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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 15, 2007 Le 15 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 15, 2007 Le 15 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
RESUMED: DALE HATFIELD 1240 / 8618
RESUMED: IAN PATTINSON
RESUMED: DAVID WATT
RESUMED: SUZANNE BLACKWELL
RESUMED: ROGER WARE
Cross-examination by The Companies (Cont'd) 1240 / 8619
Cross-examination by TELUS 1363 / 9517
Cross-examination by MTS Allstream 1466 /10133
Cross-examination by Primus 1475 /10233
Cross-examination by PIAC 1482 /10281
Cross-examination by Cybersurf 1503 /10399
Cross-examination by Xittel 1536 /10633
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
BUREAU-3 Response to CRTC undertaking - 02 1239 / 8613
to provide the Commission with a
rewrite of the Bureau's test for
an essential facility from a
restrospective perspective
CRTC-6 CRTC Undertakings register 1335 / 9316
CRTC version 2007-15-15
COMPANIES-5 Joint Center report dated 1361 / 9506
June 2006, "Broadband and
Unbundling Regulations in OECD
Countries
COMPANIES-6 LECG Report dated September 2007 1361 / 9507
COMPANIES-7 "Watt's New" clipping - Winter 1361 / 9508
2006 entitled, "Net Optiks/Rogers
partnership provides innovative
network for Catholic schools
COMPANIES-8 Globe and Mail clipping - 1362 / 9509
"Solutions for the little guy" -
Sept.10,2007
COMPANIES-9 Clipping dated 7 October 2007 1362 / 9510
with photo and EASY IP title
COMPANIES-10 Clipping from Rogers.com - 1362 / 9511
"Ethernet Services"
TELUS-1 Rogers Cable letter dated 1465 /10127
Aug. 17, 2007 re: Application by
Rogers Cable Communications Inc.
to Amend Class 1 Regional Licence
for Cable Broadcasting
Distribution Undertakings in
Ontario
TELUS-2 Rogers letter dated July 5, 2006 1465 /10128
re: Application to Review and
Varyu Telecom Decision
CRTC 2006-9 - Disposition of
Funds in the Deferral Accounts
- vi -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
TELUS-3 Competition Bureau - Speaking 1466 /10129
Notes for Sheiradan Scott -
June 13, 2007
CRTC-7 "Abuse of Dominance under the 1475 /10227
1986 Canadian Competition Act"
COMPANIES-11 The Companies - Survey of 1475 /10228
buildings in Ottawa Downtown Core
CYBERSURF-2 "Consequences of 1519 /10516
Uncompetitiveness", Wednesday,
March 1, 2006
CYBERSURF-3 "Canadian Boradband Growth Ranks 1519 /10516
29th out of 30 OECD Countries"
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Monday, October 15, 2007
at 0831 / L'audience reprend le lundi
15 octobre 2007 à 0831
LISTNUM 1 \l 1 \s 86078607 THE CHAIRPERSON: Good morning.
LISTNUM 1 \l 18608 Mr. Daniels, I believe you were in full flight, so please continue.
LISTNUM 1 \l 18609 MR. DANIELS: Thank you very much, Mr. Chairman.
LISTNUM 1 \l 18610 THE SECRETARY: Mr. Chair, if you will allow me.
LISTNUM 1 \l 18611 THE CHAIRPERSON: Yes, sure.
LISTNUM 1 \l 18612 THE SECRETARY: There were some filings with me this morning.
LISTNUM 1 \l 18613 I am acknowledging reception of the Bureau Exhibit No. 3 in response to an undertaking from the CRTC to a rewrite of the Bureau's proposed test for whether a service or facility is essential.
EXHIBIT BUREAU‑3: Response to CRTC undertaking - 02 to provide the Commission with a rewrite of the Bureau's test for an essential facility from a restrospective perspective
LISTNUM 1 \l 18614 MS PALUMBO: Mr. Chair ‑‑
LISTNUM 1 \l 18615 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 18616 MS PALUMBO: ‑‑ we have provided the secretary with copies of the undertaking. This was in relation to the rewrite of the Bureau's proposed test for whether a service or facility is essential from a retrospective rather than a prospective perspective and that is what that undertaking is satisfying.
LISTNUM 1 \l 18617 THE CHAIRPERSON: Thank you very much, Ms Palumbo. I appreciate your doing this in a timely manner because then we can use your retrospective definition now as we hear the other submissions.
LISTNUM 1 \l 18618 Thank you.
RESUMED: DALE HATFIELD
RESUMED: IAN PATTINSON
RESUMED: DAVID WATT
RESUMED: SUZANNE BLACKWELL
RESUMED: ROGER WARE
EXAMINATION (CONT'D) / INTERROGATOIRE (SUITE)
LISTNUM 1 \l 18619 MR. DANIELS: Thank you, and good morning, Mr. Chairman and panel.
LISTNUM 1 \l 18620 When last we left off ‑‑
LISTNUM 1 \l 18621 MR. WATT: I am sorry to interrupt but we had taken a couple of undertakings on Friday to go and check on some matters and I think probably it would be best if I just reported on those while you are still at the cross‑examining table and then if you would like to follow up you will have an opportunity to do that.
LISTNUM 1 \l 18622 MR. DANIELS: Go right ahead.
LISTNUM 1 \l 18623 MR. WATT: At Volume 4 of the Transcript at paragraphs 8333 to 8369 Rogers undertook to review the FCC's dedicated transport rulings regarding the necessary number of fiber‑based co‑located competitors. This was the question as to whether the number was 4 or 3, if you recall that, on Friday.
LISTNUM 1 \l 18624 We can confirm that with respect to transport facilities at the capacities of DS‑3s and dark fiber the FCC applied a threshold of fewer than 3 fiber‑based co‑located competitors as the standard for impairment and not 4, as stated in Rogers' submissions in this proceeding.
LISTNUM 1 \l 18625 Specifically, for those facilities the FCC found that competitors would not be impaired without mandated access at DS‑3 or dark fiber facilities where the wire centres at both ends of the transport facility had either at least 3 fiber‑based co‑locators or more than 24,000 business lines.
LISTNUM 1 \l 18626 You will recall in the context of the discussion on DNA we discussed the importance of having those conditions met at both ends of the route, at both wire centres, in order to be forborne.
LISTNUM 1 \l 18627 Just to complete the table, we confirm that the top three rows in our table with respect to DS‑1 at the access level and then DS‑1 transport remain at the 4 fiber‑based co‑locator level.
LISTNUM 1 \l 18628 THE CHAIRPERSON: If you go to your opening statement, page IV ‑‑
LISTNUM 1 \l 18629 MR. WATT: Right.
LISTNUM 1 \l 18630 THE CHAIRPERSON: ‑‑ the table there, so for dark fiber for transport I should insert "3" instead of "4"?
LISTNUM 1 \l 18631 MR. WATT: Exactly.
LISTNUM 1 \l 18632 THE CHAIRPERSON: And the rest stays the same?
LISTNUM 1 \l 18633 MR. WATT: The rest stays the same.
LISTNUM 1 \l 18634 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 18635 MR. WATT: As I say, both wire centres on that route have to have 3 in order to be let go.
LISTNUM 1 \l 18636 So that is the first matter.
LISTNUM 1 \l 18637 Then the second matter was further on on Friday afternoon and this is now at Transcript paragraphs 8455 and 8505.
LISTNUM 1 \l 18638 Rogers undertook to review the per building and per route caps that the FCC imposed on competitor use of mandated access at transport facilities where the FCC general criteria for mandated wholesale was met.
LISTNUM 1 \l 18639 Briefly, the CRTC limits a competitor to 10 DS‑1 unbundled loops to any single building or 1 DS‑3 to that single building, and then similar rules apply on the transport level as well, again, on a per route basis.
LISTNUM 1 \l 18640 In our view, this is a very granular approach to the issue of market unbundling. We do see some merits to it in the sense that it does very precisely identify what the revenue opportunities are to a competitor to a particular building or a particular route and grant them access up to certain levels with those conditions.
LISTNUM 1 \l 18641 However, at this time we think while the Commission certainly should be aware of this and consider it in its assessment of our proxy model, we would place the emphasis on the proxy model that we put before you and still wish that to be used as a starting point for the Rogers position.
LISTNUM 1 \l 18642 And then you can adapt it as you see fit given the data information that you have, and again, that rests on the revenue opportunity, i.e. the number of lines, et cetera, and then the alternative supply by the facilities‑based fiber co‑locators.
LISTNUM 1 \l 18643 That concludes my undertakings. Thank you.
LISTNUM 1 \l 18644 THE CHAIRPERSON: Are you going to file something in accordance with what you just said or does the record speak for itself?
LISTNUM 1 \l 18645 MR. WATT: I thought the record could probably speak for itself and I will save the paper.
LISTNUM 1 \l 18646 THE CHAIRPERSON: Okay, fine. I wanted to understand how you intend to proceed. Thank you.
LISTNUM 1 \l 18647 MR. WATT: Although I might ‑‑ what we probably should re‑file are ‑‑ I think there are three or four places in the record where we have the table.
LISTNUM 1 \l 18648 THE CHAIRPERSON: Yes.
LISTNUM 1 \l 18649 MR. WATT: And so we will just replace those 4s with 3s.
LISTNUM 1 \l 18650 THE CHAIRPERSON: Okay, thank you.
LISTNUM 1 \l 18651 Mr. Daniels.
LISTNUM 1 \l 18652 MR. DANIELS: Thank you.
LISTNUM 1 \l 18653 When last we left off we had been talking about ‑‑ well, besides just the FCC test, we had been talking generally about the second exception. In your testimony with the Competition Bureau you had pointed out that there was one exception of an unbundled loop in the residential market which was the one case where despite getting retail forbearance on the basis of facilities‑based competition that you still sought an exception. And then we talked about a second possible exception, the CDN test and the DNA.
LISTNUM 1 \l 18654 So I would like to begin this morning by talking about two other exceptions that I think are in your proposal. Let's just see if we can get agreement on them and we can, at least for one of them, move on very quickly.
LISTNUM 1 \l 18655 You have proposed, as I understand it, that Ethernet be regulated at the wholesale level everywhere except bands A and B.
LISTNUM 1 \l 18656 Am I correctly characterizing your proposal in that sense?
LISTNUM 1 \l 18657 MR. WATT: Yes, you are.
LISTNUM 1 \l 18658 MR. DANIELS: Okay. And so can we agree then ‑‑ and as I say, just move on from that ‑‑ that in terms of at the retail level, Ethernet is forborne or the IP‑VPN service upon which it is generally provided in the market, those are forborne at the retail level; can we agree on that?
LISTNUM 1 \l 18659 MR. WATT: Frankly, I am not aware of that and the rationale, obviously, for our proposal is that we think it is unlikely if you are going to have the necessary fiber facilities into those smaller locations but we will check on the retail treatment of Ethernet.
LISTNUM 1 \l 18660 MR. DANIELS: Well, are you familiar with that ‑‑ and to be fair, I haven't given you this in terms of an exhibit because I really don't want to get into the details.
LISTNUM 1 \l 18661 But are you familiar with the Wide Area Network, the WAN, forbearance that was issued in 2000? Are you familiar with that decision in terms of generally providing for forbearance for wide area networks which has generally been used?
LISTNUM 1 \l 18662 MR. WATT: No, actually I can't say that I am. I'm surprised to hear the date 2000. But we will go and check.
LISTNUM 1 \l 18663 MR. DANIELS: All right. So subject to check, you will check to see on the basis that retail forbearance has been granted in Ethernet and IP VPN services, that being a third exception.
LISTNUM 1 \l 18664 So let me move on, then, to the fourth exception which I would like to present to you. That has to deal with your proposal regarding our GAS and HSA service, which is high‑speed internet service.
LISTNUM 1 \l 18665 MR. WATT: Maybe just before we do move on, I just had a note passed to me, however, that there certainly are Ethernet tariffs that do exist.
LISTNUM 1 \l 18666 MR. DANIELS: Okay. Well, as I say, in terms of the vast majority of services I'm putting to you ‑‑ and you can subject to check in terms of the retail Ethernet as service, as well as falling under an IP VPN which generally upon which the wholesale input Ethernet could be in the retail market ‑‑ I'm putting to you that is forborne under the wide area network forbearance, just for your reference.
LISTNUM 1 \l 18667 MR. WATT: Okay, fair enough. We will check.
LISTNUM 1 \l 18668 MR. DANIELS: Yes, Order CRTC 2000‑553, just to make it a little easier for your reference.
LISTNUM 1 \l 18669 Moving, then, onto the fourth exception which I would like to put to you, and that is your proposal regarding GAS, HSA, which is our wholesale DSL product.
LISTNUM 1 \l 18670 So I assume we can agree that there has been retail internet forbearance since 1999 in Canada?
LISTNUM 1 \l 18671 MR. WATT: Yes, there has.
LISTNUM 1 \l 18672 MR. DANIELS: I don't really want to take you through the whole logic or all the arguments, so I just want to see if we can move through this a little quickly.
LISTNUM 1 \l 18673 But as I understand it, you have said in your evidence that the internet market is competitive and specifically you raised at one point a distinction between the local market and the internet market. I don't want to get into the differences here at this point of our discussion, but in terms of that discussion, specifically when we ask you in an interrogatory, which can be found at Tab Z of our material ‑‑
LISTNUM 1 \l 18674 COMMISSIONER CRAM: Which tab again? I'm sorry?
LISTNUM 1 \l 18675 MR. DANIELS: This is Tab Z.
LISTNUM 1 \l 18676 For those of you who don't have our material tabs, that is Rogers/The Companies 12 April 07‑31.
LISTNUM 1 \l 18677 Do you have that there?
LISTNUM 1 \l 18678 MR. WATT: Yes, I do.
LISTNUM 1 \l 18679 MR. DANIELS: When we, The Companies, asked you to explain the basis for the conclusion that there are more facilities‑based alternatives in the internet market than there are in the local telephony market, you said "In the internet market" ‑‑ I'm reading your answer from (a), just the first sentence:
"... there are a number of widely deployed mobile and fixed wireless satellite‑based and wireline‑based competitors." (As read)
LISTNUM 1 \l 18680 Just so we can agree, your proposition is that on the internet market there is facilities‑based alternatives?
LISTNUM 1 \l 18681 Is that correct?
LISTNUM 1 \l 18682 MR. WATT: I think our position is, consistent with our request, that outside Bands A and B there are very limited facilities, hence our request for access to GAS in those areas.
LISTNUM 1 \l 18683 MR. DANIELS: Mr. Watt, are we confusing ‑‑ I think we may be confusing your Ethernet proposal and your GAS proposal. Because as I understood your GAS proposal, it is not based on banding, it is based on the remote issue, which we are going to get into.
LISTNUM 1 \l 18684 MR. WATT: It is the remote issue, that is correct.
LISTNUM 1 \l 18685 MR. DANIELS: So it's not ‑‑
LISTNUM 1 \l 18686 MR. WATT: No, it is the remote. That's what I had in mind. My apologies
LISTNUM 1 \l 18687 MR. DANIELS: All right. So your position, then again, so let me just understand ‑‑ I was just putting a general proposition before you that in the internet market there are facilities‑based alternatives.
LISTNUM 1 \l 18688 We can agree on that? I'm just reading your sentence right here, the first sentence in line (a), you have listed them there.
LISTNUM 1 \l 18689 MR. WATT: There are alternatives. We don't think that they are perfect alternatives in certain areas and not at the same cost structure certainly in the business market.
LISTNUM 1 \l 18690 MR. DANIELS: With that in mind I'm going to ask you to turn back ‑‑ because we will talk a little bit about that in a minute.
LISTNUM 1 \l 18691 But I'm going to ask you to turn back to your opening statement where I think you have articulated your test for an essential facilities.
LISTNUM 1 \l 18692 So this is in our binder that we gave you for ease of reference. It is Tab D as in David or Daniels.
LISTNUM 1 \l 18693 Just to be clear, I think we have given you two binders so it's the Jonathan Daniels binder, because my colleague, Mr. Hofley, has a separate binder.
LISTNUM 1 \l 18694 I'm looking at page 2 of your opening statement.
LISTNUM 1 \l 18695 MR. WATT: Yes, I have it.
LISTNUM 1 \l 18696 MR. DANIELS: I'm just going to give a minute for other people to find it.
‑‑‑ Pause
LISTNUM 1 \l 18697 MR. DANIELS: So if I look at page 2, your second bullet is your proposed definition for an essential facilities.
LISTNUM 1 \l 18698 So I would just like to go through this.
"An essential facility means an input used by competitors to provide services in the downstream market." (As read)
LISTNUM 1 \l 18699 So that's strictly an input. We won't spend time on that.
LISTNUM 1 \l 18700 The second one:
"Where an input is controlled by a supplier that possesses market power in respect of its supply, such that absent mandated supply of the input on regulated terms the supplier could use its market power in the relevant upstream market to prevent or lesson, in a non‑trivial manner, competition in the relevant downstream markets." (As read)
LISTNUM 1 \l 18701 Then your third part is:
"It's not feasible to duplicate the input or an input equivalent functionality having regard to economic or technical factors." (As read)
LISTNUM 1 \l 18702 Now, I want to focus for a moment on the residential internet market.
LISTNUM 1 \l 18703 Can we agree that the cable companies ‑‑ I assume we can agree that you have the capability of providing high‑speed internet service in the residential cable market?
LISTNUM 1 \l 18704 MR. WATT: Yes.
LISTNUM 1 \l 18705 MR. DANIELS: All right.
LISTNUM 1 \l 18706 In fact ‑‑ and if we want we can turn to it, it's in Tab AA, but in the CRTC's Monitoring Report ‑‑ actually, maybe we should just so that we are all in agreement.
LISTNUM 1 \l 18707 So this is Tab AA. This is a reference in binder ‑‑ this is a reference in the second page of that tab that says "Page 55 of 97" in the printout we have, but I actually think it is page ‑‑
LISTNUM 1 \l 18708 THE SECRETARY: Mr. Daniels, I'm sorry.
LISTNUM 1 \l 18709 MR. DANIELS: Yes?
LISTNUM 1 \l 18710 THE SECRETARY: You are filing this as an exhibit?
LISTNUM 1 \l 18711 MR. DANIELS: No, I believe, Madam Secretary, that this is the CRTC's Telecommunication Monitoring Report 2007 which has been filed already as a CRTC exhibit.
LISTNUM 1 \l 18712 THE SECRETARY: Thank you.
LISTNUM 1 \l 18713 MR. DANIELS: I'm simply using this to make it easier for the Commission and the panel to follow along.
LISTNUM 1 \l 18714 So what is written in my copy is "Page 55 of 97", because I think this is an internet copy, but for those who have the actual version of the Monitoring Report I believe it is page 71.
LISTNUM 1 \l 18715 This is figure 4.4.2 and if we look at this figure we can see in the most recent year 2006 that cable of all internet represents, in the residential market, 47 per cent of accesses.
LISTNUM 1 \l 18716 So can we agree here that here we are referring ‑‑ in this page we are referring to coaxial cable network? This isn't counting the figure beforehand would do ‑‑ this is a technology description so their cable is referring to coaxial or fibre.
LISTNUM 1 \l 18717 Is that correct? That's your understanding?
LISTNUM 1 \l 18718 MR. WATT: In the residential market it will be coaxial cable.
LISTNUM 1 \l 18719 MR. DANIELS: I just wanted to be clear, we are not, this isn't going to include Rogers using unbundled loops to provide ‑‑ in this chart here ‑‑ because this is done on, if you read it, "residential internet access technology mix". The page before would have the market share number.
LISTNUM 1 \l 18720 MR. WATT: I think that's probably correct.
LISTNUM 1 \l 18721 MR. DANIELS: All right.
LISTNUM 1 \l 18722 MR. WATT: I believe our use of DSL is combined almost entirely, if not entirely, to serving the business market.
LISTNUM 1 \l 18723 MR. DANIELS: So just looking at this, in the residential market, just looking at this in our general understanding, can we agree that in terms of high‑speed internet services that the facility is clearly duplicable?
LISTNUM 1 \l 18724 We see a large amount of DSL, we see an even larger amount of cable across the country. As a general proposition the facility is duplicable?
LISTNUM 1 \l 18725 MR. WATT: I think that's fair to say in the residential market in territories where cable companies are present and operating.
LISTNUM 1 \l 18726 MR. DANIELS: So then can we also agree then, going back to your test that, at least let us talk residential market, that as an essential facilities they don't meet the third prong of your test in the residential market? Is that a fair statement?
LISTNUM 1 \l 18727 MR. WATT: I think it is a fair statement for the cable company that is operating in that particular territory. I think for Rogers to go outside its cable footprint area it would be a fair statement.
LISTNUM 1 \l 18728 MR. DANIELS: Just so we are clear, in your test, all right, just going back to your test, when you say:
"It is not feasible to duplicate the input or an input equivalent function not having regard to economic or technical factors." (As Read)
Now, I have taken that to mean that we are looking at generally whether it can be duplicated. We are not looking at whether any one individual company can duplicate it.
LISTNUM 1 \l 18729 MR. WATT: I think, in a general sense, that is correct. But I think our view is that this facility cable is able to provide access into a home because it has a wire, it is leveraging off its video service that places its wire in there. To us, it is a very open question as to whether any additional party will be able to place a third wire into that home.
LISTNUM 1 \l 18730 THE CHAIRPERSON: But surely that is not the issue. It can't be the issue according to your definition. Your definition just says whether it is feasible. Somebody has already done it, so it is clearly feasible.
LISTNUM 1 \l 18731 MR. WATT: That is true. I was just trying to make it clear that we think that it is only the cable company that has that feasibility.
LISTNUM 1 \l 18732 THE CHAIRPERSON: Yes, but whether that cable company is Rogers or whether it is Shaw or somebody else's is irrelevant for the purpose of your test.
LISTNUM 1 \l 18733 MR. WATT: Fair enough.
LISTNUM 1 \l 18734 DR. WARE: If I could just, Mr. Chair, clarify one point. Is that duplicable, at least in my view, is an economic test not a technological test. And so, of course, it is true that a cable company has already done it, as you said. But at the margin, of course, the question might be the next entrant could do it and that is an economic test and it depends on economies of scale and it depends on barriers to entry over a variety of kinds.
LISTNUM 1 \l 18735 So, you know, I don't think it is quite as simple as saying that somebody has already done it so it can be done. It depends on economies of scale relative to the size of the market and what additional barriers there might be to another.
LISTNUM 1 \l 18736 THE CHAIRPERSON: You will have to help me out here. I thought these were sequential. I thought we were going to, first of all, look at market power. And surely, if there is a telco and a cable into one building then it is very hard to say that one of them has market power. So we don't even get to duplicability.
LISTNUM 1 \l 18737 DR. WARE: You are saying that with two firms there will be no market power?
LISTNUM 1 \l 18738 THE CHAIRPERSON: Well, I mean, it is obviously a question of facts in that situation. But using your favourite economic phrase, all other things being equal, if there are two people going into the same building you would assume that neither one of them has market power.
LISTNUM 1 \l 18739 DR. WARE: Well, with respect, I wouldn't assume that, because I ‑‑
LISTNUM 1 \l 18740 THE CHAIRPERSON: Well, that is why I said help me out here.
LISTNUM 1 \l 18741 DR. WARE: Well, I mean, my view is if we look at, you know, what we have learned from competition policy, competition authorities around the world would not endorse a merger from three firms to two firms. Why not? Because they would expect a substantial lessening of competition. In other words, the result would be market power.
LISTNUM 1 \l 18742 So, you know, I would generally think that, of course the particular circumstances matter a great deal, but generally speaking when we see two firms we expect there to be market power.
LISTNUM 1 \l 18743 THE CHAIRPERSON: Yes sure, because you are worried about coordinated behaviour or price leadership or incentive. But I understood the definition put forward by Rogers to be sequential, that you first of all look at one and two before you come to three. Am I wrong there?
LISTNUM 1 \l 18744 DR. WARE: Well no, I don't have a problem with that. And I can't speak for Rogers of course on the definition that they put forward, but I just wanted to make I guess two points really; that it is really an economic issue, duplication; and secondly, that two to three could be a lot different from one to two.
LISTNUM 1 \l 18745 THE CHAIRPERSON: Okay.
LISTNUM 1 \l 18746 MR DANIELS: Just so I understand Rogers' position, because I understand Dr. Ware saying he can't speak for Rogers, can I get you to turn back again to the Rogers‑Companies‑31, which is at tab Z? As I understand your position, and I just want to confirm this, again, you said:
"There are a number of widely deployed mobile and fixed wireless satellite and wireline competitors in the internet market." (As Read)
LISTNUM 1 \l 18747 And then if you look at the very last line, on page 2, your last statement you said in answer to a question:
"The ILECs are not dominant in the residential internet market and might be dominant in the business retail market." (As Read)
That is your position.
LISTNUM 1 \l 18748 So we can agree then that the ILECs are not dominant in the residential retail internet market?
LISTNUM 1 \l 18749 MR. WATT: Not dominant, yes, I would agree with that. But as we say, in the business market we feel in a majority of locations there is not a second wire into that business. We have asked for access to unbundled local loops ‑‑
LISTNUM 1 \l 18750 MR. DANIELS: Okay, I understand that. But, Mr. Watt, I mean I am just being upfront in terms of the beginning and in terms of what I am focused on here. I am focused on your exceptions and I am trying to understand your exceptions and that is why I'm focusing on the residential market, because I understand your position, whether I agree or not, about us dominant in the business market.
LISTNUM 1 \l 18751 But as long as we are agreed that the ILECs are not dominant in the residential market, I am trying to understand this exception about the GAS and the HSA. Because I am reading your test here and I am trying to put it together, so that is why I am ‑‑
LISTNUM 1 \l 18752 MR. WATT: I think Ms Blackwell will try and clarify for you that the primary purpose of our request for GAS, for most, is in order to serve the business market. And then Ms Blackwell will clarify with respect to voice.
LISTNUM 1 \l 18753 MS BLACKWELL: Mr. Daniels, I will just take you to paragraph 172 of the March evidence filed by Rogers. What was clearly set out at the start of that paragraph right above it, there are two instances where wholesale access to services should be maintained on the same terms and conditions as currently established. We described these as exceptions. This is in the section discussing the business market. So with respect to DSL and GAS and so forth the issue is with respect to the remotes in the business market, this is where this exception arises.
LISTNUM 1 \l 18754 In the residential market the discussion with respect to remotes starts at paragraph 203 of the Rogers' March evidence and that is really with respect to the voice market. And if you look at the context of the discussion that continues through to paragraph 212 of that section, it is with respect to where Rogers has had difficulty obtaining loops and as with respect to the voice market and particularly with respect to the outside of the Rogers' Cable footprint.
LISTNUM 1 \l 18755 So I understand your discussion with Mr. Watt has been with respect to the high‑speed internet market in the residential services segment, but I don't think that that is particularly relevant to the exceptions that we have discussed in the March evidence.
LISTNUM 1 \l 18756 MR. DANIELS: So, if I understand your clarification, your position is that your request GAS and HSA is strictly limited to the business market and that it would not be available in the residential market under your proposal?
LISTNUM 1 \l 18757 MS BLACKWELL: Just wait for Mr. Watt to catch up with us here.
LISTNUM 1 \l 18758 MR. WATT: The issue in the residential market is outside our serving territory where we do not have our cable facility and we would use the unbundled local loop to provide both voice service and data service. But by virtue of the fact that the telephone companies have deployed remotes in those areas, we cannot get the copper connectivity all the way through from the customer back to the central office.
LISTNUM 1 \l 18759 We are unable, without some additional technical work, deployment of additional technologies, to provide high‑speed internet service together with our voice service that we are providing on the unbundled loop. And, in that case, we would like to have access to the wholesale facility of the telephone company in order to be able to provide both voice and data services in those circumstances.
LISTNUM 1 \l 18760 THE CHAIRPERSON: Can you repeat the opening? Where would this apply?
LISTNUM 1 \l 18761 MR. WATT: This would apply in locations where Rogers is using an unbundled local loop to provide voice service.
LISTNUM 1 \l 18762 Let's say Calgary. We have the unbundled local loop, and we can provide our voice service, but if the telephone company has deployed technology involving a remote, fibre, and then copper doesn't go all the way back to the central office, there are technologies that allow ‑‑ there is some spare copper that could come back, and we could get that. But in the absence of that, without access to the wholesale DSL tariff, we couldn't provide data service. We would be limited. Our loop is only useful for the voice purpose.
LISTNUM 1 \l 18763 Mr. Pattison, would you like to add to that?
LISTNUM 1 \l 18764 MR. PATTISON: Yes. The loop that we end up receiving in the central office is incapable of providing hi‑speed service because it goes through the remote technology.
LISTNUM 1 \l 18765 THE CHAIRPERSON: So you are missing the piece that would go from the office to the remote.
LISTNUM 1 \l 18766 MR. WATT: Yes, that's correct, we are missing that copper piece.
LISTNUM 1 \l 18767 MR. DANIELS: Just so we are clear ‑‑ because, quite frankly, I just heard two different things from Ms Blackwell and Mr. Watt ‑‑ is it your position ‑‑
LISTNUM 1 \l 18768 I heard you say: We would like it.
LISTNUM 1 \l 18769 Is it your position that GAS, in that situation, in the residential market, should be provided ‑‑ be mandated by this Commission?
LISTNUM 1 \l 18770 MR. WATT: Yes.
LISTNUM 1 \l 18771 MR. DANIELS: All right. So, then, we are back to, with all due respect, the conversation about it only being in business. We can put that aside. In fact, you are looking for it in the residential market.
LISTNUM 1 \l 18772 Now that we have confirmed that, and we have also confirmed that the ILECs are not dominant in the residential market, and we can confirm that there are cable alternatives in the residential market for internet, you have also confirmed that there are many other facility‑based alternatives, so we are not going to get into all of these other issues about only two.
LISTNUM 1 \l 18773 Quite frankly, I am trying to understand, when I look at your definition of essential facilities, how it meets the definition of essential facilities.
LISTNUM 1 \l 18774 Let me be clear. Does it meet your definition of essential facilities, or does it not meet your definition of essential facilities?
LISTNUM 1 \l 18775 And is it an exception to your definition of an essential facility?
LISTNUM 1 \l 18776 MR. WATT: I think we believe that, without the mandated supply, subject to (ii) in the bullet, the supplier could use the market power that it has.
LISTNUM 1 \l 18777 We are not saying that it's dominant in that market, but it could use the market power that it has to lessen, in a non‑trivial fashion, us competing in the downstream market.
LISTNUM 1 \l 18778 Mr. Daniels, as you are aware, there have been a lot of examples where Bell has refused to provide the facilities in remotes and we have lost customers.
LISTNUM 1 \l 18779 I know there are debates about the costs that making the technology available to us impose upon you and so on and so forth, but it is a very serious situation.
LISTNUM 1 \l 18780 MR. DANIELS: Mr. Watt, just so we are clear, when you say remotes here, you are talking about a situation where you can get access to voice. The fact is that you are co‑located and you can get access to voice, but you are saying: I can't get access to DSL.
LISTNUM 1 \l 18781 That is the situation we are talking about here, right?
LISTNUM 1 \l 18782 MR. WATT: Yes, that is correct.
LISTNUM 1 \l 18783 MR. DANIELS: All right. And GAS is available.
LISTNUM 1 \l 18784 MR. WATT: Correct.
LISTNUM 1 \l 18785 MR. DANIELS: All right. So there is no situation where you have been refused access to GAS.
LISTNUM 1 \l 18786 MR. WATT: Not that we are aware of, no. And we would like to see that situation persist.
LISTNUM 1 \l 18787 MR. DANIELS: Just as a finer point on this, just so I understand it, the places that you are talking about, the areas where you face this problem, are the areas outside your territory where you are co‑located and you can't get an unbundled loop that is pure copper, but you can put voice over it, and you can't put DSL.
LISTNUM 1 \l 18788 In that situation, the homes may have, and likely do have, both cable and a phone wire. Correct?
LISTNUM 1 \l 18789 MR. WATT: I would think that the vast majority would, yes.
LISTNUM 1 \l 18790 MR. DANIELS: Okay. I am trying to understand. Why in that situation wouldn't wholesale cable internet be mandated?
LISTNUM 1 \l 18791 Why is it only the ILECs who are being mandated in your so‑called situation of this problem here?
LISTNUM 1 \l 18792 Why is it one and not the other?
LISTNUM 1 \l 18793 MR. WATT: Why is it one and not the other?
‑‑‑ Pause
LISTNUM 1 \l 18794 MR. PATTISON: Sir, as the product owner, I can tell you that we would much prefer to be using DSL, because we manage the quality of service across that service.
LISTNUM 1 \l 18795 MR. DANIELS: I am not sure that that is an explanation.
LISTNUM 1 \l 18796 Is it just a preference issue?
LISTNUM 1 \l 18797 I am asking about it more as a policy matter, Mr. Watt, in terms of ‑‑ why is it one over the other?
LISTNUM 1 \l 18798 MR. WATT: I think that, principally, as I say, our interest lies in extending our service in the business market. In the residential market we would like to have it because we feel that it goes along with our unbundled loop offer in residential markets, which, in turn, makes economics better for unbundled loops in business, but I can see the inconsistency that you are pointing out.
LISTNUM 1 \l 18799 In this case, it is simply that we are not required to provide the unbundled facility for voice purposes, but if the telephone companies are, we are going to expend money to get that facility, and we think we should be able to provide a broader suite of services to those customers in those locations.
LISTNUM 1 \l 18800 THE CHAIRPERSON: Mr. Watt, I wonder if you could rephrase it in terms of what this is about. I mean whether we should mandate or not.
LISTNUM 1 \l 18801 You say "We would like," and I have trouble with what that means.
LISTNUM 1 \l 18802 Could you rephrase it? Should the CRTC mandate or not mandate these things?
LISTNUM 1 \l 18803 MR. WATT: We think they should mandate those things. Otherwise, we think there will be a non‑trivial reduction in competition.
LISTNUM 1 \l 18804 MR. DANIELS: Mr. Watt, could I get you to turn to Tab FF of the material?
LISTNUM 1 \l 18805 This is the response to Interrogatory Rogers‑CRTC‑12 April 07‑204.
LISTNUM 1 \l 18806 I am looking at the second page of that interrogatory.
LISTNUM 1 \l 18807 Have you found it?
LISTNUM 1 \l 18808 I would like to point out your answer to (b):
"The appropriate wholesale regulatory treatment for ILEC and cable company service should be determined by assessing each of the respective services ‑‑ "
LISTNUM 1 \l 18809 COMMISSIONER CRAM: Excuse me, Mr. Daniels. Did you say "FF", as in "Father Father"?
LISTNUM 1 \l 18810 MR. DANIELS: I did.
LISTNUM 1 \l 18811 It is right at the back.
LISTNUM 1 \l 18812 COMMISSIONER CRAM: All right.
LISTNUM 1 \l 18813 THE CHAIRPERSON: There is another bunch of tabs.
LISTNUM 1 \l 18814 COMMISSIONER CRAM: There is another bunch of tabs. Thank you.
‑‑‑ Pause
LISTNUM 1 \l 18815 THE CHAIRPERSON: Commissioner Cram is missing the second page.
LISTNUM 1 \l 18816 MR. DANIELS: I strongly apologize for that.
LISTNUM 1 \l 18817 We have two binders, which may be causing some of the confusion.
‑‑‑ Pause
LISTNUM 1 \l 18818 THE CHAIRPERSON: Okay. I think we are there.
LISTNUM 1 \l 18819 MR. DANIELS: Great.
"The appropriate wholesale regulatory treatment for ILEC and cable company services should be determined by assessing each of the respective services against the same essential service definition and associated criteria. This procedure provides for regulatory symmetry." (As read)
LISTNUM 1 \l 18820 Do you see that there, Mr. Watt?
LISTNUM 1 \l 18821 MR. WATT: I do.
LISTNUM 1 \l 18822 MR. DANIELS: Can we agree that what you have just proposed violates the principle of what I have just read?
LISTNUM 1 \l 18823 MR. WATT: I think in the residential market it well might.
LISTNUM 1 \l 18824 MR. DANIELS: Thank you.
LISTNUM 1 \l 18825 Mr. Chairman, I am going to turn my questions over now to my colleague, Mr. Hofley. Thank you.
LISTNUM 1 \l 18826 MR. HOFLEY: Mr. Chairman, that means a switch of binders. There is another binder. You will be very pleased to know that I spent my weekend determining that I didn't need ‑‑ did not need ‑‑ to take you to all of those tabs; in fact, did not need to take you to many of those tabs.
LISTNUM 1 \l 18827 THE CHAIRPERSON: Thank you, Mr. Hofley. I expect you and others not to ask questions that have already been answered, and I am sure, as usual, you were assiduous in your preparation, but a lot of these things have been answered by others.
LISTNUM 1 \l 18828 MR. HOFLEY: And that is why it has been cut back, Mr. Chairman.
LISTNUM 1 \l 18829 MR. HOFLEY: Good morning, all. My name is Randall Hofley. I am co‑counsel here with Jonathan Daniels for The Companies, and I will have a few questions for you this morning. If I go too fast, please don't hesitate to slow me down, but I am trying to expedite things, given our time constraints.
LISTNUM 1 \l 18830 I hope the binders ‑‑ we have provided you with five as opposed to one ‑‑ will help you expedite matters.
LISTNUM 1 \l 18831 I would like to begin with you, Mr. Hatfield, since you have come a very long way, and I feel you have been left out so far. But I only really have one area that I wanted to ask you questions about.
LISTNUM 1 \l 18832 In reading your report, Mr. Hatfield, I had the sense that you believe that a regulator's focus should be on the physical layer or the lowest layer of your protocol stack model. Would you agree with that?
LISTNUM 1 \l 18833 MR. HATFIELD: I don't think that completely characterized it.
LISTNUM 1 \l 18834 I think my comment was that the market power tends to be in the lower part of the protocol stack, not necessarily always at the physical level. The example that we were just discussing where you have fibre to a remote, then copper beyond that, would be an example where you couldn't get to the wires, therefore, you couldn't put on your own ADSL.
LISTNUM 1 \l 18835 So, that might be a situation where we are quite a bit above the pure physical layer.
LISTNUM 1 \l 18836 MR. HOFLEY: But, generally speaking, you would agree with me that the focus ‑‑ I mean, if you look at tab MM, there is an interrogatory response from The Companies and they quote you when you talk about your focus being on the challenges that reside at the physical layer or the lower layers of the protocol stack. Do you recall that?
LISTNUM 1 \l 18837 MR. HATFIELD: Yes. I just don't want to be sort of held to just the physical layer, because there can be situations where the market power lies higher in the stack.
LISTNUM 1 \l 18838 MR. HOFLEY: I will just quote it to you to help you. It is tab MM, and you don't need to turn it up. It is at page 3 of 7 where they are quoting you, and it says:
"This analysis focuses on the challenges that reside at the lower layers of the protocol stack; that is, the physical network layer." (As read)
LISTNUM 1 \l 18839 Do you recall saying that?
LISTNUM 1 \l 18840 MS SONG: Could counsel please refer, for the benefit of the rest of us in the room, which interrog response he is referring to.
LISTNUM 1 \l 18841 MR. HOFLEY: I have done that again. I am very sorry.
LISTNUM 1 \l 18842 It is Rogers/CRTC 12 April 07‑101. It is at tab MM of the binder. It is at page 3. There is a quote there from Mr. Hatfield about midway down the page. It is at the end of the quote.
LISTNUM 1 \l 18843 MR. HATFIELD: Okay. I am looking at, then, the ‑‑
LISTNUM 1 \l 18844 MR. HOFLEY: It begins "In light of these considerations."
LISTNUM 1 \l 18845 MR. HATFIELD: Oh yes, I see. The very last sentence in that paragraph?
LISTNUM 1 \l 18846 MR. HOFLEY: Right, the very last sentence.
LISTNUM 1 \l 18847 MR. HATFIELD: Okay.
LISTNUM 1 \l 18848 MR. HOFLEY: Okay? So, your testimony is the same as was there. Correct, Mr. Hatfield?
LISTNUM 1 \l 18849 MR. HATFIELD: No, my testimony is what is in quotes above.
LISTNUM 1 \l 18850 MR. HOFLEY: Would you agree with that statement?
LISTNUM 1 \l 18851 MR. HATFIELD: The last sentence?
LISTNUM 1 \l 18852 MR. HOFLEY: Yes.
LISTNUM 1 \l 18853 MR. HATFIELD: No. I say above here, it is in the lower layers, not just in the physical layer.
LISTNUM 1 \l 18854 MR. HOFLEY: Okay. So, the lower layers of the protocol stack?
LISTNUM 1 \l 18855 MR. HATFIELD: That is my testimony.
LISTNUM 1 \l 18856 MR. HOFLEY: Would your principal focus be on the physical layer, the network structure?
LISTNUM 1 \l 18857 MR. HATFIELD: As I said before, not in all cases.
LISTNUM 1 \l 18858 MR. HOFLEY: In the context of the protocol stack model, Mr. Hatfield, at the physical layer, what is the difference between DS‑3 private line and Ethernet? Is there any difference?
LISTNUM 1 \l 18859 MR. HATFIELD: DS‑3 private line, I believe DS‑3 is TDM architecture. In other words, it uses a different way of organizing the bits on a TDM stream than you would on an Ethernet layer.
LISTNUM 1 \l 18860 MR. HOFLEY: But Ethernet is a layer 2 service. Correct? It either rides over a layer 1 private line network or over equipment that provides both the layer 1 connectivity ‑‑
LISTNUM 1 \l 18861 MR. HATFIELD: That was a little quick. If we could go back.
LISTNUM 1 \l 18862 MR. HOFLEY: Ethernet ‑‑ I am talking about your protocol stack model.
LISTNUM 1 \l 18863 MR. HATFIELD: Yes.
LISTNUM 1 \l 18864 MR. HOFLEY: Ethernet is a layer 2. Correct? It is not the physical layer?
LISTNUM 1 \l 18865 MR. HATFIELD: Yes, meaning it is riding on copper of whatever other facility, that is correct.
LISTNUM 1 \l 18866 MR. HOFLEY: Right. So, it either rides over a layer 1 private line network ‑‑
LISTNUM 1 \l 18867 MR. HATFIELD: I am a little confused by your term "private line."
LISTNUM 1 \l 18868 MR. HOFLEY: A physical private line connection.
LISTNUM 1 \l 18869 MR. HATFIELD: Dedicated?
LISTNUM 1 \l 18870 MR. HOFLEY: Yes.
LISTNUM 1 \l 18871 MR. HATFIELD: Yes, okay.
LISTNUM 1 \l 18872 MR. HOFLEY: Or over equipment that provides both the layer 1 connectivity, as well as layer 2 Ethernet over the same physical fibre.
LISTNUM 1 \l 18873 MR. HATFIELD: I believe that is correct, yes.
LISTNUM 1 \l 18874 MR. HOFLEY: In the context of your barrier discussion, if problems at the physical layer required access, required mandated access from the Commission to CDN, and Ethernet services are effectively the same, how can they both be essential, Mr. Hatfield?
LISTNUM 1 \l 18875 MR. HATFIELD: My testimony is if the upper layer, in other words, the service that is riding on it can both get access to the same pairs of copper wires or the same fibre, then I would say there is no difference.
LISTNUM 1 \l 18876 There might be some co‑location issues about making sure you can get your equipment in in both cases.
LISTNUM 1 \l 18877 MR. HOFLEY: Thank you, Mr. Hatfield.
LISTNUM 1 \l 18878 Professor Ware, I would like to move to you, if I could. Professor Ware, just a quick question about the title of your report.
LISTNUM 1 \l 18879 The title of your report is "The Proper Application of the Essential Facility Concept in Canadian Telecommunications." I was struck by that, "The Proper Application." Have you reviewed all of the services listed by each company as essential under their definition or under yours or Rogers' definition and applied that definition to the services?
LISTNUM 1 \l 18880 I am confused about the words "the proper application" of the essential facility concept.
LISTNUM 1 \l 18881 MR. WARE: No, Mr. Hofley. I haven't reviewed each individual service in terms of its applicability or eligibility.
LISTNUM 1 \l 18882 When I say "the proper application," the meaning of those words is intended to be a methodological discussion. It's not intended to produce an outcome and, in fact, neither do I at the end of that report where I find individual services to be essential or non‑essential.
LISTNUM 1 \l 18883 MR. HOFLEY: When you say "a methodological discussion," you mean simply about the appropriate definition of essential facilities. Is that what you mean?
LISTNUM 1 \l 18884 MR. WARE: I mean, definition and application, yes. What it means ‑‑ I mean, obviously definitions can be a single line or they can be ‑‑ there are a lot of conceptual issues here, as you know. So, it is a discussion of the methodological issues.
LISTNUM 1 \l 18885 MR. HOFLEY: And that was your mandate; that was what Rogers requested that you do?
LISTNUM 1 \l 18886 MR. WARE: Yes, it was, as I understood it anyway.
LISTNUM 1 \l 18887 MR. HOFLEY: But would you agree with me that you went beyond that mandate in parts of your report, and let's take one, for example. You have a section of your report which is called "Mandatory Access and Investment: The Empirical Evidence." Do you recall that? It begins at paragraph 34 of your report, Dr. Ware.
LISTNUM 1 \l 18888 MR. WARE: Yes, I do recall that.
LISTNUM 1 \l 18889 MR. HOFLEY: Can you tell me how that was related to your mandate to discuss the essential facilities definition and the methodology associated with the essential facilities definition?
LISTNUM 1 \l 18890 MR. WARE: That was an additional mandate.
LISTNUM 1 \l 18891 MR. HOFLEY: So, one you didn't ‑‑ you then just mention a new one?
LISTNUM 1 \l 18892 MR. WARE: Right.
LISTNUM 1 \l 18893 MR. HOFLEY: In this section, you ‑‑
LISTNUM 1 \l 18894 MS BLACKWELL: Mr. Hofley, I don't want to interrupt, but part of the discussion, as it says at the beginning of Dr. Ware's evidence, has been, first paragraph of that, "to assess the evidence filed by other parties in this proceeding with respect to the proper application of essential facilities."
LISTNUM 1 \l 18895 I believe a number of parties have, in their evidence, discussed the impact on investment as a result of whether you define essential facilities too broadly or too narrowly, which was something that Rogers itself addressed in its March evidence of trying to find a proper balance and, as we proposed, a nuanced approach between the hard extreme of too broad and too narrow.
LISTNUM 1 \l 18896 So, in that context, Dr. Ware took a few paragraphs in his submission, in the supplementary evidence filed on behalf of Rogers in July, to look at the issue of is there empirical evidence of the impact on investment with respect to how other countries and other academics have assessed the impact on investment where you have a broad or not so broad scope of mandated access.
LISTNUM 1 \l 18897 MR. HOFLEY: Thank you, Ms Blackwell. I am happy to understand that from you.
LISTNUM 1 \l 18898 I am really most concerned with what Dr. Ware understood to be his mandate, not what you understood to be Dr. Ware's mandate.
LISTNUM 1 \l 18899 So, if we could just turn to the report, Dr. Ware, again, this section, paragraph 34. You say actually beginning at paragraph 38, when you discuss this issue of mandatory access and investment, you say that you have conducted ‑‑ and I am quoting ‑‑ "a balanced review of the evidence." Do you recall that?
LISTNUM 1 \l 18900 MR. WARE: Can you point me to that, please?
LISTNUM 1 \l 18901 MR. HOFLEY: Paragraph 38.
LISTNUM 1 \l 18902 MR. WARE: Yes, I have it. Thanks.
LISTNUM 1 \l 18903 MR. HOFLEY: Do you recall saying that?
LISTNUM 1 \l 18904 MR. WARE: Yes, I do.
LISTNUM 1 \l 18905 MR. HOFLEY: What is the evidence that you looked at? Is it the evidence that you cite in your report, Dr. Ware?
LISTNUM 1 \l 18906 MR. WARE: Yes, it is.
LISTNUM 1 \l 18907 MR. HOFLEY: And the balanced review is your review. Correct? That is what you are referring to?
LISTNUM 1 \l 18908 MR. WARE: Yes.
LISTNUM 1 \l 18909 MR. HOFLEY: Here in this section you are disputing the point that mandatory access regimes create disincentives for investments. Correct?
LISTNUM 1 \l 18910 MR. WARE: That is correct, yes.
LISTNUM 1 \l 18911 MR. HOFLEY: And you refer to some studies. Correct?
LISTNUM 1 \l 18912 MR. WARE: Yes, I do.
LISTNUM 1 \l 18913 MR. HOFLEY: You say ‑‑ the first study you refer to is the Willig Report. Do you recall that?
LISTNUM 1 \l 18914 MR. WARE: Yes, I do.
LISTNUM 1 \l 18915 MR. HOFLEY: And you say:
"With respect to Willig et al in a report filed..."
This is at the beginning of paragraph 39:
"...in a report filed for AT&T concluded that access by CLECs at cost‑based rates had caused ILEC capital expenditures to increase and increase with decreasing access prices." (As read)
LISTNUM 1 \l 18916 Do you recall that?
LISTNUM 1 \l 18917 MR. WARE: Yes, I do.
LISTNUM 1 \l 18918 MR. HOFLEY: Are you familiar with the Willig Study, Professor Ware?
LISTNUM 1 \l 18919 MR. WARE: Yes, I am.
LISTNUM 1 \l 18920 MR. HOFLEY: Is the punch line of the article that the level of ILEC investment in the U.S. is positively related to the level of UNE pricing? Is that the punch line of the article, Dr. Ware?
LISTNUM 1 \l 18921 MR. WARE: Well, I don't know if it is the punch line of the article or not. It is a conclusion of the article.
LISTNUM 1 \l 18922 MR. HOFLEY: Would you agree, Dr. Ware, that if an ILEC has to provide unbundled network elements, they are required to provide unbundled network elements, that ILEC would have to also make investments in certain wholesale infrastructure? Would you agree with that?
LISTNUM 1 \l 18923 MR. WARE: Well, it is perfectly possible, yes.
LISTNUM 1 \l 18924 MR. HOFLEY: Do you know if the Willig Study separated ILEC investment between UNE‑based investment; in other words, the investment they had to undertake to support providing of unbundled local loops and other ILEC investment? In other words, do you know whether the study separated out the investment that they undertook to comply with the mandated access and that they undertook otherwise?
LISTNUM 1 \l 18925 MR. WARE: No, I don't.
LISTNUM 1 \l 18926 MR. HOFLEY: Isn't it possible, Dr. Ware, that the correlation between the ILEC investment and the lower UNE prices is driven by the ILEC investment to support UNE competition? In other words, to comply with the mandated access?
LISTNUM 1 \l 18927 MR. WARE: I think we ought to look at the document, but as I recall from reading Willig's paper, the hypothesis that he was testing was whether, as a result of mandated access, the ILEC would engage in I think what he calls defensive investment, which is investment that is designed to increase their competitiveness with respect to the entry under mandated access of the CLEC, of the competitor.
LISTNUM 1 \l 18928 He concludes that that hypothesis is supported by the data.
LISTNUM 1 \l 18929 Now, in response to ‑‑
LISTNUM 1 \l 18930 MR. HOFLEY: But, Dr. Ware, he does not separate out the investment that is made by ILECs as a result of meeting the FCC's requirement to provide UNE‑P from the investments they made otherwise. So, would you agree with me that unless you do that, the correlation is nothing but a correlation?
LISTNUM 1 \l 18931 MR. WARE: Well, no, I wouldn't. But in order to seriously debate Dr. Willig's paper, I think we would have to look at it, but I am willing to stand by the statement I just made, which is that he tests the hypothesis and he finds support for it.
LISTNUM 1 \l 18932 MR. HOFLEY: The next report you refer to, Dr. Ware, is that of Mr. Crandall. Do you recall that?
LISTNUM 1 \l 18933 MR. WARE: Yes, I do.
LISTNUM 1 \l 18934 MR. HOFLEY: You say:
"Crandall 2005 reviewed all the empirical studies to date and concluded that when carefully analyzed, none of the studies supported the view that mandatory access rates had influenced the level of capital spending by Bell companies." (As read)
LISTNUM 1 \l 18935 Do you recall that?
LISTNUM 1 \l 18936 MR. WARE: Yes, I do.
LISTNUM 1 \l 18937 MR. HOFLEY: There you are referring, I believe we had confirmed in an interrogatory, you are referring to Robert Crandall's "Competition and Chaos: U.S. Telecommunications Since the 1996 Telecom Act." Correct?
LISTNUM 1 \l 18938 MR. WARE: Yes.
LISTNUM 1 \l 18939 MR. HOFLEY: Dr. Ware, you don't, in making this statement, cite to any portion of this piece, and I can tell you that we have had a look and we can't find in the Crandall piece any support for the statement that I just quoted you.
LISTNUM 1 \l 18940 So, can you take us to where in Crandall's "Competition and Chaos: U.S. Telecommunications Since 1996" you base that statement on?
LISTNUM 1 \l 18941 MR. WARE: First I would have to have the document.
LISTNUM 1 \l 18942 MR. HOFLEY: It is your report, Dr. Ware, and you have cited that ‑‑
LISTNUM 1 \l 18943 MR. WARE: Yes, but if you want me to take you to it right now, I would have to have the document.
LISTNUM 1 \l 18944 I think it was submitted as an exhibit by, was this by you or by someone else?
LISTNUM 1 \l 18945 MR. HOFLEY: We provided you with an excerpt, but I am asking you where in the Crandall report you base this statement on?
LISTNUM 1 \l 18946 MR. WARE: I would be willing to take an undertaking to do that.
LISTNUM 1 \l 18947 MR. HOFLEY: That would be fine. Thank you, Mr. Chairman.
LISTNUM 1 \l 18948 Just by the by, are you aware that in this monograph by Mr. Crandall ‑‑ and he will be here, Mr. Chairman, so I won't belabour this, he will be here on behalf of TELUS, I believe ‑‑ are you aware that Dr. Crandall is critical of the Willig Study that you cited?
LISTNUM 1 \l 18949 MR. WARE: Yes, I read a couple of quotes from it last night, from this excerpt, and he says the proposition put forward by Dr. Willig is unlikely.
LISTNUM 1 \l 18950 MR. HOFLEY: Right, and doesn't he say ‑‑ I am quoting:
"Furthermore, one cannot assume that investment responds to UNE‑P rates. If those rates are measured for a period after the capital expenditures take place, one would have to show that subsequent investment expenditures fall or rise with differences in UNE‑P rates." (As read)
LISTNUM 1 \l 18951 Do you recall that, reading that last night?
LISTNUM 1 \l 18952 MR. WARE: You would have to point me to that in the document.
LISTNUM 1 \l 18953 MR. HOFLEY: Well, the document is there, Mr. Chairman. Maybe we can move on. And plus, Mr. Crandall will be here.
LISTNUM 1 \l 18954 Now, are you aware, Dr. Ware, that there are some more recent studies than "Competition in Chaos" by Mr. Crandall which support the proposition that investment levels fall with mandated access?
LISTNUM 1 \l 18955 Were you here, for example, for the testimony of the Bell panel?
LISTNUM 1 \l 18956 DR. WARE: Most of it, yes.
LISTNUM 1 \l 18957 MR. HOFLEY: So are you aware that there have been other more recent studies since 2005 which suggest that ‑‑ and suggest strongly, I would say to you ‑‑ that investment levels fall with mandated access?
LISTNUM 1 \l 18958 MR. WARE: The only study that I have seen is one that I have found, more recently than my report, which is ‑‑ there is a manuscript by Waverman and some colleagues which was under the LECG brand name, which was published in ‑‑ well no, it hasn't been published rather, I am sorry, but it has a date of September 2007, which I have looked at.
LISTNUM 1 \l 18959 MR. HOFLEY: I think that is fair and you are right, it was after your report was filed, Dr. Ware.
LISTNUM 1 \l 18960 I would like to take you to Tab RR, which is an exhibit which is entitled "Broadband and Unbundling Regulations in OECD Countries" by Scott Wallsten. This was provided to you last Wednesday, I believe, Dr. Ware.
LISTNUM 1 \l 18961 MR. WARE: Yes, I have it.
LISTNUM 1 \l 18962 MR. HOFLEY: And would you agree with me that this report is dated June 2006?
LISTNUM 1 \l 18963 MR. WARE: Yes.
LISTNUM 1 \l 18964 MR. HOFLEY: And that it is an OECD ‑‑ it takes OECD data from 30 countries over five years, from 1999 to 2003?
LISTNUM 1 \l 18965 MR. WARE: Okay.
LISTNUM 1 \l 18966 MR. HOFLEY: Now, if I could take you to ‑‑ well, would you agree with me ‑‑ I think you have had an opportunity to look at this because, as I said, I gave it to your counsel last Wednesday.
LISTNUM 1 \l 18967 Would you agree with me that this report finds, using ITU data, that more extensive sub‑loop unbundling is negatively correlated with broadband penetration because of the negative effect on incumbents' investment incentives?
LISTNUM 1 \l 18968 MR. WARE: I would agree with you up to the last phrase. I don't recall the qualifier about that, because of the negative effect on the incumbents' investment incentives. If you can point me towards that conclusion.
LISTNUM 1 \l 18969 MR. HOFLEY: Well perhaps we can take you to the key findings, Professor Ware, at page 1 of Tab MM, the Wallsten Report.
LISTNUM 1 \l 18970 It is about three pages in, Mr. Commissioner ‑‑ Mr. Chairman.
LISTNUM 1 \l 18971 MR. WARE: What page are you on?
LISTNUM 1 \l 18972 MR. HOFLEY: Page 1.
LISTNUM 1 \l 18973 You see, about ‑‑ towards the bottom of the page, you will see I have actually highlighted, commissioners, the sections in the margins.
"The most extensive form of mandatory unbundling included here, so‑called sub‑loop unbundling, appears to slow penetration growth." (As read)
LISTNUM 1 \l 18974 Do you see that?
LISTNUM 1 \l 18975 MR. WARE: Yes, I do but we are talking about broadband penetration here, not investment. I don't believe Mr. Wallsten had any investment data in this study.
LISTNUM 1 \l 18976 MR. HOFLEY: So penetration growth does not require investment, Dr. Ware?
LISTNUM 1 \l 18977 MR. WARE: Well, of course it does but this study is largely about laying cable on the ground. It is largely about the rollout of cable in countries which for the most part ‑‑ of course, not true of Canada ‑‑ started from very low levels of cable footprints.
LISTNUM 1 \l 18978 MS BLACKWELL: Mr. Hofley, if I could just add.
LISTNUM 1 \l 18979 When you said sub‑loop unbundling, I believe the same report says that ‑‑ an example that is UNE‑P, where you have the loop and the switching, an access regime that Canada has not had.
LISTNUM 1 \l 18980 MR. HOFLEY: And I understand that but we are testing the fundamental proposal.
LISTNUM 1 \l 18981 Let's turn to page 6, Dr. Ware, bottom of the page.
"In sum, there is still a debate about the effects of unbundling policies. Most economists and most studies conclude that unbundling in the U.S. reduce incentives to invest..." (As read)
LISTNUM 1 \l 18982 There is the incentives to invest piece.
"...in hi‑speed internet infrastructure." (As read)
LISTNUM 1 \l 18983 Do you see that?
LISTNUM 1 \l 18984 MR. WARE: I do.
LISTNUM 1 \l 18985 MR. HOFLEY: So you would disagree with most studies and most economists; correct?
LISTNUM 1 \l 18986 MR. WARE: No, I would just point to the fact ‑‑ well, two points actually.
LISTNUM 1 \l 18987 One is I note that Mr. Wallsten does not cite anybody there at all.
LISTNUM 1 \l 18988 And secondly, that, as I just said a few minutes ago, the investment in hi‑speed cable footprint has already taken place in Canada, which puts it in a very different position than these countries.
LISTNUM 1 \l 18989 MS BLACKWELL: Mr. Hofley, I could also point to ‑‑ the OECD's Communications Outlook for 2007 has a statement:
"Quite clearly, competition from new entrants over unbundled lines has also helped spur investment in several markets." (As read)
LISTNUM 1 \l 18990 So I think what we are seeing is depending on which study you are looking at, how the equations that the econometric analyses are specified, which is very, very important if you ask economists and econometricians, you can get different answers.
LISTNUM 1 \l 18991 I think in the context of this proceeding, as the Chair said earlier last week, this is a review process. So in Canada we have the benefit of saying we have had an access regime that included certain components, some of which Rogers has proposed be kept, some not.
LISTNUM 1 \l 18992 You can actually look back in time and see the impact on investment as a result of that access regime. You don't necessarily have to go to these conflicting reports depending on how the equation was specified, whether investment was part of it, how it was reflected.
LISTNUM 1 \l 18993 You can look at the Canadian experience and say has ICT investment increased, have competitors in the telecommunications market in Canada increased their investment, the Telecommunications Monitoring Report, reports on ‑‑
LISTNUM 1 \l 18994 MR. HOFLEY: Ms Blackwell, did you write this report?
LISTNUM 1 \l 18995 MS BLACKWELL: No, sir, I did not write this report ‑‑
LISTNUM 1 \l 18996 MR. HOFLEY: Okay.
LISTNUM 1 \l 18997 MS BLACKWELL: ‑‑ but I am trying to be helpful.
LISTNUM 1 \l 18998 MR. HOFLEY: Now, Ms Blackwell, I am asking Dr. Ware about his report. I haven't asked about Rogers' evidence. I am asking Dr. Ware about his report ‑‑
LISTNUM 1 \l 18999 MS BLACKWELL: Right.
LISTNUM 1 \l 19000 MR. HOFLEY: ‑‑ and I am testing what Dr. Ware says and that is that he conducted a balanced review of the evidence.
LISTNUM 1 \l 19001 MS BLACKWELL: I appreciate that, Mr. Hofley. I am also just trying to provide the commissioners and the staff with some understanding of the context of where all these studies rest within the key issue in this proceeding, one of which is if they increase or decrease the access regime, is there going to be an impact on investment, and I am saying they can look at the Canadian evidence at hand.
LISTNUM 1 \l 19002 THE CHAIRPERSON: Ms Blackwell, this is very helpful but really, the proceedings will go faster if you let counsel conduct their cross‑examination the way they want to.
LISTNUM 1 \l 19003 Mr. Hofley.
LISTNUM 1 \l 19004 MR. HOFLEY: Thank you.
LISTNUM 1 \l 19005 Can we now turn to the Waverman study you appropriately referred to, Dr. Ware. And that, again, is September 2007, LECG. It is at Tab SS of the binder I provided both the panel and the Commission.
‑‑‑ Pause
LISTNUM 1 \l 19006 MR. HOFLEY: Now, you have had an opportunity to look at this. It was mentioned last week, Dr. Ware.
LISTNUM 1 \l 19007 DR. WARE: Yes, I have.
LISTNUM 1 \l 19008 MR. HOFLEY: And this is the study that you quite fairly pointed out came in after your report was written?
LISTNUM 1 \l 19009 MR. WARE: Yes, it is.
LISTNUM 1 \l 19010 MR. HOFLEY: Now, would you agree with me that this study looks at 12 countries over a five‑year period, 2002 to 2006?
LISTNUM 1 \l 19011 MR. WARE: Yes.
LISTNUM 1 \l 19012 MR. HOFLEY: And can you agree with me that this study, unlike perhaps others, utilizes econometric methods to test the impacts of specific aspects of access regulation embodied in the price of unbundled local loops on investment in alternative access platforms, also called last mile access infrastructures?
LISTNUM 1 \l 19013 MR. WARE: Well, it does, but the conclusion relating to investment is in fact a simulation. It's not a study of investment data. What Professor Waverman does here is, his dependent variable in this study is actually broadband penetration and then what he does is he estimates a set of structural equations based on broadband penetration. Then he says, "Let's suppose that there is 100 Euros of investment associated with an additional household, additional connection, and let's use our estimated equations to simulate the effect of different access regimes. Then he says, with 100 Euro assumption this is how much more investment we would have got." So that is not really a study of investment.
LISTNUM 1 \l 19014 MR. HOFLEY: Have you conducted any econometric studies in this area, Dr. Ware?
LISTNUM 1 \l 19015 MR. WARE: No, I haven't.
LISTNUM 1 \l 19016 MR. HOFLEY: Or a simulation?
LISTNUM 1 \l 19017 MR. WARE: No.
LISTNUM 1 \l 19018 MR. HOFLEY: Can we go to what he concluded, Dr. Ware? If we go to "Key Findings", page 3, it is paragraph 1.11. Would you agree there that at least he says in 1.12 that:
"Our econometric analysis shows that all else equal a reduction of 10 per cent in the LLU price causes an 18 per cent fall in the subscriber share of alternative infrastructure." (As read)
LISTNUM 1 \l 19019 Do you see that?
LISTNUM 1 \l 19020 MR. WARE: Yes, I do.
LISTNUM 1 \l 19021 MR. HOFLEY: That is one of his key findings.
LISTNUM 1 \l 19022 I think for non‑economists like me the next sentence is the one that I think I start to understand, Mr. Chairman, and that is where he says:
"This 18 per cent fall in subscriber share results in hundreds of thousands less broadband subscriber lines that utilize alternative access technologies." (As read)
LISTNUM 1 \l 19023 So that would be speaking, depending on whether you agree with this methodology or not, Dr. Ware, to investment, wouldn't it?
LISTNUM 1 \l 19024 MR. WARE: Well, with the qualification that I just made.
LISTNUM 1 \l 19025 MR. HOFLEY: Yes.
LISTNUM 1 \l 19026 MR. WARE: Really the investment part is a kind of an add‑on. As I said, there are no investment data in this study.
LISTNUM 1 \l 19027 MR. HOFLEY: No.
LISTNUM 1 \l 19028 Then he goes on to say:
"Thus intense access regulation. as measured through the LLU price, weakens facilities‑based competition and the benefits that such competition delivers." (As read)
LISTNUM 1 \l 19029 Next:
"This fall in subscriber levels has the impact of reducing investment in alternative access platforms in both the short‑term and the long‑term." (As read)
LISTNUM 1 \l 19030 Do you see that?
LISTNUM 1 \l 19031 MR. WARE: Yes, I do.
LISTNUM 1 \l 19032 MR. HOFLEY: Now, would you agree with me that a balanced review of the literature would have, had you had it at the time, included the Waverman study?
LISTNUM 1 \l 19033 MR. WARE: Oh certainly, yes. Absolutely.
LISTNUM 1 \l 19034 MR. HATFIELD: Could I add a point here?
LISTNUM 1 \l 19035 We are focused here on increasing the investment in the access part of the network but, as my testimony goes to, there is an awful lot of investment and innovation that is occurring up the protocol stack. So by mandating access at the lower levels you may be very well promoting lots of investment at higher levels in the protocol stack that is not addressed in these studies.
LISTNUM 1 \l 19036 MR. HOFLEY: Thank you for that. I do agree we are focusing, although we did have the debate I believe on Friday about innovation at the lower levels of the protocol stack on Friday. But I take your point about the upper levels.
LISTNUM 1 \l 19037 COMMISSIONER del VAL: Mr. Hofley, may I just ask one point of clarification?
LISTNUM 1 \l 19038 On that paragraph 1.12 it says:
"Our econometric analysis shows that all else being equal..." (As read)
LISTNUM 1 \l 19039 I'm wondering if Dr. Ware or Mr. Hatfield could give me an example of what else would have to be equal?
LISTNUM 1 \l 19040 MR. WARE: Madam Commissioner, we would have to look at his ‑‑ the way this is done is by writing down a series of structural equations and then looking at the estimated coefficients and then identifying those as partial derivatives in a mathematical sense, in the sense that what it means is suppose we hold everything else constant, so essentially that means the price of everything else and it means whatever else he has on the right‑hand side in his equations.
LISTNUM 1 \l 19041 And if we just change ‑‑ I'm sorry, I'm just going back. I have lost the paragraph now.
LISTNUM 1 \l 19042 If I just change the LLU price what happens to the variable on the left‑hand side, which actually is the share of broadband penetration by alternative access technology?
LISTNUM 1 \l 19043 COMMISSIONER del VAL: I think I understand that, but I was just wondering what was on the right‑hand side.
LISTNUM 1 \l 19044 MR. WARE: Well, I would have to go and look. I honestly can't remember exactly.
LISTNUM 1 \l 19045 MS BLACKWELL: Commissioner del Val, I think at a very basic level what you are trying to do is, you try to gather all the variables that you think will explain this broadband penetration and some of the other variables in the equation may account for a larger share of the movement in what you are trying to figure out what makes that move.
LISTNUM 1 \l 19046 In the Waverman report if you look just at what is the impact of the LLU pricing, that relationship, but recognizing there are other things like population density might have a factor, as I think the Wallsten report actually speaks to.
LISTNUM 1 \l 19047 COMMISSIONER del VAL: Thank you.
LISTNUM 1 \l 19048 MR. WARE: Madam Commissioner, on page 20 for example he has one of his equations anyway, 20 of the report. For example he has things like HHI, which is the Herfindahl‑Hirschman Index of concentration, and GDP on the right‑hand side. So he is trying to allow for things like differences in income levels for example.
‑‑‑ Pause
LISTNUM 1 \l 19049 THE CHAIRPERSON: Go ahead, Mr. Hofley.
LISTNUM 1 \l 19050 MR. HOFLEY: Mr. Chairman, thank you.
LISTNUM 1 \l 19051 I would like to turn to whomever I guess now, the Rogers panel.
LISTNUM 1 \l 19052 Thank you, Dr. Ware.
LISTNUM 1 \l 19053 I would like to begin by taking you to paragraphs 88 and 89 of your March 15th evidence. This is the section of your evidence in which you are discussing economic barriers. You will see the heading starts at paragraph 84, which is page 22 of 61, but what I want to take you to is that page 23 of 61. You are talking about the economic barriers that face competitors to the ILECs.
LISTNUM 1 \l 19054 Do you recall this section of your evidence, Mr. Watt?
LISTNUM 1 \l 19055 MR. WATT: Yes, I do.
LISTNUM 1 \l 19056 MR. HOFLEY: I would like to do a bit of an experiment and ask you if you would agree with me.
LISTNUM 1 \l 19057 Let's start at paragraph 88 and I'm going to replace the word "ILECs" with "cable cos". So I'm going to read you these and I will ask you your views.
"The cable cos of course already have ubiquitous facilities at the lowest layers of the protocol stack and can rely on these facilities to offer customers comprehensive service packages at higher layers." (As read)
LISTNUM 1 \l 19058 Would you agree with me with that?
LISTNUM 1 \l 19059 MR. WATT: No, I wouldn't. I would reword that sentence, following upon your proposal:
"The cable companies of course already have almost ubiquitous facilities to residential premises at the lowest levels of the protocol stack and can rely on these facilities to offer customers comprehensive service packages in the residential market at the higher level." (As read)
LISTNUM 1 \l 19060 MR. HOFLEY: So this is back to the lateral connection issue.
LISTNUM 1 \l 19061 Is that a fair statement?
LISTNUM 1 \l 19062 MR. WATT: I'm not quite ‑‑
LISTNUM 1 \l 19063 MR. HOFLEY: The last mile.
LISTNUM 1 \l 19064 MR. WATT: The last mile is better.
LISTNUM 1 \l 19065 MR. HOFLEY: I'm sorry.
LISTNUM 1 \l 19066 MR. WATT: Generally I think the ILECs preferred that the lateral connection to be a fibre‑based facility. It is the last mile, co‑ax and fibre.
LISTNUM 1 \l 19067 MR. HOFLEY: The last mile. I apologize.
LISTNUM 1 \l 19068 MR. WATT: Into those 95 per cent of locations we don't have a facility today. Yes.
LISTNUM 1 \l 19069 MR. HOFLEY: Now, let's go to the next sentence.
"The cable cos facilities..."
LISTNUM 1 \l 19070 We will agree to disagree on that:
"The cable cos facilities were built and paid for while the cable cos operated monopolies and the investments have been recovered so as to ensure a reasonable rate of return on the investments." (As read)
LISTNUM 1 \l 19071 MR. WATT: I would again disagree with that sentence, the reason being that cable companies were granted exclusive franchises in a territory. So you could say it was, in that sense, a monopoly over the provision of television signals over wires in that franchise area.
LISTNUM 1 \l 19072 There were other alternatives for radio signals so, in that