LISTNUM 1 \l 15220 THE CHAIRPERSON: So would you want them to tell you how many commercial buildings they serve in Ontario?
LISTNUM 1 \l 15221 MS SONG: That was what I had asked. Mr. Iacono indicated that he could find out that number. Mr. Bibic has now said they can't.
LISTNUM 1 \l 15222 MR. BIBIC: Ms Song, I pointed you to an interrogatory and you didn't want to go there. It says:
"The Companies estimate that over time they would have established connectivity to most commercial buildings in their serving territories to provision either voice or voice and data services." (As read)
LISTNUM 1 \l 15223 I was trying to answer the question. It says it right there in the interrogatory that Rogers posed.
LISTNUM 1 \l 15224 MS SONG: I'm not suggesting that you didn't try to answer the question. Thank you.
LISTNUM 1 \l 15225 Finally, you have given evidence that it's taken you over ‑‑ or approximately 20 years to build your fibre networks. Correct?
LISTNUM 1 \l 15226 MR. BIBIC: We had a discussion around that, yes.
LISTNUM 1 \l 15227 MS SONG: Yes. Isn't it reasonable to assume that it will take competitors at least that long?
LISTNUM 1 \l 15228 MR. BIBIC: No.
LISTNUM 1 \l 15229 MS SONG: Why is that, Mr. Bibic?
LISTNUM 1 \l 15230 MR. BIBIC: Well, it wouldn't take 20 years to build connection, fibre access to a building. I don't know what you are referring to. Are you referring ‑‑
LISTNUM 1 \l 15231 MS SONG: Okay.
LISTNUM 1 \l 15232 MR. BIBIC: ‑‑ to a new entrant coming in and building a ‑‑
LISTNUM 1 \l 15233 MS SONG: Let me clarify that.
LISTNUM 1 \l 15234 MR. BIBIC: ‑‑ ubiquitous network across the country? I mean, we got to scope that down a little bit.
LISTNUM 1 \l 15235 MS SONG: I think the question is, let's take Bell Canada in Ontario and Quebec, isn't it reasonable to assume that ‑‑ in order for a competitor to duplicate the fibre network that you currently possess, which you have told us has taken you at least 20 years to build, isn't it reasonable to assume that it would take a competitor at least that long?
LISTNUM 1 \l 15236 MR. BIBIC: I'm not sure a new entrant, Ms Song, needs to duplicate our fibre network. It so happens that cable companies actually have duplicated networks. A new entrant can compete effectively in various product and geographic markets without having to duplicate the entirety of all the incumbent's networks, fibre or otherwise.
LISTNUM 1 \l 15237 MS SONG: But it is your position, is it not, that what we should all be striving for here is a full end‑to‑end facilities‑based competition model. Correct?
LISTNUM 1 \l 15238 MR. BIBIC: It is not our position that we should be striving to have, you know, one entity ubiquitously building every single far reach of Canada. The point is that, for example, high‑capacity data services, you know, in your head bank headquarters in Toronto, the point is to incent competitors to build. In the case of residential telephony, well, we have got end‑to‑end facilities‑based competition.
LISTNUM 1 \l 15239 It all depends, you know, which particular product market, geographic market you are talking about, but the point is to incent competitors to build. We haven't said the point is to incent a particular competitor to build absolutely everywhere.
LISTNUM 1 \l 15240 MS SONG: The final point that I would just very briefly like to touch upon is ‑‑
LISTNUM 1 \l 15241 COMMISSIONER de VAL: Ms Song, may I just follow up on that?
LISTNUM 1 \l 15242 MS SONG: Yes.
LISTNUM 1 \l 15243 COMMISSIONER de VAL: I think, Mr. Bibic, you did say that you started laying fibre in the ground about 20 years ago, around 1986. And then I think in the interrogatory you said that for the next generation services the augmentation started about 10 to 15 years ago.
LISTNUM 1 \l 15244 I thought Ms Song was asking you why wouldn't it take the competitors just as long. I thought that your answer to that was no, and so Ms Song asked why. Is that...?
LISTNUM 1 \l 15245 MR. BABIN: I think, Commission de Val, when we started to build in fibre for Nex Gen services, you know, there was copper in the ground, and so there was coordination with that technology in the ground as opposed to starting fresh. But it's also, you know, the changes in the way the technology works today. I think, to Mr. Bibic's point, it's not to build everywhere, it's building on a, you know, business case basis by a customer basis or by a building basis.
LISTNUM 1 \l 15246 Certainly, if you were going to build exactly what Bell's built in the last 15 years, it would take a number of years to do that, as well.
LISTNUM 1 \l 15247 THE CHAIRPERSON: But even then, you would have the benefit of learning curve and technology advances, so, by definition, it should be less than it took you.
LISTNUM 1 \l 15248 MR. BABIN: Yes, I would agree with that, Mr. Chairman.
LISTNUM 1 \l 15249 MS SONG: Just following up on that, Mr. Babin, when you were speaking earlier, you did mention that some of the costs of laying down fibre would depend on whether you already had access to ducts. I assume that in your ILEC territory you do have access to ducts because you already have a copper network laid down. Correct?
LISTNUM 1 \l 15250 MR. BABIN: In the fibre network, there would be duct structures, and that would be part of our support structure agreements that we would have in place.
LISTNUM 1 \l 15251 MS SONG: Right. And technological innovation is not really relevant to the issue of actually laying down the fibre in the ground. Correct? When you were talking ‑‑
LISTNUM 1 \l 15252 MR. BABIN: Can you repeat the question, sorry?
LISTNUM 1 \l 15253 MS SONG: When you are talking about technological innovation, you are talking about the equipment that you would place on the fibre facility, but in terms of actually laying down fibre, that's just construction. That's ripping up roads, that's going into buildings and building physical facilities. Right? So you weren't meaning to suggest that technological innovation would have reduced those costs?
LISTNUM 1 \l 15254 MR. BABIN: No, I think the point is over the last 15 years many companies have built conduit structures into buildings or conduit structures in metropolitan cities, and so that some of those impediments, I would say, to construct are already overcome. And, you know, there's support structure agreements in place that everybody has access to those support structures.
LISTNUM 1 \l 15255 MR. BIBIC: And we are not suggesting that access to support structures not be regulated. We have got it in the technical services category in our proposal.
LISTNUM 1 \l 15256 MS SONG: Right, but there are other costs associated with laying down fibre other than accessing ducts or support structures, you will agree me?
LISTNUM 1 \l 15257 MR. BABIN: Well, there would be the electronics that we talked about earlier.
LISTNUM 1 \l 15258 MS SONG: I'm talking about laying down fibre. We are talking about laying down fibre, Mr. Babin ‑‑
LISTNUM 1 \l 15259 MR. BABIN: Yes.
LISTNUM 1 \l 15260 MS SONG: ‑‑ so why are you bringing in electronics again?
LISTNUM 1 \l 15261 MR. BABIN: No, you said there would be other costs.
LISTNUM 1 \l 15262 MS SONG: Associated with laying down fibre ‑‑
LISTNUM 1 \l 15263 MR. BABIN: Yes.
LISTNUM 1 \l 15264 MS SONG: ‑‑ other than simply the costs of accessing support structures and ducts. Correct?
LISTNUM 1 \l 15265 MR. BABIN: Correct, yes.
LISTNUM 1 \l 15266 THE CHAIRPERSON: Let me ask a question. Laying down fibre, we only talk about the laying down of fibre, which Ms Song is concerned. Over the last 10 years, have there been improvements in the way you do it technology? I mean, are there new methods that make it faster, cheaper, et cetera, than before?
LISTNUM 1 \l 15267 She said it's just construction. I don't know. I would be interested to see whether the costs today are the same as 10 years or, actually, since nowadays you do it differently, you actually do it cheaper and faster. So that's the question is.
LISTNUM 1 \l 15268 MR. BABIN: No, I think, Mr. Chairman, my point was that there is ducts there, so pulling in fibre, you actually don't have to tear up roads and you have access to those support structures and everybody has access to them. So it is the cost of pulling in the fibres, the cost of the fibre.
LISTNUM 1 \l 15269 THE CHAIRPERSON: The methodology of digging down and putting ‑‑
LISTNUM 1 \l 15270 MR. BABIN: Generally the same.
LISTNUM 1 \l 15271 THE CHAIRPERSON: ‑‑ is still the same?
LISTNUM 1 \l 15272 MR. BABIN: Yes, generally the same.
LISTNUM 1 \l 15273 MS SONG: All right. Now, with respect to the pricing of essential facilities I realize that in your proposal there would not be actually any services that would fall into that category as a result of this proceeding. But I just want to confirm that in your proposal you agree that for those services or facilities that are deemed to be essential the facilities and services should be priced at Phase II costs plus fixed mark‑up, correct?
LISTNUM 1 \l 15274 MR. BIBIC: Correct.
LISTNUM 1 \l 15275 MS SONG: Thank you.
LISTNUM 1 \l 15276 Just a moment please, Mr. Chair. Mr. Chair, those are all my questions, but I will be followed by Mr. Koch who will have more questions to address to the expert panel.
LISTNUM 1 \l 15277 THE CHAIRPERSON: Why don't we do that after lunch?
LISTNUM 1 \l 15278 But before we break for lunch, maybe you can answer one of my questions that bothers me.
LISTNUM 1 \l 15279 I have heard you talk all morning long about disincentives to investment because CDN is so cheap, et cetera. While that may be something undesirable for us from a public service point of view, wanting to see a build‑up of network, et cetera why, as a company, would it be a disincentive? I mean, isn't it a benefit for you?
LISTNUM 1 \l 15280 Doesn't it mean that you have an input cost that now has gone down and you could use the investment that you would have spent on laying out fibre or whatever the case may be and invest it in other areas of your business? Why is it a disincentive to you?
LISTNUM 1 \l 15281 If it is a disincentive to see the build‑up of networks, yes, I understand, but why from a company‑specific point of view you call that a disincentive.
LISTNUM 1 \l 15282 MR. BIBIC: Well, if you are talking about our operations out west, for example, we went in 2004, I was involved in this and we acquired the assets in the west of GT, sold the eastern assets to Call‑Net, now Rogers has them.
LISTNUM 1 \l 15283 And I remember sitting in a room trying to figure out with my business colleagues how we were going to now reduce our cost structure by using these assets that we had acquired by moving migrating service, the facilities that we were leasing from TELUS, onto our own facilities. The CDN decision came out in February of 2005, right after we bought these assets, and we stopped using those GT facilities. So that is the context.
LISTNUM 1 \l 15284 The incentive is ultimately by moving things on our network we over time ultimately get better control of our overall cost structure and we get better control over our product set. What happens is we are not weaned off CDN, we continue to use CDN. Frankly, we have a limited capital budget envelope and then we have to prioritize amongst the different programs we are going to use that money on.
LISTNUM 1 \l 15285 If CDN weren't available, I think you would see us use the facilities we have more or build out where it would make more sense. Ultimately, in the long run, we would be in better control of the return on those investments.
LISTNUM 1 \l 15286 THE CHAIRPERSON: So really it comes down to control over your investment?
LISTNUM 1 \l 15287 MR. BIBIC: It does in the medium to long‑term, yes.
LISTNUM 1 \l 15288 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 15289 Now, let us break now. We will resume in ‑‑
LISTNUM 1 \l 15290 MR. McCALLUM: Mr. Chair?
LISTNUM 1 \l 15291 THE CHAIRPERSON: Yes?
LISTNUM 1 \l 15292 MR. McCALLUM: May I make a short announcement?
LISTNUM 1 \l 15293 THE CHAIRPERSON: Sure, counsel.
LISTNUM 1 \l 15294 MR. McCALLUM: The Chair announced yesterday that there would be a list of services available. Commission staff has now prepared a list of services and a short covering sheet with instructions. The list of services has just been listed in alphabetical order and there is a blank number of categories and parties are requested to complete the form and submit it when they submit their remarks on the 9 of November.
LISTNUM 1 \l 15295 So we have made a number of copies of the request, they are available through the Secretary. And Bob Martin, the Hearing Manager, will also email copies of it to other parties who are parties to the proceeding, but not present today.
LISTNUM 1 \l 15296 Thank you.
LISTNUM 1 \l 15297 THE CHAIRPERSON: As part of the effort by the Commission to try to scope the issue of what is going on, we have told you that conceptually we are thinking of those six categories. And here are all the lists of services that we know and we are asking, you know, if you had your druthers, where would you place and, you know, Bell wouldn't place anybody in the essentials. I understand that, but probably most of all on the phase out, et cetera. And then we are also asking you what would be the appropriate phase out or the appropriate amount?
LISTNUM 1 \l 15298 It just helps us to sort of conceptually get around the problem. Thank you very much.
LISTNUM 1 \l 15299 MR. McCALLUM: And if I may request that it be received as CRTC Exhibit 4.
EXHIBIT CRTC‑4: List of services prepared by Commission staff
‑‑‑ Upon recessing at 1226 / Suspension à 1226
‑‑‑ Upon resuming at 1331 / Reprise à 1331
LISTNUM 1 \l 15300 THE CHAIRPERSON: Counsel, I assume you have an announcement to make?
LISTNUM 1 \l 15301 MR. McCALLUM: Mr. Chairman, some of the counsel have approached us counsel here to discuss questions relating to sequencing and whether some parties can go ahead of other parties and so on.
LISTNUM 1 \l 15302 I just want to perhaps invite counsel to see Amy and myself at, say, 4:30 when the day finishes. We can have sort of a little discussion amongst ourselves on a going forward basis.
LISTNUM 1 \l 15303 Thank you.
LISTNUM 1 \l 15304 THE CHAIRPERSON: Okay, Mr. Koch, you are on.
LISTNUM 1 \l 15305 MR. KOCH: Thank you, Mr. Chairman.
LISTNUM 1 \l 15306 I have with me at the table Dr. Selwyn from ETI.
LISTNUM 1 \l 15307 MR. KOCH: Good afternoon, panel.
LISTNUM 1 \l 15308 For those of you who have come from far away to provide expert evidence, you will be happy that it is your turn now.
LISTNUM 1 \l 15309 I would like to start with you, Mr. Waters, if I could. You provided a report for the Companies entitled "International Comparison of Wholesale Regulation in Canada?"
LISTNUM 1 \l 15310 MR. WATERS: That is correct.
LISTNUM 1 \l 15311 MR. KOCH: In a very general sense, this is intended to be a benchmarking study. Is that a fair comment?
LISTNUM 1 \l 15312 MR. WATERS: Yes, that would be a fair comment.
LISTNUM 1 \l 15313 MR. KOCH: If I could ask you to turn to paragraph 1.3 of the report, please, you note here the economies that you have selected for comparison with Canada, and you say ‑‑ well, you set them out there.
LISTNUM 1 \l 15314 You indicate:
"This provides a geographic range of economies in Europe, Asia‑Pacific and North America, economies within and outside the EU, large, mid‑sized and small economies, economies with a range of levels of alternative infrastructure deployment and economies with a range of broadband take up levels." (As read)
LISTNUM 1 \l 15315 Would I be fair to say this is, rather than attempting to be a sample of countries that are comparable to Canada, this is a rather general survey of countries or sample of countries?
LISTNUM 1 \l 15316 MR. WATERS: I will initially answer that question this way. The core of the paper is actually an analysis of what are the trends in regulatory decision‑making and thinking. Then it uses a range of countries to try and illustrate those trends.
LISTNUM 1 \l 15317 So, it is not a benchmarking in the same way that you would benchmark prices, for example.
LISTNUM 1 \l 15318 MR. KOCH: Right. So, you would agree with me these countries were not chosen to be comparable to Canada in the sense of demographics and other criteria like that. It was more of a general survey. Is that not a fair statement?
LISTNUM 1 \l 15319 MR. WATERS: No, I don't think that is an accurate statement. It depends at what level, of course, you wish to draw your comparabilities. If you draw your comparabilities too tight, then of course each country is an island on to itself.
LISTNUM 1 \l 15320 At the other end of the scale you could have Uganda in here, and that would be useless.
LISTNUM 1 \l 15321 What I have tried to do is pick a range of countries that have some broad similarities to the Canadian market.
LISTNUM 1 \l 15322 MR. KOCH: What is the similarity between the Hong Kong market and the Canadian market?
LISTNUM 1 \l 15323 MR. WATERS: The Hong Kong market is a small geographic market, but it is a market which has urban areas where they would be broadly comparable to some urban areas in Canada.
LISTNUM 1 \l 15324 It also has GDP that is broadly similar as a developed economy.
LISTNUM 1 \l 15325 MR. KOCH: I have to confess I ‑‑
LISTNUM 1 \l 15326 MR. WATERS: Sorry, one more factor. It has a somewhat higher level of what I would call ICT take up or penetration.
LISTNUM 1 \l 15327 MR. KOCH: It is a lot denser in terms of population than Canada, is it not?
LISTNUM 1 \l 15328 MR. WATERS: I think if we were talking about Indian Head, yes. If we were talking about areas of Toronto, then possibly not.
LISTNUM 1 \l 15329 MR. KOCH: But your report deals with Canada as a whole. Isn't that a fair statement? I would have thought this is not a point of controversy between us, Mr. Waters.
LISTNUM 1 \l 15330 How many times have you visited Canada, Mr. Waters?
LISTNUM 1 \l 15331 MR. WATERS: I lived here during my teenage years.
LISTNUM 1 \l 15332 MR. KOCH: So you are familiar with the geography of Canada?
LISTNUM 1 \l 15333 MR. WATERS: Yes, I am.
LISTNUM 1 \l 15334 MR. KOCH: For the United States, in footnote 2 on that same page, I see you indicate you have relied on the separate report on the U.S. prepared by NERA titled "Telecommunications Competition in the U.S.: An Assessment of Wholesale Regulation Policy." That is the report of NERA that we will come to later.
LISTNUM 1 \l 15335 Mr. Engelhart was discussing that report in some detail with the panel yesterday, and I think he was asking questions about the conclusion the report sought to draw that the environment in the U.S., in terms of wholesale access, was largely deregulated. Do you recall that?
LISTNUM 1 \l 15336 MR. WATERS: I recall that.
LISTNUM 1 \l 15337 MR. KOCH: How does that mesh with, if I could ask you to go to page 59 of your report, please. At the bottom of that page, and I am referring to figure 25, Mr. Waters.
LISTNUM 1 \l 15338 MR. WATERS: Yes, I can see it.
LISTNUM 1 \l 15339 MR. KOCH: The line for U.S. you have ‑‑ just so that we are all on the same page, you have taken all of these countries and you have put them into one of three ‑‑ are there three boxes or four boxes? Three boxes. Correct?
LISTNUM 1 \l 15340 MR. WATERS: Yes.
LISTNUM 1 \l 15341 MR. KOCH: High, medium and low for regulation. Is that right?
LISTNUM 1 \l 15342 MR. WATERS: Yes, for retail and wholesale separately.
LISTNUM 1 \l 15343 MR. KOCH: Right. For retail regulation you have the U.S. at low. But for wholesale regulation you have the U.S. at medium. Correct?
LISTNUM 1 \l 15344 MR. WATERS: Correct.
LISTNUM 1 \l 15345 MR. KOCH: How does that jibe with the NERA report?
LISTNUM 1 \l 15346 MR. WATERS: It exactly comes back to what Dr. Taylor said yesterday, that in relation to legacy services, the United States has a different speed of regulation, if you like, than in relation to forward looking broadband services and fibre services.
LISTNUM 1 \l 15347 The U.S. also has a residual regime of wholesale regulation at the resale level that very few people use. That is that retail minus regime.
LISTNUM 1 \l 15348 So, when I sort of put all those apples and bananas together, I think it comes up with a medium, but that is why I have also broken down, and that is also why in the CRA report we break out like with like and just look at broadband services, for example, and the wholesale services that turn around broadband. That is exactly what Dr. Taylor was talking about yesterday.
LISTNUM 1 \l 15349 MR. KOCH: Canada, if I could ask you to turn the page, you have retail regulation and wholesale regulation, and I am pleased that you gave us a high rating in both.
LISTNUM 1 \l 15350 On the retail regulation, I had some questions for you. You indicate ex ante tariff approval. You are aware that we are now at a situation where ‑‑ well, first of all, let's deal with broadband. You understand that at the retail level there is no tariff approval of broadband services, is there?
LISTNUM 1 \l 15351 MR. WATERS: That is my understanding, yes.
LISTNUM 1 \l 15352 MR. KOCH: If we went, then, to voice, local voice, you would be aware at this point of the proceedings, I would assume, that in fact ‑‑ you know, I am going to get the percentage wrong, Mr. Waters ‑‑ a very high majority of exchanges have been, at least on the residential side, now been deregulated in terms of ‑‑
LISTNUM 1 \l 15353 THE CHAIRPERSON: It is 64 per cent now.
LISTNUM 1 \l 15354 MR. KOCH: Is it 64 per cent, have been deregulated for local voice. Correct?
LISTNUM 1 \l 15355 MR. WATERS: That wasn't at the time that this paper was written, but that is my understanding now.
LISTNUM 1 \l 15356 MR. KOCH: So, we would have to take that into account if we were to redo this chart today. Correct?
LISTNUM 1 \l 15357 MR. WATERS: Yes. I would say that Canada was playing catch up with the rest of the world in relation to retail regulation of local services.
LISTNUM 1 \l 15358 MR. KOCH: Leaving aside your characterization of catch up, let's go through what it is.
LISTNUM 1 \l 15359 Price caps, you understand there is a new price cap regime this Commission has approved, it was either the end of March or the end of April this year. Do you know what significant changes were made in that regard?
LISTNUM 1 \l 15360 MR. WATERS: I am sorry, Mr. Koch, I haven't read that price cap decision.
LISTNUM 1 \l 15361 MR. KOCH: So you can't help us on that.
LISTNUM 1 \l 15362 MR. WATERS: No, I can't. I do understand that there has been some reduction in the level of regulation, but I couldn't tell you by how much or what it is.
LISTNUM 1 \l 15363 MR. KOCH: If I suggested to you that there has been a dramatic reduction in the level of retail regulation, would you agree or disagree with that, Mr. Waters?
LISTNUM 1 \l 15364 MR. WATERS: Mr. Koch, I haven't read it, so I can't tell you.
LISTNUM 1 \l 15365 MR. KOCH: Exactly. Thank you.
LISTNUM 1 \l 15366 Going back, then, to the body of your report.
LISTNUM 1 \l 15367 MR. WATERS: Yes.
LISTNUM 1 \l 15368 MR. KOCH: You would agree with me that ‑‑ well, you put the U.K. in the category of high regulation. Correct?
LISTNUM 1 \l 15369 MR. WATERS: I think the U.K. actually falls in the level of very high regulation.
LISTNUM 1 \l 15370 MR. KOCH: Sorry, I was just dealing with your three. There's a fourth?
LISTNUM 1 \l 15371 MR. WATERS: I am sorry, I thought you were back at the body. You are still on page ‑‑ sorry, could you tell me what page you are on, Mr. Koch?
LISTNUM 1 \l 15372 MR. KOCH: You are right, I had flipped back to the body of the report, Mr. Waters. Forgive me.
LISTNUM 1 \l 15373 So, the U.K. gets an even higher mark. It gets a very high regulation, is that right, on the whole?
LISTNUM 1 \l 15374 MR. WATERS: Which category are you talking, in retail or wholesale?
LISTNUM 1 \l 15375 MR. KOCH: Wholesale.
LISTNUM 1 \l 15376 MR. WATERS: Yes, it does get quite a high category. It gets the highest rank because it has an extensive unbundling regime and it has operational separation as well.
LISTNUM 1 \l 15377 MR. KOCH: I would like to ask you a couple of questions about operational separation.
LISTNUM 1 \l 15378 MR. WATERS: Yes.
LISTNUM 1 \l 15379 MR. KOCH: I distributed an opinion from the ERG.
LISTNUM 1 \l 15380 MR. WATERS: Yes. Could you just wait while I turn that up. Sorry, the European regime is almost as voluminous as yours.
LISTNUM 1 \l 15381 THE SECRETARY: This will be MTS Allstream Exhibit No. 9.
EXHIBIT MTS‑9: ERG Opinion on Functional Separation
LISTNUM 1 \l 15382 MR. KOCH: Perhaps for efficiency purposes, while the document is being circulated, this is a document of the ERG. Could you tell the panel, please, what the ERG is, Mr. Waters?
LISTNUM 1 \l 15383 MR. WATERS: The ERG and the IRG are an organization that comprises all of the national regulatory authorities, all the NRAs, as they are called, in the European Union and also in the European economic free zone, which are the countries that wish to participate in the European economic union but not in the European political union, and that is Switzerland and Norway.
LISTNUM 1 \l 15384 So, it is the peak organization of those NRAs.
LISTNUM 1 \l 15385 MR. KOCH: The ERG, I understand it, it was created under an instrument of the European Commission. Is that your understanding as well?
LISTNUM 1 \l 15386 MR. WATERS: It was created under the framework directive which was implemented by the European Union in 2002, yes.
LISTNUM 1 \l 15387 MR. KOCH: It is an organization, is it not, where representatives of the national regulatory agencies, the NRAs get together to set not binding policy, but to reach agreements as to best practices. Is that not a fair ‑‑
LISTNUM 1 \l 15388 MR. WATERS: I am not sure I call it best practices because, the reason I say that is ‑‑ it is a consensus body and it does come out with recommendations, but I think you have to remember that the European Union is not terribly homogenous. It is making recommendations for Poland, which has practically no copper, and for the U.K., which has lots of copper and some cable, and for the Netherlands, which has lots of cable.
LISTNUM 1 \l 15389 So, it tends to ‑‑ I wouldn't call it best practice. I would call it some form of sort of a little bit better than lowest common denominator.
LISTNUM 1 \l 15390 MR. KOCH: But they do get together to agree at a policy level on regulatory framework. Correct?
LISTNUM 1 \l 15391 MR. WATERS: Yes, they do.
LISTNUM 1 \l 15392 MR. KOCH: And it is a respected organization, is it not?
LISTNUM 1 \l 15393 MR. WATERS: Yes, I would say that it is a respected organization.
LISTNUM 1 \l 15394 MR. KOCH: Thank you.
LISTNUM 1 \l 15395 This document, ERG opinion on functional separation, this is a very recent document, is it not?
LISTNUM 1 \l 15396 MR. WATERS: Yes, I think it has only come out in the last couple of weeks.
LISTNUM 1 \l 15397 MR. KOCH: As I understand it, when they are speaking of functional separation, they are speaking of the types of measures that were taken in the U.K. on a voluntary basis and in New Zealand under a legislated basis to operationally separate certain parts of the upstream and downstream businesses of BT and Telecom New Zealand. Is that a fair statement?
LISTNUM 1 \l 15398 MR. WATERS: It is that sort of model, but I wouldn't say that it was voluntary in the U.K. because the regulator there was proposing to refer BT to the Competition Bureau, or their version of the Competition Bureau for proceedings as to whether structurally separate BT, and it agreed to settle the case. So I am not quite sure you would call that voluntary.
LISTNUM 1 \l 15399 MR. KOCH: The ERG here is recommending that functional separation be added as a remedy, if I could call it, to the arsenal of regulatory remedies, not saying that it should be applied in every case, but the essence of the recommendation, is it not fair to say, is that it should be added and then applied based on the specific circumstances?
LISTNUM 1 \l 15400 MR. WATERS: Yes, and I think we need to come to the specific circumstances, but, yes.
LISTNUM 1 \l 15401 MR. KOCH: I am particularly interested in one aspect of the recommendation, which is at page 9, Mr. Waters. Do you see the heading of page 9 is, it is an italicized heading: "The Impact on the Incentives to Invest?"
LISTNUM 1 \l 15402 MR. WATERS: Yes.
LISTNUM 1 \l 15403 MR. KOCH: It says:
"Concerns could be raised that mandating vertical separation as a regulatory remedy could reduce the incentives to make substantial investments in next generation networks. It is important to stress, however, that even with a functional separation remedy in place, any separate business unit would remain part of the vertically integrated operator. For any substantial investment, such as the national roll out new fibre access network, ERG recognizes that this would require a company as a whole to raise the necessary funds and make the decision to invest. If share price is an accurate reflection of investor sentiment and confidence, then the evidence in the case of BT needs to be considered. Following the announcement of the undertakings in the United Kingdom, BT's share price increased. After almost two years BT has shown a relatively strong share performance compared with many of its European peers. There are many factors which would influence the share price of an undertaking. However, it is clear the undertakings entered into by BT were not perceived by the market as a disincentive to invest." (As read)
LISTNUM 1 \l 15404 You agree with me that ERG is there observing that there is evidence that being required to provide access to next generation services is not a disincentive to invest. Would you not agree with that?
LISTNUM 1 \l 15405 MR. WATERS: No, I agree with it, but you have taken it out of the context of the page before, if you go back to page 8.
LISTNUM 1 \l 15406 The reason ERG is saying that there is no disincentive to invest is because it is only recommending functional separation in respect of enduring bottlenecks. You see that under the heading "The Scope of Assets: Product Lines to be Included," and if I could read out a sentence:
"The underlying logic of functional separation in respect of enduring bottlenecks and you see that under the heading "The Scope of Assets: Product Lines to be Included."
LISTNUM 1 \l 15407 I could read out a sentence:
"The underlying logic of functional separation is to include in the separate business entity only the narrow subset of infrastructure assets which cannot be feasibly or economically replicated and to encourage competitors to build their own infrastructure where this is feasible." (As read)
LISTNUM 1 \l 15408 Now interestingly, the Dutch regulator has actually specifically rejected operational separation because of the higher level of cable penetration in the Netherlands, which is below Canada, and also because the Dutch regulator does believe that it will dissuade the cable operator from investing in NGN if it functionally separates the incumbent.
LISTNUM 1 \l 15409 So you have got to read that rider on the next page in the context of the footprint of operational separation.
LISTNUM 1 \l 15410 MR. KOCH: And your point is that it includes ‑‑ the point is to include those that are perceived to be enduring bottlenecks.
LISTNUM 1 \l 15411 But if this Commission were to determine that in, for example, the business market, where there is not the same cable footprint as in the residence market, that the ILEC facilities in there is an enduring bottleneck, then the conclusion that the ERG reached, which was that it didn't believe that that would be a disincentive to invest, would stand; correct?
LISTNUM 1 \l 15412 MR. WATERS: No, because the ERG also says that before you even think about the functional separation, not only in relation to the bottleneck, you have to look at both its costs, how much cost does it impose through regulation, and secondly, if you go back to page 2, they also say you have to look at what this is directed at, and it is the end of that first paragraph on page 2:
"Functional separation should only be implemented when it can be shown that other mechanisms or remedies cannot ensure non‑discriminatory access." (As read)
LISTNUM 1 \l 15413 And there, they are talking about non‑price terms.
LISTNUM 1 \l 15414 So if we take the U.K., in the year before operational separation was implemented, BT was missing 50 percent of wholesale appointments. So when it had to go out into the field for CLECs and install unbundled loops, it was missing 50 percent of those appointments.
LISTNUM 1 \l 15415 And so the sort of level of wholesale service in the U.K. was shocking before the implementation of operational separation, and operational separation is directed at that problem.
LISTNUM 1 \l 15416 MR. KOCH: Do you ‑‑
LISTNUM 1 \l 15417 MR. WATERS: So you have to ask ‑‑ sorry, if I can just finish.
LISTNUM 1 \l 15418 You have to ask two questions.
LISTNUM 1 \l 15419 Do I have a bottleneck here that is of an enduring nature?
LISTNUM 1 \l 15420 And secondly, in respect of that bottleneck, am I seeing significant non‑discriminatory behaviour so that the extra costs of operational separation are worth it?
LISTNUM 1 \l 15421 You have to ask those two questions and that is what the ERG says in this paper.
LISTNUM 1 \l 15422 MR. KOCH: Mr. Waters, do you have any idea what the level of service is of CLECs by the incumbents in Canada?
LISTNUM 1 \l 15423 MR. WATERS: No, I don't but I am just pointing out ‑‑
LISTNUM 1 \l 15424 MR. KOCH: Okay, thank you.
LISTNUM 1 \l 15425 MR. WATERS: I am just pointing out what has to be asked, the questions that have to be asked before you do operational separation.
LISTNUM 1 \l 15426 MR. KOCH: Okay.
LISTNUM 1 \l 15427 MR. BIBIC: It is quite good actually, Mr. Koch.
LISTNUM 1 \l 15428 MR. KOCH: I am directing my questions at the basis for Mr. Waters' opinion.
LISTNUM 1 \l 15429 MR. BIBIC: But you left an implication about our quality of service.
LISTNUM 1 \l 15430 MR. KOCH: Well, the Commission is well aware of the level of quality of service.
LISTNUM 1 \l 15431 Mr. Waters, going back to your report ‑‑
LISTNUM 1 \l 15432 MR. WATERS: Yes.
LISTNUM 1 \l 15433 MR. KOCH: ‑‑ your basic bottom line, is it not that there is a lot of wholesale regulation in Canada, and yet, Canada is an infrastructure‑rich country; correct?
LISTNUM 1 \l 15434 MR. WATERS: Correct.
LISTNUM 1 \l 15435 MR. KOCH: Now, that infrastructure that you are referring to is what infrastructure?
LISTNUM 1 \l 15436 MR. WATERS: Well, the infrastructure ‑‑ there, I was relying on the CRA report and the infrastructure that we have some data on from the OECD is the cable network infrastructure.
LISTNUM 1 \l 15437 We have heard discussion this morning that there is obviously additional fiber infrastructure. So my conclusions in that sense are a little underrepresentative but we lied on what we could find in the OECD.
LISTNUM 1 \l 15438 MR. KOCH: I really want to try and keep this moving along. When I ask you sort of the basis for views expressed in your report, I really want to hear the basis.
LISTNUM 1 \l 15439 So the basis of the view expressed in your report is the cable rollout of broadband; correct?
LISTNUM 1 \l 15440 MR. WATERS: Yes.
LISTNUM 1 \l 15441 MR. KOCH: Okay, thank you.
LISTNUM 1 \l 15442 Now, if I could turn then to a person I know well on the panel whose name escapes me right ‑‑ Ms Sanderson. Forgive me.
LISTNUM 1 \l 15443 Ms Sanderson, as I understand the way this works, the Gilbert Tobin report is one of the inputs that you took ‑‑ I mean they took an input from NIRA, they reached some conclusions, put checkmarks, Xs, Hs, Ls, Ms beside different countries, and then you took that and you put that into your own analysis; correct?
LISTNUM 1 \l 15444 MS SANDERSON: Yes, just with one clarification, Mr. Koch. I believe that the Gilbert and Tobin group relied on the NIRA report for some of the U.S. information ‑‑
LISTNUM 1 \l 15445 MR. KOCH: Right.
LISTNUM 1 \l 15446 MS SANDERSON: ‑‑ but not other countries.
LISTNUM 1 \l 15447 MR. KOCH: Yes. No, if I left that impression, I misspoke. Thank you for correcting that.
LISTNUM 1 \l 15448 And so we get to your report, which is called "An international comparison of end‑to‑end facilities‑based competition in telecommunications."
LISTNUM 1 \l 15449 As I understand it, this report, as I think is implicit in Mr. Waters' statement, is again restricted to residential broadband. Is that a fair comment?
LISTNUM 1 \l 15450 MS SANDERSON: Yes, the comparison that is in this report is that the data certainly is restricted to residential broadband.
LISTNUM 1 \l 15451 MR. KOCH: Okay. Now, you were mapping a number of things. You were mapping the extent of facilities‑based competition, correct?
LISTNUM 1 \l 15452 MS SANDERSON: Yes.
LISTNUM 1 \l 15453 MR. KOCH: Again, only in residential broadband, correct?
LISTNUM 1 \l 15454 MS SANDERSON: Yes. We point to some other ‑‑ I think some of the conclusions might be more broadly applicable but the data is residential broadband.
LISTNUM 1 \l 15455 MR. KOCH: Okay. And I really want to examine the data and what we can ‑‑
LISTNUM 1 \l 15456 MS SANDERSON: Yes.
LISTNUM 1 \l 15457 MR. KOCH: ‑‑ because I think you have been quite candid in your report, Ms Sanderson, and I want to stick with your report and the basis for your conclusions and how far we can take them.
LISTNUM 1 \l 15458 The data relate to residential broadband, you took the extent of the rollout of residential broadband in Canada, you took Mr. Waters' analysis of HML and VH, very high, and you didn't do an additional screen on Mr. Waters' analysis, did you? If he said it was high, it is high for your report; correct?
LISTNUM 1 \l 15459 MS SANDERSON: Colleagues of mine did address questions to Mr. Waters in the context of some of the classifications. So there was discussion.
LISTNUM 1 \l 15460 MR. KOCH: So those questions were addressed before he finalized his?
LISTNUM 1 \l 15461 MS SANDERSON: Yes, they were.
LISTNUM 1 \l 15462 MR. KOCH: Okay, thank you.
LISTNUM 1 \l 15463 The bottom line of your report then dealing with residential broadband, I think, as I said, is candidly set out in paragraph 83 of your report where you speak to hypothesis testing and you say:
"In this section we utilised various input and output measures to test the three hypotheses presented above. We acknowledge the analysis does not prove these hypotheses. Rather, it highlights a number of key relationships and trends. Results are couched in terms of whether they are consistent with the hypotheses or otherwise." (As read)
LISTNUM 1 \l 15464 And this is where I appreciated your candour when I was reading the report.
LISTNUM 1 \l 15465 Your report doesn't prove these hypotheses, it just shows directionally some consistency; correct?
LISTNUM 1 \l 15466 MS SANDERSON: Yes, it does, and it is consistent with some other findings that other authors have published in this area.
LISTNUM 1 \l 15467 MR. KOCH: Okay. And one of the principal conclusions is that broadband penetration is generally higher in countries with higher platform competition.
LISTNUM 1 \l 15468 So what you are saying is if there is extensive end‑to‑end facilities rollout in the residential broadband market, you have also found that broadband penetration is high; correct?
LISTNUM 1 \l 15469 MS SANDERSON: Yes, and ‑‑
LISTNUM 1 \l 15470 MR. KOCH: Okay.
LISTNUM 1 \l 15471 MS SANDERSON: ‑‑ that is consistent with a number of other studies.
LISTNUM 1 \l 15472 MR. KOCH: That is a pretty unsurprising conclusion, is it not?
LISTNUM 1 \l 15473 MS SANDERSON: Certainly, it has been the case that the studies that ‑‑ the empirical studies that I am aware of that have tested this proposition have consistently found that greater emphasis on platform competition leads to greater broadband penetration.
LISTNUM 1 \l 15474 MR. KOCH: Okay. And it could also be that there is a great rollout of residential broadband where a demand has been identified; correct?
LISTNUM 1 \l 15475 In other words, it could go in the other direction?
LISTNUM 1 \l 15476 In other words, that where there is a demand suggesting there will be a high penetration, there will be a lot of building in the context of a network that is already present such as the Canadian cable network; correct?
LISTNUM 1 \l 15477 MS SANDERSON: To answer that question, there are two ways you can think about what we mean by facilities‑based competition.
LISTNUM 1 \l 15478 In our study we have looked at ‑‑ as you characterized it, Mr. Koch ‑‑ the rollout of broadband, or what would we classify as the internet‑ready cable structure that is in place.
LISTNUM 1 \l 15479 Some studies have used that measure. Other studies have also used another measure, which is to look to the share to which cable and other technologies are actually winning of total subscribers, and, in that context, seek to measure the amount of platform competition in the context of how much is cable winning in the context of the competitive dynamic.
LISTNUM 1 \l 15480 MR. KOCH: Dr. Taylor, over to you.
LISTNUM 1 \l 15481 First of all, welcome back to Canada.
LISTNUM 1 \l 15482 MR. TAYLOR: Thank you.
LISTNUM 1 \l 15483 MR. KOCH: I am sure you have been here since the last time we met in 2001. Nonetheless, I would like to start with the economic opinions you provided to this same body in 2001, if that could be distributed.
LISTNUM 1 \l 15484 It is entitled "Price Cap Review and Related Issues".
LISTNUM 1 \l 15485 THE SECRETARY: MTS Exhibit No. 10.
EXHIBIT MTS‑10: Document entitled "Price Cap Review and Related Issues", prepared by Dr. William E. Taylor
LISTNUM 1 \l 15486 MR. KOCH: Dr. Taylor, the last time you appeared you were acting on behalf, again, of a number of incumbents, and you were providing your economic opinion to assist the Commission in designing the second price cap period.
LISTNUM 1 \l 15487 Is that correct?
LISTNUM 1 \l 15488 MR. TAYLOR: Yes.
LISTNUM 1 \l 15489 MR. KOCH: Could I ask you to look at paragraph 1123, which is on page 136 of this document.
LISTNUM 1 \l 15490 MR. TAYLOR: Yes.
LISTNUM 1 \l 15491 MR. KOCH: You say there:
"The Commission's framework for local competition encourages efficient interconnection arrangements and, by making network elements available to competitors at the incumbent's cost, gives potential entrants access to the same economies of scale and scope that the incumbent experiences in its network." (As read)
LISTNUM 1 \l 15492 Stopping there, I was reminded of this statement when the Chairman asked this morning about the ability of Bell West to take advantage of CDN at those rates.
LISTNUM 1 \l 15493 I think that is an example of that. Correct?
LISTNUM 1 \l 15494 It allows the competitor, the entrant in that case, to take advantage of the incumbent's cost structure. Correct?
LISTNUM 1 \l 15495 MR. TAYLOR: It does, provided that the pricing for CDN is set in accordance with the assumptions here, that is, at economic cost, I would say.
LISTNUM 1 \l 15496 MR. KOCH: You then go on to say:
"Efficient competition is fostered because an array of entry options is available to entrants, e.g., re‑sale, the use of unbundled network elements..."
LISTNUM 1 \l 15497 Competitor services, that's what we are talking about here:
"...or the development of a competitor's own facilities. The presence of these different modes of entry, in turn, puts competitive pressure on the incumbent company's retail service prices, because any additional deviation between the price paid by the entrant for a wholesale service and the price charged by the incumbent for a retail service will, in effect, increase retail margins." (As read)
LISTNUM 1 \l 15498 Is it not a fair statement that you are saying that the Commission's framework, which allows entry in several different ways, is an efficient entry framework?
LISTNUM 1 \l 15499 MR. TAYLOR: It certainly was ‑‑ and is ‑‑ my opinion in 1991 that what you read makes economic sense.
LISTNUM 1 \l 15500 This is, of course, different from where it is today. Today we have another facilities‑based network ‑‑ at least one in place ‑‑ and that is not counting wireless and VoIP.
LISTNUM 1 \l 15501 The circumstances are very different. I think the principles are the same, but the circumstances are very different.
LISTNUM 1 \l 15502 MR. KOCH: But the principles are the same.
LISTNUM 1 \l 15503 MR. TAYLOR: Right.
LISTNUM 1 \l 15504 The principle that when there is one network, access to that network for essential facilities can improve competition, can be a benefit to consumers.
LISTNUM 1 \l 15505 But there is no debate about that. The debate is whether given facilities are essential or not, and that has changed since 1991.
LISTNUM 1 \l 15506 MR. KOCH: All right. We will examine that in a moment.
LISTNUM 1 \l 15507 COMMISSIONER CRAM: Excuse me. I think it was 2001, Dr. Taylor.
LISTNUM 1 \l 15508 We are not talking 20 years ago.
LISTNUM 1 \l 15509 MR. TAYLOR: You are right. I'm sorry.
LISTNUM 1 \l 15510 MR. KOCH: I would ask you, then, to turn to paragraph 1128, which is at page 139.
LISTNUM 1 \l 15511 You said then, and I presume you agree now:
"Importantly, the prices for competitor services remain regulated. This regulation reduces, if not eliminates the need for continued regulation of the incumbent company's retail service prices." (As read)
LISTNUM 1 \l 15512 You are drawing a relationship here ‑‑ a very important relationship, I would suggest ‑‑ between wholesale and retail regulation and the fact that wholesale regulation can be very important to the need for continued regulation at the retail level. Correct?
LISTNUM 1 \l 15513 MR. TAYLOR: Yes. In a one network environment, opening the network through competitor services has the advantage that it reduces, if not eliminates the need for continued regulation on the retail side.
LISTNUM 1 \l 15514 MR. KOCH: Is it your evidence today that everything you said in 2001 was predicated on there only being one network and no prospect for entry?
LISTNUM 1 \l 15515 MR. TAYLOR: Certainly not everything, and no, but these general comments about the economics of opening networks for retail competition ‑‑ those general principles, I thought, held in 2001, and I think they would hold today if the circumstances were the same, but they are not.
LISTNUM 1 \l 15516 MR. KOCH: And they are not ‑‑ we will examine that.
LISTNUM 1 \l 15517 Maybe we could look at 1138. My recollection of your evidence, to be fair, Dr. Taylor, in 2001 ‑‑ and it reminds me of your evidence today ‑‑ is that you see a lot of competition coming around the horn, and you rely on generalities, such as the record of technological change in communications and so on and so forth.
LISTNUM 1 \l 15518 At 1138 you said:
"What is important about the record of technological change in local telecommunications markets is not whether or to what extent new technologies concurrently substitute for the incumbent company's wireline network in Canada; rather, the fact that radically different technologies are competing for different segments of the communications market means that any regulation that distorts..."
‑‑ and you go on with the usual ‑‑ your argument.
LISTNUM 1 \l 15519 Even then you were basically saying ‑‑ if you say now that this was in a one network environment, you were really saying that the promise of technology brings competition, and that is something that should be taken into account.
LISTNUM 1 \l 15520 Is it really that different from what you are saying, for example, in the business market in Canada today?
LISTNUM 1 \l 15521 MR. TAYLOR: That is a fact‑based question, and my opinion is that it is different, yes.
LISTNUM 1 \l 15522 First, I am rather proud that I seemed to be prescient about the development of radically different technologies back in 2001, but, also, notice that the point of paragraph 1138 is not sort of predicting or making a statement about the level of competition in Canada, it is the point, as it is expressed in the last sentence, that when you have new platforms coming into place, platforms which are technologically different and have different regulatory authorities or regulatory backgrounds, you could end up distorting a market, with very serious consequences for consumers.
LISTNUM 1 \l 15523 We may end up, for example, picking it out of a hat.
LISTNUM 1 \l 15524 Wireless networks in Canada, because that's where the market ends up with the regulatory distortions we have and wireline networks everywhere else. I mean, this is a ‑‑
LISTNUM 1 \l 15525 MR. KOCH: Okay. I mean, another platform is there in the residential market ‑‑
LISTNUM 1 \l 15526 MR. TAYLOR: Yes.
LISTNUM 1 \l 15527 MR. KOCH: ‑‑ I think you and I can agree on that. We probably can't agree on the consequences of that, but we can agree on those facts.
LISTNUM 1 \l 15528 The rollout of that wasn't distorted by the Commission's policies of permitting entry, as you indicated, efficient entry through a number of modes. That's not your evidence today, is it?
LISTNUM 1 \l 15529 MR. TAYLOR: Well, it is interesting that the competition that seems to have had the biggest effects on consumers, on prices and on local service in Canada is not the competition that took place through the unbundling and opening the ILECs networks, but rather the independent ‑‑
LISTNUM 1 \l 15530 MR. KOCH: Again, I'm concerned about efficiency of this process, Dr. Taylor. I don't think that, in fairness, is an answer to my questions.
LISTNUM 1 \l 15531 MR. TAYLOR: Oh, I'm sorry, then try again, please.
LISTNUM 1 \l 15532 MR. KOCH: Yes. Let's see if I can remember my question.
LISTNUM 1 \l 15533 The question was: you and I both agree there's another platform today in Canada ‑‑
LISTNUM 1 \l 15534 MR. TAYLOR: Yes.
LISTNUM 1 \l 15535 MR. KOCH: ‑‑ in the residential market, cable. The policies that the Commission put in place, it's not your evidence today that those policies distorted or prohibited that platform from flourishing and coming to its role today in the market, is it?
LISTNUM 1 \l 15536 MR. TAYLOR: It is my testimony that is what's happened, yes. What you do not see is what the development of cable. the speed of development and the timing of development of cable, would have been if there were not access to local service through unbundled elements.
LISTNUM 1 \l 15537 We haven't done that experiment. We haven't done it in the U.S. and we haven't done it here. It could have been a different rate of speed.
LISTNUM 1 \l 15538 MR. KOCH: It could have been, but you can't say that it would have been.
LISTNUM 1 \l 15539 MR. TAYLOR: Well, but the distortion is one in which one type of a carrier, namely wireline and dependent CLECs, if you like, face different input prices, regulated and possibly subsidized prices, which other facilities‑based carriers do not. I can't say by how much, et cetera, but, you know, this is ‑‑ an experiment of doing it neutrally is not something that we have seen.
LISTNUM 1 \l 15540 THE CHAIRPERSON: But are you going so far to say that if we had not mandated access, we would have seen the rollout by the cables faster?
LISTNUM 1 \l 15541 MR. TAYLOR: Faster cable development. All else equal, I would think so. I mean, there is more local competition because of the opening of the network in CLECs and for another local competitor, namely the cable company thinking, "Where can I make money? Well, here are places where I can make money. There's already the ILEC there and there are CLECs there, as well".
LISTNUM 1 \l 15542 Well, if the CLEC entry isn't efficient entry, if somehow in your regulatory scheme it wasn't done precisely correctly, then you have biased, inadvertently, the investment decision of the cable companies, that's all.
LISTNUM 1 \l 15543 THE CHAIRPERSON: But we will never know whether that ever happened or not.
LISTNUM 1 \l 15544 MR. TAYLOR: Won't know from Canada because that experiment because that experiment has run.
LISTNUM 1 \l 15545 MS SANDERSON: Mr. Chair, there are experiments in other countries which offer that scenario. I guess maybe the UK would be the best example, where the Virgin Media decided that it would change how it was extending its network.
LISTNUM 1 \l 15546 The cable network in the UK is not as ubiquitous as it is in Canada, and so when it's making a decision as to how is it going to service broadband subscribers, it has chosen ‑‑ and Ofcom's latest, the 2007 telecom report, indicates that Virgin's decided to use more of BTs unbundled loops and has decided to stop its cable footprint expansion, and, instead, to rely on unbundled loops.
LISTNUM 1 \l 15547 We don't have that situation here in Canada because the cable footprint is more advanced to begin with.
LISTNUM 1 \l 15548 MR. WATERS: I will borrow an example from Australia, where HFC, similar to Rogers, was actually deployed before local loop unbundling was regulated, and in about 80 percent of the footprint of the HFC network deployed by the CLEC, it also uses DSLAMs.
LISTNUM 1 \l 15549 So it uses DSLAMs over top of its own infrastructure. And basically it's telephony, on Net telephony and on Net broadband, have stalled because it is using resale telephony and unbundled loops because the prices are cheaper than actually doing the lateral itself. It can get the loops cheaper than the laterals on its own network.
LISTNUM 1 \l 15550 There you have a case of somebody who was at the top of the ladder investment and it slid down because of the pricing and the regulation of local loop unbundling. So I think there are experiments which show that there is this tension between the extent of access regulation and the deployment of infrastructure.
LISTNUM 1 \l 15551 MR. KOCH: There is a balance here between hearing from everyone, sir, and my being able to ask questions about the Canadian situation. I think my question was quite directed at the Canadian rules, so I will try and stick with that.
LISTNUM 1 \l 15552 THE CHAIRPERSON: I appreciate the disciplining, Mr. Koch, but, by the same token, I'm trying to follow and understand ‑‑
LISTNUM 1 \l 15553 MR. KOCH: Absolutely.
LISTNUM 1 \l 15554 THE CHAIRPERSON: ‑‑ and that's why I want to ask for its application.
LISTNUM 1 \l 15555 MR. KOCH: Absolutely. And I think Dr. Sanderson makes a good point, where she candidly concedes that in Canada the deployment of cable was very broad before the development of telephony over it, and I think that's a relevant distinction.
LISTNUM 1 \l 15556 Dr. Taylor, the third passage of your report or your economic opinion in 2001 that I wanted to take you to is at paragraph 1146, on page 146. Do you have that?
LISTNUM 1 \l 15557 And the first sentence is probably the point you were making earlier:
"Efficient regulation must adapt to changes in the market." (As read)
LISTNUM 1 \l 15558 The second point is one that I really want to focus on. You say:
"Where competition is deemed to be insufficient to permit exclusive reliance on market forces to control prices or where there are other policy objectives to be considered, competitive entrants and incumbent companies require regulatory certainty in order to develop their businesses as efficiently as possible. Regulatory rules need to be clearly understood, and these rules should not be subject to arbitrary changes. If there is no clarity as to the rules, no players can effectively develop and execute business plans." (As read)
LISTNUM 1 \l 15559 You make a big point here about regulatory certainty. Correct?
LISTNUM 1 \l 15560 MR. TAYLOR: Yes.
LISTNUM 1 \l 15561 MR. KOCH: Okay.
LISTNUM 1 \l 15562 Now, maybe we could turn to your report in this proceeding, sir, and it's your report ‑‑ you provided two reports, correct ‑‑
LISTNUM 1 \l 15563 MR. TAYLOR: Yes.
LISTNUM 1 \l 15564 MR. KOCH: ‑‑ your March 15 evidence and then a supplemental report. Correct?
LISTNUM 1 \l 15565 MR. TAYLOR: Yes.
LISTNUM 1 \l 15566 MR. KOCH: Could you turn to page 9 of your report, please, paragraph 22?
LISTNUM 1 \l 15567 MR. TAYLOR: By "report", you mean...?
LISTNUM 1 \l 15568 MR. KOCH: Your March. I think most of my questions are going to be about your March report ‑‑
LISTNUM 1 \l 15569 MR. TAYLOR: Okay.
LISTNUM 1 \l 15570 MR. KOCH: ‑‑ or opinion or ‑‑
LISTNUM 1 \l 15571 MR. TAYLOR: Declaration is what it says.
LISTNUM 1 \l 15572 MR. KOCH: Declaration is the American term, right. We talk a little differently here.
LISTNUM 1 \l 15573 MR. TAYLOR: I'm sorry, and what paragraph?
LISTNUM 1 \l 15574 MR. KOCH: Paragraph 22.
LISTNUM 1 \l 15575 You are talking about economic arguments for regulating and not regulating, and I want to focus my questions on the last sentence of paragraph 22...well, let's deal with the whole paragraph.
LISTNUM 1 \l 15576 You say:
"...fourth, costs aside, the theoretical benefits of economic regulation are different for wholesale services." (As read)
LISTNUM 1 \l 15577 I think, is it fair to say, the point you are trying to make, in broad terms, is that you may regulate at the wholesale level, but you are really concerned about the outcomes at the retail level?
LISTNUM 1 \l 15578 MR. TAYLOR: Yes, that is the point.
LISTNUM 1 \l 15579 MR. KOCH: Okay, thank you.
LISTNUM 1 \l 15580 And in the last sentence, the difference from retail markets, you say:
"The difference is important because if the downstream markets are effectively competitive due to suppliers that are not dependent on the wholesale services in question, there would be no possible benefit to telecommunications consumers and no gain in economic welfare from regulation of the wholesale services." (As read)
LISTNUM 1 \l 15581 So you are basically saying, I guess, two things: you are positing the conditions under which there would be no gain in economic welfare from regulation of wholesale services, and you are saying the two conditions are: if the downstream markets are effectively competitive, and the second is that effective competition has to be due to suppliers that are not dependent on the wholesales services in question. Correct?
LISTNUM 1 \l 15582 MR. TAYLOR: Correct. This is a sufficient condition ‑‑
LISTNUM 1 \l 15583 MR. KOCH: Yes.
LISTNUM 1 \l 15584 MR. TAYLOR: ‑‑ and, in fact, it's exactly the same as the Bureau's third bullet as to what an essential facility is.
LISTNUM 1 \l 15585 MR. KOCH: So effectively competitive and, again, based on competitors who are not dependant on wholesale services?
LISTNUM 1 \l 15586 MR. TAYLOR: Correct.
LISTNUM 1 \l 15587 MR. KOCH: These are two big assumptions are they not, Dr. Taylor?
LISTNUM 1 \l 15588 MR. TAYLOR: Well, I don't mean them as assumptions. I am explaining how the theoretical benefits for wholesale regulation are different from those of retail regulation. That is all I am saying. And under these circumstances, which is the clearest way to see the distinction I am trying to make, there is no gain downstream from regulating upstream.
LISTNUM 1 \l 15589 There are other circumstances under which there is no gain downstream from regulating upstream or where the costs are not outweighed by the benefits. But this is the clearest circumstance to show this theoretical point of how regulation of wholesale is different from regulation of retail, which is a part that we have always thought about and worried about.
LISTNUM 1 \l 15590 MR. KOCH: Effectively competitive, what do you mean by that term?
LISTNUM 1 \l 15591 MR. TAYLOR: No SMP.
LISTNUM 1 \l 15592 MR. KOCH: No SMP. So we are talking about a market power analysis here?
LISTNUM 1 \l 15593 MR. TAYLOR: Yes.
LISTNUM 1 \l 15594 MR. KOCH: Okay. And were you here for the Bureau's evidence, Dr. Taylor?
LISTNUM 1 \l 15595 MR. TAYLOR: Yes.
LISTNUM 1 \l 15596 MR. KOCH: And they provided an explanation of the laborious process in really figuring out whether or not there is market power, correct?
LISTNUM 1 \l 15597 MR. TAYLOR: Well, I wouldn't characterize it that way, but they did explain what they do when measuring market power. Of course ‑‑
LISTNUM 1 \l 15598 MR. KOCH: I wasn't intending anything negative about the word laborious. Really probably better put would be that it is a discipline process, one has to look at the product definition, the market definition and then really find out what is going on in that market, correct?
LISTNUM 1 \l 15599 MR. TAYLOR: Yes.
LISTNUM 1 \l 15600 MR. KOCH: Okay. Now have you done, for this proceeding, that analysis in the business services markets in Canada?
LISTNUM 1 \l 15601 MR. TAYLOR: No, I have not.
LISTNUM 1 \l 15602 MR. KOCH: Thank you.
LISTNUM 1 \l 15603 THE CHAIRPERSON: Before you leave this point, Mr. Koch. This last sentence that Mr. Koch drew your attention to, you say the suppliers are not dependant on the wholesale services in question. If that is the case, why would you even contemplate regulating wholesale?
LISTNUM 1 \l 15604 MR. TAYLOR: Well, it's just my ‑‑
LISTNUM 1 \l 15605 THE CHAIRPERSON: ‑‑ alternate supplies of wholesale?
LISTNUM 1 \l 15606 MR. TAYLOR: No, no. This is, say take the cable example, let us keep things in the real world. Suppose it were true, I don't know that it is, but suppose it were true that the cable companies do not provide wholesale services. They do provide retail services, telephone services downstream.
LISTNUM 1 \l 15607 Then you have the circumstance where there is only one wholesale supplier, the ILEC.
LISTNUM 1 \l 15608 THE CHAIRPERSON: Right.
LISTNUM 1 \l 15609 MR. TAYLOR: So if you simply looked at the wholesale market you might say this is a monopoly. There is market power in the upstream market. And the answer is, no there isn't, because there is competition in the downstream market and there is no way that the ILEC can raise price, can extract market power in the wholesale market because of competition in the downstream market, that is the difference. That is why this is an interesting economic framework.
LISTNUM 1 \l 15610 THE CHAIRPERSON: Sorry, you lost me there.
LISTNUM 1 \l 15611 MR. TAYLOR: Let me try it again.
LISTNUM 1 \l 15612 THE CHAIRPERSON: In your example you said the cables would not supply wholesale?
LISTNUM 1 \l 15613 MR. TAYLOR: Correct.
LISTNUM 1 \l 15614 THE CHAIRPERSON: But you say the downstream people are not dependent on the wholesale service.
LISTNUM 1 \l 15615 MR. TAYLOR: Correct.
LISTNUM 1 \l 15616 THE CHAIRPERSON: If there is only one supplier then surely they are dependent on the wholesale service.
LISTNUM 1 \l 15617 MR. TAYLOR: Well, no. The cable company is not dependent on the wholesale service.
LISTNUM 1 \l 15618 THE CHAIRPERSON: Oh, you are suggesting the cable ‑‑ okay.
LISTNUM 1 \l 15619 MR. TAYLOR: I have a nice picture a couple of pages over. Look at figure 1 and figure 2. Figure 2 is the one I have in mind. Where you have retail telecommunication services at the bottom and you have wireless cable and VoIP providing service without ILEC facilities, then we have the wireline world, if you like, over at the far left. And all this point is that even though there is only one supplier of wholesale service in figure 2, there is no market power in the wholesale market in figure 2.
LISTNUM 1 \l 15620 THE CHAIRPERSON: Okay, I understand now. Thank you.
LISTNUM 1 \l 15621 MR. TAYLOR: Sure.
LISTNUM 1 \l 15622 MR. KOCH: Now, Dr. Taylor, you are aware, are you not, that the government has varied the CRTC's local forbearance framework so as to permit the CRTC to forbear from regulating at the retail level for local voice based on facilities‑based competitors' presence?
LISTNUM 1 \l 15623 MR. TAYLOR: Yes.
LISTNUM 1 \l 15624 MR. KOCH: And you are aware that ‑‑ I am just trying to avoid having to go through the documents in great detail ‑‑ you are aware that that competitor presence can include a facilities‑based carrier who has built elements of its own network, but is also relying on leased elements from the incumbent, correct?
LISTNUM 1 \l 15625 MR. TAYLOR: I am aware that the definition includes that case, yes.
LISTNUM 1 \l 15626 MR. KOCH: Okay. And do you know how that definition maps onto SMP? It is not a full SMP analysis, correct?
LISTNUM 1 \l 15627 MR. TAYLOR: In the downstream market?
LISTNUM 1 \l 15628 MR. KOCH: Correct.
LISTNUM 1 \l 15629 MR. TAYLOR: I am sorry, I don't even know the framework to respond.
LISTNUM 1 \l 15630 MR. KOCH: Well, we had talked about the Bureau's description of defining the relevant market, the relevant product market, the relevant geographic market ‑‑
LISTNUM 1 \l 15631 MR. TAYLOR: Okay.
LISTNUM 1 \l 15632 MR. KOCH ‑‑ you know, and then looking what is going on in the business. I am just saying this competitive presence, that is not an SMP analysis, correct?
LISTNUM 1 \l 15633 MR. TAYLOR: Oh, no it is not directly. I mean, it is counting platforms and it is ‑‑ I think of it as a trigger which is, in my mind and probably in the government's mind, a good indicator of lack of SMP.
LISTNUM 1 \l 15634 MR. KOCH: Okay. And when it counts platforms you agree with me it counts not only end‑to‑end facilities‑based platforms, but also platforms with unbundled loops.
LISTNUM 1 \l 15635 You are aware that forbearance has been granted in some exchanges in the business market for local exchange services in Canada?
LISTNUM 1 \l 15636 MR. TAYLOR: Yes.
LISTNUM 1 \l 15637 MR. KOCH: Okay. And are you aware, for example, in the case of Toronto where that is the case that that forbearance was granted based on the presence of competitors who are operating on a platform that includes unbundled facilities, leased facilities from the ILECs?
LISTNUM 1 \l 15638 MR. TAYLOR: Well, I am not familiar with the specific case of Toronto.
LISTNUM 1 \l 15639 MR. BIBIC: The answer is yes.
LISTNUM 1 \l 15640 MR. KOCH: Okay. Now, let us go to your summary and conclusions at page 2 of your document. This is, in a way, the other side of the coin from when you are talking about where you don't need to regulate, you are now talking about different cases. We will get to it later in your document, but you have got a case 1, a case 2 and a case 3 to help us work through these different problems, correct, Dr. Taylor?
LISTNUM 1 \l 15641 MR. TAYLOR: Yes.
LISTNUM 1 \l 15642 MR. KOCH: Okay. And in paragraph 5 you talk about, second, when retail markets are effectively competitive. This is case 2, correct?
LISTNUM 1 \l 15643 MR. TAYLOR: Correct.
LISTNUM 1 \l 15644 MR. KOCH: Okay. So let us read it together:
"Second, when retail markets are effectively competitive but require dependent SILEC competitors an unregulated ILEC might be able to exercise wholesale market power." (As Read)
LISTNUM 1 \l 15645 Now, you say in this case the wholesale service would be considered essential in the sense that competitors are required to compete in the downstream market and there is some likelihood of ILEC anticompetitive conduct in the retail market. That would be the situation for Toronto if forbearance were granted, would it not, on the basis of dependence by certain competitors on ILEC facilities. Is that not a fair statement?
LISTNUM 1 \l 15646 MR. TAYLOR: Again, I can't speak to Toronto, but I can say that if the hypothesis is true in Toronto, that is absent unbundled loops there would not be competitors downstream, there would not be competition downstream. Be careful, there is a difference between competitors and competition. Then we are in case 2, and by the Bureau's essential facility definition as well as the one that The Companies are proposing, that facility, the local loop in this case, would be essential.
LISTNUM 1 \l 15647 MR. KOCH: Thank you.
LISTNUM 1 \l 15648 Now, paragraph 40 of your evidence, let's peel back the layers of the onion a little bit here, Dr. Taylor. Here you have a more detailed description of case 1, case 2, case 3, where in case 2 and at paragraph 40 you follow the thought through. You say:
"Even though there is no apparent retail market failure in case 2..." (As read)
LISTNUM 1 \l 15649 And, again, case 2 is effectively competitive, but that competition is due, at least in part, to dependent competitors. That is at the top of 39. Correct?
LISTNUM 1 \l 15650 MR. TAYLOR: That is the definition of case 2, yes.
LISTNUM 1 \l 15651 MR. KOCH: So:
"Even though there is no apparent retail market failure in case 2, the fact that the necessary competition comes from competitors that are, by assumption, dependent on the wholesale service of the ILEC means that the ILEC wholesale service technically fits the proposed definition of an essential facility." (As read)
LISTNUM 1 \l 15652 That is what you just agreed. Correct? It fits the definition?
LISTNUM 1 \l 15653 MR. TAYLOR: That is correct.
LISTNUM 1 \l 15654 MR. KOCH: Then you go on. So you have identified it as essential and now we make a move or a switch, I suggest to you:
"However, there is nothing in economic theory or in current experience in telecommunications that suggests this outcome is anything but a temporary market disequilibrium that is actively evolving towards full case 1 facilities‑based competition." (As read)
LISTNUM 1 \l 15655 Then you go over and you say:
"Ironically, a major deterrent in this process would be the classification of these wholesale services as essential and ex ante regulation of their price. As a result, ex post regulation, market observation tempered by competition law principles of wholesale services, would better serve Canadian customers than ex ante price regulation of wholesale services." (As read)
LISTNUM 1 \l 15656 So, let's just stop there.
LISTNUM 1 \l 15657 Case 2, you say effective competition dependent on leased facilities.
LISTNUM 1 \l 15658 MR. TAYLOR: Correct.
LISTNUM 1 \l 15659 MR. KOCH: That is an essential service, but, oh, nothing to believe that is anything other than a temporary ‑‑ what is the language ‑‑ temporary market disequilibrium. I have been practising those words last night.
LISTNUM 1 \l 15660 Based on that, we end up in an ex post world for dealing with that essential facility. Is that fair?
LISTNUM 1 \l 15661 MR. TAYLOR: Yes. You are in an ex post world to begin with. That is, in case 2, my expectation, and what I think is the best way to manage regulation in the circumstance is for first negotiation, that is a complaint or an offering of service. There is nothing to say in this circumstance that the ILEC would be unwilling to provide unbundled service in this case. If that doesn't work, if one can't come to an agreement, then go back to competition law principles.
LISTNUM 1 \l 15662 But what you don't want to do, and that is all this paragraph is saying, is to set a price for unbundled elements ex ante, because that is going to distort the process. If you can buy cheap loops, then this question is never going to arise. We are never going to know whether this facility is essential or not.
LISTNUM 1 \l 15663 MR. KOCH: You threw in language, and I had to deal with the Competition Bureau's panel because they start talking about "me too" competition. You threw in a cheap loop remark.
LISTNUM 1 \l 15664 MR. TAYLOR: Sorry.
LISTNUM 1 \l 15665 MR. KOCH: You mean that is the efficient model of providing access and different modes of entry that you referred to in 2001. Correct?
LISTNUM 1 \l 15666 MR. TAYLOR: Yes, that is still what I am talking about. Let me not say cheap loop. It doesn't matter much whether it is cheap or whether it is expensive. What matters is it is going to be the wrong price in individual circumstances no matter what you do.
LISTNUM 1 \l 15667 If you set this thing at this price of a wholesale loop ex ante, people complete, particularly in the business market, one location at a time. That number, whatever it is you choose, even if you get it exactly right on average, is going to be wrong; it is going to be too high half the time, it is going to be too low half the time. That distorts competition. You don't want to do that.
LISTNUM 1 \l 15668 MR. KOCH: Dr. Taylor, what you are saying, which is it is essential and we are going to deal with it ex post, strikes me as different than what your client is saying, which is that we are not going to treat it as essential and you are going to have to come and negotiate and then we are going to have to go and determine whether or not it is essential in front of the Commission if we can't agree. Do you agree with that statement?
LISTNUM 1 \l 15669 I am interested in Dr. Taylor's opinion.
LISTNUM 1 \l 15670 MR. BIBIC: You are asking him about his client's position and his client is sitting right here at the mic.
LISTNUM 1 \l 15671 MR. KOCH: I am asking him whether his opinion is different than that of his client's?
LISTNUM 1 \l 15672 MR. TAYLOR: Well, I don't think it is. My understanding was for even when we get down to case 3, where we are off in Saskatchewan in Indian Head, where we have full agreement that there is unlikely to be facilities‑based competition for residential local loops, that in case 3 I believe the company is still opposed to ex ante regulation. That is, the process is still one of if a competitor wants to serve in Indian Head, wants a loop, asking for a loop, if it can't get a loop that satisfies it after negotiation, then the Commission arbitrates and it is settled.
LISTNUM 1 \l 15673 MR. KOCH: You say it is a temporary market disequilibrium that is actively evolving towards full case 1 facilities‑based competition.
LISTNUM 1 \l 15674 Are you using the government's definition of facilities‑based competition or are you talking about end‑to‑end facilities‑based competition?
LISTNUM 1 \l 15675 MR. TAYLOR: This is just my view of what is happening in the markets, and by that I mean end‑to‑end facilities‑based competition.
LISTNUM 1 \l 15676 MR. KOCH: We have already heard, and I don't want to go over old ground, a fair amount of discussion about the impediments to building facilities to serve the business market, and in particular, discussion of where a competitor, and this included, frankly, your client, cannot justify a build by the revenue opportunities in a building because the business case simply isn't there. Would you not agree with me those facts cannot be characterized as a temporary market disequilibrium?
LISTNUM 1 \l 15677 MR. TAYLOR: No, I don't agree with that at all.
LISTNUM 1 \l 15678 In the example in the business market that you are talking about that there are many business locations, I perfectly agree that no one would ever find it profitable to provide fibre‑based service to such buildings. That doesn't mean there is a failure of facilities‑based competition.
LISTNUM 1 \l 15679 If we find competitors putting fibre only into 1 per cent, 10 per cent, whatever the numbers are in Toronto, that is interesting, but that is not where the market is and that is not what, as an economist, I find determines or eliminates market power in the downstream market.
LISTNUM 1 \l 15680 Remember, the demand for service, particularly business service, is highly skewed. A very small number of buildings, a very small number of central offices provide most of the minutes of use, demand for band width, et cetera, et cetera. That is what we heard.
LISTNUM 1 \l 15681 7‑Elevens don't demand much, but you take a 30‑storey office tower, it demands a lot. So, competitors can't serve, don't serve, any of the 7‑Elevens with fibre, that makes sense, but that doesn't harm competition because competition, and particularly what constrains the price of the ILEC, isn't the 7‑Elevens. It is the fact that where they meet competitors, large buildings, medium‑sized buildings, et cetera, et cetera, that is where competition determines the price and the folks in the 7‑Elevens get to take advantage of that. That is, unless you can discriminate a 7‑Eleven, they will get the same price that gets set for some services, at least, in the market.
LISTNUM 1 \l 15682 MR. KOCH: Dr. Taylor, there is, in that case, no one building out to the 7‑Eleven. I actually think we should move off 7‑Eleven because that is, as I understand it, a good example of a customer that may have many locations.
LISTNUM 1 \l 15683 But let's call it mom‑and‑pop shop. So, you have mom‑and‑pop shop and mom‑and‑pop shop, we have agreed to, there is no business case for a competitor to build to. Correct?
LISTNUM 1 \l 15684 MR. TAYLOR: Correct.
LISTNUM 1 \l 15685 MR. KOCH: Okay. And it won't get built regardless of whether the incumbent facility to that building has been classified as essential and there is ex ante regulation a cost‑based rates; correct?
LISTNUM 1 \l 15686 MR. TAYLOR: There will be no fiber drawn to that building under those circumstances.
LISTNUM 1 \l 15687 MR. KOCH: Right. And there also won't be, my suggestion to you, fiber drawn to that building ‑‑ well, we don't have to even say fiber.
LISTNUM 1 \l 15688 The point is a competitive facility will not be built to that if the rates are set higher than the incumbent's cost; correct?
LISTNUM 1 \l 15689 MR. TAYLOR: Which rates are you speaking of?
LISTNUM 1 \l 15690 MR. KOCH: I am saying the rates at which a competitor can get access to that.
LISTNUM 1 \l 15691 MR. TAYLOR: All right. So that is if the wholesale price ‑‑
LISTNUM 1 \l 15692 MR. KOCH: Yes.
LISTNUM 1 \l 15693 MR. TAYLOR: ‑‑ is set higher than ‑‑
LISTNUM 1 \l 15694 MR. KOCH: The incumbent's cost.
LISTNUM 1 \l 15695 It is really irrelevant where the price of the wholesale cost ‑‑ if it doesn't pay to build, it won't get built; correct?
LISTNUM 1 \l 15696 MR. TAYLOR: Well, that is sort of a tautology.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 15697 MR. KOCH: Here we are back to our tautology.
LISTNUM 1 \l 15698 MR. TAYLOR: I am sorry.
LISTNUM 1 \l 15699 MR. KOCH: In 2001, sir, we had a discussion that ended up in a tautology, so we are back there.
LISTNUM 1 \l 15700 MR. TAYLOR: Well, let me just take it.
LISTNUM 1 \l 15701 MR. KOCH: Yes.
LISTNUM 1 \l 15702 MR. TAYLOR: If it doesn't make sense for a carrier to provide the service, no one will provide the service, yes ‑‑ no competitor will provide the service.
LISTNUM 1 \l 15703 MR. KOCH: No one will build, right.
LISTNUM 1 \l 15704 And where is that going to leave the customer in that building? I am not interested in the customer in the high rise.
LISTNUM 1 \l 15705 MR. TAYLOR: I understand.
LISTNUM 1 \l 15706 MR. KOCH: I am interested in the customer in that building and I think the Commission might be interested in the customer in that building.
LISTNUM 1 \l 15707 MR. TAYLOR: Absolutely. That was the point I tried to make, that it is that competition takes place at the margin. The customer in the 611 or the Mom and Pop store ‑‑ which, by the way, can be served by cable but let's keep that out of this ‑‑
LISTNUM 1 \l 15708 MR. KOCH: But it isn't in our example.
LISTNUM 1 \l 15709 MR. TAYLOR: Well, let's keep it out just to keep our examples clean.
LISTNUM 1 \l 15710 What sort of services does this guy buy? Well, he buys mass market services. This is small business, mass market services.
LISTNUM 1 \l 15711 Can or would the companies, Bell Canada, the ILEC, price differently to some mass market customers rather than others, people who have, because of where they are located or something like that, alternatives in their building compared with people who don't have alternatives in their building? And the answer is no.
LISTNUM 1 \l 15712 MR. KOCH: I am sorry.
LISTNUM 1 \l 15713 MR. TAYLOR: Let me finish, please.
LISTNUM 1 \l 15714 MR. KOCH: Okay.
LISTNUM 1 \l 15715 MR. TAYLOR: The example that I like to use is myself and supermarkets. I have no idea what the price of a can of tomatoes is but I walk into a supermarket and I know that I can buy a can of tomatoes that doesn't deviate from the efficient competitive market price by more than a penny either way.
LISTNUM 1 \l 15716 And why is that? Not because I am smart or I would go to another store if the price were too high. It is because other people do. There are people who carefully shop. I am not one of them but I get to take advantage of their shopping and that is what we mean when we say competition takes place at the margin.
LISTNUM 1 \l 15717 If I am the Mom and Pop shop, it just doesn't make sense and the ILECs don't have an ability to charge it a different price than someone who, because a cable company may be close by or in their building, has an alternative.
LISTNUM 1 \l 15718 And that is where I am.
LISTNUM 1 \l 15719 MR. KOCH: You weren't here, obviously, during the last price cap proceeding when your client was arguing that in competitive markets that is exactly what happens, that everyone price discriminates, and was arguing for removal of the de‑averaging rules, were you?
LISTNUM 1 \l 15720 And are you aware that those de‑averaging rules have been removed and Bell could exactly do that?
LISTNUM 1 \l 15721 MR. BIBIC: Mr. Koch, you are giving evidence based on testimony that Bell put in last year, principally my own, and if you would like, you could ask me what my position was last year and I would be more than happy to spend as much time as we did last year going through that again, if the Chair would like.
LISTNUM 1 \l 15722 There are many dimensions to the residential price de‑averaging which I am more than happy to debate with you again.
LISTNUM 1 \l 15723 THE CHAIRPERSON: I think, Mr. Koch, Mr. Bibic is right. If you want to bring that evidence out, you should ask him rather than suggest it to the witness.
LISTNUM 1 \l 15724 MR. KOCH: The Commission is certainly aware of what the rules are and so we will leave it with that.
LISTNUM 1 \l 15725 MR. TAYLOR: May I volunteer or would that be disruptive?
LISTNUM 1 \l 15726 MR. KOCH: It would probably be disruptive at this point but I am not going to ‑‑
‑‑‑ Laughter / Rires
LISTNUM 1 \l 15727 MR. KOCH: ‑‑ but I am not preventing you.
LISTNUM 1 \l 15728 THE CHAIRPERSON: This has gone so far, we might just as well hear the end.
LISTNUM 1 \l 15729 Mr. Bibic has kindly agreed that that indeed happened, so you might as well. Go ahead.
LISTNUM 1 \l 15730 MR. TAYLOR: I will make it really quick and I don't know anything about what was said by the company in an earlier case but let me just say what happens in telecommunications.
LISTNUM 1 \l 15731 We have many cases ‑‑ and I am speaking from the United States where my experience is ‑‑ in which there are objective reasons, not even price discrimination so much but objective reasons why, for mass market services particularly, you might expect different prices.
LISTNUM 1 \l 15732 For example, we have toll prices, long distance prices where the access prices that the carriers pay are very different for, say, rural areas and urban areas, and you would expect then because costs are different for these carriers that the prices would be different. Well, they are not.
LISTNUM 1 \l 15733 You would expect for mass market consumer services where Verizon rolls out a bundle, three different services, five different price points. Those are the same, tend to be the same across the Verizon footprint, which covers a whole lot of very, very different circumstances.
LISTNUM 1 \l 15734 Why is that? Because for mass market services there is ‑‑ even if you have the ability to discriminate if you wanted to, and if you knew how to, and if you knew how to bill it, customers don't like that. They don't like the guy next door getting a different price than they do. And it is confusing.
LISTNUM 1 \l 15735 And it doesn't happen is the bottom line. We don't see that very often at least in the States.
LISTNUM 1 \l 15736 THE CHAIRPERSON: Mr. Koch, back to you.
LISTNUM 1 \l 15737 MR. KOCH: Thank you for that contribution, Dr. Taylor.
LISTNUM 1 \l 15738 If I could go to what your ex post nirvana looks like for a moment, Dr. Taylor.
LISTNUM 1 \l 15739 Go to paragraph 46 of your report, please.
LISTNUM 1 \l 15740 At paragraph 46, you say:
"Finally, the determination that an ILEC facility is essential and must be provided on an unbundled basis ought not to be an ex ante exercise. At market‑determined prices, some ILEC services may generate substitutes that are not viable at regulated prices or prices determined by mandatory Commission arbitration. A less intrusive and more market‑consistent approach would permit market forces to set wholesale prices and would classify a service or a facility as essential only on an ex post basis after a complaint and a finding by the Commission. Only after a finding of essentiality would the Commission require commercially negotiated prices for those facilities determined ex post to be essential and only in the case that the parties could not agree to prices, terms and conditions would the Commission step in on ex post basis to resolve the differences." (As read)
LISTNUM 1 \l 15741 So we have something that is an essential facility or we are going to go ex post, and in this paragraph you set out the process.
LISTNUM 1 \l 15742 It is a two‑stage process, is it not?
LISTNUM 1 \l 15743 First, we are going to have a negotiation and I am going to say to the incumbent ‑‑ let's say it is TELUS to keep personalities out of it: I want this and I believe it is essential. And TELUS says: Well, in spite of Dr. Taylor's opinion, I am not going to pretend it is essential, you don't get to have it.
LISTNUM 1 \l 15744 Under your process, we have to go to the Commission then and have an argument ex post about whether or not it is essential.
LISTNUM 1 \l 15745 Then under your process, if I am successful at the Commission and the Commission says yes, it is essential, TELUS, have a negotiation on that basis, do you think TELUS might appeal that decision to the courts?
LISTNUM 1 \l 15746 MR. TAYLOR: Beats me.
LISTNUM 1 \l 15747 MR. KOCH: Do you think there is a good chance?
LISTNUM 1 \l 15748 MR. TAYLOR: It depends on the circumstances. As the Bureau carefully explained yesterday, if this is the fifth time through loops in small rural areas, my guess is they probably wouldn't.
LISTNUM 1 \l 15749 MR. KOCH: And then the second stage, perhaps we have gone to the court and we have gone back and I am victorious ‑‑ I don't know how long it has been at that point ‑‑ it is essential, wonderful.
LISTNUM 1 \l 15750 Now, I go back to TELUS at that stage and I say: Now, give me a price. And they give me a price and we can't agree on the price and terms.
LISTNUM 1 \l 15751 And where do we go? We go back to the Commission, correct, to set the price and terms?
LISTNUM 1 \l 15752 MR. TAYLOR: Certainly, the Commission, in my view, here is available for arbitration of the price and of the requirement to provide.
LISTNUM 1 \l 15753 MR. KOCH: Okay.
LISTNUM 1 \l 15754 MR. BIBIC: You may not have been present, Mr. Koch, yesterday when the Chair asked me that very same question and my answer was you would do both at the same time.
LISTNUM 1 \l 15755 MR. KOCH: Well, I am asking about Dr. Taylor's opinion because that is not the process that he set out.
LISTNUM 1 \l 15756 You prefer your client's approach?
LISTNUM 1 \l 15757 MR. TAYLOR: Well, it certainly sounds more efficient, yes.
LISTNUM 1 \l 15758 MR. KOCH: Okay. Sounds less intrusive and more market‑consistent?
LISTNUM 1 \l 15759 MR. TAYLOR: That isn't the element that makes it market consistent. What makes it market consistent is the negotiation in the first place, as opposed to an ex ante determination.
LISTNUM 1 \l 15760 MR. KOCH: You will agree with me that that type of ex post approach involves a certain degree of uncertainty, doesn't it?
LISTNUM 1 \l 15761 MR. TAYLOR: At day one, no. All uncertainty is resolved, in the sense that, on day one, we move in an ex post world to a Competition Bureau approach.
LISTNUM 1 \l 15762 MR. KOCH: Are we going to the Competition Bureau for the competition approach? Are we going to the Commission? Are we going twice?
LISTNUM 1 \l 15763 I guess my point is this: In 2001 you said that regulatory certainty and knowing the rules of the game are quite important to efficiency, and now I am seeing a proposal ‑‑ in fact, you endorsed an even more complex one, which you claim is less intrusive. It looks like a lawyer's dream, frankly, but I know ‑‑ and don't tell my partners that I said this ‑‑ that what is good for the lawyers is not necessarily good for efficiency in the economy.
LISTNUM 1 \l 15764 Would you not agree with me that that aspect of it doesn't map well onto your prescription in 2001 about certainty?
LISTNUM 1 \l 15765 MR. TAYLOR: I would agree with you that any change involves uncertainty, but I would disagree with you that remaining with a set of rules which don't work for consumers is probably not a good idea and that this is part of the evolution. We are evolving this market into a market that is not a natural monopoly any more, but, rather, looks like the market for ham, where any disruption or any anti‑competitive plans or anti‑competitive acts are observed and punished on an ex post basis, not on an ex ante basis.
LISTNUM 1 \l 15766 That is where this is all going to end up, Mr. Koch. It may not be in Canada in our lifetime ‑‑ I hope it is ‑‑ but that's where it is going.
LISTNUM 1 \l 15767 MR. KOCH: I will have to go and practise before the Canadian Ham Commission then.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 15768 MR. KOCH: Let's move to your report on the telecommunications competition in the U.S., Dr. Taylor. I don't have much more for you.
LISTNUM 1 \l 15769 Is it fair to summarize that NIRA's view ‑‑ and I am focusing on special access ‑‑
LISTNUM 1 \l 15770 Maybe we should go to page 8 of your report ‑‑ NIRA's report.
LISTNUM 1 \l 15771 The title is: "Special access is price regulated only in areas where actual competition or circumstances indicating potential competition do not exist."
LISTNUM 1 \l 15772 At paragraph 20 you say:
"The impact of the FCC's reduction in special access regulation has been positive."
LISTNUM 1 \l 15773 And you talk about ongoing regulatory measures.
LISTNUM 1 \l 15774 MR. TAYLOR: Yes.
LISTNUM 1 \l 15775 MR. KOCH: That is certainly one view of what has occurred in the United States. That is the rosy picture. Would you agree with me that there is another view that has been expressed by a number of parties that there is something rotten in the State of Denmark when it comes to special access prices and the FCC's treatment of them?
LISTNUM 1 \l 15776 MR. TAYLOR: No, I won't agree with "rosy" and "rotten", but I will agree that there is dispute as to exactly what has been going on with special access prices.
LISTNUM 1 \l 15777 MR. KOCH: Okay. I wonder, just for efficiency purposes ‑‑ there are a number of documents that I wanted to put to Dr. Taylor. One is a letter from the Congress of the United States, one is a letter from the Consumers Union, and one is a decision of the FCC in the matter of AT&T Inc. and Bell South Corporation.
LISTNUM 1 \l 15778 It would be more efficient if they were all distributed at the same time. Thank you.
LISTNUM 1 \l 15779 THE CHAIRPERSON: Mr. Koch, how much longer are you going to be?
LISTNUM 1 \l 15780 MR. KOCH: You will be happy to hear five or ten minutes only, sir.
LISTNUM 1 \l 15781 THE CHAIRPERSON: All right.
LISTNUM 1 \l 15782 MR. KOCH: Dr. Taylor, while the documents are being distributed, my understanding is that, under the Telecommunications Act in the United States, there are a number of provisions that mandate negotiations.
LISTNUM 1 \l 15783 MR. TAYLOR: Yes.
LISTNUM 1 \l 15784 MR. KOCH: And if negotiations aren't successful, then arbitrations follow those negotiations?
LISTNUM 1 \l 15785 MR. TAYLOR: Yes.
LISTNUM 1 \l 15786 MR. KOCH: Do you have any sense of how many arbitration proceedings ‑‑
LISTNUM 1 \l 15787 I'm sorry, I don't want to disrupt you.
LISTNUM 1 \l 15788 MR. TAYLOR: That's okay, I'm listening.
LISTNUM 1 \l 15789 MR. KOCH: Can you provide this Commission with a sense of how many arbitration proceedings have occurred under those provisions requiring the parties to negotiate first?
LISTNUM 1 \l 15790 MR. TAYLOR: Yes. Let's see, if I were going to give a rough order of magnitude, I would say it is roughly ‑‑ 50 times 6 ‑‑ maybe 300 for unbundled elements, and then numerous other negotiations for services which are not required to be provided, but which, nonetheless, took place; that is, negotiations, not necessarily arbitrations.
LISTNUM 1 \l 15791 In arbitrations under U.S. law, in principle, for unbundled network elements, the parties were required to agree, and then the regulator arbitrated differences.
LISTNUM 1 \l 15792 MR. KOCH: Would it surprise you if I told you that we did a search and that the number of arbitrations was between 1,500 and 2,000?
LISTNUM 1 \l 15793 MR. TAYLOR: That could be. I was simply multiplying 5 or 6 times 50. I wasn't involved in all of them.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 15794 MR. KOCH: You were probably just involved in half of them.
LISTNUM 1 \l 15795 Dr. Taylor, the three exhibits that I have put before you, I think, have been numbered by Madam Secretary.
LISTNUM 1 \l 15796 MTS Allstream Exhibit 11 is the FCC decision. I would like to put that aside for a moment.
LISTNUM 1 \l 15797 Exhibit 12 is a letter from the Consumers Union. This is one of those views ‑‑ and I understand that there are competing views in the United States, but this is an example of the Consumers Union expressing a slightly less rosy picture regarding special access prices and what the FCC should do about them. Correct?
LISTNUM 1 \l 15798 MR. TAYLOR: Yes, and I, of course, disagree with its numbers, as well as its conclusions. I think it is utter balderdash.
LISTNUM 1 \l 15799 MR. KOCH: I take it for granted that you disagree with the Consumers Union. I take it for granted, as well, that you disagree with the Congress of the United States and House of Representatives Committee on the Judiciary, the letter written by the Honourable John Conyers and the Honourable James Sensenbrenner Jr. that expresses similar views to the consumer groups.
LISTNUM 1 \l 15800 MR. TAYLOR: Not at all, no. You mischaracterize the letter.
LISTNUM 1 \l 15801 I read this carefully late last night, and I am not sure that I disagree with what the letter to Chairman Martin actually says.
LISTNUM 1 \l 15802 There isn't data in it. What it says is, "Look hard and do your duty," and I don't disagree with that at all. Look hard and do your duty.
LISTNUM 1 \l 15803 MR. KOCH: Maybe we could look at the second paragraph of the letter together.
"As we review the current telecommunications landscape, we are concerned about the level of competition with regard to high‑capacity, point‑to‑point transmission services frequently called Special Access." (As read)
LISTNUM 1 \l 15804 Is that an expression, quite apart from "Look hard and do your duty," that everything is positive?
LISTNUM 1 \l 15805 MR. TAYLOR: They are concerned about it. Of course they are concerned about it. I am concerned about it.
LISTNUM 1 \l 15806 MR. KOCH: Do you think they would write that letter if they thought everything was rosy and ‑‑
LISTNUM 1 \l 15807 MR. TAYLOR: No, I think, Mr. Koch, that they write this letter ‑‑ and I don't know either of the gentlemen, and I don't know what the judiciary committee has done with respect to either of the two issues that it raises here, but what I think it is in response to is the fact that there is a lot of discussion and a lot of studies ‑‑ serious work in the United States on both sides of this issue.
LISTNUM 1 \l 15808 I believe what this letter says is that they think it's important. Do the right thing.
LISTNUM 1 \l 15809 I just read it quickly. Maybe you can find something where you think it shows that they think there is no competition in special access, but I didn't find it last night.
LISTNUM 1 \l 15810 MR. KOCH: You and I are probably built differently, Dr. Taylor, but when I see a letter expressing concern, I think it's not patting someone on the back, it is something written because someone thinks things aren't so perfect.
LISTNUM 1 \l 15811 But you and I aren't going to be able to agree about the letter. We will let the Commission draw its own conclusions from the letter, and we will move on.
LISTNUM 1 \l 15812 The third document, which is MTS/Allstream Exhibit 11, is a portion of the FCC's ruling in the merger of AT&T Inc. and BellSouth Corporation. I wanted to, again, focus on the special access aspect of this.
LISTNUM 1 \l 15813 And in particular, Mr. Chairman, because it's a very thick document, I have provided the introduction and executive summary, but then as you go into the document you get to the conditions which were voluntarily agreed to by AT&T Inc. and BellSouth Corporation.
LISTNUM 1 \l 15814 Dr. Taylor, were you close to this one?
LISTNUM 1 \l 15815 MR. TAYLOR: No, I was not involved in this directly at all.
LISTNUM 1 \l 15816 MR. KOCH: Okay. I'm not sure how this one got away from you, but my understanding is, and I think this is played out if you read the entire document, that perhaps, as usual in the United States, the Democrats and the Republicans didn't quite see this the same way on the FCC and the Democrats required certain conditions to be imposed and posed.
LISTNUM 1 \l 15817 They were ultimately, voluntarily agreed to, but without them the merger would not have been approved. Is that your understanding of the situation, as well?
LISTNUM 1 \l 15818 MR. TAYLOR: Yes.
LISTNUM 1 \l 15819 MR. KOCH: Okay.
LISTNUM 1 \l 15820 MR. TAYLOR: The conditions are voluntary conditions ‑‑
LISTNUM 1 \l 15821 MR. KOCH: Yes.
LISTNUM 1 \l 15822 MR. TAYLOR: ‑‑ an oxymoron ‑‑
LISTNUM 1 \l 15823 MR. KOCH: Yes.
LISTNUM 1 \l 15824 MR. TAYLOR: ‑‑ in which the FCC gets conditions that it could not possibly otherwise get, except as a condition of approving the merger.
LISTNUM 1 \l 15825 MR. KOCH: Okay.
LISTNUM 1 \l 15826 MR. TAYLOR: It has nothing to do with the merger ‑‑
LISTNUM 1 \l 15827 MR. KOCH: And I'm looking at page 151, which is part ‑‑ and these have been misstapled, for which I apologize, but we are looking at the conditions, Mr. Chairman, that deal with special access.
LISTNUM 1 \l 15828 Under paragraph 6, it says, "In areas with...", and there's a lot of language here, but you are familiar with this condition ‑‑
LISTNUM 1 \l 15829 MR. TAYLOR: Yes.
LISTNUM 1 \l 15830 MR. KOCH: ‑‑ Dr. Taylor and ‑‑
LISTNUM 1 \l 15831 MR. TAYLOR: Well, let me read it again. This is ‑‑
LISTNUM 1 \l 15832 MR. KOCH: Sure, no, you take your time.
LISTNUM 1 \l 15833 MR. TAYLOR: Okay, we are set.
LISTNUM 1 \l 15834 MR. KOCH: You are a fast reader.
LISTNUM 1 \l 15835 MR. TAYLOR: Yes.
LISTNUM 1 \l 15836 MR. KOCH: These conditions, in one case, freeze the prices for DS‑1 and DS‑3. Correct?
LISTNUM 1 \l 15837 MR. TAYLOR: Yes.
LISTNUM 1 \l 15838 MR. KOCH: And in another case require AT&T/BellSouth to reduce the prices by 15 percent. Correct?
LISTNUM 1 \l 15839 MR. TAYLOR: That's correct.
LISTNUM 1 \l 15840 MR. KOCH: Okay. Now, just sticking with your report on the U.S. situation, one of your contentions is that, with the removal of regulation, CLECs were able to negotiate, to enter into new negotiated arrangements for the facilities that they had previous received under regulation. Correct?
LISTNUM 1 \l 15841 MR. TAYLOR: We are talking about UNE‑P, I trust?
LISTNUM 1 \l 15842 MR. KOCH: Yes.
LISTNUM 1 \l 15843 MR. TAYLOR: Yes, that's correct. I think all of the major ILECs put in place voluntary wholesale services that took the place of UNE‑P, and many CLECs put their services on those platforms.
LISTNUM 1 \l 15844 MR. KOCH: Okay. I'm having trouble finding it in the report, maybe I'm going too fast here...oh, here it is. This discussion starts at paragraph 63 of your report. Maybe you could turn that up, at page 28 ‑‑
LISTNUM 1 \l 15845 MR. TAYLOR: Yes.
LISTNUM 1 \l 15846 MR. KOCH: ‑‑ paragraph 63?
"The changes FCC rules with respect to UNE‑P and line sharing, for example, did not result in the end of the ILECs selling these services to CLECs, it simply meant the end of these services being sold at regulated TELRIC rates. While many of the lines previously provisioned through UNE‑P or through line sharing have been transitioned to alternative regulated arrangements, such as special access or resale based on a discount off the retail rate, commercial agreements between ILECs and CLECs have replaced some of the lines." (As read)
LISTNUM 1 \l 15847 Now, the lines that had been provided on a regulated basis at TELRIC rates had included all the lines provided to AT&T and MCI. Correct?
LISTNUM 1 \l 15848 MR. TAYLOR: Not all, but many.
LISTNUM 1 \l 15849 MR. KOCH: Okay. How many lines do you estimate there were?
LISTNUM 1 \l 15850 MR. TAYLOR: I have no idea.
LISTNUM 1 \l 15851 MR. KOCH: Thousands?
LISTNUM 1 \l 15852 MR. TAYLOR: Thousands of UNE‑P lines, yes. Easily thousands.
LISTNUM 1 \l 15853 MR. KOCH: Millions?
LISTNUM 1 \l 15854 MR. TAYLOR: Low millions, sure.
LISTNUM 1 \l 15855 MR. KOCH: Okay. And now you move on from there ‑‑
LISTNUM 1 \l 15856 MR. TAYLOR: Subject to check.
LISTNUM 1 \l 15857 MR. KOCH: Subject to check, fine.
LISTNUM 1 \l 15858 You move on there to describe the agreements entered into. Now, let's just ‑‑ you have two example. You give Covad Communications as an example. Correct?
LISTNUM 1 \l 15859 MR. TAYLOR: Yes.
LISTNUM 1 \l 15860 MR. KOCH: That's in 64. And in 65, you use ‑‑ well, there are a few examples here, but let's look at the last sentence of paragraph 65.
LISTNUM 1 \l 15861 You say:
"...and other CLECs that have reached agreements include Birch Telecom, LDMI and others." (As read)
LISTNUM 1 \l 15862 Who are the others?
LISTNUM 1 \l 15863 MR. TAYLOR: I'm sorry, where are you?
LISTNUM 1 \l 15864 MR. KOCH: Sorry, the last sentence of 65.
LISTNUM 1 \l 15865 MR. TAYLOR: Oh, 65.
LISTNUM 1 \l 15866 MR. KOCH: Birch Telecom, LDMI and others. Can you name any others for me?
LISTNUM 1 \l 15867 MR. TAYLOR: Well, let's see, we have Z‑Tel, which is now Trinsic, I guess.
LISTNUM 1 \l 15868 MR. KOCH: Yes. We have Covad and Z‑Tel/Trinsic, but you say here British Telecom ‑‑ sorry, Birch Telecom, it's not British Telecom.
LISTNUM 1 \l 15869 MR. TAYLOR: Birch, yes ‑‑
LISTNUM 1 \l 15870 MR. KOCH: Birch Telecom ‑‑
LISTNUM 1 \l 15871 MR. TAYLOR: ‑‑ in the midwest.
LISTNUM 1 \l 15872 MR. KOCH: ‑‑ LDMI and others.
LISTNUM 1 \l 15873 MR. TAYLOR: I don't have anything in my backup ‑‑
LISTNUM 1 \l 15874 MR. KOCH: Okay.
LISTNUM 1 \l 15875 MR. TAYLOR: ‑‑ but there are others.
LISTNUM 1 \l 15876 MR. KOCH: Birch Telecom and LDMI, they are not exactly household names in Canada. Are they household names in the United States?
LISTNUM 1 \l 15877 MR. TAYLOR: Birch Telecom, I think is in the midwest ‑‑
LISTNUM 1 \l 15878 MR. KOCH: Okay.
LISTNUM 1 \l 15879 MR. TAYLOR: ‑‑ where they are quite active. LDMI, I don't know.
LISTNUM 1 \l 15880 MR. KOCH: Do you know what LDMI is?
LISTNUM 1 \l 15881 MR. TAYLOR: Just a CLEC. I don't know anything ‑‑
LISTNUM 1 \l 15882 MR. KOCH: Just a CLEC, where they had ‑‑
LISTNUM 1 \l 15883 MR. TAYLOR: ‑‑ don't know anything about it.
LISTNUM 1 \l 15884 MR. KOCH: You know nothing it?
LISTNUM 1 \l 15885 MR. TAYLOR: No.
LISTNUM 1 \l 15886 MR. KOCH: Okay. So your examples are others you can't name, LDMI we know nothing about, Birch Telecom, which is in the midwest. You have got a full paragraph on Covad and Z‑Tel, u'mm, Z ‑‑
LISTNUM 1 \l 15887 MR. TAYLOR: Zee‑Tel.
LISTNUM 1 \l 15888 MR. KOCH: Zee‑Tel for you, Zed‑Tel for us ‑‑ Trinsic Inc. Those are your two big examples, right? Those are the best examples?
LISTNUM 1 \l 15889 MR. TAYLOR: Well, yes, you are looking at the CLECs that purchased them.
LISTNUM 1 \l 15890 MR. KOCH: Yes.
LISTNUM 1 \l 15891 MR. TAYLOR: Look at the other side, look at the number of UNE‑P lines that are currently being sold. And the FCC ‑‑
LISTNUM 1 \l 15892 MR. KOCH: And you know what, that's in your report. Again, for efficiency purposes, I would like to look at these examples.
LISTNUM 1 \l 15893 Your best examples, would you agree with me, because you devote entire paragraphs to them, are Covad and Trinsic/Zed‑Tel or Zee‑Tel?
LISTNUM 1 \l 15894 MR. TAYLOR: Those are examples, yes.
LISTNUM 1 \l 15895 MR. KOCH: Are they the best? You would have provided ‑‑ you are trying to make a point here. You would have provided your best examples, correct?
LISTNUM 1 \l 15896 MR. TAYLOR: Well, those are ones that ‑‑ beats me. I mean, those are examples, that's all I can say.
LISTNUM 1 \l 15897 MR. KOCH: Are they good examples ‑‑
LISTNUM 1 \l 15898 MR. TAYLOR: Sure.
LISTNUM 1 \l 15899 MR. KOCH: ‑‑ or should we disregard them?
LISTNUM 1 \l 15900 MR. TAYLOR: No, no, of course they are examples. There are a lot of UNE‑P lines out there, these are some of the CLECs that buy them. There are others.
LISTNUM 1 \l 15901 MR. KOCH: Okay.
LISTNUM 1 \l 15902 Covad Communications Group you talk about, in paragraph 64:
"A three‑year agreement enabled Covad to continue to offer hi‑speed digital subscriber line services." (As read)
LISTNUM 1 \l 15903 The three‑year agreement was entered into in 2004. Do you know what's happening with that agreement now?
LISTNUM 1 \l 15904 MR. TAYLOR: Don't know.
LISTNUM 1 \l 15905 MR. KOCH: Can't help the Commission on that.
LISTNUM 1 \l 15906 Z‑Tel Technologies, Trinsic Inc., do you know what has happened with them? Do you know how they are doing?
LISTNUM 1 \l 15907 MR. TAYLOR: No.
LISTNUM 1 \l 15908 MR. KOCH: Do you know any ‑‑
LISTNUM 1 \l 15909 MR. TAYLOR: Do you mean profitability ‑‑
LISTNUM 1 \l 15910 MR. KOCH: Yes.
LISTNUM 1 \l 15911 MR. TAYLOR: ‑‑ number of lines...?
LISTNUM 1 \l 15912 MR. KOCH: Profitability?
LISTNUM 1 \l 15913 MR. TAYLOR: No.
LISTNUM 1 \l 15914 MR. KOCH: Okay. I wonder if I could just ask, in the prefiled material there is part ‑‑
LISTNUM 1 \l 15915 THE CHAIRPERSON: Mr. Koch, contrary to expectation, you are actually taking longer.
LISTNUM 1 \l 15916 MR. KOCH: This is, literally, the punch line, sir.
LISTNUM 1 \l 15917 THE CHAIRPERSON: Yes?
‑‑‑ Laughter / Rires
LISTNUM 1 \l 15918 THE CHAIRPERSON: Are you sure?
LISTNUM 1 \l 15919 MR. KOCH: I am.
LISTNUM 1 \l 15920 THE CHAIRPERSON: Otherwise, I have no problem coming back to it.
LISTNUM 1 \l 15921 MR. KOCH: I am I know Dr. Taylor always has more to say, but this is my last question.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 15922 MR. TAYLOR: I get the last word.
LISTNUM 1 \l 15923 MR. KOCH: I don't know what this...yes, it's called "Failure of U.S. CLECs: 1996 to Present".
LISTNUM 1 \l 15924 It's in TELUS' supplementary material. It's part of a report given by Dr. Crandall.
LISTNUM 1 \l 15925 Dr. Taylor, this is a list, or appears to be a list, of the failure of U.S. CLECs 1996 to present. You have to flip over the page to the last company Z‑Tel/Trinsic. Is that the same Z‑Tel/Trinsic as in your report?
LISTNUM 1 \l 15926 MR. TAYLOR: Yes, it is.
LISTNUM 1 \l 15927 MR. KOCH: Okay. And its date of bankruptcy, Dr. Crandall lists at February 2007, correct?
LISTNUM 1 \l 15928 MR. TAYLOR: That is correct.
LISTNUM 1 \l 15929 MR. KOCH: And indicates the assets to be sold to a private company for $26 million invested over $100 million over seven years, correct?
LISTNUM 1 \l 15930 MR. TAYLOR: That is what it says.
LISTNUM 1 \l 15931 MR. KOCH: Those are my questions, Mr. Chairman.
LISTNUM 1 \l 15932 THE CHAIRPERSON: Okay, thank you very much. Let us break for 10 minutes.
‑‑‑ Upon recessing at 3:10 p.m.
‑‑‑ Upon resuming at 3:26 p.m.
LISTNUM 1 \l 15933 THE CHAIRPERSON: Okay, would you take your seats please, we are about to resume.
LISTNUM 1 \l 15934 Dr. Taylor, I can't let you go without asking you to help me put this into the real world.
LISTNUM 1 \l 15935 Your scenario of ex post and negotiating, et cetera. On a theoretical level I totally understand it. But on a practical level we are talking about a business market, we are talking about somebody who has to prepare a bid and he is competing against an ILEC. He needs certainty, he needs to know what he can offer, what he can't. Under your scenario he has to sit down with the ILEC and negotiate. Surely, it is in the ILEC's best interest to play for time because they are bidding on that contract, too.
LISTNUM 1 \l 15936 And if they can't reach, they have to go before the Commission and get a ruling on both essentiality and on price. Mr. Bibic has said he would ‑‑ but in the meantime the bid is gone. I just don't see how in a real life situation you can reconcile your theory and your procedure with making a bid on a timely manner in a business market.
LISTNUM 1 \l 15937 MR. TAYLOR: Well, ask yourself how it is that carriers, including The Companies, supply services to national and global corporations. They have precisely the same problem or they have a similar problem in that they require access in places where they don't have service.
LISTNUM 1 \l 15938 Take network integrators, these are people ‑‑ IBM does it a lot in the States ‑‑ they don't have any facilities at all, but they are a big player in the enterprise market and they will participate in bids, they have experience in obtaining access. In fact, for these network integrators, they have no facilities whatsoever. So they have expectations, they have commercial relationships that enable them to bid in these circumstances.
LISTNUM 1 \l 15939 THE CHAIRPERSON: Except they are not competitors with the people with whom they are negotiating, that is the difference.
LISTNUM 1 \l 15940 I mean here, you are ‑‑
LISTNUM 1 \l 15941 MR. TAYLOR: Oh no, no, but that isn't the case. I mean, I think Verizon competes with IBM all the time for those cases. Yes, if IBM gets the deal Verizon will supply some of the physical facilities, but the profit, the markup, the margin is on the higher brain information, not the simple copper wire or fibre.
LISTNUM 1 \l 15942 THE CHAIRPERSON: But isn't it slightly different because you are really talking about people who are mutually dependent on each other, they are both big, they are both in the same industry, on this deal they may be opponent, on that deal will work together, et cetera. Does that same thing apply in this scenario here where you have small SILECs and large ILECs?
LISTNUM 1 \l 15943 MR. TAYLOR: Well, I mean it certainly can and I don't know that the dimensions workout quite right. I mean, I take your point, that there can be circumstances, particularly at the beginning of the process, where people don't know what decisions might get made, what would be deemed an essential facility if it went to that.
LISTNUM 1 \l 15944 But in some sense that is just a right of passage perhaps for this segment of the market that could conceivably suffer from this problem at the beginning.
LISTNUM 1 \l 15945 There is a transition, as I understand it, in this plan.
LISTNUM 1 \l 15946 THE CHAIRPERSON: So you see the transition period as being sort of a trial period that people will negotiate and hopefully establish some principles and some floor plans?
LISTNUM 1 \l 15947 MR. TAYLOR: That is certainly the way it worked in the U.S. For UNE‑P, people knew six or eight months before that it would no longer be able, and long before the deadline came, people had signed contracts and had made arrangements.
LISTNUM 1 \l 15948 MR. WATERS: Mr. Chairman, I also work as a lawyer in negotiating first jurisdictions, a couple of them. This has been a concern and a problem in some ex post jurisdictions which do not have powers to make interim determinations.
LISTNUM 1 \l 15949 But when these jurisdictions introduce the powers to make interim determinations, such as in New Zealand and also in Hong Kong, that interestingly changes the negotiating dynamics because the CLEC knows that, yes, there is some delay, but it can go off and pretty quickly get an interim determination, and that just changes the way that you sit around the table and negotiate with each other because the ILEC knows the CLEC can get up from the table, go out and get an order relatively quickly. So that just changes the way they deal with each other.
LISTNUM 1 \l 15950 In Hong Kong, for example, where there is a hard stop for the withdrawal of unbundling, commercial agreements are now being negotiated for the full range of services here in Canada that are actually regulated. They are available commercially.
LISTNUM 1 \l 15951 Having been a regulatory lawyer there for ten years, I actually have less work to do now because it is actually commercially negotiated rather than lengthy ex ante processes about whether things should be regulated. Commercial deals are struck.
LISTNUM 1 \l 15952 MR. ANDERSON: If I could just add, Mr. Chair, that was one of the ideas that we had envisioned, that typically you would probably negotiate a much broader deal as opposed to waiting for each individual RFQ or each individual deal, that you would have an agreement on a certain product or a certain area in place beforehand or as part of the same discussion.
LISTNUM 1 \l 15953 THE CHAIRPERSON: Commissioner Cram.
LISTNUM 1 \l 15954 COMMISSIONER CRAM: Thank you, Mr. Chair.
LISTNUM 1 \l 15955 Mr. Bibic, you were saying about a customer being served off the remote, that they had the alternative of a TPIA.
LISTNUM 1 \l 15956 People in Indian Head wouldn't have that, would they? I mean, we have to worry about the other 36 per cent of people that aren't in areas where there are not facilities. Are you just foreclosing them from any possibility of competition?
LISTNUM 1 \l 15957 MR. BIBIC: I believe that in Canada, over 90 per cent of homes are passed by cable network. I can't remember offhand the percentage of those cable networks which are two‑way enabled to provide broadband, but my point was that the retail internet market is competitive and has been found to be so competitive time and again.
LISTNUM 1 \l 15958 Frankly, I don't believe that there should be mandated access to TPIA or to the ILEC networks for the purposes of hi‑speed internet, but if somebody were to be able to find a situation where really there is no broadband competition, that there is a problem in the downstream retail Internet market and the solution to that is to mandate access to the ILEC's network for those purposes, then sure my model ‑‑ that is not in any way foreclosed.
LISTNUM 1 \l 15959 COMMISSIONER CRAM: I wanted to get the timing right. In January of 2005, our CDNS decision came out, and people then filed tariffs after that. That's correct, isn't it? I think it was January 27th. God knows why I remember that.
LISTNUM 1 \l 15960 MR. BIBIC: It was late January or February, but, yes.
LISTNUM 1 \l 15961 COMMISSIONER CRAM: So, people would then file tariffs and proceed accordingly. Correct?
LISTNUM 1 \l 15962 MR. BIBIC: Yes. It was February 3rd, 2005.
LISTNUM 1 \l 15963 COMMISSIONER CRAM: Oh Lord, I am off by a week.
LISTNUM 1 \l 15964 Anyway, it was only at that point that people would be making decisions as to their infrastructure. There would not have been any deterrent to infrastructure prior to that based on the CDNA prices then.
LISTNUM 1 \l 15965 MR. BIBIC: As I understand, there was an interim regime put in place as of ‑‑
LISTNUM 1 \l 15966 COMMISSIONER CRAM: June 2002.
LISTNUM 1 \l 15967 MR. BIBIC: Yes, exactly, when the price caps decision came up. So there was an interim regime where CDNA was available.
LISTNUM 1 \l 15968 COMMISSIONER CRAM: Limited ‑‑
LISTNUM 1 \l 15969 MR. BIBIC: Well, actually, there was a limited form of CDNA, and then Bell and a couple of the other ILECs filed a proposal later that year to broaden the scope voluntarily. That was done.
LISTNUM 1 \l 15970 Then in 2005 there was a final regime which included a whole bunch of other elements, changed the rates and made those rates retroactive.
LISTNUM 1 \l 15971 COMMISSIONER CRAM: Are you saying that the decision to make the rates interim froze capital decisions or what was the disincentive? Was it the essentiality or the price that was a disincentive to investment by Bell West?
LISTNUM 1 \l 15972 MR. BIBIC: It was the price. I'm going to get bogged down on essentiality here. It was never found to be an essential facility, but it was mandated and a price was ordered.
LISTNUM 1 \l 15973 COMMISSIONER CRAM: So, it was the price that companies became aware of in February 2005 that became the disincentive to investment?
LISTNUM 1 \l 15974 MR. BIBIC: Correct, to further investment. That is one of many other things, but, yes.
LISTNUM 1 \l 15975 COMMISSIONER CRAM: You will agree with me that in April, that was the start of the roll out of cable, cable telephony. I think Rogers was in on April 15th.
LISTNUM 1 \l 15976 MR. BIBIC: Certainly they were in 2005.
LISTNUM 1 \l 15977 COMMISSIONER CRAM: Dr. Taylor, then, you would agree with me that in fact you were incorrect when you were talking about the fact that our pricing of CDNS in any way impacted the roll out of cable because they rolled out two months after or three months after we actually set the price.
LISTNUM 1 \l 15978 MR. TAYLOR: I am certainly not familiar with Rogers' history.
LISTNUM 1 \l 15979 COMMISSIONER CRAM: If that was the case, if they rolled out, were actually having their telephony out selling it two months after the CDNS decision on rates.
LISTNUM 1 \l 15980 MR. TAYLOR: Then I would have to agree that that decision by itself didn't effect the start of the roll out. It may well have affected the success of the roll out.
LISTNUM 1 \l 15981 MR. BIBIC: But, Ms Cram, that is not really the point we are making.
LISTNUM 1 \l 15982 COMMISSIONER CRAM: No, Dr. Taylor was saying that. He was saying the whole bit about the cable roll out could have been faster but for the CDNS. I just wanted to clarify that they actually had made a lot of their capital decisions by that time, the major companies.
LISTNUM 1 \l 15983 MR. TAYLOR: That the starting date was not affected by CDNS, yes, I would agree with that.
LISTNUM 1 \l 15984 MR. BIBIC: If you are asking Dr. Taylor about that portion of his testimony, that is fine.
LISTNUM 1 \l 15985 Our broader point is that CDN affected the disincentives of ILECs and CLECs, not the cablecos.
LISTNUM 1 \l 15986 COMMISSIONER CRAM: I hear you. I understand.
LISTNUM 1 \l 15987 MR. BIBIC: I just want to be clear on that.
LISTNUM 1 \l 15988 COMMISSIONER CRAM: Mr. Waters, we are mandated to look at increased capital investment by CLECs. One of our purposes of this hearing is to look at increased capital investments by CLECs and LECs. I don't have the proper words, but it is all the people in the business.
LISTNUM 1 \l 15989 Can you tell me since the structural separation, semi‑structural separation in the U.K. what has happened to Cap X with BT?
LISTNUM 1 \l 15990 MR. WATERS: I can't answer it directly with a quantitative figure.
LISTNUM 1 \l 15991 COMMISSIONER CRAM: Could you actually then give me the numbers by way of undertaking, please?
LISTNUM 1 \l 15992 MR. WATERS: I can, and I will tell you where you can find some numbers about it in relation to next generation networks.
LISTNUM 1 \l 15993 Ofcom has just published in the last two weeks a paper on next generation access networks, and in that paper it concedes that the United Kingdom is substantially behind other markets in the deployment of next generation networks.
LISTNUM 1 \l 15994 While Ofcom, of course, would not concede that it was operational separation or its regulatory regime which had led to that, it does note that one of the reasons that the UK is behind is because markets like the United States have much more end‑to‑end infrastructure competition from cable operators.
LISTNUM 1 \l 15995 So, it is attributing the slow deployment of NGNs in the U.K. to end‑to‑end facilities by its competition in other markets which it does not have. There is now a current debate, including by the U.K. government, about whether regulation in the U.K. is also a factor in the very slow deployment of next generation networks in the UK. But that makes a very interesting read as to what is happening in relative expenditure on fibre between the U.K. and other markets and there are some figures in that report, and I can give you the reference for it.
LISTNUM 1 \l 15996 COMMISSIONER CRAM: I would like the total Cap X by BT since 2003, please.
LISTNUM 1 \l 15997 MR. WATERS: I can probably get that, yes.
LISTNUM 1 \l 15998 COMMISSIONER CRAM: That will be BT Global, BT Retail, BT Wholesale and Openreach.
LISTNUM 1 \l 15999 MR. WATERS: BT Global operates outside the ‑‑
LISTNUM 1 \l 16000 COMMISSIONER CRAM: Okay, then I don't need it. That is good.
LISTNUM 1 \l 16001 MR. BIBIC: BT Global or any of it?
LISTNUM 1 \l 16002 COMMISSIONER CRAM: Not BT Global, I am sorry, I wasn't clear.
LISTNUM 1 \l 16003 In that same vein, Dr. Taylor, there is ‑‑ and I don't know the number of the exhibit ‑‑ there is U.S. ILEC data from the FCC site showing Cap X.
LISTNUM 1 \l 16004 First, do you agree with those numbers?
LISTNUM 1 \l 16005 MR. TAYLOR: I had a copy of it, but I can't find it. The short answer is yes, of course I agree with the numbers, and in fact they tell the history of investment in the U.S.
LISTNUM 1 \l 16006 Looking at telephone plant additions, we look at sort of $20 billion in 1996, going up to close to $30 billion in 2001, fall off the world as the internet bubble bursts down to half that in 2002. It has been about constant since then. That is for telephone plant additions.
LISTNUM 1 \l 16007 Cable and wire additions, the additions each year is roughly constant in these data.
LISTNUM 1 \l 16008 COMMISSIONER CRAM: How effective, then, can I take it from this document has been the de‑regulation of DS‑1 and DS‑3 to increase Cap X?
LISTNUM 1 \l 16009 MR. TAYLOR: I don't think I would make the case that this data shows the effect of de‑regulation in either direction.
LISTNUM 1 \l 16010 I think what has happened has been that de‑regulation of broadband service has enabled, in the last year or two years, Verizon and AT&T to roll out a next generation network. That has been a big difference, and that is explicit. I mean, you can read in their statements.
LISTNUM 1 \l 16011 COMMISSIONER CRAM: I want to take you back to the objectives we have been given by the government to increase capital expenditures by ILECs. I want to ask you if the de‑regulation of DS‑1 and DS‑3, ‑‑ I do not see any appreciable increase of expenditures of Cap X as a result of that in the United States. Do you agree with me?
LISTNUM 1 \l 16012 MR. TAYLOR: I agree with you that you cannot infer that from this data.
LISTNUM 1 \l 16013 COMMISSIONER CRAM: Do you have any data on CLEC expenditures over those same years?
LISTNUM 1 \l 16014 MR. TAYLOR: The FCC publishes data on CLEC access lines. CLEC investment, of course, is private and secret and all of that.
LISTNUM 1 \l 16015 COMMISSIONER CRAM: So this is really the only document we can go by in terms of looking at increasing spending, capital spending?
LISTNUM 1 \l 16016 MR. TAYLOR: Well, no, I don't think so. I think you can look at the annual reports, say, of the large ILECs and they will tell you what they are now spending on Cap X on next generation networks, which would not have been taking place under an unbundled regime.
LISTNUM 1 \l 16017 COMMISSIONER CRAM: But this would include the next generation expenditures?
LISTNUM 1 \l 16018 MR. TAYLOR: That is what I am trying to think. I can't swear that it would. I'm not sure because, remember, the next generation network is regulated differently from the existing one, but I don't know whether those are in ARMIS or not.
LISTNUM 1 \l 16019 COMMISSIONER CRAM: Could you find out, please?
LISTNUM 1 \l 16020 MR. TAYLOR: Yes, I can.
LISTNUM 1 \l 16021 COMMISSIONER CRAM: If it is, if the next gen expenditures are in addition to these as reported to the FCC, could you provide us with them?
LISTNUM 1 \l 16022 MR. TAYLOR: We will do that.
LISTNUM 1 \l 16023 MS SANDERSON: Commissioner Cram, there is a study that Professor Church referred to at yesterday's testimony, which doesn't include the United States. It is for 12 European countries.
LISTNUM 1 \l 16024 COMMISSIONER CRAM: That is that LECG one?
LISTNUM 1 \l 16025 MS SANDERSON: Yes. That speaks to CLEC investments in alternative infrastructure and the tradeoffs that are made when there is low unbundled loop prices relative to this build/buy. They translate that into an investment question that is related to the platform. It is only CLECs. It is not ILEC investments and it is for 12 European countries.
LISTNUM 1 \l 16026 COMMISSIONER CRAM: Yes. I am just relating this to our instructions from the government.
LISTNUM 1 \l 16027 So, any proposal to me has to be showing in numbers to be effective, and that is the only point I was trying to get at.
LISTNUM 1 \l 16028 Thank you, Mr. Chair. That is all.
LISTNUM 1 \l 16029 THE CHAIRPERSON: This issue will be addressed in the final submission, as we will see, from parties. They are aware of what our mandate is from the government.
LISTNUM 1 \l 16030 Okay, back to you. Primus. Mr. Ruby.
LISTNUM 1 \l 16031 MR. RUBY: Thank you, Mr. Chairman. I am joined today by Jonathan Holmes from Primus.
EXAMINATION / INTERROGATOIRE
LISTNUM 1 \l 16032 MR. RUBY: Mr. Anderson, this morning you made the comment that we are not interested in being uncooperative. I would like to explore with you for a few minutes that very interesting statement, if I may.
LISTNUM 1 \l 16033 MR. ANDERSON: Okay.
LISTNUM 1 \l 16034 MR. RUBY: First of all, I take it you are aware that in order to build a Toronto fibre ring, in July 2006 Globility sought support structure access from Bell based on the advice of a consultant called Expertech. Are you aware of that?
LISTNUM 1 \l 16035 MR. ANDERSON: I have some knowledge.
LISTNUM 1 \l 16036 MR. RUBY: Just so we are all on the same page, you can confirm, I take it, that Expertech has a former Bell employee who is familiar with Bell conduit usage in Toronto. Right?
LISTNUM 1 \l 16037 MR. ANDERSON: I don't know. I am sure that they do, but ‑‑
LISTNUM 1 \l 16038 MR. BABIN: Mr. Ruby, if I can add, are you referring to Bell Canada/Primus 14? Primus actually asked questions around access to conduit facilities by an Expertech employee.
LISTNUM 1 \l 16039 MR. RUBY: I am not referring to any particular interrogatory.
LISTNUM 1 \l 16040 MR. BABIN: There was an answer provided in interrogatory 14, but we will wait for your question.
LISTNUM 1 \l 16041 MR. RUBY: Why don't you wait for my questions and it will probably move a little bit faster.
LISTNUM 1 \l 16042 I take it, Mr. Anderson, that Globility told Bell what locations it wanted to connect and proposed a route. Right?
LISTNUM 1 \l 16043 MR. ANDERSON: Yes, I understand that from the evidence.
LISTNUM 1 \l 16044 MR. RUBY: And Bell denied the request for support structure access. Right?
LISTNUM 1 \l 16045 MR. ANDERSON: I don't know.
LISTNUM 1 \l 16046 MR. BABIN: May I answer, Mr. Ruby?
LISTNUM 1 \l 16047 Basically at certain cross‑sections, the process for access to support structures is for any seeker, access seeker to those conduits to provide the actual route that the competitor wants to use.
LISTNUM 1 \l 16048 MR. RUBY: And that is what Globility provided?
LISTNUM 1 \l 16049 MR. BABIN: Globility provided the various cross‑sections and there were ‑‑
LISTNUM 1 \l 16050 MR. RUBY: And Bell said no to certain cross‑sections?
LISTNUM 1 \l 16051 MR. BABIN: That is correct. There were certain cross‑sections that had capacity and certain cross‑sections that actually do not have capacity.
LISTNUM 1 \l 16052 MR. RUBY: And Bell said give us another route and we will take another look. Right?
LISTNUM 1 \l 16053 MR. BABIN: That is correct, because we don't want to design a network for the competitors. There are various permutations to get to one location to another, so we are depending on the routing that the competitor or the access seeker is looking for.
LISTNUM 1 \l 16054 MR. RUBY: So, with Globility and other CLECs of that type who want to build using your support structures, you won't give them alternative routes. Right? You say, you give me a route and I will check them one at a time?
LISTNUM 1 \l 16055 MR. BABIN: That is correct. We are not in the business of designing networks for competitors.
LISTNUM 1 \l 16056 MR. RUBY: Right. You won't even say, based on our experience, this is our best guess; if you go around this way, you go around that way, maybe those areas are more likely to have conduit space. You don't do that?
LISTNUM 1 \l 16057 MR. BABIN: No, because every cross‑section actually needs a physical inspection. So, to do that, we would actually have to go out and physically inspect each cross‑section.
LISTNUM 1 \l 16058 MR. RUBY: But you have a general idea that some streets are busier from a use of support structure than others?
LISTNUM 1 \l 16059 MR. BABIN: Based on the construction, Mr. Ruby, each cross‑section has to be inspected individually.
LISTNUM 1 \l 16060 MR. RUBY: I understand, to confirm that there is enough space you would have to inspect it?
LISTNUM 1 \l 16061 MR. BABIN: Right.
LISTNUM 1 \l 16062 MR. RUBY: But you are telling me that for your own use, your engineers don't have a general idea that maybe we should take a look at going one street north or one street south because it is probably better?
LISTNUM 1 \l 16063 MR. BABIN: Yes, and when they do they will provide those cross‑sections and we actually physically go out and inspect those cross‑sections. So, it is the same process we use for any access seeker.
LISTNUM 1 \l 16064 MR. RUBY: Right, same process for everybody.
LISTNUM 1 \l 16065 So, what it ends up with is a company like Globility has to guess and keep guessing to make sure it gets every cross‑section it needs and you just keep saying yes or no with no other guidance?
LISTNUM 1 \l 16066 MR. BABIN: We provide the access seeker, in this case Globility, which areas have conduits and which areas do not. Then it is up to Globility to plan a different route for their network.
LISTNUM 1 \l 16067 MR. RUBY: But you don't go the extra step of helping?
LISTNUM 1 \l 16068 MR. BABIN: Well, as I said, Mr. Ruby, there are various numbers of permutations as far as getting from point A to point Z.
LISTNUM 1 \l 16069 MR. RUBY: Okay.
LISTNUM 1 \l 16070 MR. BABIN: We are not going to design the network for ‑‑
LISTNUM 1 \l 16071 MR. RUBY: I understand your point though. It doesn't sound consistent to me with being uncooperative and everybody have access to support structures.
LISTNUM 1 \l 16072 I guess eventually Globility gave up trying to guess a route, Mr. Babin?
LISTNUM 1 \l 16073 MR. BABIN: I am sorry, I missed that question, Mr. Ruby.
LISTNUM 1 \l 16074 MR. RUBY: Eventually, Globility gave up trying to guess a route?
LISTNUM 1 \l 16075 MR. BABIN: In that case I am not sure what the final outcome was but, as I said, in the answer to interrogatory 14 from Primus we actually went through the process which we follow for access to conduits.
LISTNUM 1 \l 16076 MR. RUBY: I understand you followed your process. I am asking you if you ended up granting access to support structures so that there could be a fiber ring for Globility in Toronto.
LISTNUM 1 \l 16077 MR. BABIN: Well, in the cross‑sections that did not have capacity, we could not.
LISTNUM 1 \l 16078 MR. RUBY: So you said no?
LISTNUM 1 \l 16079 MR. BABIN: To those cross‑sections, that is correct.
LISTNUM 1 \l 16080 MR. RUBY: Right.
LISTNUM 1 \l 16081 And shortly afterwards ‑‑ and maybe, Mr. Anderson, you are the one who can confirm this for me ‑‑ Bell offered to lease a facility to Globility instead; is that right?
LISTNUM 1 \l 16082 MR. ANDERSON: I don't know that for a fact but I could assume that.
LISTNUM 1 \l 16083 MR. RUBY: Well, if that is not the case, can you advise me? I won't ask you for an undertaking other than if that is not right, you will let me know?
LISTNUM 1 \l 16084 MR. ANDERSON: Yes, I will.
LISTNUM 1 \l 16085 MR. RUBY: Okay. And do you know when Bell proposed an agreement for that fiber to Globility?
LISTNUM 1 \l 16086 MR. ANDERSON: No, I don't.
LISTNUM 1 \l 16087 MR. RUBY: Would it surprise you if it proposed the agreement in April 2007, so nearly a year after the initial application was made for support structure access?
LISTNUM 1 \l 16088 MR. ANDERSON: Yes, I would have to take a look at the whole situation. I mean we get involved in these kinds of circumstances of many natures, and for the most part, I expect that they go pretty well, and this is one, obviously, you are identifying that didn't go so well for a number of reasons but I would need to understand the full details.
LISTNUM 1 \l 16089 MR. RUBY: All right. Well, in fact, Globility, just coming under the wire before this hearing on October 3rd, finally said: Okay, we can turn up some fiber for you.
LISTNUM 1 \l 16090 Are you aware of that?
LISTNUM 1 \l 16091 MR. ANDERSON: No, I am not.
LISTNUM 1 \l 16092 MR. RUBY: So if I have got those dates right, and you will tell me if I am wrong, it took 15 months from the time in July 2006 that Globility sought support structure access for Bell, never mind giving them support structure access so they could build, to even give them a fiber, July 2006 to October 2007?
LISTNUM 1 \l 16093 MR. BIBIC: Mr. Anderson (sic), I just leaned over here and my colleagues advised me ‑‑ Mr. Ruby. What did I say? It is getting late.
LISTNUM 1 \l 16094 Mr. Ruby, I don't ‑‑
LISTNUM 1 \l 16095 MR. RUBY: That is all right, I will take it as a compliment.
LISTNUM 1 \l 16096 MR. BIBIC: I don't believe that any of this is on the record, so it is difficult for us, not having expected that this would be part of the questioning, to answer your questions with any degree of specificity.
LISTNUM 1 \l 16097 MR. RUBY: Well, it is Mr. Anderson who said Bell is cooperative and I want to explore what cooperative means.
LISTNUM 1 \l 16098 MR. BIBIC: But now, you are putting facts to us that we are not aware of, that aren't on the record.
LISTNUM 1 \l 16099 MR. RUBY: No, I am putting facts involving Bell Canada. That is cross‑examination.
LISTNUM 1 \l 16100 MR. BIBIC: No, you are giving facts concerning arrangements made with your client ‑‑ by your client with ours and we have no knowledge, this panel.
LISTNUM 1 \l 16101 MR. RUBY: I am not going to argue with you ‑‑
LISTNUM 1 \l 16102 THE CHAIRPERSON: Mr. Ruby, I think Mr. Bibic makes a good point. You can surely cross‑examine on cooperation and what he means and how it plays out but put specific facts of which he has particular knowledge. I don't think this serves anybody.
LISTNUM 1 \l 16103 MR. RUBY: Mr. Chairman, I will leave it there. I just note that this offer came in eight days ago, so it's new facts, as it were.
LISTNUM 1 \l 16104 THE CHAIRPERSON: But you have had months to prepare for it. I am sure it is not the only isolated instance where you have a dissatisfactory response from Bell. If it is, then prove their point. If it isn't, then you should take one of the other examples.
LISTNUM 1 \l 16105 MR. RUBY: I understand. I understand, Mr. Chairman, and there are other examples in the material, that I won't go over.
LISTNUM 1 \l 16106 If you can turn up Appendix 1 to Bell's March 15 evidence at paragraph S‑9.
LISTNUM 1 \l 16107 Now, this Appendix 1, I take it, Mr. Bibic, addresses a number of technologies and businesses that the companies say provide for telecom competition or potential for telecom competition?
LISTNUM 1 \l 16108 MR. BIBIC: Correct.
LISTNUM 1 \l 16109 MR. RUBY: So if we look at the first couple of sentences, it says:
"In summary, the telecommunications landscape is highly competitive with several classes of facilities‑based providers." (As read)
LISTNUM 1 \l 16110 It goes on to talk about multiple service providers vying for customers' business.
LISTNUM 1 \l 16111 And then it says:
"Traditional wireline rivals have been joined by large, well‑financed, stable competitors..." (As read)
LISTNUM 1 \l 16112 And then names them:
"...cable companies, provincial and municipal hydroelectric utilities as well as systems integrators and outsourcers." (As read)
LISTNUM 1 \l 16113 I gather, Mr. Bibic, the idea here is that there are three types of big players that have the heft to compete with the ILECs; is that right?
LISTNUM 1 \l 16114 MR. BIBIC: Those would be the classes of the large, well‑financed, stable competitors we refer to in this paragraph, yes.
LISTNUM 1 \l 16115 MR. RUBY: You refer to them because those are the big players than can compete with you; right?
LISTNUM 1 \l 16116 MR. BIBIC: And in the next sentence we talk about other forms of competition.
LISTNUM 1 \l 16117 MR. RUBY: Yes, I see that, and I will get to those other ones as well.
LISTNUM 1 \l 16118 Yesterday, you made clear, I think, your views on cable companies. I won't take you back to that but I would like you to focus on one of these three large, well‑financed, stable competitors, and those are the power utilities, what you have called the hydroelectric utilities.
LISTNUM 1 \l 16119 I gather when you talk about hydroelectric utilities being large, well‑financed and stable, you are actually talking about the telecommunications affiliates of the power companies and I think the example you talked about repeatedly yesterday was Hydro Ottawa Telecom; right?
LISTNUM 1 \l 16120 MR. BIBIC: Yes. Yes.
LISTNUM 1 \l 16121 MR. RUBY: So it is not Hydro Ottawa itself, it is the telecom affiliate?
LISTNUM 1 \l 16122 MR. BIBIC: Correct.
LISTNUM 1 \l 16123 MR. BIBIC: If I can ask the Hearing Secretary, I have got two exhibits to deal with on this point, that have been previously circulated.
LISTNUM 1 \l 16124 The first is a very brief excerpt from the Ontario Energy Board Act and the second is the Affiliate Relationships Code for Electricity Distributors and Transmitters.
LISTNUM 1 \l 16125 If we can have those distributed, and these have already been provided to Bell.
LISTNUM 1 \l 16126 THE SECRETARY: Okay. Respectively, Ontario Energy Board Act will be Exhibit No. 1 and the other one Exhibit No. 2.
EXHIBIT PRIMUS‑1: Excerpt from the Ontario Energy Board Act.
EXHIBIT PRIMUS‑2: Affiliate Relationships Code for Electricity Distributors and Transmitters.
‑‑‑ Pause
LISTNUM 1 \l 16127 MR. RUBY: Now, if I may, Mr. Bibic, just draw your attention very briefly, in the excerpt from the Energy Board Act, Exhibit 1, section 71(1) talks about:
"Subject to certain other subsections, a transmitter of a distributor shall not, except through one or more affiliates, carry on any business activity other than transmitting or distributing electricity."
(As read)
LISTNUM 1 \l 16128 And if you can just hold that in front of you and then take a look at the Affiliate Relationships Code, Exhibit No. 2.
LISTNUM 1 \l 16129 And there is no secret here. The idea is that if hydroelectric utilities are not allowed to be in the telecom business, does their affiliates have to be? That is the reason why it is structured that way, at least in Ontario, which was the example you gave yesterday.
LISTNUM 1 \l 16130 If I can ask you to look at Exhibit 2, please, at page 1 of the package, section 1.1.
LISTNUM 1 \l 16131 Do you see it there, Mr. Bibic?
LISTNUM 1 \l 16132 MR. HENRY: Yes, I see it.
LISTNUM 1 \l 16133 MR. RUBY: The sentence right before the three bullet points:
"The standards established in the Code are intended to..." (As read)
LISTNUM 1 \l 16134 And (a) is:
"minimize the potential for a utility to cross‑subsidize competitive or non‑monopoly activities." (As read)
LISTNUM 1 \l 16135 Then skipping over (b) to (c):
"ensure there is no preferential access to regulated utility services." (As read)
LISTNUM 1 \l 16136 Now, you have had a couple of days to look at this since I sent it over to your counsel.
LISTNUM 1 \l 16137 Can I take it that you agree that entities like Toronto Hydro Telecom cannot be subsidized or not part of the large, stable, well‑financed power utility?
LISTNUM 1 \l 16138 MR. HENRY: I have absolutely no idea.
LISTNUM 1 \l 16139 MR. RUBY: You don't accept it from these documents.
LISTNUM 1 \l 16140 MR. HENRY: Well, I know what I read here.
LISTNUM 1 \l 16141 Mr. Ruby, I have spent a lengthy career trying to learn telecom regulation, and some might say that I still haven't learned it, but certainly, by getting this document two nights ago, I have read what I see here. I don't know the industry. I don't know the regulation. I have no idea, other than what I have read here.
LISTNUM 1 \l 16142 I understand that you are an expert in it, though.
LISTNUM 1 \l 16143 MR. RUBY: I wouldn't claim to be an expert in anything.
LISTNUM 1 \l 16144 So Bell has no information, one way or the other, other than what is written in these documents that I have put to you.
LISTNUM 1 \l 16145 MR. HENRY: Certainly I don't, and I don't know if anybody else on the panel does.
LISTNUM 1 \l 16146 MR. RUBY: Is there anybody on the panel who does?
LISTNUM 1 \l 16147 MR. TAYLOR: What, precisely, is the question?
LISTNUM 1 \l 16148 The meaning of cross‑subsidized?
LISTNUM 1 \l 16149 MR. RUBY: No. Let me put it this way.
LISTNUM 1 \l 16150 Dr. Taylor, do you have any familiarity with the way, in Ontario, hydro‑electric utilities and their telecom affiliates are regulated ‑‑
LISTNUM 1 \l 16151 MR. TAYLOR: No.
LISTNUM 1 \l 16152 MR. RUBY: ‑‑ with respect to whether they can cross‑subsidize between them?
LISTNUM 1 \l 16153 MR. TAYLOR: I don't know how that is done, no.
LISTNUM 1 \l 16154 MR. HENRY: What I can tell you, Mr. Ruby, is that, in telecom, the issue of cross‑subsidization was looked at many, many years ago. The Commission went through costing procedures. We had a split rate base. We had a utilities segment. We had intercorporate transaction reporting. We had some of the rules like you have in here. But with price cap regulation, all of those ‑‑ the incentives of price cap regulation were intended to remove the necessity for this type of regulation.
LISTNUM 1 \l 16155 So we removed that in about 1997 or 1999 in the telecom sphere ‑‑
LISTNUM 1 \l 16156 MR. RUBY: I appreciate that comment, Mr. Henry ‑‑
LISTNUM 1 \l 16157 MR. HENRY: ‑‑ but I just don't know ‑‑
LISTNUM 1 \l 16158 MR. RUBY: If you don't have anything to say about these documents, I won't ask you anything further.
LISTNUM 1 \l 16159 THE CHAIRPERSON: Mr. Ruby, are you trying to suggest that Toronto Hydro Telecom is not a large, well‑financed and stable organization because there is no permission to cross‑subsidize in the legislation?
LISTNUM 1 \l 16160 MR. RUBY: Yes.
LISTNUM 1 \l 16161 THE CHAIRPERSON: Why don't you ask Mr. Bibic, who is a lawyer, whether, upon reading this documentation, he comes to the same conclusion?
LISTNUM 1 \l 16162 MR. RUBY: Thank you, Mr. Chairman.
‑‑‑ Laughter / Rires
LISTNUM 1 \l 16163 MR. BIBIC: I would be quite prepared to remove the provincial and municipal hydro‑electric utilities from the sentence that talks about large, well‑financed, stable competitors, and leave it at the fact that they are competitors and they are good competitors.
LISTNUM 1 \l 16164 If that is the point, that's okay.
LISTNUM 1 \l 16165 The fact is, they are in the marketplace and they are competing against us.
LISTNUM 1 \l 16166 MR. RUBY: But they are not in the same category as cable companies, for example, in terms of being stable, well‑financed and so on.
LISTNUM 1 \l 16167 MR. BIBIC: To the extent that you have backed me away from large, well‑financed, stable competitors, then we can't put them in the same sentence and class as cable, but we will put them in the class of good strong competitors.
LISTNUM 1 \l 16168 MR. RUBY: All right. Thank you.
LISTNUM 1 \l 16169 Let's go back to talking about some of the technologies that you have listed in Appendix 1.
LISTNUM 1 \l 16170 I take it that Bell counts as one of those technologies or competitors out‑of‑territory ILECs.
LISTNUM 1 \l 16171 Is that right?
LISTNUM 1 \l 16172 MR. BIBIC: Correct.
LISTNUM 1 \l 16173 MR. RUBY: Out‑of‑territory ILECs, you will agree with me, don't compete in residential neighbourhoods.
LISTNUM 1 \l 16174 MR. IACONO: Typically, yes, that is correct.
LISTNUM 1 \l 16175 MR. BIBIC: I hesitated because we can offer retail internet services over the Inukshuk platform, but I don't think that's what you are getting at.
LISTNUM 1 \l 16176 MR. RUBY: I am talking about your wireline facilities.
LISTNUM 1 \l 16177 MR. BIBIC: No, we don't typically, that's correct.
LISTNUM 1 \l 16178 MR. RUBY: Another one of the technologies that you count is mobile wireless ‑‑ cell phones.
LISTNUM 1 \l 16179 Is that right?
LISTNUM 1 \l 16180 MR. BIBIC: Correct.
LISTNUM 1 \l 16181 MR. RUBY: And I take it that Bell Mobility does not market cell phone service as a hi‑speed alternative.
LISTNUM 1 \l 16182 MR. BIBIC: Do you mean a hi‑speed internet alternative?
LISTNUM 1 \l 16183 MR. RUBY: Yes.
LISTNUM 1 \l 16184 MR. BIBIC: Correct.
LISTNUM 1 \l 16185 MR. RUBY: And, out‑of‑territory, Bell doesn't promote to its customers using cellular wireless as an access method for the customer?
LISTNUM 1 \l 16186 MR. IACONO: I believe that we do, and so do all of the other cellular companies.
LISTNUM 1 \l 16187 MR. RUBY: To residential customers, if their broadband access ‑‑
LISTNUM 1 \l 16188 MR. IACONO: Sure. I think there is information in the monitoring report.
LISTNUM 1 \l 16189 If you look at a city like Vancouver, the substitution that has taken place between wireline and wireless is quite high.
LISTNUM 1 \l 16190 MR. RUBY: No, I am talking about broadband internet access.
LISTNUM 1 \l 16191 MR. IACONO: Broadband. I'm sorry, I misunderstood.
LISTNUM 1 \l 16192 MR. RUBY: You don't market internet access over the cell phone, right? That's not what Bell Mobility does.
LISTNUM 1 \l 16193 MR. IACONO: I have a Blackberry and I have a cell phone, and I can read Commission decisions off my Blackberry, and I can do that from anywhere in Canada.
LISTNUM 1 \l 16194 MR. RUBY: Right, but you don't market using your cell phone as your access device instead of cable or DSL.
LISTNUM 1 \l 16195 MR. IACONO: No. I don't believe that would be the main element from the value proposition, but it is certainly possible and doable, and the technology is evolving very quickly.
LISTNUM 1 \l 16196 MR. RUBY: Let's talk about Inukshuk, which was brought up a moment ago. That service is only provided through Bell or Rogers, right?
LISTNUM 1 \l 16197 MR. BIBIC: Yes. We compete against each other at retail using the Inukshuk platform, in which we are partners.
LISTNUM 1 \l 16198 MR. RUBY: To date, has it been provided as a wholesale service to any of Rogers or Bell's competitors?
LISTNUM 1 \l 16199 MR. BIBIC: No.
LISTNUM 1 \l 16200 MR. RUBY: Let's talk about YMax. That was on your list, too, right?
LISTNUM 1 \l 16201 MR. BIBIC: Yes.
LISTNUM 1 \l 16202 MR. RUBY: That has not been implemented commercially anywhere in Canada. Right?
LISTNUM 1 \l 16203 MR. BIBIC: Correct. We are trying to take ‑‑
LISTNUM 1 \l 16204 Well, maybe not so correct, but we are trying to take a forward‑looking view, and now I will turn it over to the expert.
LISTNUM 1 \l 16205 MR. BABIN: In our out‑of‑territory, I mentioned this morning, I think, in cross, that we are using some YMax for access in Bell West.
LISTNUM 1 \l 16206 MR. RUBY: I thought you said that was pre‑YMax.
LISTNUM 1 \l 16207 MR. BABIN: No, it is 80216 technology. There are proprietary protocols, and there are also standards, like 80216‑E, but it is wideband ‑‑
LISTNUM 1 \l 16208 MR. RUBY: And being offered on a commercial basis?
LISTNUM 1 \l 16209 MR. BABIN: Yes.
LISTNUM 1 \l 16210 MR. RUBY: To how many customers?
LISTNUM 1 \l 16211 MR. BABIN: We are just starting to roll it out to customers right now, and replacing some facilities that we are leasing.
LISTNUM 1 \l 16212 MR. RUBY: Okay. So a small number, to date.
LISTNUM 1 \l 16213 MR. BABIN: It's a technology that is available, and we are starting to use it, yes.
LISTNUM 1 \l 16214 MR. RUBY: But a tiny number.
LISTNUM 1 \l 16215 Is that fair?
LISTNUM 1 \l 16216 MR. BIBIC: It's a new technology, Mr. Ruby, it's a small number.
LISTNUM 1 \l 16217 MR. RUBY: Fair enough.
LISTNUM 1 \l 16218 Satellite providers. That was on your list, too, as an access technology?
LISTNUM 1 \l 16219 MR. BIBIC: Yes.
LISTNUM 1 \l 16220 MR. RUBY: Is it fair to say that a more elaborate installation is required for satellite broadband access than DSL or cable?
LISTNUM 1 \l 16221 MR. BABIN: I would say yes.
LISTNUM 1 \l 16222 MR. RUBY: You put up a satellite dish, right?
LISTNUM 1 \l 16223 MR. BABIN: Yes, much like ExpressVu or Star Choice.
LISTNUM 1 \l 16224 MR. RUBY: And there is a delay in the signal when you use it for broadband use?
LISTNUM 1 \l 16225 MR. BABIN: There is a delay, sure.
LISTNUM 1 \l 16226 MR. RUBY: You will agree with me that it's not appropriate for VoIP?
LISTNUM 1 \l 16227 MR. BABIN: Depending on the protocols that you are using over the bandwidth, you can get some quality of service protocols on that, but, generally, if there are delays, it is not good for voice.
LISTNUM 1 \l 16228 MR. RUBY: I gather you will agree with me that, in practice, people generally don't take up satellite broadband access if they have either DSL or cable available to them.
LISTNUM 1 \l 16229 MR. BABIN: Or a wireless GSM or CDMA phone, that's correct.
LISTNUM 1 \l 16230 MR. RUBY: Let's talk about VoIP for a minute. You count that as one of your access technologies. Right?
LISTNUM 1 \l 16231 MR. BIBIC: Do we talk about it in the report at Appendix 1? Yes.
LISTNUM 1 \l 16232 It's a competitive alternative.
LISTNUM 1 \l 16233 MR. RUBY: Yes, and that's one of the things you rely on in saying that there are alternatives. Right?
LISTNUM 1 \l 16234 MR. BIBIC: It's one of the forms of competition that we face.
LISTNUM 1 \l 16235 Now, we would have to talk about which product market you want to focus on, but, generally, that is the point we are making.
LISTNUM 1 \l 16236 MR. RUBY: Let's talk about access independent VoIP. Okay?
LISTNUM 1 \l 16237 MR. BIBIC: Okay. Residential?
LISTNUM 1 \l 16238 MR. RUBY: Residential.
LISTNUM 1 \l 16239 That involves no new circuits to the customer. Right?
LISTNUM 1 \l 16240 MR. BIBIC: Just a broadband connection.
LISTNUM 1 \l 16241 MR. RUBY: The same broadband connection that was there previously.
LISTNUM 1 \l 16242 MR. BIBIC: Correct.
LISTNUM 1 \l 16243 MR. RUBY: And the quality of that access independent residential VoIP depends heavily on the quality of the broadband access connection.
LISTNUM 1 \l 16244 Is that correct?
LISTNUM 1 \l 16245 MR. BIBIC: Yes.
LISTNUM 1 \l 16246 MR. IACONO: As well as the quality of the underlying VoIP offer, which is independent of the broadband connection.
LISTNUM 1 \l 16247 MR. RUBY: Fair enough, but it's ‑‑
LISTNUM 1 \l 16248 MR. IACONO: So there are two parts to the story.
LISTNUM 1 \l 16249 MR. RUBY: Fair enough. It's both of them.
LISTNUM 1 \l 16250 I take it that Bell, or that the Companies do not provide quality guarantees to access independent residential VoIP providers. Right?
LISTNUM 1 \l 16251 MR. BIBIC: We don't think so.
LISTNUM 1 \l 16252 If we learn otherwise, we will let you know.
LISTNUM 1 \l 16253 MR. RUBY: So an access independent VoIP provider is at the mercy, in some sense, of whoever provides the broadband connection that it will be good enough to provide a high standard of VoIP. Right?
LISTNUM 1 \l 16254 MR. BIBIC: If it's not good enough, then ‑‑
LISTNUM 1 \l 16255 For example, if we are providing the underlying broadband connection and the connection is not good enough, then, unfortunately, we are going to be at the mercy of the other competitors, including the cablecos, who, I suspect, will be seeking to eat our lunch.
LISTNUM 1 \l 16256 So we have to make sure that we offer a quality broadband connection.
LISTNUM 1 \l 16257 MR. RUBY: But you don't make that promise to the VoIP provider, you only deal with the customer.
LISTNUM 1 \l 16258 MR. BIBIC: Well, the customer is getting the same quality of broadband connection regardless of whether or not it subscribes to a different VoIP provider over the top. It's the same quality.
LISTNUM 1 \l 16259 MR. RUBY: All right. Well, let's contrast that to your access dependent VoIP offering. Bell controls both the quality of the broadband connection in that case and the service, right?
LISTNUM 1 \l 16260 MR. BIBIC: Which service are you referring to, Mr. Ruby?
LISTNUM 1 \l 16261 MR. RUBY: Bell offers an access dependent services, doesn't it, of VoIP?
LISTNUM 1 \l 16262 MR. BIBIC: Which one?
LISTNUM 1 \l 16263 MR. RUBY: All of them. Is there one in particular you want to talk about first?
LISTNUM 1 \l 16264 MR. BIBIC: Well, we don't have that many, actually. At one time, we had Bell digital voice. Is that what you are referring to?
LISTNUM 1 \l 16265 MR. RUBY: I'm not sure which names you have given. You offer both access dependent and independent.
LISTNUM 1 \l 16266 MR. IACONO: Right.
LISTNUM 1 \l 16267 MR. BIBIC: We offer access dependent in a limited number of areas, yes.
LISTNUM 1 \l 16268 MR. RUBY: Okay. So for the access dependent one, you control both the quality of the voice service we heard about earlier, or the VoIP technology, and the broadband connection. Right?
LISTNUM 1 \l 16269 MR. BIBIC: Well, the voice service is integrally linked with the network, hence the term access dependent, right.
LISTNUM 1 \l 16270 MR. RUBY: But you control the whole chain?
LISTNUM 1 \l 16271 MR. BIBIC: Yes, it's dependent on our network.
LISTNUM 1 \l 16272 MR. RUBY: Okay.
LISTNUM 1 \l 16273 MR. BIBIC: We control our network.
LISTNUM 1 \l 16274 MR. BABIN: But it a much different product, Mr. Ruby, than the voice over IP services that you see over‑the‑top type application.
LISTNUM 1 \l 16275 MR. RUBY: I appreciate that.
LISTNUM 1 \l 16276 MR. BABIN: I would say, from an architecture perspective, it's not Bell purposefully, you know, controlling the network. It's the nature of the architecture of that product and not Bell doing something that they would not do to competitors. It's a different product altogether.
LISTNUM 1 \l 16277 MR. RUBY: I appreciate that.
LISTNUM 1 \l 16278 THE CHAIRPERSON: Just for my information, when we are talking about access independent VoIP, you don't get involved at all, do you? I mean, the customer buys from Vonage or somebody like that. In my example, Vonage is running it over your Internet connection, but there's no dealing between Vonage and you?
LISTNUM 1 \l 16279 MR. BABIN: That's correct.
LISTNUM 1 \l 16280 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 16281 MR. RUBY: Madam Secretary, I have an excerpt from the 2007 Monitoring Report I would like to refer to. It's page 36.
LISTNUM 1 \l 16282 MR. McCALLUM: Mr. Chair, I'm wondering. A lot of parties have referred to the Monitoring Report, different portion. I wonder if it just might be entered as a CRTC exhibit so that everyone has access to it.
LISTNUM 1 \l 16283 THE CHAIRPERSON: Sure.
LISTNUM 1 \l 16284 MR. McCALLUM: So could we call it CRTC Exhibit 5?
LISTNUM 1 \l 16285 THE SECRETARY: For the report, itself?
LISTNUM 1 \l 16286 MR. McCALLUM: For the whole report.
LISTNUM 1 \l 16287 THE SECRETARY: Okay, I have my extra copies available this morning, though.
LISTNUM 1 \l 16288 MR. McCALLUM: Okay, thank you.
MR. RUBY: Thank you, but I have made
available copies of the individual pages, so we don't have to do too much flipping.
EXHIBIT CRTC‑5: The Monitoring Report 2007
LISTNUM 1 \l 16289 MR. RUBY: Under item Roman numeral iv, page 36 ‑‑
LISTNUM 1 \l 16290 MR. BIBIC: Thank you, Mr. Ruby. Okay.
LISTNUM 1 \l 16291 MR. RUBY: ‑‑ it says, the first sentence:
"The adoption of VoIP telephony services which utilize an unmanaged broadband Internet access..." (As read)
‑‑ and I will just stop there. Unmanaged broadband Internet access, that's dependent or independent VoIP, so we are all using the same terms?
LISTNUM 1 \l 16292 MR. BIBIC: It must be independent, given that it's drafted under the heading called "Access Independent".
LISTNUM 1 \l 16293 MR. RUBY: Okay.
"...and has not exhibited the same dramatic adoption rates of managed VoIP‑based local telephone service such as those offered by the cable BDUs." (As read)
LISTNUM 1 \l 16294 I take it that access independent VoIP is only available from an ILEC or a cable company, right?
LISTNUM 1 \l 16295 MR. IACONO: No, I don't believe so. I don't believe so, Mr. Ruby, unless I'm misunderstanding again.
LISTNUM 1 \l 16296 MR. RUBY: Okay. Let me do this in two parts. We will go back again.
LISTNUM 1 \l 16297 There are two kinds of VoIP, right, access dependent ‑‑
LISTNUM 1 \l 16298 MR. IACONO: Yes.
LISTNUM 1 \l 16299 MR. RUBY: ‑‑ which is you control the entire stream, right? Right, we are talking about the same thing?
LISTNUM 1 \l 16300 MR. IACONO: Correct.
LISTNUM 1 \l 16301 MR. RUBY: Independent, where the customer orders the broadband connection and the VoIP provider doesn't have a relationship with the ILEC with respect to that broadband connection?
LISTNUM 1 \l 16302 MR. IACONO: Right. The voice application basically becomes just another application that's running off the Internet connection that the customer has in his or her home ‑‑
LISTNUM 1 \l 16303 MR. RUBY: Okay.
LISTNUM 1 \l 16304 MR. IACONO: ‑‑ so it could be from any provider.
LISTNUM 1 \l 16305 MR. RUBY: Okay. So the access dependent only comes from an ILEC or a cable company, right? I would have thought this isn't controversial.
LISTNUM 1 \l 16306 MR. IACONO: Or it could come from a company such as Primus, who could avail itself of GAS or HSA or TPIA and be an end‑to‑end provider of that VoIP services. That is possible.
LISTNUM 1 \l 16307 MR. RUBY: That's over your facility, though.
LISTNUM 1 \l 16308 MR. IACONO: Or TPIA, over cable.
LISTNUM 1 \l 16309 MR. RUBY: Over the cable. So that's what I said, it's one or the other, right? In Canada, that's the way it works now?
LISTNUM 1 \l 16310 MR. IACONO: Well...
LISTNUM 1 \l 16311 MR. RUBY: It's one or the other.
LISTNUM 1 \l 16312 MR. IACONO: For the most part, it's one or the other, and the market's very, very competitive.
LISTNUM 1 \l 16313 MR. RUBY: Right, it's only one or the other. There isn't anybody else, right?
LISTNUM 1 \l 16314 MR. BIBIC: We thought you were referring to providers at retail.
LISTNUM 1 \l 16315 MR. RUBY: No.
LISTNUM 1 \l 16316 MR. BIBIC: So there can be different access dependent VoIP providers at retail. If you are getting at what the underlying infrastructure is, it would be either ‑‑ for now, the primary ones would be the cable and telephony.
LISTNUM 1 \l 16317 MR. RUBY: All right.
LISTNUM 1 \l 16318 MR. BIBIC: Sorry, wireline incumbent networks.
LISTNUM 1 \l 16319 MR. RUBY: Okay. And the Monitoring Report lets us know that there's dramatically less access independent VoIP, right?
LISTNUM 1 \l 16320 MR. BIBIC: That's what it says.
LISTNUM 1 \l 16321 MR. RUBY: So when you have included access independent VoIP as one of your competitive alternatives, it's a tiny one, right?
LISTNUM 1 \l 16322 MR. BIBIC: Well, it's a tiny one. We also kind of try to take a forward‑looking view. Technology moves really fast. I can remember in 2004, in a VoIP hearing, people were kind of saying Bell was off its rocker thinking that cable companies would enter the telephony market and do so well in so little time, and they did, because the world moves fast.
LISTNUM 1 \l 16323 MR. RUBY: So you think there's going to be big growth in access independent VoIP.
LISTNUM 1 \l 16324 MR. BIBIC: That's not what I'm saying. I'm saying you don't know where ‑‑ the technologies there, it's Internet protocol technology to allow cable companies to enter, and who knows what it's going to allow others to do in the near future.
LISTNUM 1 \l 16325 MR. RUBY: Do you consider access independent VoIP providers to be strong competitors?
LISTNUM 1 \l 16326 MR. BIBIC: Well, we didn't put them in the list in that controversial sentence in S‑9, did we?
LISTNUM 1 \l 16327 MR. RUBY: Well, you didn't list them there, you listed them in the next sentence, but ‑‑
LISTNUM 1 \l 16328 MR. BIBIC: They are competitors.
LISTNUM 1 \l 16329 MR. RUBY: I take it, Dr. Taylor, you will agree with me that in your evidence ‑‑ and I'm looking at paragraph 19, which you may have in front of you ‑‑
LISTNUM 1 \l 16330 MR. TAYLOR: I'm sorry, of which evidence?
LISTNUM 1 \l 16331 MR. RUBY: Of your supplementary evidence, pardon me.
LISTNUM 1 \l 16332 MR. TAYLOR: Thank you.
LISTNUM 1 \l 16333 MR. RUBY: In the middle of that paragraph, you deal with VoIP providers, and you say:
"Incremental costs are also low for another strong competitor of incumbent telephone companies." (As read)
LISTNUM 1 \l 16334 So do you think they are a strong competitor?
LISTNUM 1 \l 16335 MR. TAYLOR: Yes, I would use the word "strong". Their growth is tremendous. A large number of them, they have very low incremental costs.
LISTNUM 1 \l 16336 MR. RUBY: All right. So that's notwithstanding the Monitoring Report.
LISTNUM 1 \l 16337 MR. TAYLOR: Wait a minute, does the Monitoring Report say it's not strong? Did I miss it?
LISTNUM 1 \l 16338 MR. RUBY: No, it says "not exhibited the same dramatic adoption rates".
LISTNUM 1 \l 16339 MR. TAYLOR: Oh, it's not dramatic, I'm sorry.
LISTNUM 1 \l 16340 MR. RUBY: Okay.
LISTNUM 1 \l 16341 Let me ask you, Mr. Bibic. You offer both types of services. Has there been a strong uptake in access independent VoIP?
LISTNUM 1 \l 16342 MR. BIBIC: We have a fairly small subscriber base for access independent VoIP.
LISTNUM 1 \l 16343 MR. RUBY: Okay.
LISTNUM 1 \l 16344 Mr. Iacono, let's look for a moment at the reasons why ILECs invest in next generation access, all right?
LISTNUM 1 \l 16345 MR. IACONO: Yes.
LISTNUM 1 \l 16346 MR. RUBY: Can you take a look at Bell's March 15 evidence, paragraph 113?
LISTNUM 1 \l 16347 COMMISSIONER de VAL: What's the paragraph reference, again, please?
LISTNUM 1 \l 16348 MR. RUBY: One hundred and thirteen.
LISTNUM 1 \l 16349 MR. IACONO: I'm sorry, Mr. Ruby, did you say 130 or 113?
LISTNUM 1 \l 16350 MR. RUBY: One‑one‑three.
LISTNUM 1 \l 16351 MR. IACONO: Thank you.
LISTNUM 1 \l 16352 MR. RUBY: The second sentence reads:
"The returns from investment in NGAs primarily come not from lease of facilities, but from the services which ride on those NGAs." (As read)
‑‑ and then you go on to talk about the FCC.
LISTNUM 1 \l 16353 Is it fair to say that the main reason in residential markets The Companies are building out next generation access facilities is to compete with the cable companies with a bundle that includes video?
LISTNUM 1 \l 16354 MR. IACONO: It is to provide the most value possible to consumers to allow them to improve the method and means in which they use power of technology in their daily lives, that is really what it comes down to and, by the same token, making some money, which is what we are all here for.
LISTNUM 1 \l 16355 MR. RUBY: Terrific. The next big application, if I can put it that way, that the ILECs want to rollout over these next generation facilities is video, right?
LISTNUM 1 \l 16356 MR. IACONO: For some it might be video and for others it might be a variety of things such as ‑‑ you know, I just look at what my kids, and they are not little, do over the internet and, you know, downloading music, downloading movies, doing all kinds of stuff.
LISTNUM 1 \l 16357 COMMISSIONER CRAM: Legally of course.
LISTNUM 1 \l 16358 MR. IACONO: Of course, absolutely. No, that has been an absolutely policy in my household since they were little for obvious reasons.
LISTNUM 1 \l 16359 MR. RUBY: I should have warned Mr. Iacono I act for the record companies other days.
LISTNUM 1 \l 16360 MR. IACONO: And, you know, there are all kinds of great services available. And as capabilities develop over time, we are going to see much more of that. Now, some companies are going to place big bets in some areas and others will place big bets in other areas. So who knows how it will all unfold in the future. I certainly can't see it in terms of seeing the future ‑‑
LISTNUM 1 \l 16361 MR. RUBY: So Bell Canada is not seriously thinking about rolling out video to compete with cable television over these next generations?
LISTNUM 1 \l 16362 MR. IACONO: We are looking at all kinds of things, Mr. Ruby.
LISTNUM 1 \l 16363 MR. RUBY: All right, okay.
LISTNUM 1 \l 16364 MR. IACONO: And I am not going to reveal our marketing strategies in this room.
LISTNUM 1 \l 16365 MR. RUBY: All right, well I don't think video would be a big secret, but we will leave it at that.
LISTNUM 1 \l 16366 I take it that whether it is video or video games or legally downloading movies and music, those big ticket items are what are really going to justify your investment in next generation access in the residential market, right?
LISTNUM 1 \l 16367 MR. IACONO: Yes, I would think that is a fair proposition and a reasonable one.
LISTNUM 1 \l 16368 MR. RUBY: Okay. And mandated wholesale just really isn't material in the context of the revenues coming from video, video games, downloading music and all the other good stuff you just talked about, right?
LISTNUM 1 \l 16369 MR. BIBIC: In an organization like ours, and I suspect even within your client, I mean the decisions as to where to invest are complicated. It is not all or nothing, I grant you that, but regulation does have an impact. And, for example, if mandated access reduces the return on investment we, in the context of our, you know, capital budget envelope, we have to make decisions where do we put our funds. So maybe we will put them in Montreal and Toronto, yes, because the cable companies are there and we want to offer the new wizbang applications.
LISTNUM 1 \l 16370 But Ottawa comes later and maybe Kingston or Sherbrooke or Trois‑Rivières comes never at all or even much later than that. So it does have an impact, it is not all or nothing, but it has an impact and we do it every year at capital budgeting time and we adjust that over the course of a year and each quarter.
LISTNUM 1 \l 16371 MR. RUBY: Thank you for that. So I take it then from your comment that PRIMUS and the companies like it that make use of wholesale services and have customers that use those services, they are significant competitors to you when it comes to making your planning decisions for investment in the residential market?
LISTNUM 1 \l 16372 MR. BIBIC: I think we take into account the entire landscape, who we compete against, the returns on investment, regulation and all the other factors, endogenous and exogenous.
LISTNUM 1 \l 16373 MR. RUBY: All right. So are PRIMUS and the other users of unbundled local loops, are they significant or not to your decision making process? I mean, do they matter? Are they material, is that another word?
LISTNUM 1 \l 16374 MR. BIBIC: All competitors are material.
LISTNUM 1 \l 16375 MR. RUBY: Okay. Can you take a look at paragraph 110. So back up a couple of paragraphs if you don't mind. So there The Companies say:
"The continuing availability of ILEC retail services on a resale basis is a factor that must be considered by the Commission in assessing the state of competition in retail markets." (As Read)
LISTNUM 1 \l 16376 And it goes on to say:
"Where appropriate in the upstream market in determining the essentiality of the service in accordance with the principles set out above." (As Read)
LISTNUM 1 \l 16377 So when you say in the first line that it is a factor, is it fair to say that it is an important factor?
LISTNUM 1 \l 16378 MR. BIBIC: I am not sure what that means, Mr. Ruby. The point we are making is really the answer that I provided to Commissioner Cram yesterday when I was asked about Indian Head, what happens in that situation. And I said, well, in that situation if all else fails surely the economics of the competitor wouldn't crumble if they bought one connection at retail in that example. That is the point we are making here.
LISTNUM 1 \l 16379 MR. RUBY: Okay. But it is important, and you have told us repeatedly I think, that the ILECs are going to continue to provide wholesale services, right?
LISTNUM 1 \l 16380 MR. BIBIC: Correct and will continue to provide retail services, which also could be acquired by a competitor or any retail customer.
LISTNUM 1 \l 16381 MR. RUBY: Right. And you told Mr. Englehart yesterday if an ILEC stopped providing wholesale then that might be a reason to go back and look at applying the essential facilities test and maybe something that was not essential would become essential, right?
LISTNUM 1 \l 16382 MR. BIBIC: Right. And I firmly believe, doing this everyday, that that would be a disciplining factor.
LISTNUM 1 \l 16383 MR. RUBY: Okay. Mr. Anderson, I take it that you are aware that PRIMUS has made several inquiries over the last couple of years with Bell about obtaining wholesale local service, ExpressVu, wholesale digital voice, wholesale cell phone service. Are you aware of those requests?
LISTNUM 1 \l 16384 MR. ANDERSON: Yes, absolutely. Actually, I am aware of a number of requests we have had in the wholesale market for all of those products.
LISTNUM 1 \l 16385 MR. RUBY: Right.
LISTNUM 1 \l 16386 MR. BIBIC: Mr. Ruby, again, we can talk about ExpressVu I suppose if you want and Bell Mobility in terms of local service. I do believe I mentioned yesterday that the development of a vigorous retail market has started to create a wholesale market and we have started to look at ‑‑
LISTNUM 1 \l 16387 THE CHAIRPERSON: Why are we talking about ExpressVu or wireless here?
LISTNUM 1 \l 16388 MR. BIBIC: No, I was actually now talking about local service, not the other ‑‑
LISTNUM 1 \l 16389 THE CHAIRPERSON: Okay, sorry. You start off with ExpressVu ‑‑
LISTNUM 1 \l 16390 MR. BIBIC: Yes, I am off ExpressVu. I was just saying that we are launching a wholesale local service as well, which has nothing to do with being mandated to do it by the Commission.
LISTNUM 1 \l 16391 MR. RUBY: I heard you tell Ms Song that yesterday. I take it that all those inquiries, Mr. Anderson, have not met with a response from Bell, to date at least, saying yes we will provide you with wholesale ExpressVu digital voice and so on?
LISTNUM 1 \l 16392 MR. ANDERSON: Well I think, as Mr. Bibic said, I mean what we do is we take a lot of feedback from our wholesale customers and we look at the demand, we look at the requirement out there and we look at developing products. As Mr. Bibic said, we have got a number of products that we are developing for the wholesale market.
LISTNUM 1 \l 16393 If you look specifically at wireless, and I don't know some of the details around the PRIMUS discussion, but what I can tell you is that one of the challenges we have when we start talking about wireless as an example is that it is scale dependent. So that is where we start.
LISTNUM 1 \l 16394 So what happens is we get a lot of inquiries from our customers about it. And then what we find as we get into the discussions it gets a little bit more to it than initially meets the eye. For example, we operate on CDMA technology. And as my colleague Mr. Babin will attest, the handset customization on CDMA technology is pretty significant. I am not a wireless technology expert, but that is one of the challenges that we run into. And the fact is that we have lost those wholesale opportunities to other providers in the market.
LISTNUM 1 \l 16395 MR. RUBY: I will ask you one more question on this and then I will move on. To date, you don't have wholesale offerings for any of those services I just talked about, right?
LISTNUM 1 \l 16396 MR. BIBIC: Mr. Ruby, there are plenty of wholesale channels in the wireless segment of the market. We have some arrangements and, to the extent that we don't reach agreement with somebody who comes along for whatever reason, turns out that they have two other options and those other options in terms of facilities‑based wireless carriers, you know who I am talking about ‑‑
LISTNUM 1 \l 16397 MR. RUBY: Right.
LISTNUM 1 \l 16398 MR. BIBIC: ‑‑ do also have wholesale channels for distribution in the wireless segment of the market.
LISTNUM 1 \l 16399 MR. RUBY: Not for local service, not for digital voice, not for ExpressVu, right?
LISTNUM 1 \l 16400 MR. BIBIC: Well, I think we have answered the wireless. There are plenty of wholesale channels and providers who resell or are on MVNOs. If you want to talk about wholesale local service, Rogers I believe has one, we are about to launch, which I have stated now two or three times, and we can get into a discussion about ExpressVu if you will, but it is going to involve some technology issues. And, truth be told, for a while we were focusing on our own operations rather than trying to figure out how to wholesale ExpressVu.
LISTNUM 1 \l 16401 MR. IACONO: And I would like to add, Mr. Ruby, that just to remind you that as, and as a keeper of many of the products and services for the enterprise market, all of our retail services that have tariffs are subject to resale at retail rates. So you are more than welcome to buy them and we would be more than happy to sell them to you.
LISTNUM 1 \l 16402 MR. RUBY: I wouldn't know what to do with them.
LISTNUM 1 \l 16403 Mr. Chairman, it is a few minutes after 4:30, I am in your hands as to what you would like to do.
LISTNUM 1 \l 16404 THE CHAIRPERSON: You anticipate me. You said you were going to move onto another area, I suggest you do that at 8:30 tomorrow morning.
LISTNUM 1 \l 16405 MR. RUBY: Thank you.
LISTNUM 1 \l 16406 THE CHAIRPERSON: Thank you.
LISTNUM 1 \l 16407 Let us break for the day, thank you.
‑‑‑ Whereupon the hearing adjourned at 1631, to resume
on Friday, October 12, 2007 at 0830 / L'audience
est ajournée à 1631, pour reprendre le
vendredi 12 octobre 2007 à 0830
REPORTERS
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Jean‑Marc Bolduc Sue Villeneuve
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Barbara Neuberger Jennifer Cheslock
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Sharon Millett Monique Mahoney
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