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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
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 17, 2007 Le 17 octobre 2007
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès‑verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.
Canadian Radio‑television and
Conseil de la radiodiffusion et des
Transcript / Transcription
Review of 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 17, 2007 Le 17 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
AFFIRMED: STEWART THOMPSON 1744 /12430
Examination-in-chief by Yak Communications 1744 /12431
Cross-examination by Bell Canada 1745 /12438
Cross-examination by TELUS 1785 /12752
AFFIRMED: WILLIE GRIEVE 1811 /12956
AFFIRMED: JANET YALE
AFFIRMED: JOHN FLEIGER
AFFIRMED: ROBERT TASKER
AFFIRMED: DAVE McMAHON
Examination-in-chief by TELUS 1812 /12957
Cross-examination by Rogers 1819 /13018
Cross-examination by Shaw 1889 /13452
Cross-examination by MTS Allstream 1899 /13534
Cross-examination by Primus 1993 /14184
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
COMPANIES-12 Summary of certain Yak dial 1768 /12628
around and selected prepaid long
distance calling card per-minute
CRTC-8 Telus' letter dated 1898 /13530
October 12, 2007 subject: CRTC
Report: Status of Competition in
Markets and Deployment
Accessibility of Advanced
and Services, July 2007
MTS-14 TELUS Wireline Revenues, 1915 /13669
Profitability and Capital
Expenditures. Tables 1,2 and 3
BUREAU-4 Response to undertaking to comment 1991 /14174
on U.S. data related to total
plant additions aggregated for all
reporting ILECs for the period
BUREAU-5 Response to undertaking to provide 1991 /14174
MTS Allstream and the Commission a
summary of the timelines on the
public record in the Canada Pipe
PRIMUS-5 String of emails exchanged between 1995 /14201
TELUS and Primus Globility re:DS3
CDN Digital Access orders for
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Wednesday, October 17, 2007
at 0830 / L'audience reprend le mercredi
17 octobre 2007 à 0830
1LISTNUM 1 \l 1 \s 24232423 THE SECRETARY: Please be seated.
1LISTNUM 1 \l 12424 Today we are starting the day fresh with the witness of Yak. I am asking Mr. Lockie to introduce his witness.
1LISTNUM 1 \l 12425 MR. LOCKIE: Thank you.
1LISTNUM 1 \l 12426 Mr. Chairman, I would like to introduce Mr. Stewart Thompson as Yak's panel. Mr. Thompson is Yak's Vice‑President of Carrier Relations, and he is ready to be sworn in. His resume has been previously submitted.
1LISTNUM 1 \l 12427 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12428 Do you want to swear the witness in?
1LISTNUM 1 \l 12429 THE SECRETARY: Yes. Mr. Thompson, I will affirm you.
AFFIRMED: STEWART THOMPSON
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12430 MR. LOCKIE: Mr. Thompson, I would like to refer you to Yak's evidence dated March 15th, as well as Yak's responses to the interrogatory dated May 10th and subsequent response to interrogatory dated August 9th.
1LISTNUM 1 \l 12431 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12432 MR. LOCKIE: Can you confirm that these materials were prepared by you or under your direction and are accurate?
1LISTNUM 1 \l 12433 MR. THOMPSON: Yes, they were.
1LISTNUM 1 \l 12434 MR. LOCKIE: Thank you. He is ready for cross.
1LISTNUM 1 \l 12435 THE SECRETARY: Counsel Blakey, on behalf of The Companies, please proceed.
1LISTNUM 1 \l 12436 MR. BLAKEY: Thank you, Madam Secretary.
1LISTNUM 1 \l 12437 Good morning, everyone, I am John Blakey, assistant general counsel for Bell Canada. I will be cross‑examining Mr. Thompson this morning.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12438 MR. BLAKEY: Welcome, Mr. Thompson.
1LISTNUM 1 \l 12439 Can I ask that you distribute the materials, Madam Secretary? Mr. Thompson, you will be pleased to know I am mostly going to restrict my questions to your dial‑around service this morning.
1LISTNUM 1 \l 12440 Am I correct that Yak has two main long distance offerings in Canada, Mr. Thompson?
1LISTNUM 1 \l 12441 MR. THOMPSON: That is correct. We have a subscriber‑based offering and we have a dial‑around ‑‑ a number of dial‑around offerings actually.
1LISTNUM 1 \l 12442 MR. BLAKEY: In terms of the subscriber, this would be your one‑plus dialling service, where people pre‑subscribe and then they are PIC'd to your service. Is that right?
1LISTNUM 1 \l 12443 MR. THOMPSON: That is correct.
1LISTNUM 1 \l 12444 MR. BLAKEY: Then the other service, the casual calling, I take it this is the service where a subscriber is with a local service provider, be it Bell Canada or a cable company, they can casually pick up their phone and make a 10‑10 call using your service?
1LISTNUM 1 \l 12445 MR. THOMPSON: That is correct.
1LISTNUM 1 \l 12446 MR. BLAKEY: I take it that it is the 10‑10 dial‑around service in respect of Bell Canada and the other LECGs provide billing and collection service to you?
1LISTNUM 1 \l 12447 MR. THOMPSON: Yes, that is right.
1LISTNUM 1 \l 12448 COMMISSIONER del VAL: Counsel, would you mind moving your mic closer?
1LISTNUM 1 \l 12449 MR. BLAKEY: Not at all. How is this?
1LISTNUM 1 \l 12450 Before we go on, I would like to run us all through briefly the mechanics of the 10‑10 call, just so we are all familiar with what goes on and that there is really no magic associated with this, so, if you will just bear with me.
1LISTNUM 1 \l 12451 Can we just imagine that a Bell subscriber here in Ottawa decides to make a casual Yak call with the 10‑10 service. I take it the first thing that the subscriber would do is pick up their phone and dial your ‑‑ it is almost like a commercial for Yak.
1LISTNUM 1 \l 12452 MR. THOMPSON: Please continue.
1LISTNUM 1 \l 12453 MR. BLAKEY: Dial 10‑10 and your 925 number and then the area code and the destination number of the call, and let's assume it is a call to Vancouver. Is that right?
1LISTNUM 1 \l 12454 MR. THOMPSON: That is correct.
1LISTNUM 1 \l 12455 MR. BLAKEY: Then the subscriber makes that call, engages in that phone conversation. I take it that your system picks up the originating telephone number that makes the call, the destination number of the call, the length of time of the call, the date and duration of the call?
1LISTNUM 1 \l 12456 MR. THOMPSON: Right.
1LISTNUM 1 \l 12457 MR. BLAKEY: Your systems pick all that up?
1LISTNUM 1 \l 12458 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12459 MR. BLAKEY: Then you rate the call according to however many cents per minute you charge for that particular type of call?
1LISTNUM 1 \l 12460 MR. THOMPSON: Also correct, yes.
1LISTNUM 1 \l 12461 MR. BLAKEY: Then you send that information, in our case, to Bell Canada, and then Bell Canada places information about that call on the monthly phone bill of their subscriber. Right?
1LISTNUM 1 \l 12462 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12463 MR. BLAKEY: Then we deal with any follow‑up questions and make any corrections if there needs to be. Right?
1LISTNUM 1 \l 12464 MR. THOMPSON: More or less. If there is a call that someone has, they may call into Bell Canada, they may call Yak directly if there is a question about the bill.
1LISTNUM 1 \l 12465 MR. BLAKEY: At the end of it all, there is a fee that is paid to you and, as I understand it, we kind of take over your accounts receivable, and as a result of all that, we are paid and you are paid. Right?
1LISTNUM 1 \l 12466 MR. THOMPSON: Yes, you collect money on our behalf. We pay you a fee for accounts receivable management and for placing the charge on the bill.
1LISTNUM 1 \l 12467 COMMISSIONER DUNCAN: Excuse me, could I just ask a question?
1LISTNUM 1 \l 12468 MR. BLAKEY: Sure.
1LISTNUM 1 \l 12469 COMMISSIONER DUNCAN: I am just wondering, how do you communicate that information to Bell that you want them to bill for these casual calls?
1LISTNUM 1 \l 12470 MR. THOMPSON: We send them records basically on a daily basis.
1LISTNUM 1 \l 12471 COMMISSIONER DUNCAN: Electronically?
1LISTNUM 1 \l 12472 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12473 COMMISSIONER DUNCAN: Thank you.
1LISTNUM 1 \l 12474 THE CHAIRPERSON: If I understand it, then, you have no interaction at all with the customer? As far as the customer is concerned, you are just a 10‑10 number, but all his dealings are with Bell?
1LISTNUM 1 \l 12475 MR. THOMPSON: Their dealings from a billing perspective are with Bell. They pay Bell. They have chosen to use Yak's service on a casual basis, so they are not a subscriber to a Yak offering, but we view them as our customer as well.
1LISTNUM 1 \l 12476 THE CHAIRPERSON: I know, but there is no interaction between you and the casual customer really? He never touches any part of Yak's system. He just uses Bell and you get the money essentially.
1LISTNUM 1 \l 12477 MR. THOMPSON: Actually, we do the switching. We have all of the interconnection into Bell's network. So, I would say we do substantially more to provide service to the customer.
1LISTNUM 1 \l 12478 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12479 MR. BLAKEY: Thank you, Mr. Chairman.
1LISTNUM 1 \l 12480 Just a point of clarification following from the Chair's question. Going back to what we talked about at the beginning, you do have this other side of your house where you do have a pre‑established relationship and you do send bills to those people who are PIC'd to you.
1LISTNUM 1 \l 12481 MR. THOMPSON: Absolutely.
1LISTNUM 1 \l 12482 MR. BLAKEY: Who make the one‑plus calls?
1LISTNUM 1 \l 12483 MR. THOMPSON: Absolutely.
1LISTNUM 1 \l 12484 MR. BLAKEY: Two sides of the house. One is the direct dial folks who pre‑subscribe to you, and the other side of the house, which is mostly what we are going to be talking about here today, is the 10‑10, the casual calling side. Right?
1LISTNUM 1 \l 12485 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12486 MR. BLAKEY: To summarize in terms of what Bell does on the 10‑10 side of the house for you, and this is all basically coming from our tariff, and I don't think we need to go there, would you agree with me that essentially what we do in terms of billing and collection is we prepare and send the bill, we collect payment and charges for the calls made by your customers, we answer customer questions regarding the charges, and we apply any credits or adjustments as are needed. Is that a fair summary in terms of the billing and collection services?
1LISTNUM 1 \l 12487 MR. THOMPSON: More or less. I would say that you don't answer questions about our charges unless there is a dispute or something like that. Typically they would have our customer service number and would contact us directly.
1LISTNUM 1 \l 12488 MR. BLAKEY: Fair enough.
1LISTNUM 1 \l 12489 So, having gone through, if I could call it the 10‑10 101 course, why don't we next move into the evidence that you have filed in support of your assertion that billing and collection is an essential facility.
1LISTNUM 1 \l 12490 As I understand it from your March 15th evidence, you take the position that the billing and collection service is essential. Is that correct?
1LISTNUM 1 \l 12491 MR. THOMPSON: Yes, that is correct.
1LISTNUM 1 \l 12492 MR. BLAKEY: In paragraph 8 of that, if I could get you to turn to that ‑‑
1LISTNUM 1 \l 12493 MR. THOMPSON: Is that in the binder you provided as well?
1LISTNUM 1 \l 12494 MR. BLAKEY: Yes, although I am not sure it is actually in that binder because it is your March 15th evidence.
1LISTNUM 1 \l 12495 Do you have that in front of you, paragraph 8?
1LISTNUM 1 \l 12496 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12497 MR. BLAKEY: You say there that it is important to examine evidence of substitutable services for your 10‑10 dial‑around service. Do you see that? I could read it if you like.
1LISTNUM 1 \l 12498 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12499 MR. BLAKEY: You say:
"With respect to the analysis of the downstream market, the Competition Bureau indicated that it may use the test that it proposed in Telecom Public Notice 2005‑2, including..."
1LISTNUM 1 \l 12500 And then you underlined this part here:
... "evidence of customer views on the substitutability of the products offered by alternative service providers, e.g. surveys, views on pricing and quality of service." (As read)
1LISTNUM 1 \l 12501 MR. THOMPSON: Uh‑hmm.
1LISTNUM 1 \l 12502 MR. BLAKEY: That is still your view? You think it is important in terms of understanding the definition of the market to look at consumer's views about substitutability. Right?
1LISTNUM 1 \l 12503 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12504 MR. BLAKEY: So, your evidence about substitutability, I take it, is found in the January 2007 Polaris Survey, which you filed along with your March 15th evidence. Right?
1LISTNUM 1 \l 12505 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12506 MR. BLAKEY: Why don't we turn to that now because that is what I think we will be spending a little bit of time on. That is at tab A of the compendium that I provided to you. Pardon me, that is tab B.
1LISTNUM 1 \l 12507 First off, I want to talk a little bit about your sample. If we turn to slide 4 of your deck ‑‑ do you have that in front of you?
1LISTNUM 1 \l 12508 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12509 MR. BLAKEY: You say that this is a nationally representative survey. Right?
1LISTNUM 1 \l 12510 MR. THOMPSON: I don't say that. Polaris says that.
1LISTNUM 1 \l 12511 MR. BLAKEY: Sorry, Polaris says that. Do you consider this to be a nationally representative survey?
1LISTNUM 1 \l 12512 MR. THOMPSON: I respect their expertise in the field.
1LISTNUM 1 \l 12513 MR. BLAKEY: But if I understand it correctly, this actually isn't a survey of a national slice of all toll subscribers, is it?
1LISTNUM 1 \l 12514 MR. THOMPSON: No, it isn't.
1LISTNUM 1 \l 12515 MR. BLAKEY: Would it be fair to say that this is a sample just of your customers on the 10‑10 side of the house; people who made recently a 10‑10 call, they were the people who were sort of the eligible pool for the survey?
1LISTNUM 1 \l 12516 MR. THOMPSON: Yes. We provided a database of 10,000 users who had used one of our dial‑around services over a recent period of time.
1LISTNUM 1 \l 12517 MR. BLAKEY: But if it is only your customers, isn't that a little bit like, say, General Motors surveying General Motors' drivers and then getting results and saying, and this is representative of the automobile market in Canada?
1LISTNUM 1 \l 12518 MR. THOMPSON: We are saying this is representative of the dial‑around market. We are not saying this is representative of the overall market.
1LISTNUM 1 \l 12519 What we are talking about is whether billing and collection should be mandated associated with billing and collection and equal ease of access. This is what we are talking about.
1LISTNUM 1 \l 12520 MR. BLAKEY: But again, though, I think you said it is representative of our customers, but I take it people who used other 10‑10 dial‑around services, they weren't surveyed, were they?
1LISTNUM 1 \l 12521 MR. THOMPSON: No, for expediency, given the time frame to file data and the simplicity of collecting the data, it was much simpler to take a sample from our existing customer base, which includes a number of different offerings.
1LISTNUM 1 \l 12522 MR. BLAKEY: To the extent that it is nationally representative, it is nationally representative of your customers and only your 10‑10 customers and not all 10‑10 customers and certainly not all long distance users. Right?
1LISTNUM 1 \l 12523 MR. THOMPSON: You might to able to draw conclusions, given that we make up a large component of the dial‑around market with our various offerings that it could be representative of other dial‑around customers.
1LISTNUM 1 \l 12524 MR. BLAKEY: Just so that I understand what slice of the overall toll market we are dealing with here, do you have a sense as to the proportion of all toll usage residential, because I assume your customers are primarily residential?
1LISTNUM 1 \l 12525 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12526 MR. BLAKEY: So, let's focus on residential.
1LISTNUM 1 \l 12527 If we were to look at the overall residential Canadian toll market, would you be able to give us a sense as to what proportion 10‑10 comprises of that overall market?
1LISTNUM 1 \l 12528 MR. THOMPSON: It would be a relatively low number, but what we think we do is we represent a significant number of customers as opposed to minutes or calls.
1LISTNUM 1 \l 12529 We know, for example, that we have approximately two million customers who have used our dial‑around services over the last couple of years. So I would say that is a significant customer base.
1LISTNUM 1 \l 12530 MR. BLAKEY: I understand in terms of customers, but if we thought of it in terms of overall minutes of calling, for example, or even proportion of calls, would you have a sense, if the denominator was overall calls or minutes of residential toll usage by Canadians, would you be able to tell us what the numerator would be which is representing 10‑10 usage?
1LISTNUM 1 \l 12531 MR. THOMPSON: It would be a relatively small percentage, but I will go back to we think that the relevant measure here for the public interest is how many people use our service.
1LISTNUM 1 \l 12532 MR. BLAKEY: Fair enough.
1LISTNUM 1 \l 12533 How recently did someone have to make a Yak 10‑10 dial‑around call to be eligible to be surveyed or in the pool of respondents. Do you know?
1LISTNUM 1 \l 12534 MR. THOMPSON: I am not sure if I have that data here. I believe it was a period of six months, within six months.
1LISTNUM 1 \l 12535 MR. BLAKEY: But if you want to show that there would be a substantial lessening of competition, wouldn't you have to show that there would be impacts on the overall toll market and not just for your customers?
1LISTNUM 1 \l 12536 MR. THOMPSON: We are looking at this from a couple of perspectives, one being the policy goal of providing affordable and accessible telecom services, and given that dial‑around is a choice that you make on a per call or per route basis, it is the ultimate flexibility for consumers.
1LISTNUM 1 \l 12537 There is a sub‑segment of the market that uses only dial‑around and their only option really is to subscribe to a plan which doesn't meet their needs, clearly as evidenced by our consumer survey.
1LISTNUM 1 \l 12538 So, that is what we think is relevant.
1LISTNUM 1 \l 12539 MR. BLAKEY: So, are you taking the position that your dial‑around customers are actually kind of a market unto themselves?
1LISTNUM 1 \l 12540 MR. THOMPSON: No, dial‑around is not a market unto itself, but we do believe that the existence of dial‑around, if it was not there, there may be a substantial lessening of competition.
1LISTNUM 1 \l 12541 MR. BLAKEY: Sorry, could you just repeat that last sentence?
1LISTNUM 1 \l 12542 MR. THOMPSON: We do believe that there could be a substantial lessening of competition with the removal of dial‑around for a significant number of consumers.
1LISTNUM 1 \l 12543 MR. BLAKEY: Notwithstanding what you said a moment ago, that it is a relatively small percentage?
1LISTNUM 1 \l 12544 MR. THOMPSON: I think I said that as a percentage of the minutes, but if you look at it from a consumer perspective, it is a significant number of consumers.
1LISTNUM 1 \l 12545 MR. BLAKEY: Let's now turn to the questions that you asked in your survey and assume that it was more representative than just your customers.
1LISTNUM 1 \l 12546 Could we go to slide 7 of the survey, please? I take it this is the slide where Polaris asked people about their calls in the prior 30 days and what percentages were dial‑around as opposed to others. Is that right?
1LISTNUM 1 \l 12547 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12548 MR. BLAKEY: I take it that the red shows in various demographic groupings, but why don't we just focus on the overall bar at the top.
1LISTNUM 1 \l 12549 I take it that the red indicates that 89 per cent of the toll calls made by your customers in that 30‑day period leading up to the survey were dial‑around. Is that right?
1LISTNUM 1 \l 12550 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12551 MR. BLAKEY: And the yellow, that is the 9 per cent, that is labelled regular long distance. I take it that that is some kind of one‑plus or other type of subscribed toll plan?
1LISTNUM 1 \l 12552 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12553 MR. BLAKEY: And the green, the 1 per cent there, that is the pre‑paid calling card proportion of calling?
1LISTNUM 1 \l 12554 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12555 MR. BLAKEY: Okay.
1LISTNUM 1 \l 12556 As I read your evidence, you place a fair bit of emphasis on this. You say, actually, in paragraph 11 of your evidence, that because only 1 percent indicated that they used prepaid calling cards, this demonstrates to you that dial‑around users are loath to consider prepaid calling to be a substitute for dial‑around.
1LISTNUM 1 \l 12557 Is that fair?
1LISTNUM 1 \l 12558 MR. THOMPSON: That is one reference that would be suitable. There are others, as well.
1LISTNUM 1 \l 12559 MR. BLAKEY: All right. But do you agree with that characterization?
1LISTNUM 1 \l 12560 Among other things, what this slide tells you is that your customers don't consider prepaid calling cards to be much of a substitute for their dial‑around calling.
1LISTNUM 1 \l 12561 Is that fair?
1LISTNUM 1 \l 12562 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12563 MR. BLAKEY: Again, I am going to go back to my car analogy. Isn't that a little bit like phoning up a bunch of GM owners and saying to them: How much time have you spent lately driving around in Fords?
1LISTNUM 1 \l 12564 They are not going to tell you that they are driving Fords much, because the car they are with right now is a GM.
1LISTNUM 1 \l 12565 It doesn't really tell you what they might do when it comes to their next car purchase, does it?
1LISTNUM 1 \l 12566 MR. THOMPSON: Again, I think that is one question in the survey that points to the limited substitution of prepaid cards, but there are others within the survey.
1LISTNUM 1 \l 12567 MR. BLAKEY: Fair enough.
1LISTNUM 1 \l 12568 I take it that you didn't actually get Pollara or ‑‑ I'm not sure. Did you work with Pollara in designing the survey?
1LISTNUM 1 \l 12569 How did that work?
1LISTNUM 1 \l 12570 MR. THOMPSON: We came up with a preliminary draft, and then they finished the questions.
1LISTNUM 1 \l 12571 MR. BLAKEY: I don't see any questions in the survey, unless I am wrong, where the survey asks respondents for their attitudes toward specific substitutes for dial‑around. Does it?
1LISTNUM 1 \l 12572 MR. THOMPSON: Not directly. However, if you went to page 11, it indicates the importance of having the 10‑10 alternative, where 93 percent overall, and 93 percent who earn less than $25,000, view the 10‑10 alternative as important.
1LISTNUM 1 \l 12573 So we don't think there is a lot of substitutability. If there was, then we would expect to get a much lower score there.
1LISTNUM 1 \l 12574 MR. BLAKEY: Mr. Thompson, are you familiar with the notion of a significant non‑transitory price increase?
1LISTNUM 1 \l 12575 MR. THOMPSON: Absolutely not.
1LISTNUM 1 \l 12576 MR. BLAKEY: Mr. Chair, where I am going to go with the witness is, I will briefly explain that concept to him, and explore his views on that, and whether or not he thinks that would have been relevant to ask.
1LISTNUM 1 \l 12577 Mr. Thompson, in competition law, economists, when they set out to define markets ‑‑ and the Competition Bureau does this, and the Commission has done this since its landmark decision in the mid‑nineties.
1LISTNUM 1 \l 12578 In terms of defining markets, what we imagine is, we assume that there might be a market somewhere, and we ask ourselves: What would consumers of the product in this possible market do if they were faced with what is called a significant non‑transitory price increase.
1LISTNUM 1 \l 12579 In layperson's terms, it is a 5 or more percent increase in the price of that good or service over a prolonged period of time.
1LISTNUM 1 \l 12580 If the providers of that service tried to impose such an increase, what would the consumers of that product do. If sufficient consumers of that product bail and choose other products or services, we can assume ‑‑ economists assume ‑‑ that those other things that people choose are also substitutable and, therefore, it is part of a broader market as opposed to a distinct market.
1LISTNUM 1 \l 12581 On the other hand, if they just stick with what they were with, notwithstanding the price increase, there is confidence that that is a market onto itself.
1LISTNUM 1 \l 12582 Do you follow me?
1LISTNUM 1 \l 12583 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12584 MR. BLAKEY: That's basically what it is.
1LISTNUM 1 \l 12585 I take it that the survey doesn't ask what 10‑10 dial‑around users would do if they were faced with such a significant price increase in their product, if they would switch to prepaid calling cards or other substitutes?
1LISTNUM 1 \l 12586 MR. THOMPSON: No, it does not.
1LISTNUM 1 \l 12587 MR. BLAKEY: So we really don't know, to be fair. While it is true what you said about Slide 11, they might be upset if it disappeared ‑‑ and we will talk about whether or not it necessarily would disappear, but we simply don't know what dial‑around users would do, from your survey, if they were faced with a price increase, do we?
1LISTNUM 1 \l 12588 MR. THOMPSON: What we do know is that millions of consumers choose dial‑around as a viable alternative today, and it's their preferred alternative.
1LISTNUM 1 \l 12589 MR. BLAKEY: But we don't know tomorrow, if you and the other 10‑10 dial‑around service providers raised your prices, if they would stick with you or if they would choose something else, do we?
1LISTNUM 1 \l 12590 MR. THOMPSON: Let me tell you, if our costs go up and we don't have mandated access and mandated pricing, our belief is that the cost to provide the service will be too high.
1LISTNUM 1 \l 12591 In fact, over one‑third of our calls are given away free today because of the cost of LEC‑based billing. We are providing a service to customers who are making short‑duration calls.
1LISTNUM 1 \l 12592 THE CHAIRPERSON: Why are one‑third of your calls given away free?
1LISTNUM 1 \l 12593 MR. THOMPSON: Our minimum billing fee can be as high as ‑‑ I think it's 25 cents in Saskatchewan. If it costs us 25 cents to bill a call, we are not going to bill that call, because the billing fee is more than the value of a 5‑minute call.
1LISTNUM 1 \l 12594 MR. BLAKEY: Let's turn to some of the things that you did ask.
1LISTNUM 1 \l 12595 Could we go to Slide 13 of your deck?
1LISTNUM 1 \l 12596 Do you have that in front of you?
1LISTNUM 1 \l 12597 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12598 MR. BLAKEY: At the bottom, I see that the question is put: "Some Canadian telephone companies have suggested that the dial‑around services in Canada should be eliminated. Would you..."
1LISTNUM 1 \l 12599 Then, I take it that the options that were put to the respondents were "Strongly oppose" or "Oppose", et cetera, "the elimination of dial‑around services."
1LISTNUM 1 \l 12600 Is that a fair representation of that particular question?
1LISTNUM 1 \l 12601 MR. THOMPSON: Yes, it is.
1LISTNUM 1 \l 12602 Elimination in that, if there is not mandated access and mandated pricing, we do not believe it will be a viable alternative for providers like us to provide that to our customers.
1LISTNUM 1 \l 12603 MR. BLAKEY: But there is a big difference, Mr. Thompson, wouldn't you agree, between eliminating the service and simply declassifying it and saying that it is no longer mandated and no longer essential?
1LISTNUM 1 \l 12604 It doesn't necessarily follow, does it, if the service is no longer mandated, that it would just be eliminated?
1LISTNUM 1 \l 12605 MR. THOMPSON: If we go into an environment where there is uncertainty ‑‑ and who knows what that environment may look like? We don't know what it is going to be.
1LISTNUM 1 \l 12606 We are comfortable with cost‑based. As I indicated, we are giving away one‑third of our calls free today. If costs go up, if access isn't mandated by not just the incumbent LECs, but CLECs, where we are already having challenges and had to file a Part 70 against Shaw, just to negotiate so they can provide the service, I just don't see how it could be a viable product.
1LISTNUM 1 \l 12607 MR. BLAKEY: There were a lot of "ifs", though, in that last statement of yours ‑‑ if this and if that.
1LISTNUM 1 \l 12608 I am putting it to you that it doesn't necessarily follow, does it?
1LISTNUM 1 \l 12609 In fact, can you tell me ‑‑
1LISTNUM 1 \l 12610 MR. THOMPSON: We are building our business plans accordingly. That's why we are building our subscriber base.
1LISTNUM 1 \l 12611 Absolutely.
1LISTNUM 1 \l 12612 MR. BLAKEY: Okay. Can you show me anywhere in the record where Bell Canada has actually advocated the elimination and the discontinuance of its billing and collection services?
1LISTNUM 1 \l 12613 MR. THOMPSON: No. It would be by reference to no longer providing mandated services.
1LISTNUM 1 \l 12614 MR. BLAKEY: Okay. Let's look at a couple of the other questions that you asked in your survey.
1LISTNUM 1 \l 12615 Could you go to page 9, please?
1LISTNUM 1 \l 12616 I take it that this is where you asked your customers to rank the factors that are important to them in choosing their long distance service.
1LISTNUM 1 \l 12617 Is that right?
1LISTNUM 1 \l 12618 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12619 MR. BLAKEY: The one which they indicated was the most important, it would seem, is lower rates. Eighty percent ranked that as a very important factor in making their long distance choices.
1LISTNUM 1 \l 12620 Is that fair?
1LISTNUM 1 \l 12621 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12622 MR. BLAKEY: I did a quick price comparison ‑‑ some people have hobbies on a Saturday morning; I go to the website and I compare prices of your service and prepaid calling card services.
1LISTNUM 1 \l 12623 Could I ask you to turn to Tab C of the compendium, please?
1LISTNUM 1 \l 12624 I provided that to your counsel yesterday afternoon.
1LISTNUM 1 \l 12625 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12626 THE CHAIRPERSON: Are you making this an exhibit?
1LISTNUM 1 \l 12627 MR. BLAKEY: Yes, please, Mr. Chair.
1LISTNUM 1 \l 12628 THE SECRETARY: It will be Exhibit The Companies No. 12.
EXHIBIT COMPANIES‑12: Summary of certain Yak around selected prepaid long distance calling card per‑minute toll rates
1LISTNUM 1 \l 12629 MR. BLAKEY: Thank you, Madam Secretary.
1LISTNUM 1 \l 12630 Mr. Thompson, I don't purport this to be very, very scientific. I basically went to your website, I went to Bell Canada's prepaid calling card website, the VOX and the Loblaw's President's Choice and I selected Canada to Canada and Canada to U.S. calling, and given that there are a number of different rates that apply on different international destinations, I chose three randomly ‑‑ France, the U.K. and Australia.
1LISTNUM 1 \l 12631 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12632 MR. BLAKEY: Would you agree with me that from this table ‑‑ and I don't think we need to go through it item‑by‑item. Would you agree with me that at least some, and, in this case, more than half of the rates associated with prepaid calling cards are actually lower than the 10‑10 Yak rates shown on your website?
1LISTNUM 1 \l 12633 MR. THOMPSON: I fail to see the relevance of that.
1LISTNUM 1 \l 12634 MR. BLAKEY: We will get to the relevance in a moment, but would you agree that, at least in some cases in the three I have chosen here ‑‑ as I say, it's not scientific, but they are out there, among others ‑‑ would it be fair to say that at least some of the rates associated with prepaid calling cards are as low, if not lower than the 10‑10 rates?
1LISTNUM 1 \l 12635 MR. THOMPSON: First of all, you are looking at one of our 10‑10 rate plans. We have multiple rate plans. We have LooneyCall, we have LuckyCall, we have 10‑10‑580. So we provide a number of competitive options, some of which would be certainly more competitive than the rates provided here.
1LISTNUM 1 \l 12636 MR. BLAKEY: Fair enough, but ‑‑
1LISTNUM 1 \l 12637 MR. THOMPSON: This is a sample of one dial‑around provider, this is not representative of the dial‑around industry.
1LISTNUM 1 \l 12638 MR. BLAKEY: But going back to your survey, and going back to the factor ‑‑ the No. 1 factor, lower rates ‑‑ would you agree with me that if the survey had actually put real rates associated with dial‑around in comparison to prepaid calling cards, or perhaps other plans, and some of those rates turned out to be lower than your rates, when presented with those actual real world examples of choices, given the importance of price which your survey seems to indicate, do you think it's possible that some of the survey respondents might have indicated a willingness to go with those lower priced alternatives?
1LISTNUM 1 \l 12639 Is that possible?
1LISTNUM 1 \l 12640 MR. THOMPSON: We don't think it is really likely, and I will tell you why.
1LISTNUM 1 \l 12641 When we conducted the survey, we were actually surprised. We acquired Yak ‑‑ Globalive Communications acquired Yak in November of last year. When we conducted the survey, we thought that the products were substitutes, in effect. When we found out and surveyed our customers and realized they weren't, we said: We should get into the prepaid calling market as well.
1LISTNUM 1 \l 12642 This month we will be in the prepaid calling market and we will have prices more aggressive than any price on this table, because we don't view it as a substitute for casual calling, where the customer has the ultimate choice to make a decision on a call‑by‑call basis, and does not have to buy a block of minutes, and does not have, potentially, minutes that are unused at the end of a three or six‑month period.
1LISTNUM 1 \l 12643 We view prepaid as another viable alternative for consumers. We do not view it as relevant to the dial‑around market.
1LISTNUM 1 \l 12644 MR. BLAKEY: Let's look quickly at your second factor that respondents cited. Seventy‑one percent said no upfront fees or service plan contracts.
1LISTNUM 1 \l 12645 Is that right?
1LISTNUM 1 \l 12646 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12647 MR. BLAKEY: Would you agree with me that there are some prepaid calling card options out there ‑‑ and these are three ‑‑ that don't have upfront fees or service plan contracts?
1LISTNUM 1 \l 12648 MR. THOMPSON: I haven't looked at the terms and conditions of all of those, but I do know that you are going to have to buy in $5, $10 or $20 increments, and you cannot make a decision to make one call, and make a decision on a call‑by‑call basis, which is valued by millions of customers today.
1LISTNUM 1 \l 12649 MR. BLAKEY: Okay. Fair enough.
1LISTNUM 1 \l 12650 The last area that I want to explore with you, Mr. Thompson, is the whole notion of practicality and feasibility of substitutes.
1LISTNUM 1 \l 12651 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12652 MR. BLAKEY: Could I ask you to turn to Tab D of the compendium, please, and look at the bottom of page 2?
1LISTNUM 1 \l 12653 It is the response to Interrogatory Yak‑CRTC‑19 July 07‑2003.
1LISTNUM 1 \l 12654 I am at the bottom of the page.
1LISTNUM 1 \l 12655 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12656 MR. BLAKEY: This is where the CRTC asked you to comment on some of the alternative billing arrangements that Bell and TELUS had mentioned in the earlier round of interrogs, and at the bottom of the page ‑‑ and I will read it to you ‑‑ you say:
"If billing and collection services were not available at mandated prices, Yak believes it would have great difficulty negotiating reasonable prices for such services from the ILECs and, as a result, Yak's only option would be to fundamentally change the service provided to a pre‑established relationship service between the service provider and the customer to be billed. Yak does not believe this is feasible." (As read)
1LISTNUM 1 \l 12657 Is that still your position, Mr. Thompson?
1LISTNUM 1 \l 12658 MR. THOMPSON: Yes. We are actually working to see if our customers are interested in migrating from casual calling to a subscriber‑based service.
1LISTNUM 1 \l 12659 The truth is, many of them are not. We have had limited success with that.
1LISTNUM 1 \l 12660 MR. BLAKEY: Okay. But you would agree with me that if the Commission were to find a billing and collection service non‑essential, that wouldn't necessarily mean that the billing and collection service would disappear from the face of the earth, and with it dial‑around calling, would it?
1LISTNUM 1 \l 12661 MR. THOMPSON: We don't expect that it is going to be easy to negotiate. We are already paying, we believe, significantly inflated rates, based on the fact that a cost study has not been filed in 12 years.
1LISTNUM 1 \l 12662 We are having difficulty negotiating access to billing and collection with Shaw.
1LISTNUM 1 \l 12663 There is enough evidence out there, from our perspective, that it is already a challenge. We are giving away one‑third of our calls free. We think that the billing fee should be less than a penny, and we have contributed $30 million to the LECs, in terms of billing and network infrastructure build associated just with our billing fee, let alone our accounts receivable and management fees.
1LISTNUM 1 \l 12664 We already think it is difficult.
1LISTNUM 1 \l 12665 MR. BLAKEY: It is difficult, but you don't necessarily know what the outcome of those negotiations would be, do you?
1LISTNUM 1 \l 12666 MR. THOMPSON: We couldn't possibly know.
1LISTNUM 1 \l 12667 MR. BLAKEY: I take it from looking at your c.v. that you have been with Globalive ‑‑
1LISTNUM 1 \l 12668 Am I right that you have been with its Canadian predecessor since 2005, as well?
1LISTNUM 1 \l 12669 MR. THOMPSON: I have been with Globalive or affiliated companies since 2002.
1LISTNUM 1 \l 12670 MR. BLAKEY: Did you have an association with Yak when it was still a sister company of the U.S. company, Yak America?
1LISTNUM 1 \l 12671 MR. THOMPSON: During the transitionary period.
1LISTNUM 1 \l 12672 One of our first objectives was to focus on the Canadian market, and we focused immediately on trying to sell that part of the business.
1LISTNUM 1 \l 12673 MR. BLAKEY: Are you aware that during that period the U.S. affiliate of Yak in the American market was engaged in the same type of 10‑10 service in a completely deregulated market?
1LISTNUM 1 \l 12674 MR. THOMPSON: Yes, and doing miserably.
1LISTNUM 1 \l 12675 MR. BLAKEY: Are you aware, as well, that billing and collection services have actually been deregulated in the United States since the mid‑1980s, completely?
1LISTNUM 1 \l 12676 MR. THOMPSON: Of course, there is vibrant local competitive business there. It is not uncommon to have to establish a relationship with thousands of local CLECs. How could you possibly deal with those? So you have to deal with clearing houses down there.
1LISTNUM 1 \l 12677 TELUS deals with a clearing house down there, as well.
1LISTNUM 1 \l 12678 MR. BLAKEY: So aren't clearing houses a possibility?
1LISTNUM 1 \l 12679 MR. THOMPSON: Clearing houses are a possibility, but they need access to rates that make sense in the industry. They have to have mandated access.
1LISTNUM 1 \l 12680 MR. BLAKEY: But don't the clearing houses negotiate privately in the United States, given that the FCC has completely deregulated that area?
1LISTNUM 1 \l 12681 MR. THOMPSON: I guess they are.
1LISTNUM 1 \l 12682 MR. BLAKEY: With a deregulated market in the United States, doesn't that suggest to you that commercial alternatives are out there?
1LISTNUM 1 \l 12683 MR. THOMPSON: They are completely different markets. I can tell you from our own experience that the markets are not similar at all.
1LISTNUM 1 \l 12684 The bad debt, the complexity, the thriving local competition makes it a completely different business.
1LISTNUM 1 \l 12685 MR. BLAKEY: Okay.
1LISTNUM 1 \l 12686 Can I get you to turn back to Tab D?
1LISTNUM 1 \l 12687 It is the same interrogatory, CRTC‑2003.
1LISTNUM 1 \l 12688 You say there ‑‑ well, let's assume billing and collection is classified as non‑essential and it is no longer mandated. I take it your view is, it is neither practical or feasible for you or anybody else to duplicate that service?
1LISTNUM 1 \l 12689 Fair enough?
1LISTNUM 1 \l 12690 MR. THOMPSON: It's not practical; correct.
1LISTNUM 1 \l 12691 MR. BLAKEY: And let's assume your worst fears come true and you can't reach a deal with an ILEC and let's further assume, flying in the face of the U.S. evidence, that in a deregulated market commercial alternatives wouldn't happen either.
1LISTNUM 1 \l 12692 When I look at your response to ‑‑
1LISTNUM 1 \l 12693 MR. THOMPSON: And I will just point to the fact that we do believe that dial‑around is not a viable business in the United States.
1LISTNUM 1 \l 12694 MR. BLAKEY: To your knowledge, are there still dial‑around companies in the United States?
1LISTNUM 1 \l 12695 MR. THOMPSON: There are probably a couple. But if you look at their plans, they are not attractive and they are not thriving in the marketplace.
1LISTNUM 1 \l 12696 MR. BLAKEY: I'll tell you, Mr. Thompson, it flies in the face ‑‑ I don't have it with me, but it flies in the face of the FCC materials that I have read where it indicates 10‑10 and prepaid calling cards is a thriving business in the United States.
1LISTNUM 1 \l 12697 MR. THOMPSON: I didn't mention prepaid calling cards.
1LISTNUM 1 \l 12698 MR. BLAKEY: Right. I guess what I'm interested in hearing from you is: In light of your statement on page 1 of that interrogatory, you say:
"Yak does in fact offer registration for casual callers, not to be confused with PIC‑based long distance services which Yak also offers."
1LISTNUM 1 \l 12699 Let's just stop there for a second. This takes us back to the beginning of our discussion.
1LISTNUM 1 \l 12700 You said that there was a subscribed PIC‑based one‑plus dialling service, and then we agreed that there was another side of the house, which was the 10‑10 dialling.
1LISTNUM 1 \l 12701 I take it from what you are saying here that you actually have a 10‑10 service where you do get free enrolled information, name, address, from your customers?
1LISTNUM 1 \l 12702 MR. THOMPSON: We had it and we withdrew it because it bombed.
1LISTNUM 1 \l 12703 MR. BLAKEY: So this is no longer accurate?
1LISTNUM 1 \l 12704 MR. THOMPSON: No.
1LISTNUM 1 \l 12705 MR. BLAKEY: All right. Well, those are all of my questions; thank you.
1LISTNUM 1 \l 12706 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12707 Go ahead, Commissioner del Val.
1LISTNUM 1 \l 12708 COMMISSIONER del VAL: Mr. Thompson, I just have one question.
1LISTNUM 1 \l 12709 Earlier you were talking about switching and your subscribed base of the long distance callers. What facilities does Yak own?
1LISTNUM 1 \l 12710 MR. THOMPSON: We are a reseller facility, so we lease interconnection facilities, Feature Group D, access based on CDN rights to connect our switches to the telcos, things like that.
1LISTNUM 1 \l 12711 COMMISSIONER del VAL: So it's completely 100 per cent leased. You do not own any facilities. Is that correct?
1LISTNUM 1 \l 12712 MR. THOMPSON: We own switching equipment. We do not own facilities per se.
1LISTNUM 1 \l 12713 COMMISSIONER del VAL: Thank you.
1LISTNUM 1 \l 12714 THE CHAIRPERSON: You have heard probably the evidence on the Internet. You weren't here but you have heard this week and last week about the idea being that facilities‑based competition is the best kind of competition. In the long run, it provides the greatest efficiency for the nation. People use the image of a ladder and you step up the ladder, et cetera.
1LISTNUM 1 \l 12715 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12716 THE CHAIRPERSON: From what you said this morning, it seems to me that this whole notion just doesn't apply to your business. Your business is based primarily on mandated resale and you have obviously made a very successful business on it. But take the mandated resale away and you are going to get squeezed to death.
1LISTNUM 1 \l 12717 That was your testimony, if I understood it correctly.
1LISTNUM 1 \l 12718 So there is no future for you without mandated resale, at least in terms of billing and collection that we are talking about here.
1LISTNUM 1 \l 12719 MR. THOMPSON: What we think is it takes away an important option for millions of consumers who have selected the ability to make a selection on a per‑call basis.
1LISTNUM 1 \l 12720 We do not think that what we are talking about conflicts with any of the policy directions. It's not going to result in any more investment in alternate billing methodologies. It's not going to result in any more innovation if this is removed. In fact, we view this as negative innovation if you are removing dial‑around from the market. It's not going to lead to any further investment in network infrastructure.
1LISTNUM 1 \l 12721 We fail to see any benefit associated with removal of billing and collection as an essential facility.
1LISTNUM 1 \l 12722 And we haven't even talked about collect calls as well.
1LISTNUM 1 \l 12723 THE CHAIRPERSON: I understand that part. I was actually looking at you, at Yak, and the evolution of Yak. According to the theory of the letter, et cetera, you would be progressively investing more into more infrastructure and therefore grow into primarily a facilities‑based competitor.
1LISTNUM 1 \l 12724 If I understand you, your business doesn't lend itself to that. That is not part of your long‑term plan. Or if it is, then explain it to me, please.
1LISTNUM 1 \l 12725 MR. THOMPSON: Okay; thank you.
1LISTNUM 1 \l 12726 If we have access to cost‑effective unbundled services, yes, the direction that we are trying to take Yak in is to provide a full suite of telecom services. We provide not only dial‑around, we provide long distance, we are providing local through resale today. We are providing DSL through resale today.
1LISTNUM 1 \l 12727 We have looked at making investments in collocation and equipment associated with the unbundled loop as recently as a couple of quarters ago, or even this quarter. But given the state of this proceeding, we are obviously taking a second look at that.
1LISTNUM 1 \l 12728 We have seen that Primus has invested tens of millions of dollars in collocation and in equipment to access the unbundled loop, and it looks like it may have been the wrong bet. And we think that's unfortunate because we do think that maybe the step approach isn't working as quickly as possible.
1LISTNUM 1 \l 12729 If you are going to build a subscriber base, you really do need a combination of resale and access to unbundled facilities, in our view. We don't see any other viable alternative.
1LISTNUM 1 \l 12730 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12731 Commissioner Cram.
1LISTNUM 1 \l 12732 COMMISSIONER CRAM: Thank you.
1LISTNUM 1 \l 12733 Mr. Thompson, did I understand you correctly to say that you are building your PIC‑based sub‑base on the premise that 10‑10 would not exist?
1LISTNUM 1 \l 12734 MR. THOMPSON: No. We would be building that anyway. There is no question we are committed to moving to a subscriber‑based service. We believe it is the right solution for Yak in the long term, as we try to offer bundled services with local and DSL and long distance.
1LISTNUM 1 \l 12735 So that's the direction we have been moving in.
1LISTNUM 1 \l 12736 COMMISSIONER CRAM: Right now, and let's say revenue‑wise, is your dial‑around 10‑10 a far larger portion of your business?
1LISTNUM 1 \l 12737 MR. THOMPSON: Yes, it is today.
1LISTNUM 1 \l 12738 COMMISSIONER CRAM: Have you noticed any difference in your uptake on minutes of revenue since things like Skype came into the market?
1LISTNUM 1 \l 12739 MR. THOMPSON: We can't really assess the impact of that. Again, based on our survey, the people who use dial‑around today, less than 1 per cent indicated that they use VoIP alternatives. That's the only reference point we have.
1LISTNUM 1 \l 12740 COMMISSIONER CRAM: Prepaid cards, while they make look cheaper than you, there is the issue that you can't use up the last 30 seconds or whatever.
1LISTNUM 1 \l 12741 Do they round up?
1LISTNUM 1 \l 12742 MR. THOMPSON: Well, they are all different. I think that's one of the issues. There is a consumer trust issue. They are just not sure what they are getting and it's not clear.
1LISTNUM 1 \l 12743 And they have to buy, in effect, a bundle of minutes anyway.
1LISTNUM 1 \l 12744 COMMISSIONER CRAM: Yes. Is there a commission on top of that on the cards normally?
1LISTNUM 1 \l 12745 MR. THOMPSON: Yes, usually, unless you are selling direct.
1LISTNUM 1 \l 12746 COMMISSIONER CRAM: Thank you very much.
1LISTNUM 1 \l 12747 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 12748 Madam Secretary, who is next?
1LISTNUM 1 \l 12749 THE SECRETARY: Thank you, gentlemen.
1LISTNUM 1 \l 12750 I will now call counsel for TELUS Communications, please.
1LISTNUM 1 \l 12751 THE SECRETARY: Counsel Lowe, you may proceed.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12752 MR. LOWE: Thank you.
1LISTNUM 1 \l 12753 Good morning, Mr. Chairman. My name is John Lowe, counsel for TELUS. In this era of substitutability of counsel, I'm the next up.
1LISTNUM 1 \l 12754 Good morning, Mr. Thompson.
1LISTNUM 1 \l 12755 MR. THOMPSON: Good morning.
1LISTNUM 1 \l 12756 MR. LOWE: There is a package of material that is taken from the record. There are handwritten page numbers on the upper right‑hand corner.
1LISTNUM 1 \l 12757 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12758 MR. LOWE: So we can talk about that.
1LISTNUM 1 \l 12759 I would like to circle back for a moment to your qualifications, if I could, sir.
1LISTNUM 1 \l 12760 MR. THOMPSON: Sure.
1LISTNUM 1 \l 12761 MR. LOWE: You were with MTS Allstream and its predecessors from 1997 to 2001. Is that right?
1LISTNUM 1 \l 12762 MR. THOMPSON: Yes, actually from 1993 to 2001.
1LISTNUM 1 \l 12763 MR. LOWE: Okay. I noticed on your biography on the corporate website of Globalive that you headed initiatives that resulted in $200 million in savings over four years. I was just wondering what that was.
1LISTNUM 1 \l 12764 MR. THOMPSON: Well, it's really associated with network optimization. I was responsible for access management, so all about how do you optimize your network and work with the regulatory group to achieve savings to make your company more viable.
1LISTNUM 1 \l 12765 MR. LOWE: And you are Vice‑President of Corporate Development for both Yak and Globalive now?
1LISTNUM 1 \l 12766 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12767 MR. LOWE: And you have the function of network optimization, regulatory and carrier negotiation. Does that cover the waterfront?
1LISTNUM 1 \l 12768 MR. THOMPSON: Not directly regulatory. Simon Lockie does have responsibility for regulatory. But I'm actively involved in the files.
1LISTNUM 1 \l 12769 MR. LOWE: Out in Calgary in the oil and gas business when you want to know how long someone has been around, you say "how many booms have you been through?" I guess here it's "how many sunsets have you been through?"
1LISTNUM 1 \l 12770 And it's been two, I guess.
1LISTNUM 1 \l 12771 MR. THOMPSON: Two anyway.
1LISTNUM 1 \l 12772 MR. LOWE: Turning to Yak's business, I think you confirmed that Yak is not a CLEC; it's a reseller.
1LISTNUM 1 \l 12773 MR. THOMPSON: That's correct. Actually, we are a Canadian carrier now too.
1LISTNUM 1 \l 12774 MR. LOWE: Because you own transmission facilities.
1LISTNUM 1 \l 12775 MR. THOMPSON: No, not because we own transmission facilities.
1LISTNUM 1 \l 12776 MR. LOWE: Do you own transmission facilities?
1LISTNUM 1 \l 12777 MR. THOMPSON: No.
1LISTNUM 1 \l 12778 MR. LOWE: Do you operate transmission facilities?
1LISTNUM 1 \l 12779 MR. THOMPSON: No.
1LISTNUM 1 \l 12780 MR. LOWE: And you are not registered as a CLEC.
1LISTNUM 1 \l 12781 MR. THOMPSON: No.
1LISTNUM 1 \l 12782 MR. LOWE: And you have about $100 million in revenues. Is that about right, in Yak?
1LISTNUM 1 \l 12783 MR. THOMPSON: More or less.
1LISTNUM 1 \l 12784 MR. LOWE: What percentage of that, roughly ‑‑ I'm not asking for an exact number. What percentage of that would be in respect of 10‑10 revenues?
1LISTNUM 1 \l 12785 MR. THOMPSON: I would rather not disclose that, but it's a significant portion.
1LISTNUM 1 \l 12786 MR. LOWE: It's a significant amount; okay.
1LISTNUM 1 \l 12787 MR. THOMPSON: More than 50 per cent.
1LISTNUM 1 \l 12788 MR. LOWE: Also on your website it says that Globalive, Yak's parent, offers billing and collection services.
1LISTNUM 1 \l 12789 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12790 MR. LOWE: Thank you.
1LISTNUM 1 \l 12791 MR. THOMPSON: It's really clearinghouse services. We are not CLEC, so we don't offer billing and collection per the definition that some people might be familiar with here.
1LISTNUM 1 \l 12792 MR. LOWE: Right. And then you mentioned to Commissioner Cram that you were looking into expanding into billing customers.
1LISTNUM 1 \l 12793 MR. THOMPSON: We are today.
1LISTNUM 1 \l 12794 MR. LOWE: On the consumer experience for 10‑10 and your relationship with casual callers, I take it they know about your prices based on your advertising in media and what they post on your website, and that's how they kind of know what they are going to get from 10‑10 when they use Yak.
1LISTNUM 1 \l 12795 Is that right?
1LISTNUM 1 \l 12796 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12797 MR. LOWE: Then in the U.S. at least there was some consumer issue surrounding surprise prices and fees that weren't disclosed and jumps in rates in minutes after certain usages, and the customers who used that service ended up not getting the savings they thought they would get.
1LISTNUM 1 \l 12798 I take it from your website that you say there are no hidden fees, there are no monthly charges. And that's in response to kind of the customer perception out there that they might get dinged for more charges than they otherwise would.
1LISTNUM 1 \l 12799 Is that kind of where the market is and you have to kind of provide people with an assurance that they are only going to pay 5 cents a minute and it's not going to increase down the road; there are no extra service charges?
1LISTNUM 1 \l 12800 MR. THOMPSON: Well, again, we have a number of different dial‑around offerings. Our Yak 10‑10‑925 is a simple offer where customers pay by the minute. There are no fees; there is no commitment.
1LISTNUM 1 \l 12801 MR. LOWE: And you can change the fees when you want. Is that right?
1LISTNUM 1 \l 12802 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12803 MR. LOWE: I hope you will agree that billing and collection services is not an essential service for CLECs in general. What you are saying is this is a special case for 10‑10 casual calling and you say it should be an essential service just for your 10‑10 casual calling business.
1LISTNUM 1 \l 12804 Do I have that right?
1LISTNUM 1 \l 12805 MR. THOMPSON: We haven't look at it from the CLEC perspective. We have looked at it from a perspective that billing and collection is an ancillary service to equal ease of access and 10‑10 dialling is indeed an essential service.
1LISTNUM 1 \l 12806 MR. LOWE: Okay. But certainly there is a lot of CLECs out there who can provide their own billing service and do quite well at it. Right?
1LISTNUM 1 \l 12807 There are lots of CLECs out there that can do it themselves. Right?
1LISTNUM 1 \l 12808 MR. THOMPSON: Yes, they can provide service to their own customers. Today they are mandated and in some cases comply with the fact that they should provide billing and collection to competitors.
1LISTNUM 1 \l 12809 MR. LOWE: But CLECs don't require billing and collection services from the ILEC to be provided on a mandated basis in general.
1LISTNUM 1 \l 12810 MR. THOMPSON: I fail to see the relevance.
1LISTNUM 1 \l 12811 They can choose to offer a dial‑around offer if they wish. They can choose to offer a collect service.
1LISTNUM 1 \l 12812 I'm not getting it.
1LISTNUM 1 \l 12813 MR. LOWE: So if CLEC was not providing 10‑10 service and was perfectly capable of providing its own billing service to customers without any help from the ILEC, do you think that it nevertheless should be an essential service and provided on a mandated basis for that CLEC?
1LISTNUM 1 \l 12814 MR. THOMPSON: Equally ease of access should be mandated. It is mandated. We wouldn't have forbearance without equal ease of access. That's the basis for our view as to equal ease of access being an essential service, as well as 10‑10 service, which is also part of equal ease of access and the ancillary service of billing and collection.
1LISTNUM 1 \l 12815 MR. LOWE: Perhaps we could turn to the package. The first document is your response to CRTC‑1002, and that's where you comment on ‑‑
1LISTNUM 1 \l 12816 MR. THOMPSON: Which page?
1LISTNUM 1 \l 12817 MR. LOWE: It's page 1 of the package.
1LISTNUM 1 \l 12818 MR. THOMPSON: Okay.
1LISTNUM 1 \l 12819 MR. LOWE: That's where you comment on the Bureau's definition of an essential facility.
1LISTNUM 1 \l 12820 Do you see that?
1LISTNUM 1 \l 12821 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12822 MR. LOWE: In the last line of the document you say:
"Thus the term 'same or similar' requires a liberal interpretation if Criterion 2 is to remain."
1LISTNUM 1 \l 12823 Do you see that?
1LISTNUM 1 \l 12824 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12825 MR. LOWE: What did you mean by a liberal interpretation of Criterion 2?
1LISTNUM 1 \l 12826 MR. THOMPSON: Well, it requires a liberal interpretation because, as an example, TELUS may not offer dial‑around services. They are in the long distance market. But whether they offer dial‑around really is not that relevant.
1LISTNUM 1 \l 12827 MR. LOWE: So you say that the words "same or similar" should mean only dial‑around services when we are looking at the issue of whether billing and collection services should be provided on a mandated basis?
1LISTNUM 1 \l 12828 MR. THOMPSON: No, we are not saying that. We are saying billing and collection should be provided.
1LISTNUM 1 \l 12829 MR. LOWE: This liberal interpretation of "same or similar" where you say:
"Thus the term 'same or similar' requires a liberal interpretation..."
1LISTNUM 1 \l 12830 I'm just wondering if liberal interpretation of "same or similar" means a broader interpretation of the words "same or similar"?
1LISTNUM 1 \l 12831 MR. THOMPSON: A broader interpretation of the relevant downstream market.
1LISTNUM 1 \l 12832 MR. LOWE: Okay. So you would say the downstream market should just be long distance service then.
1LISTNUM 1 \l 12833 MR. THOMPSON: We have never said anything to the contrary.
1LISTNUM 1 \l 12834 MR. LOWE: Thank you.
1LISTNUM 1 \l 12835 Then turning to page 9 of the package ‑‑ and this is your response to CRTC‑1003, page 2 of 2 ‑‑ the last full sentence says:
"As a result, to the extent billing and collection services might not need a narrow essential facilities test, access to LECG billing and collection services should continue to be mandated at cost‑based prices because it is fundamental to preserving customer choice in the long distance market on a call‑by‑call basis." (As read)
1LISTNUM 1 \l 12836 I take it what you are saying is we can quibble about definitions of essential facility and you say, well, irrespective of that, it is important to have billing and collection services provided on a mandated basis for the principle of preserving customer choice, and so it should be continued to be provided on a mandated basis?
1LISTNUM 1 \l 12837 MR. THOMPSON: Absolutely. We have millions of customers who have made that choice and it is the ultimate in flexibility, and to remove it would be the removal of an innovation in providing valued services to customers in the public interest.
1LISTNUM 1 \l 12838 MR. LOWE: So you are saying the CRTC can maintain a rigorous definition of essential facilities, and there is no need to import a casual definition just to protect 10‑10 service. I mean, as long as you get access to billing and collection services on a mandated basis, whether it falls within the definition strictly of an essential facilities doesn't really matter to you?
1LISTNUM 1 \l 12839 MR. THOMPSON: We think it does fall within the definition of essential facility, but if it is deemed that it is not, we think that it could be a special service or an interconnection service associated with equal ease of access.
1LISTNUM 1 \l 12840 We think it fits multiple criteria. The importance is preserving that choice for consumers.
1LISTNUM 1 \l 12841 MR. LOWE: We talked about the prices of, I think you talked about a 25 cent per bill charge that SaskTel charges. Do you recall that?
1LISTNUM 1 \l 12842 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12843 MR. LOWE: In TELUS territory, is the rate 10 cents a record?
1LISTNUM 1 \l 12844 MR. THOMPSON: Correct.
1LISTNUM 1 \l 12845 MR. LOWE: Ten cents a record works for you? You can ‑‑
1LISTNUM 1 \l 12846 MR. THOMPSON: No, it doesn't really work for us. As I indicated, we are giving away a third of our calls for free. They may be short duration, but we are still giving them away for free.
1LISTNUM 1 \l 12847 If we had cost‑based rates ‑‑ again, a cost study has not been filed in 12 years. We filed a Part 7 late last year as soon as we took control of Yak, because we did see that that was a gap. We think the rates based on the costs Bell indicated in their own submission in ‑‑ I don't have reference to it here, but it is in our Part 7, that it costs them less than a tenth of a cent to put a line item on a bill. We think that is a relevant benchmark.
1LISTNUM 1 \l 12848 MR. LOWE: We will get to cost‑based rates, but you are saying as long as the rates reflect the true costs of the ILEC, you don't mind paying those costs?
1LISTNUM 1 \l 12849 MR. THOMPSON: That is correct. It should be cost plus.
1LISTNUM 1 \l 12850 MR. LOWE: Right. Cost plus a mark up?
1LISTNUM 1 \l 12851 MR. THOMPSON: Cost plus a 15 per cent mark up we are comfortable with.
1LISTNUM 1 \l 12852 MR. LOWE: When this was first ordered, the mark up was 25 per cent, wasn't it?
1LISTNUM 1 \l 12853 MR. THOMPSON: Yes. When this was first ordered, there was no such thing as a dial‑around competitor either. So, there were demand volumes that were picked out of the air, and we are convinced that the market has grown significantly since then and the costs are way too high.
1LISTNUM 1 \l 12854 MR. LOWE: A penny, where do you get a penny from? Is that what it could cost you if you did it yourself?
1LISTNUM 1 \l 12855 MR. THOMPSON: No. Bell has gone on record indicating if they had to do itemized billing it would cost them 1.6 cents to put the 20 line items on their bill, which comes into well under a tenth of a penny. So, we have extrapolated from that. Even with a 15 per cent mark up you are still going to be less than a tenth of a cent.
1LISTNUM 1 \l 12856 MR. LOWE: If you did do the billing yourself, the rates would depend on your customer base and what platforms you decide to use and when you roll out the billing service and so on. Is that right?
1LISTNUM 1 \l 12857 MR. THOMPSON: Yes, and when we have subscriber services, we are putting more charges on the bill. It is not on a per‑call basis. So, it is significantly different.
1LISTNUM 1 \l 12858 MR. LOWE: Thank you.
1LISTNUM 1 \l 12859 I would like to turn to the survey that you filed for a moment.
1LISTNUM 1 \l 12860 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12861 MR. LOWE: Yours is the only survey filed in the hearing to your knowledge?
1LISTNUM 1 \l 12862 MR. THOMPSON: I have no idea.
1LISTNUM 1 \l 12863 MR. LOWE: You had customer contact information to pursue that survey; you knew who to call?
1LISTNUM 1 \l 12864 MR. THOMPSON: We have the telephone numbers, yes.
1LISTNUM 1 \l 12865 MR. LOWE: So, you could have called these customers and said, look, we would like a commitment from you to continue to provide service and some of them could say, well, all right, we will give you a commitment and we will sign up with you. That is possible, isn't it?
1LISTNUM 1 \l 12866 MR. THOMPSON: Yes, it is. In fact, our subscriber PIC'd service, our one‑plus service, has a lower rate than dial‑around service. You can view them as different products. They do not overlap. We have a different customer base that is interested in dial‑around than one‑plus.
1LISTNUM 1 \l 12867 Most of our one‑plus customers are coming from other one‑plus customer bases because we don't charge any network access fees and plan fees. So, customers aren't paying $8 or $9 before they even make a call, like happens with many of the LECGs. They are paying three and a half cents a minute, no sneaky fees.
1LISTNUM 1 \l 12868 MR. LOWE: Okay. On the transition period, if we can talk about that for a moment, and perhaps turn to pages 10 and 11 of the package.
1LISTNUM 1 \l 12869 MR. THOMPSON: 10 and 11 of, sorry?
1LISTNUM 1 \l 12870 MR. LOWE: Of this package of information.
1LISTNUM 1 \l 12871 MR. THOMPSON: Okay.
1LISTNUM 1 \l 12872 MR. LOWE: It was your response on page 2 of 2, which is page 11 in the package that I was interested in.
1LISTNUM 1 \l 12873 You say:
"Any transitional regime must allow for at least three years of transition with respect to non‑essential services and perhaps longer, up to five years, for certain services, depending on the competitor's reliance on the service." (As read)
1LISTNUM 1 \l 12874 Do you see that?
1LISTNUM 1 \l 12875 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12876 MR. LOWE: The consideration for the length of the transition period, in your view, is driven by how long it would take the competitor to make arrangements to bring on line a substitute service; is that what you have in mind?
1LISTNUM 1 \l 12877 MR. THOMPSON: That is one aspect of it. There needs to be recognition that competitors in the marketplace have also made significant investments. Primus Globility in terms of building out in co‑lo's; Global Live, even as an example, in making an investment in Yak. We need time to look at recovering the investment, as well as what is the alternative, and we don't see a viable alternative, I will state again, associated with billing and collection and dial‑around.
1LISTNUM 1 \l 12878 MR. LOWE: How would that work, then? Would you file evidence or somehow provide an indication of how long you need before you get pay back of your investment to provide 10‑10 service? I am just trying to wrap my head around this.
1LISTNUM 1 \l 12879 MR. THOMPSON: Common sense may prevail in that typically people bill businesses and make investments on three‑ to five‑year horizons. That is why we went ‑‑
1LISTNUM 1 \l 12880 MR. LOWE: I am with you now. You just say three years is probably in line with the expectation of ‑‑
1LISTNUM 1 \l 12881 MR. THOMPSON: Three years would be the minimum, and that is with price protection. We are not talking about step price increase. That is under the same conditions that exist today.
1LISTNUM 1 \l 12882 MR. LOWE: Then during the transition, would you also try to negotiate with the ILECs to get access to service on an unbundled, free market basis?
1LISTNUM 1 \l 12883 MR. THOMPSON: I think we have indicated that there should be tariffs, no question, for mandated and where they are currently mandated but may become non‑essential services. But if you can negotiate a better deal based on business terms, we are not opposed to that.
1LISTNUM 1 \l 12884 MR. LOWE: This is on page 12. This is your response to 1006.
1LISTNUM 1 \l 12885 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12886 MR. LOWE: You say, look, during the transition period it is okay to negotiate within a range, and you are comfortable with that as a concept?
1LISTNUM 1 \l 12887 MR. THOMPSON: Yes, as long as there are stated tariffs that are reasonable.
1LISTNUM 1 \l 12888 MR. LOWE: You want to make sure the upper boundary isn't 25 cents or something like that?
1LISTNUM 1 \l 12889 MR. THOMPSON: Exactly.
1LISTNUM 1 \l 12890 MR. LOWE: Which it is now.
1LISTNUM 1 \l 12891 MR. THOMPSON: 25 cents for what?
1LISTNUM 1 \l 12892 MR. LOWE: Isn't it 25 cents a bill in SaskTel territory; isn't that what you testified?
1LISTNUM 1 \l 12893 MR. THOMPSON: Right. If I can go back to that, that is one of the problems with dial‑around. We do not really focus and advertise dial‑around, so it is a less efficient market in Saskatchewan than it is in B.C. and Alberta, because what we are doing is we are paying you more and we are driving more customer satisfaction and it is a win‑win situation.
1LISTNUM 1 \l 12894 When the rates are too high, what happens? Well, you don't really have a viable market.
1LISTNUM 1 \l 12895 MR. LOWE: Back to the previous page, page 11 of the package, when you talk in the context of the transition, that there needs to be a CRTC review prior to the sunset date to evaluate the state of any transitions and the need for possible extensions, do you see that?
1LISTNUM 1 \l 12896 MR. THOMPSON: Yes.
1LISTNUM 1 \l 12897 MR. LOWE: I think you said the idea of that is to fend off emergency Part 7 responses that the Commission would likely see if it didn't pre‑schedule a final sunset hearing. Was that the thinking?
1LISTNUM 1 \l 12898 MR. THOMPSON: That is part of it, but you really have to look at the state of competition at that point in time. Is it working; is there a viable alternative? If there is not a viable alternative, maybe the regime should continue as is for a longer period of time. I am just trying to make a practical business approach to it.
1LISTNUM 1 \l 12899 MR. LOWE: And if it was a Part 7, the usual test for Part 7, drawing on your regulatory experience, it is substantial doubt as to the correctness of the original decision. Is that what you would see the focus of this final sunset proceeding to be, or do you think it would be one of these everything‑on‑the‑table kind of proceedings where we have a free range of discussions of the possible models and options?
1LISTNUM 1 \l 12900 MR. THOMPSON: I haven't really given that a lot of thought, to be honest.
1LISTNUM 1 \l 12901 MR. LOWE: It is up to the Commission, I suppose, to decide if we have had enough sunsets and hearings like this, isn't it?
1LISTNUM 1 \l 12902 MR. THOMPSON: Well, it is their job to do a lot of things, including protecting viable competition and services that consumers have voted for with their pocket books. So, it is all in the public interest.
1LISTNUM 1 \l 12903 MR. LOWE: Thank you, sir. Those are my questions.
1LISTNUM 1 \l 12904 THE CHAIRPERSON: Thank you. Who is next, Madam Secretary?
1LISTNUM 1 \l 12905 THE SECRETARY: This concludes the examination of the Yak witness.
1LISTNUM 1 \l 12906 We will now move to ‑‑
1LISTNUM 1 \l 12907 THE CHAIRPERSON: You mean there are no other examiners of this witness?
1LISTNUM 1 \l 12908 THE SECRETARY: No.
1LISTNUM 1 \l 12909 THE CHAIRPERSON: Then I have one more question for you.
1LISTNUM 1 \l 12910 You sort of suggested that the existence of 10‑10 call‑around acts as a discipline on pricing for the ILECs and the CLECs in the long distance market.
1LISTNUM 1 \l 12911 Do you have any evidence of that at all? I mean, you are clearly making it a business because there are margins there between what you offer on a resale basis and what they offer themselves. But I have no idea of how significant you are in the marketplace, to what extent you are actually acting as a discipline for the prices that the ILECs or CLECs can set or not.
1LISTNUM 1 \l 12912 Have you done any price elasticity studies or any empirical evidence or on what basis do you base your assumption that you act as a disciplining factor?
1LISTNUM 1 \l 12913 MR. THOMPSON: We think we act as a disciplining factor due to the fact that dial‑around, permitted through billing and collection, permits users to make calls on a call‑by‑call basis. We think that is a very viable option.
1LISTNUM 1 \l 12914 The default option provided by the telcos is, as an example, if you didn't subscribe to one of their plans where you are going to have $8 or $9 a month if you are not subscribing to other services, you are going to pay $3.19 a minute to China. We don't think that is good for consumers who aren't subscribing to plans. We think it is good for consumers to be able to make that call on our dial‑around service for five cents.
1LISTNUM 1 \l 12915 So, if you take away that protection for the couple million users of dial‑around service today, there really isn't a discipline. What is going to persist is that customers who can least afford it are going to pay an extreme amount for calls or they are going to have to look for some kind of bundled option, buy a calling card, five, ten bucks, whatever the case may be.
1LISTNUM 1 \l 12916 So, in terms of discipline, I don't think we have any evidence other than the fact that customers have selected our service, and there are millions of them who have selected dial‑around, and it is a choice that they have opted for.
1LISTNUM 1 \l 12917 THE CHAIRPERSON: Would I be overstating your testimony and saying that effectively if we say it is not essential, we provide a phase‑out period, whether it is three or five years or whatever, you would use that phrase‑out period to negotiate a price with your suppliers. Failure to agree on a price basically means that you are out of the 10‑10 business?
1LISTNUM 1 \l 12918 MR. THOMPSON: That is it. We are comfortable with the fact that we have a balanced negotiated ability to offer services at competitive rates if the service is not mandated.
1LISTNUM 1 \l 12919 THE CHAIRPERSON: But there is no practical alternative other than buying the billing and collection services from ‑‑
1LISTNUM 1 \l 12920 MR. THOMPSON: There is no viable alternative.
1LISTNUM 1 \l 12921 THE CHAIRPERSON: I have understood you correctly. Okay, thank you.
1LISTNUM 1 \l 12922 MR. THOMPSON: Thank you.
1LISTNUM 1 \l 12923 THE CHAIRPERSON: Madam Secretary.
1LISTNUM 1 \l 12924 THE SECRETARY: Thank you very much. We will now be moving with the TELUS witness panel.
1LISTNUM 1 \l 12925 THE CHAIRPERSON: Let's take a break while they set themselves up for five minutes.
‑‑‑ Recessed at 0946 / Suspension à 0946
‑‑‑ Resumed at 0956 / Reprise à 0956
1LISTNUM 1 \l 12926 THE SECRETARY: Please be seated.
1LISTNUM 1 \l 12927 THE CHAIRPERSON: Madam Secretary, before we proceed, I have one more question for Mr. Thompson.
1LISTNUM 1 \l 12928 While you were testifying I went on the computer and looked up your website, and I looked at your 10‑10 and it shows that you re‑sell both wireline and wireless 10‑10 services. My colleague, Commissioner Cram, said: How do you do it on a wireless basis, given that there is no mandating and, therefore, collection and billing, et cetera.
1LISTNUM 1 \l 12929 Maybe you could answer that question.
1LISTNUM 1 \l 12930 MR. THOMPSON: It isn't exactly 10‑10 that we offer. We offer something called YakCell, which is a pre‑subscribed offering.
1LISTNUM 1 \l 12931 What typically happens is, when a customer signs up for our 1 plus wireline‑based subscriber service, we ask them if they would like to sign up for our YakCell offering, whereby we register their cell phone number, and when they make a long distance call dialling one of our access numbers, we recognize their cell phone number and we put that charge on a bill, which is typically also on the same bill for 1 plus.
1LISTNUM 1 \l 12932 Most customers have YakCell and 1 plus.
1LISTNUM 1 \l 12933 THE CHAIRPERSON: But if I just took my cell phone and dialled 10‑10‑952, it wouldn't work, because I am not pre‑registered with you.
1LISTNUM 1 \l 12934 MR. THOMPSON: That's correct. We are now working with Fido. We are working on a billing and collection arrangement, and because they are a CLEC, they need to provide that service, and we are looking forward to offering 10‑10 on the Fido network.
1LISTNUM 1 \l 12935 THE CHAIRPERSON: All right. Thank you.
1LISTNUM 1 \l 12936 Madam Secretary, over to you.
1LISTNUM 1 \l 12937 THE SECRETARY: I would ask Counsel Rogers, please, to come forward and introduce the TELUS panel.
1LISTNUM 1 \l 12938 MR. ROGERS: Good morning, Mr. Chairman. For the record, my name is Phil Rogers, counsel for TELUS, and with me assisting today is Steven Schmidt.
1LISTNUM 1 \l 12939 Further to discussions this week and last regarding the scheduling of witnesses, we have in attendance today the TELUS Business and Policy witnesses.
1LISTNUM 1 \l 12940 I note that the remaining TELUS witnesses not in attendance today are the four TELUS expert witnesses, Drs. Weisman, Aron, Crandall and Professor Robinson. They will be able to attend when the hearing resumes later in October.
1LISTNUM 1 \l 12941 I will introduce the Business and Policy witnesses appearing today, starting on my left, with the witness farthest from the Commission.
1LISTNUM 1 \l 12942 First, Mr. Willie Grieve is TELUS' Vice President, Telecom Policy and Regulatory Affairs. Mr. Grieve is responsible for the development and implementation of TELUS' regulatory policies.
1LISTNUM 1 \l 12943 Sitting next to Mr. Grieve is Ms Janet Yale, Executive Vice President, Corporate Affairs, for TELUS. Ms Yale is the senior officer representing TELUS at this proceeding.
1LISTNUM 1 \l 12944 Next to Ms Yale is Mr. John Fleiger, Vice President, Global Sourcing Solutions, for TELUS Partner Solutions and Business Unit. Mr. Fleiger is responsible for managing supplier relationships and has overall responsibility for TELUS relationships with other carriers.
1LISTNUM 1 \l 12945 Sitting next to Mr. Fleiger is Mr. Rob Tasker. Mr. Tasker is the Senior Vice President, National Service Operations, for TELUS Network.
1LISTNUM 1 \l 12946 Beside Mr. Tasker is Mr. Dave McMahon, Vice President, National Service Fulfilment, which is part of TELUS Network Operations Business Unit. Mr. McMahon is responsible for Service Delivery Support, Fulfilment Management Centre, Data and IP Service Design, TELUS Network Infrastructure and National Service Fulfilment.
1LISTNUM 1 \l 12947 Moving to the second row, there are several people who are assisting but not witnesses. Immediately behind Mr. Grieve is Mr. Eric Adora. Mr. Adora is Senior Regulatory Advisor with TELUS Telecom Policy and Regulatory Affairs Group, and is assisting the TELUS panel.
1LISTNUM 1 \l 12948 Beside Mr. Adora is Mr. Mark Murikami, a TELUS Director in Partner Solutions. He will be assisting the TELUS panel today.
1LISTNUM 1 \l 12949 Finally, beside Mr. Murikami is Mr. Andy Brauer, Marketing Director with TELUS Business Networks. Mr. Brauer will also be assisting the TELUS panel.
1LISTNUM 1 \l 12950 The c.v.'s of all of these witnesses have been previously filed on the record.
1LISTNUM 1 \l 12951 I would like to take a minute, Mr. Chairman, to define the roles of the panel members for you.
1LISTNUM 1 \l 12952 Ms Yale is responsible for the overall design of TELUS' proposal and will act as Chair of the panel.
1LISTNUM 1 \l 12953 Ms Yale and Mr. Grieve will generally address all regulatory policy issues on behalf of TELUS.
1LISTNUM 1 \l 12954 Within the TELUS Business Group, Mr. Tasker will generally speak to retail business issues, Mr. Fleiger will speak to carrier issues, and Mr. McMahon will speak to operations issues.
1LISTNUM 1 \l 12955 I should note, however, that all three gentlemen have had some overlapping Business Unit experience within TELUS, and so it may be that these panel members may provide support to other members of the Business Panel.
1LISTNUM 1 \l 12956 Madam Secretary, at this point I would ask that the witnesses be affirmed.
AFFIRMED: WILLIE GRIEVE
AFFIRMED: JANET YALE
AFFIRMED: JOHN FLEIGER
AFFIRMED: ROBERT TASKER
AFFIRMED: DAVE McMAHON
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 12957 MR. ROGERS: Thank you.
1LISTNUM 1 \l 12958 Members of the panel, could I ask each of you to affirm, individually, that your qualifications are correctly set out in TELUS' letter to the Commission dated October 2.
1LISTNUM 1 \l 12959 MR. GRIEVE: They are.
1LISTNUM 1 \l 12960 MS YALE: They are.
1LISTNUM 1 \l 12961 MR. FLEIGER: They are.
1LISTNUM 1 \l 12962 MR. TASKER: Yes, they are.
1LISTNUM 1 \l 12963 MR. McMAHON: Yes, they are.
1LISTNUM 1 \l 12964 MR. ROGERS: Ms Yale and Mr. Grieve, were the company's overall evidence and interrogatory responses prepared by you or under your direction?
1LISTNUM 1 \l 12965 MR. GRIEVE: Yes.
1LISTNUM 1 \l 12966 MS YALE: Yes.
1LISTNUM 1 \l 12967 MR. ROGERS: Are they true, to the best of your knowledge and belief?
1LISTNUM 1 \l 12968 MS YALE: Yes, they are.
1LISTNUM 1 \l 12969 MR. GRIEVE: Yes.
1LISTNUM 1 \l 12970 MR. ROGERS: Are there any corrections that you wish to make at this time to any part of your evidence or interrogatory responses?
1LISTNUM 1 \l 12971 MS YALE: No.
1LISTNUM 1 \l 12972 MR. GRIEVE: No.
1LISTNUM 1 \l 12973 MR. ROGERS: Mr. Chairman, before proceeding, I would note that we provided parties with guidance as to the areas of TELUS' case that each of our witnesses is prepared to address in a letter dated September 5, 2007, as directed by the Commission in a Staff letter dated August 21. That September 5 letter provided a list of all TELUS witnesses, the subject matter of each witness' testimony, and the evidence and specific interrogatory responses for which each witness is responsible.
1LISTNUM 1 \l 12974 For ease of reference for all parties and the Commission, we have additional copies available of the TELUS letter of September 5 outlining the assignment of responsibilities.
1LISTNUM 1 \l 12975 Mr. Chairman, the witnesses are now available for cross‑examination.
1LISTNUM 1 \l 12976 THE CHAIRPERSON: Thank you very much.
1LISTNUM 1 \l 12977 MR. KOCH: Mr. Chairman, if I could raise one concern that I have, and hopefully a practical solution to deal with it rapidly thereafter.
1LISTNUM 1 \l 12978 As a consequence of the way the hearing has been scheduled and has transpired, the TELUS Business Panel is going to appear, followed by the MTS panel, as I understand it, next Friday, which will be followed, then, on the following Monday, by the TELUS Expert Panel.
1LISTNUM 1 \l 12979 That is fine as far as it goes, sir.
1LISTNUM 1 \l 12980 Mr. Rogers indicated to me this morning that he may wish to have ‑‑ I don't know whether it was one or more members of the Business Panel re‑sit together with the Expert Panel, and that gives me cause for concern, because I don't think we want a situation, which would be quite unfair, of them being able to split their case by articulating a response or a position on behalf of TELUS, hearing my client's response or position on that same issue, and then having another kick at the can.
1LISTNUM 1 \l 12981 If my understanding is correct that the reason Mr. Rogers wants to have ‑‑ and he can speak for himself ‑‑ someone from the Business Panel re‑attend with the experts is in the event that a question comes up that is solely restricted to TELUS' business, and directly on that which the experts cannot answer, I am content with that.
1LISTNUM 1 \l 12982 So my solution is to make sure it is everyone's understanding that, if anyone from the Business Panel is to re‑appear with the Expert Panel, it would be only for the purpose of giving evidence in response to a direct question regarding TELUS' business which the experts are unable to answer.
1LISTNUM 1 \l 12983 THE CHAIRPERSON: Mr. Rogers?
1LISTNUM 1 \l 12984 MR. ROGERS: Mr. Chairman, our case, as was the case, I am sure, with all the parties, was prepared on an integrated basis, given the Commission's directive in its organization and conduct letter of October 2nd to prepare an entire panel to appear together, and we have done so.
1LISTNUM 1 \l 12985 As indicated in the letter of September 5 ‑‑ that letter indicates very clearly that there are joint matters of joint responsibility in which there is an inevitable overlap between what the experts testify to and what the Business and Policy witnesses testify to.
1LISTNUM 1 \l 12986 We are going to do our best today to respond to any questions that come to this panel. It is almost inevitable, when the experts appear on the Monday of the following session, that there will be a degree of overlap between what they have to say and the practical effect for the company.
1LISTNUM 1 \l 12987 Those external experts are all from the United States. They have separate expertise, but they cannot speak about the affairs of TELUS, nor are they familiar with the practices of the Commission.
1LISTNUM 1 \l 12988 So we would propose, when they appear, that the company be represented with them, with two individuals who are members of this panel. One would be Mr. Grieve, and another would be one of the Network Operations or Business Operations people.
1LISTNUM 1 \l 12989 That would help to round out the testimony, so that questions that are put when our experts appear would be fully responded to, and there would be no problem of overlap or failure to respond fully for TELUS.
1LISTNUM 1 \l 12990 THE CHAIRPERSON: The long and the short of it is, do you agree with Mr. Koch's proposal or not?
1LISTNUM 1 \l 12991 MR. ROGERS: Mr. Chairman, I think Mr. Koch is saying that we should be restricted to having witnesses only speak to issues on specific interrogatories, and I don't think it is proper, either to this Commission or to those posing questions to the expert witnesses, to confine them to that.
1LISTNUM 1 \l 12992 THE CHAIRPERSON: That's not what I heard.
1LISTNUM 1 \l 12993 MR. KOCH: No, and that's not my submission, sir.
1LISTNUM 1 \l 12994 THE CHAIRPERSON: Let me put it in my words, to make sure I understood it correctly.
1LISTNUM 1 \l 12995 He said that we are going to hear the experts, and if, as a result of the expert testimony, questions arise as to the applicability of that expert evidence to the TELUS situation, then a TELUS business person could answer the question.
1LISTNUM 1 \l 12996 That seems to me a practical way of splitting the baby.
1LISTNUM 1 \l 12997 MR. ROGERS: Mr. Chairman, if the proposal is that those TELUS experts can speak to the impact of the expert testimony on TELUS, then we are fine with that.
1LISTNUM 1 \l 12998 THE CHAIRPERSON: Mr. Koch, is that what you said, in so many words?
1LISTNUM 1 \l 12999 MR. KOCH: I think my concept was where it was a direct question about TELUS' business.
1LISTNUM 1 \l 13000 THE CHAIRPERSON: Okay. Let's proceed on this basis. Today we will hear the Business Panel. When the Expert Panel comes up, you will have your two representatives, but they will be restricted in their testimony in terms of putting the expert testimony in the context of TELUS' operation, if that is required.
1LISTNUM 1 \l 13001 MR. TACIT: Mr. Chairman, if I may, there is only one slight gloss that I would like to put on that, just so we are all clear; that is, it may be the case that, in the course of eliciting testimony from the experts, it may be necessary to ask TELUS business people whether they agree or disagree with some of that testimony.
1LISTNUM 1 \l 13002 That isn't directly related to their business, but it certainly is related to the theoretical constructs of this case and the framework for developing essential services.
1LISTNUM 1 \l 13003 I wouldn't want to feel restricted from being able to ask those sorts of questions when the time comes.
1LISTNUM 1 \l 13004 THE CHAIRPERSON: Isn't that implicit, Mr. Tacit? After all, these are TELUS' witnesses. They are hardly going to put forward witnesses whose testimony they disagree with.
1LISTNUM 1 \l 13005 MR. TACIT: Occasionally the experts don't agree 100 percent with the logical consequences of their client's testimony.
1LISTNUM 1 \l 13006 THE CHAIRPERSON: Should that arise, let's deal with it on a case‑by‑case basis on Monday or Tuesday, as the case may be.
1LISTNUM 1 \l 13007 MR. TACIT: Fair enough. Thank you.
1LISTNUM 1 \l 13008 MR. KOCH: Thank you, Mr. Chairman.
1LISTNUM 1 \l 13009 THE CHAIRPERSON: On that basis, let's proceed.
1LISTNUM 1 \l 13010 I believe you are first, Mr. Dunbar.
1LISTNUM 1 \l 13011 THE SECRETARY: I'm sorry, Mr. Chairman. For our webcast listeners' benefit, the Competition Bureau withdrew its intention to cross‑examine the TELUS panel, and we will now proceed with Rogers.
1LISTNUM 1 \l 13012 Mr. Dunbar, please.
1LISTNUM 1 \l 13013 MS PALUMBO: Sorry. We did withdraw for purposes, however, of engaging in a cross‑examination exercise in the next phase of the hearing.
1LISTNUM 1 \l 13014 THE CHAIRPERSON: So you are going to cross‑examine the experts.
1LISTNUM 1 \l 13015 MS PALUMBO: The experts along with the two representatives of The Companies.
1LISTNUM 1 \l 13016 THE CHAIRPERSON: All right.
1LISTNUM 1 \l 13017 Please proceed.
EXAMINATION / INTERROGATOIRE
1LISTNUM 1 \l 13018 MR. DUNBAR: Thank you very much, Mr. Chairman. And good morning, Ms Yale and gentlemen on the panel.
1LISTNUM 1 \l 13019 As discussed or disclosed in a number of places on the record of this proceeding, there seems to be a difference of opinion between the Bureau and TELUS over the issue of whether it is a necessary condition for the supplier of an input to have a monopoly control over an input as opposed to being dominant in its supply in order for the input to be considered eligible for classification as an essential facility.
1LISTNUM 1 \l 13020 A week ago Tuesday during Mr. Rogers' cross‑examination of the Bureau's panel this question came up again.
1LISTNUM 1 \l 13021 There is some confusion over whether TELUS means 100 per cent monopoly in this situation or something else.
1LISTNUM 1 \l 13022 Can you elaborate on that?
1LISTNUM 1 \l 13023 MR. GRIEVE: Sure. It would mean 100 per cent monopoly although there would be, as we stated in the Primus‑1 interrogatory response in the second round, that in a situation where there was a de minimis kind of construction of facilities or supply of facilities in a particular area, then if we wanted to proceed to the Commission to say that something was no longer an essential facility, that would be our call to do that.
1LISTNUM 1 \l 13024 We probably wouldn't proceed to the Commission and say that we no longer have a monopoly if we were in a situation where there was a de minimis amount of build because the Commission has to really determine in a situation like that whether or not that is an economic build or whether it was for a special case or something like that.
1LISTNUM 1 \l 13025 So it is monopoly supply, but there are always these minor exceptions that are possible.
1LISTNUM 1 \l 13026 THE CHAIRPERSON: Could you move your microphone closer, please.
1LISTNUM 1 \l 13027 MR. GRIEVE: Yes, certainly.
1LISTNUM 1 \l 13028 MR. DUNBAR: Let's take a hypothetical. Let's say there is a supplier in one exchange who has built a facility to one or two buildings and is not otherwise serving the market.
1LISTNUM 1 \l 13029 Would you consider that facility to be eligible for classification as an essential facility or not?
1LISTNUM 1 \l 13030 MR. GRIEVE: Well, the classification ‑‑ the answer in that likely case or that case, if it were to occur ‑‑ because I'm not sure that these are going to be realistic examples but I understand the purpose of your questions.
1LISTNUM 1 \l 13031 In a case like that, if we found in a geographic market that someone had come in and built one or two facilities and there were no other geographic markets similar to it ‑‑ as the Bureau explained, you could use one geographic market as a proxy for others ‑‑ then it would be pretty difficult for us to go to the Commission and say that in those geographic markets we were no longer a monopoly provider.
1LISTNUM 1 \l 13032 MR. DUNBAR: I'm just wondering, once you back off 100 per cent, how much difference is that from describing it as a dominant position in the market?
1LISTNUM 1 \l 13033 MR. GRIEVE: I will tell you that our biggest concern with the Bureau's definition is that it can be, will be and has been proposed to be misapplied in this proceeding.
1LISTNUM 1 \l 13034 The Bureau's definition, the way we see it, is very close to monopoly supply, although Dr. Church did say at one point that it was a little less than close to monopoly supply.
1LISTNUM 1 \l 13035 Those weren't his words but that is our interpretation.
1LISTNUM 1 \l 13036 The difficulty we have is, as we've heard certain cross‑examiners say, if you have market power, then you have to unbundle everything. That's the danger. It will mean endless applications to the Commission if the definition of an essential facility isn't a definition that is meant to be what its purpose is, which is to only mandate sharing in an exceptional circumstance because mandated sharing is not a normal remedy in competitive markets in a market economy.
1LISTNUM 1 \l 13037 MR. DUNBAR: In paragraph 62 of your March 15th evidence, you state that:
"Because the essential facility doctrine requires monopolization of an essential facility, the proper test of essentiality concerns whether lack of access to the facility function or service prevents competition. In other words, the essential facilities doctrine is concerned exclusively with the prevention of competition in a downstream market and not a mere lessening of competition."
1LISTNUM 1 \l 13038 I'm wondering, does prevention of competition in this context mean no competition whatsoever in a given product market and geographic market?
1LISTNUM 1 \l 13039 MR. GRIEVE: Yes, except for those de minimis cases you were talking about.
1LISTNUM 1 \l 13040 MR. DUNBAR: I'm still a little confused about the de minimis cases, because once you back off your 100 per cent criteria and you go to something less and you are not using the dominance test which people understand, how does the Commission make that kind of a call, something between dominance and monopoly?
1LISTNUM 1 \l 13041 MR. GRIEVE: First of all, the only way the Commission would make the call is if we were to go to the Commission and say this facility that you said is an essential facility or this facility that you ruled was an essential facility is no longer an essential facility, is if we went forward to the Commission and said we no longer have monopoly control.
1LISTNUM 1 \l 13042 What we have said in Primus‑1 is that if there is a de minimis supply of this facility some one place in the country ‑‑ and I can imagine, by the way, a situation where somebody decides I'm going to build one facility out to a gas plant because that particular gas company wants it. But there is no one else anywhere using that kind of a facility in that geographic area.
1LISTNUM 1 \l 13043 In a case like that, we just wouldn't go to the Commission and ask for recalibration of the essential facilities test or a reassignment.
1LISTNUM 1 \l 13044 But we don't have any situations like that here. All of the facilities that we say are non essential, we can demonstrate that there is economic supply of the facility or functionality in all of the places that we have stated. So we don't even have the situation that you are talking about in reality.
1LISTNUM 1 \l 13045 MR. DUNBAR: I would like to explore that a little further with you.
1LISTNUM 1 \l 13046 Perhaps you could turn to paragraph 68 of your July 5th evidence.
1LISTNUM 1 \l 13047 MS YALE: We have it.
1LISTNUM 1 \l 13048 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13049 I would like to read to you one sentence out of that:
"Because duplication of facilities has occurred in certain exchanges in Bands A to D, this is an indication that entry is feasible elsewhere in these bands in TELUS' ILEC serving territory."
1LISTNUM 1 \l 13050 Are you saying there that if you have duplication of a facility or functionality in a community, that facility should be non essential in all communities in that band?
1LISTNUM 1 \l 13051 Is that a presumption or is that something you want the Commission to apply?
1LISTNUM 1 \l 13052 MR. GRIEVE: No. We want the Commission to apply that, just as the Commission applied it in 1997 in Decision 97‑8.
1LISTNUM 1 \l 13053 The Commission said ‑‑ and it is completely consistent with what Dr. Church said in this proceeding, or I think Mr. Hughes, or the two of them together when they talked about using the correct market definition, geographic and product market definition. Then when the Chairman asked them are we going to have to go through market by market by market by market, they said no, you could use those as proxies.
1LISTNUM 1 \l 13054 Well, what better proxy than the bands the Commission has already set up that are based on costs? They do reflect similar population densities and things like that that are relevant for the delivery of telecommunications services and for the economic viability of supplying them.
1LISTNUM 1 \l 13055 The answer is that if you see in one market that there is entry by a facilities‑based carrier and it is building facilities of its own and is self‑supplying and making a business of it, well then it makes sense that it is duplicable in other exchanges.
1LISTNUM 1 \l 13056 Of course, we are not proposing that the Commission overnight say that all non essential facilities be forborne. We are saying that there is a three‑to‑five‑year transition period during which competitors can get their house in order.
1LISTNUM 1 \l 13057 We think very definitely if it is in one part of a band, because the bands are defined by common characteristics, then it should be in all parts of the band that is declared non‑essential. But that doesn't mean no unbundling right away.
1LISTNUM 1 \l 13058 MR. DUNBAR: So it is the feasibility, it is the hypothetical feasibility of reproducing the functionality that you are looking at, regardless of whether there in fact is any entry in the other market?
1LISTNUM 1 \l 13059 MR. GRIEVE: It is absolutely not hypothetical, Mr. Dunbar. It has been done in your example. It has already been done in one geographic market in one area, in one part of that band. That means it can be done in other parts of the band, and indeed we see that consistently across the country.
1LISTNUM 1 \l 13060 MR. DUNBAR: What I'm meaning there is you are saying it is the feasibility as tested in one market. You can apply that to another market regardless of whether in fact there is any entry into the second market?
1LISTNUM 1 \l 13061 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13062 MR. DUNBAR: What if the entry in one market is by a cable company who has decided to upgrade its facilities and offer telephone service and the other market is one where the cable company has not undertaken that investment and is not offering services?
1LISTNUM 1 \l 13063 According to your example, the facilities there would still not qualify in the second market as essential inputs. Is that correct?
1LISTNUM 1 \l 13064 MR. GRIEVE: That's correct.
1LISTNUM 1 \l 13065 MR. DUNBAR: So that market is left without any competition due to the decision of the cable company in that market not to enter the market.
1LISTNUM 1 \l 13066 MR. GRIEVE: If the cable company is not going to make good business decisions, we have a three‑to‑five‑year transition period and for access we have said it is likely five, the loop portion of it.
1LISTNUM 1 \l 13067 MR. DUNBAR: But by applying that kind of a test, you are essentially precluding entry on an unbundled basis by another type of carrier.
1LISTNUM 1 \l 13068 MR. GRIEVE: I'm sorry, I missed the question.
1LISTNUM 1 \l 13069 MR. DUNBAR: By applying the test in the way you are proposing, you are basically limiting the ability of other non cable companies to enter that market using unbundled facilities.
1LISTNUM 1 \l 13070 In other words, you are denying consumers in the second market competitive services.
1LISTNUM 1 \l 13071 MR. GRIEVE: You are assuming that we would deny access to our unbundled loops in that second exchange or second market, and there is no evidence that we would deny that.
1LISTNUM 1 \l 13072 Mr. Fleiger can speak to that portion of the business.
1LISTNUM 1 \l 13073 There are lots of other technologies out there, and over the next three to five years if it is a population area that has a cable company ‑‑ and you know the cable companies have very assiduously cherry‑picked the areas of the country that have good population density. And good on them.
1LISTNUM 1 \l 13074 So if they are in there offering services, you can bet that some of these wireless services like Wi‑Max and Inukshuk and those things will be there certainly within the next three‑to‑five years.
1LISTNUM 1 \l 13075 MR. DUNBAR: Getting back to my question: Essentially, you are saying that you might not deny access to facilities but your proposals may not be classified as essential and therefore you would have more pricing flexibility.
1LISTNUM 1 \l 13076 Is that correct?
1LISTNUM 1 \l 13077 MR. GRIEVE: They would not be classified as essential, and at the end of five years, after a period of tariffing, they would be forborne.
1LISTNUM 1 \l 13078 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13079 As you just mentioned, in your evidence you have indicated that local loop functionality can be replicated from wireless services ‑‑ and you have mentioned specifically in your evidence Bands E to G ‑‑ or access independent VoIP services in Bands E to G.
1LISTNUM 1 \l 13080 I'm wondering, in your view is it relevant in this context to consider whether wireless or VoIP services are considered by consumers to be appropriate substitutes for conventional telephone service, or do you limit your investigation to technical functionality?
1LISTNUM 1 \l 13081 MR. GRIEVE: I think it is relevant if consumers consider them to be substitutes. And I think that consumers do consider them to be substitutes in growing numbers every day.
1LISTNUM 1 \l 13082 MR. DUNBAR: Let me at least put this hypothetical. If wireless connection is not considered cost‑effective by consumers or is not considered to be a reliable substitute for their conventional home phone service in a given geographic market, would you say that the local loop is duplicable and hence not eligible for treatment as an essential service under those circumstances? Or is it relevant to consider whether consumers in fact consider them to be substitutes?
1LISTNUM 1 \l 13083 MR. GRIEVE: I think I already said it is relevant whether consumers consider these services to be substitutes.
1LISTNUM 1 \l 13084 What is interesting, of course, is that throughout Alberta and British Columbia we have lots and lots of wireless service providers using the public spectrum to provide high speed Internet access, and over that they offer Vonage and Primus and other over the top or access independent facilities.
1LISTNUM 1 \l 13085 Just to finish, one of the reasons that we have a three‑to‑five‑year transition period with a hard stop is that we believe that the Commission's policies have actually slowed down people looking for new technologies to serve these areas because they can just easily go and order off the shelf an unbundled loop.
1LISTNUM 1 \l 13086 We think that if you are going to rely on market forces and you are going to promote investment and innovation in network facilities, this is the way to do it, is to have a hard stop at the end of the period.
1LISTNUM 1 \l 13087 We know that there are substitutes out there today and we know that there will be better substitutes over the next three to five years.
1LISTNUM 1 \l 13088 MR. DUNBAR: What you are saying, though, is your proposed test is similar to the competition allowed test for substitutability of products?
1LISTNUM 1 \l 13089 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13090 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13091 I would like to turn next to your March 15th evidence, at paragraph 73.
1LISTNUM 1 \l 13092 MS YALE: We have it.
1LISTNUM 1 \l 13093 MR. DUNBAR: Here you have identified two services as being eligible for treatment as essential facilities under your proposed definition. These are Basic Listing Interexchange File service, or BLIF, and the Directory File Service.
1LISTNUM 1 \l 13094 Is that correct?
1LISTNUM 1 \l 13095 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13096 MR. DUNBAR: Can you briefly describe the functionality of those services.
1LISTNUM 1 \l 13097 MR. McMAHON: Sure, I can do that.
1LISTNUM 1 \l 13098 The BLIF records are used basically for updating White Pages, for instance. So our view would be that we are in the best place to generate a BLIF record. Our view would be that would be an essential service, because no one else could build that record better than us.
1LISTNUM 1 \l 13099 The second is more of a file transfer. So you can buy more than one line at once and we would file it to you rather than an individual BLIF.
1LISTNUM 1 \l 13100 So our view would be that the ILEC is in the best spot to do that, and it is a re‑acquirement for any company that wants their customers in the White Pages so they know they can phone other people.
1LISTNUM 1 \l 13101 MR. DUNBAR: And the Directory File Service, that is what, briefly?
1LISTNUM 1 \l 13102 Or did you just say that?
1LISTNUM 1 \l 13103 MR. FLEIGER: The Directory File Service is an amalgamated directory listing with all of the company listings from the residential and business customers. It is provided to alternate directory service companies so that they can also publish the directory.
1LISTNUM 1 \l 13104 MR. DUNBAR: Thank you very much.
1LISTNUM 1 \l 13105 So under your proposed definition, there would not be a single loop, a single transport facility or other facility that would be classified as essential?
1LISTNUM 1 \l 13106 MR. GRIEVE: That's right.
1LISTNUM 1 \l 13107 MR. DUNBAR: That seems to be an incredibly short list to me.
1LISTNUM 1 \l 13108 Do you know of any other jurisdiction among industrialized countries that only mandates the wholesale provision of those two services?
1LISTNUM 1 \l 13109 MR. GRIEVE: No. But I know that if you ask the Bureau, they would have the same list.
1LISTNUM 1 \l 13110 MR. DUNBAR: Well, they don't seem to have the same test.
1LISTNUM 1 \l 13111 MR. GRIEVE: But they have the same list, Mr. Dunbar.
1LISTNUM 1 \l 13112 The problem, as I said before, with the Bureau's test is that the Bureau interprets it strictly as it should. No one else in this room has chosen to do that, even though they say they rely on the Bureau's test. To us, it is just a recipe for endless trips to the Commissioners' office doors knocking on the door.
1LISTNUM 1 \l 13113 THE CHAIRPERSON: That's the second time you have said that. Maybe you can explain it to me.
1LISTNUM 1 \l 13114 I didn't understand you the first time. Maybe you can explain it to me.
1LISTNUM 1 \l 13115 This is a review proceeding. That's how I look at it. At the end of the day we are going to the various mandated services and put them in one of the six buckets which we shared with you, or five, whatever, depending what we come up with.
1LISTNUM 1 \l 13116 Then people know this is not essential any more, and either when this condition arrives it is going to be unmandated, or if it is not a conditional one, it is just a question of transition period.
1LISTNUM 1 \l 13117 The transition period, we have three‑to‑five years. Where do you come in with all these applications knocking on the door?
1LISTNUM 1 \l 13118 MR. GRIEVE: Well, that's what I heard the last few ‑‑ I guess it is the last couple of weeks. I've lost track of time.
1LISTNUM 1 \l 13119 You asked Dr. Church the same kind of question. It was a question there with Dr. Church about market by market by market, assessing whether there are essential facilities in those markets, those geographic markets. And then they sort of receded a little bit for a proxy test that was reasonable to do at the beginning. I think what they meant was at the beginning of the period after you had looked at a couple of markets.
1LISTNUM 1 \l 13120 The Bell approach, which also relies on the Bureau's test, would have you looking at individual facilities and whether those individual facilities were essential facilities in individual markets, and having various kinds of tests for whether there were restrictions on use when it was used as an essential facility and not.
1LISTNUM 1 \l 13121 So, that is what I am getting at, those kinds of detailed requirements.
1LISTNUM 1 \l 13122 But if you made the decisions up front and made a commitment to people that said these are the non‑essential facilities, then I think that unless you were pre‑disposed to accepting people filing applications to have you change your categorizations, I think through a transition period you would be all right.
1LISTNUM 1 \l 13123 I was reacting to the things I heard from the Bureau and Bell on the constant reviews.
1LISTNUM 1 \l 13124 THE CHAIRPERSON: Thank you.
1LISTNUM 1 \l 13125 MR. DUNBAR: As you mentioned, you proposed that the Commission establish a transition period for facilities that are currently classified as essential and that in your hopes they are declassified as essential as a result of this proceeding.
1LISTNUM 1 \l 13126 MR. GRIEVE: I want to get this really clear because what we would say is that the transition period is to remove the mandating of facilities that the Commission has mandated that we would say are non‑essential facilities.
1LISTNUM 1 \l 13127 Now, the vast majority of what the Commission has mandated, the Commission itself has said are not essential facilities.
1LISTNUM 1 \l 13128 So, just to be clear, we are not talking about changing of very many classifications at all. I would say loops in urban areas might be the only thing.
1LISTNUM 1 \l 13129 MR. DUNBAR: I would like to just go into your proposal for transition, if I might, for a minute.
1LISTNUM 1 \l 13130 In your evidence you have indicated that in general the length of the transition period should be three years.
"However, longer periods, up to five years, may be warranted depending on the nature of the facility and the time required for competitors to arrange for alternative facilities." (As read)
1LISTNUM 1 \l 13131 In paragraph 108 you say:
"For example, access‑type facilities generally require the longest planning period. As a result, TELUS recommends a transition period of no more than five years for those services. For other services, the shorter transition period of three years is generally warranted." (As read)
1LISTNUM 1 \l 13132 What are the other types of facilities that you are referring to there?
1LISTNUM 1 \l 13133 MR. GRIEVE: Other than access?
1LISTNUM 1 \l 13134 MR. DUNBAR: Yes.
1LISTNUM 1 \l 13135 MR. GRIEVE: Things like CDN as opposed to CDNA, transitting any intra‑exchange services, anything other than local ‑‑ local loops would be five years, CDNA would be five years, but other kinds of services would be three generally.
1LISTNUM 1 \l 13136 If you want specifics, I think we actually have something on the record or we can make something available to you.
1LISTNUM 1 \l 13137 MR. DUNBAR: Why are you proposing the five‑year period for access facilities?
1LISTNUM 1 \l 13138 MR. GRIEVE: Back before the telecom policy review, Mr. Fleiger and I had a discussion about what kind of a transition period we were going to propose there, and we proposed five years in the telecom policy review. We put on our non‑ILEC hat and we said, knowing how dependent we have become because of CDN and CDNA on Bell's network in Ontario, as a non‑ILEC in that area, or a CLEC in that area, what kind of time, John, would you need to build enough facilities and negotiate enough arrangements with enough different parties to make sure that we were self‑supplying enough so that Bell had an incentive, not a trust me, but an incentive, to negotiate with us in order to make maximum use of their network.
1LISTNUM 1 \l 13139 John went away and thought about it and came back and told me five years, that, yes, we would need five years. I tried to push him to three, and I will tell you why. Because the longer the transition period, the less likely it is that people are going to respond to the incentives.
1LISTNUM 1 \l 13140 So, you might ask Mr. Fleiger about the five years as well.
1LISTNUM 1 \l 13141 MR. DUNBAR: I would like to. Mr. Fleiger, why is five years necessary?
1LISTNUM 1 \l 13142 MR. FLEIGER: It is interesting what I have experienced and what TELUS has experienced in the last five or six years since it has really ramped up its non‑ILEC business.
1LISTNUM 1 \l 13143 Clearly at the outset we were quite interested in building our own facilities end‑to‑end, which is very important to us. I heard last week that it was important from a network operations and cost perspective. It is more important from a customer experience perspective. So, the more you rely on, say, a third party to provide you with the facilities, the less control you have over the actual end‑to‑end customer experience.
1LISTNUM 1 \l 13144 So, we were fairly aggressive in starting to move and put facilities in the ground. I think it is on the public record that we were building facilities under the city streets of Toronto and we had negotiated a rights‑away agreement with the city of Toronto, and we had negotiated building access arrangements with building owners, and knowing that we needed to do that, we put the resources in our organizations to do that on a continuous basis.
1LISTNUM 1 \l 13145 Along came CDNA, along came CDN, and that certainly reduced our incentives, let's put it that way, to continue to spend capital in the access portion of our network.
1LISTNUM 1 \l 13146 That is not to say that we didn't spend capital to build out our footprint to put in co‑lo's, et cetera, and to do some transport that made total economic sense for us to do, but it did take sort of our reliance to a higher degree on the incumbent, and I would admit that.
1LISTNUM 1 \l 13147 What we have done since that time is worked very, very hard with a number of alternate service providers, of which we have 20 and growing in our non‑ILEC territory, predominantly in Ontario and Quebec, and we believe that we are in a much better position today, even though we haven't invested significantly on the access side of our network, but we have good leverage with the incumbent in regard to access facilities.
1LISTNUM 1 \l 13148 They come to the table and they are paying attention when we sit down and negotiate. We believe that we did grow that even further with alternate supply, and we would augment that with strategic builds.
1LISTNUM 1 \l 13149 When you acquire a customer, I think there has been a bit of a misconception through this proceeding that a provider has to have a ubiquitous network everywhere in Canada at every location. That is totally unrealistic. You can't do that and stay in business.
1LISTNUM 1 \l 13150 We do not have our own network capability in the U.S. We use third party providers in the U.S. in a very competitive marketplace. We continue to strive to have additional third party supply here in Canada in our non‑ILEC region. We believe that putting the right transition in place will incent us to spend more, to build those access facilities, it will incent others to do the same, and will allow us to get to an even higher level of alternate supply.
1LISTNUM 1 \l 13151 MR. DUNBAR: The five year, then, relates back to TELUS' own experience, as I understand what you have said, and what you project is needed in order to either replicate the facilities yourself or to enter into other types of arrangements to extend your network with third parties, is that basically it?
1LISTNUM 1 \l 13152 MR. FLEIGER: Yes.
1LISTNUM 1 \l 13153 MR. DUNBAR: You anticipate it is going to take TELUS five years to do it?
1LISTNUM 1 \l 13154 MR. FLEIGER: We anticipate it is going to take a period of time, and it is not realistic to think that you can go out, say, in the next 30, 60, 90 days or a year, as per the Bell proposal, and negotiate these arrangements. Some of them are complex; some of them take time to get the right terms and conditions and to bring the right leverage to the table to conclude.
1LISTNUM 1 \l 13155 So, we believe a longer period of time, you know, three years on some components, five years on access is realistic in that context.
1LISTNUM 1 \l 13156 MR. GRIEVE: Mr. Dunbar, I might just add that when we came to this proceeding, we had had five years as our proposal for everything in the telecom policy review. When we came to this proceeding we went to three and five on the elements that I explained to you.
1LISTNUM 1 \l 13157 But one of the things that we considered wasn't just our own situation. It was whether there would be enough of an opportunity for not only us, but us in combination with other carriers, to jointly build and give other carriers an opportunity to build enough and get access facilities or other facilities from third parties so that, in combination, those carriers could be in a position to be a credible competitive factor in the market.
1LISTNUM 1 \l 13158 THE CHAIRPERSON: Those three or five years, are they with or without price increases?
1LISTNUM 1 \l 13159 MR. GRIEVE: In our proposal, we would seek to start to move prices up toward ‑‑ I say up toward ‑‑ fully compensatory rates over that time. We expect that in a market like this, for non‑essential facilities, we probably wouldn't get all the way there, but we would like an opportunity to move those prices up and then we believe in our territory that with the number of facilities that Bell has in the ground that they have said they are not using, that we might not get very far, but we would at least like the opportunity to try.
1LISTNUM 1 \l 13160 THE CHAIRPERSON: Fully compensatory is a euphemism for ‑‑ what do you mean by "fully compensatory?"
1LISTNUM 1 \l 13161 MR. GRIEVE: It is in the evidence of Dr. Aron, where the mark up ‑‑ I will go back a little bit.
1LISTNUM 1 \l 13162 The Commission has what it calls its phase 2 costing. Phase 2 costs include some costs but not all the costs, long‑run incremental costs of the company, current and long‑run incremental costs. The Commission has allowed a mark up for fixed common costs, which is an incremental cost measure and what the Commission calls the embedded cost differential, which is basically all the other costs that aren't included.
1LISTNUM 1 \l 13163 A fully compensatory rate would have to allow for the opportunity to recover all of those costs that have been omitted from phase 2 and left out of the mark up.
1LISTNUM 1 \l 13164 MR. DUNBAR: Mr. Fleiger, I believe you stated that even at the end of the five‑year period you would still anticipate having to use other carriers' facilities for various parts of your network in areas where you don't have a large network presence. Would that include access facilities? You still anticipate obtaining access facilities from third parties even after the end of five years?
1LISTNUM 1 \l 13165 MR. FLEIGER: Yes, on a negotiated basis.
1LISTNUM 1 \l 13166 MR. DUNBAR: So, your proposal is that at the end of the period, though, there would be no particular obligation on TELUS to provide facilities to third parties; it would be a matter of negotiation and market forces only?
1LISTNUM 1 \l 13167 MR. FLEIGER: Yes, that would be right.
1LISTNUM 1 \l 13168 MR. DUNBAR: Isn't there a danger here, at least from third parties' points of view, that Bell and TELUS might see fit to want to deal with each other in each other's territories because they have such extensive access facilities and to give each other preferential arrangements?
1LISTNUM 1 \l 13169 MR. FLEIGER: TELUS doesn't believe so.
1LISTNUM 1 \l 13170 Just to give you a little sense on the history of the wholesale business, we call it partner solutions because we firmly believe that we are partnering with people, not just providing raw commodity inputs.
1LISTNUM 1 \l 13171 We have put a lot of attention and focus on that business in the last six to seven years. We have grown it from traditionally an ILEC mandated service perspective to something that is much beyond that. A full third of our revenues are now generated out of territory, out of our ILEC incumbency region. A full 50 per cent of our revenues are on non‑mandated services that we freely negotiate with our carrier partners and provide to them.
1LISTNUM 1 \l 13172 We have a significant investment with these customers, and we provide access services of all types, some mandated, of course, by the Commission in the current regulatory regime, and others not. These are important revenue streams to TELUS and we would be very open to negotiated agreements.
1LISTNUM 1 \l 13173 MR. TASKER: It is probably worth mentioning that it is very much in our interest to keep as much business as possible at our own facilities. We are certainly quite concerned about the growing amount of facility options in the market, and so we certainly intend to keep as much business as possible on our own network.
1LISTNUM 1 \l 13174 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13175 I would like to turn next to paragraph 109 of your March 15th evidence.
1LISTNUM 1 \l 13176 MS YALE: We have it.
1LISTNUM 1 \l 13177 MR. DUNBAR: Here you state that:
"The Commission should not be mandating access to new technologies because to do so would seriously dampen the incentives for any supplier, whether an incumbent or an entrant to invest in such technologies. This was the conclusion reached by the FCC in the United States in 2003, where it found that unbundling of new technologies would undermine the incentives for both incumbents and competitors to invest in broadband services." (As read)
1LISTNUM 1 \l 13178 So, in this instance, you are proposing that the CRTC adopt a similar approach to the FCC with respect to new technologies?
1LISTNUM 1 \l 13179 MS YALE: Our position is that the Commission should not be mandating access to new technologies.
1LISTNUM 1 \l 13180 MR. DUNBAR: And you reference the FCC as a precedent for that?
1LISTNUM 1 \l 13181 MR. GRIEVE: We reference their conclusions about why it would dampen incentives.
1LISTNUM 1 \l 13182 MR. DUNBAR: I note you have also relied on American authorities in support of your proposed definition of essential facilities. Is that correct?
1LISTNUM 1 \l 13183 MR. GRIEVE: Actually, the proposed definition of an essential facility is the definition of an essential facility adopted by the Commission in 1979, adopted by it again in 1997, and we have just happily discovered that it actually dates back to a Canadian case in 1910 that even pre‑dates Terminal Railroad in the United States. So, we don't actually think it is an American test. It is a Canadian test.
1LISTNUM 1 \l 13184 MR. DUNBAR: It seems to me you filed extensive evidence about the American essential facilities doctrine in this case. You are saying you are not relying on that?
1LISTNUM 1 \l 13185 MR. GRIEVE: Of course we are relying on it because the United States has spent years and years and years in private litigation actually honing what the competition law policy is around the mandating of the sharing of facilities.
1LISTNUM 1 \l 13186 One of the concerns ‑‑ you can ask Dr. Robinson ‑‑ but one of the concerns is that mandated sharing is not something that is normally done in free market economies.
1LISTNUM 1 \l 13187 MR. DUNBAR: I would characterize TELUS's approach in this proceeding as having a very strict definition of essential facilities with a somewhat generous transition period. Would you agree with that characterization?
1LISTNUM 1 \l 13188 MR. GRIEVE: Yes, I think in comparison to others, I would.
1LISTNUM 1 \l 13189 MR. DUNBAR: You have stated in your evidence in a number of places that TELUS's out of territory cap ex, capital expenditures, has decreased as a result of the CRTC's direction to provide competitor digital network access services and other types of unbundled services.
1LISTNUM 1 \l 13190 I wonder, was the cap ex decrease primarily with respect to fibre‑based facilities or copper loops?
1LISTNUM 1 \l 13191 MR. FLEIGER: Primarily fibre.
1LISTNUM 1 \l 13192 MR. DUNBAR: I would like to refer you to your response to TELUS/MTS Allstream 12 April 07‑101, Part C. That is the second document I have distributed.
1LISTNUM 1 \l 13193 MR. FLEIGER: Yes, I have it.
1LISTNUM 1 \l 13194 MR. DUNBAR: In Part C you have indicated what TELUS's annual capital expenditures for its out of incumbent territory operations from 2000 to 2006 are. So, this is your operations in Ontario, Quebec and elsewhere in the country?
1LISTNUM 1 \l 13195 MR. FLEIGER: Yes, it is.
1LISTNUM 1 \l 13196 MR. DUNBAR: Outside of Alberta ‑‑
1LISTNUM 1 \l 13197 MR. FLEIGER: Outside of B.C. and Alberta.
1LISTNUM 1 \l 13198 MR. DUNBAR: Yes, thank you, sir.
1LISTNUM 1 \l 13199 MR. GRIEVE: And outside of our incumbent territory in Quebec as well.
1LISTNUM 1 \l 13200 MR. FLEIGER: Yes.
1LISTNUM 1 \l 13201 MR. DUNBAR: Yes. This shows that your investments peaked, out‑of‑territory investments peaked in 2001, declined in 2002, and then it looks like sort of levelled out for the next four years. Is that a fair description?
1LISTNUM 1 \l 13202 MR. FLEIGER: Yes, it would be.
1LISTNUM 1 \l 13203 MR. DUNBAR: I would like to explore with you the reasons why TELUS's investment fluctuated in these years, and I would like to refer you to the excerpts of the TELUS annual report, which I have also distributed and you have it in front of you.
1LISTNUM 1 \l 13204 MR. FLEIGER: Yes, I have it here.
1LISTNUM 1 \l 13205 MR. DUNBAR: Mr. Chairman, I would note that TELUS furnished a web link to its annual reports for these years in response to TELUS/Bureau 12 April 07‑14, and I have prepared a compendium of certain excerpts from those annual reports which are put in this document that you have before you now.
1LISTNUM 1 \l 13206 I would like to turn first to the third page of the handout, which is page 11 of the 2002 annual report. I would like to refer you to the paragraph at the bottom left‑hand side of the page entitled "Capital expenditure declines as national expansion and internet rollout near completion."
1LISTNUM 1 \l 13207 Here you indicate, you say that:
"Our capital expenditures declined by $500 million in 2002. This reduction reflects that the major investments in our core business, which we require to underpin future growth, are now nearing completion. Projects include national wireless and the data network facilities and western Canadian hi‑speed ADSL, internet coverage expansion. This facilitates a tapered capital investment profile going forward which strengthens our free cash flow position." (As read)
1LISTNUM 1 \l 13208 I wonder, can you explain what you mean by "tapered capital investment profile?"
1LISTNUM 1 \l 13209 MR. TASKER: I think that refers to a step function in terms of the type of investment on an ongoing basis.
1LISTNUM 1 \l 13210 MR. DUNBAR: So, you have made an initial investment which enables you to expand facilities or whatever with less investment in future years?
1LISTNUM 1 \l 13211 MR. TASKER: In this particular example, yes, of internet.
1LISTNUM 1 \l 13212 MR. DUNBAR: I would like to refer next to the following page, which is page 22 of the 2002 annual financial review. The paragraph I am interested in is the bottom left‑hand paragraph at the very bottom which says:
"TELUS Communications capital expenditure decreased for the year ended December 31, 2002 when compared with the same period in 2001. Non‑ILEC expenditures decreased by $88.4 million to $214.3 million, when compared to 2001 mainly due to the completion of the national optical carrier network and IP backbone in 2002 and expenditures on an intelligent internet data centre in Toronto in 2001." (As read)
1LISTNUM 1 \l 13213 Do you see that?
1LISTNUM 1 \l 13214 MR. TASKER: I do.
1LISTNUM 1 \l 13215 MR. DUNBAR: There is no mention there yet of CDNA or anything like that; that hasn't happened yet?
1LISTNUM 1 \l 13216 MR. TASKER: It doesn't mention it there, no.
1LISTNUM 1 \l 13217 MR. DUNBAR: Next I would like to turn to the 2003 annual report, page 31, which is the second page of that handout, of that document.
1LISTNUM 1 \l 13218 I would like to look on the right‑hand column, the first full paragraph after the chart on the right‑hand side of the page, where it says:
"Communication segment capital expenditures decreased significantly in 2003 when compared with 2002, a result of operational efficiency program initiatives and completion of several national expansion initiatives in 2002. Non‑ILEC expenditures decreased by $91.6 million to $122.8 million, as the company concentrated on its deployment activity of meeting growth demands through the use of assets in place." (As read)
1LISTNUM 1 \l 13219 Again, there is no CDNA influence there?
1LISTNUM 1 \l 13220 MR. TASKER: It doesn't mention it specifically, but that is the time period that we absolutely were making decisions about the trade offs between facilities investment and access and the opportunities we had on the CDNA side.
1LISTNUM 1 \l 13221 MR. DUNBAR: If we go to the next page, on page 15, again on the right column, under the heading "Improving Profitability in Central Canada," and there is a sentence in the middle of that paragraph that says:
"Operating performance improved because of cost containment efforts and increasing services provided on TELUS facilities (on net)." (As read)
1LISTNUM 1 \l 13222 Do you see that?
1LISTNUM 1 \l 13223 MR. TASKER: Yes.
1LISTNUM 1 \l 13224 MR. DUNBAR: So, you are improving your cost through your building of ‑‑ you are reducing your costs or your operating expenses as a result of having built the facilities?
1LISTNUM 1 \l 13225 MR. FLEIGER: I would just like to interject here for a moment because I was intimately involved in this during this time period, and I can attest to the fact that when the Commission were making their decisions, and even leading up to the decisions, because we weren't sure what the ultimate outcome of the CDN and CDNA decisions would be, but we were actively planning and modelling various scenarios in regard to building our own access facilities in certain situations, not all situations, and what the economics would be if we availed ourselves of the leased rates associated with CDN and CDNA.
1LISTNUM 1 \l 13226 There was absolutely no doubt to us that it made little, if any, economic sense to build any access facilities unless they were for very strategic purposes.
1LISTNUM 1 \l 13227 There may be an instance where you have acquired a customer, it could be a national customer, who has a large headquarters in a city in eastern Canada. It could have a critical data centre that is fundamental to its operations, and if that was the case, we would build access facilities.
1LISTNUM 1 \l 13228 But I can assure the Commission that our costs, our capital expenditures for building these types of facilities, decreased substantially during that period.
1LISTNUM 1 \l 13229 THE CHAIRPERSON: If I understand you correctly, now you are asking us to terminate the mandating, which means that some of these investments that you decided not to go with at that point in time which you were just talking about because you made the economic choice that leasing was better, those have now been reviewed and, in effect, if we phase it out, let's say, with a five‑year period that you suggest, we will in effect spur considerable building and investment by you in some of these facilities?
1LISTNUM 1 \l 13230 MR. FLEIGER: Certainly we would have to see what the rules are that the Commission determines as a result of this proceeding with regard to increases over the transition period, price increases over the transition period, and we will take that into account in the studies that we do.
1LISTNUM 1 \l 13231 I just want to point out one, which is a relevant point. To the extent now that the rates that are in place for the lease facilities from the ILEC in their incumbency territory are so low and we have built out a significant co‑location footprint, we have over 100 co‑locations in Bell's central offices in Ontario and Quebec, we consider that if we can get a local loop from the customer prem to our co‑lo, we actually consider that to be on our network. So, we consider that on net in the context of looking at customer opportunities.
1LISTNUM 1 \l 13232 That is sort of what has happened in the industry, is we are almost considering that Bell's facilities are our facilities now, which is, to me, fairly warped from an economic point of view.
1LISTNUM 1 \l 13233 THE CHAIRPERSON: Back to you, Mr. Dunbar.
1LISTNUM 1 \l 13234 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13235 I would just like to go through a couple more of these passages.
1LISTNUM 1 \l 13236 Again, if we turn to the next page, which is page 28 of the 2003 report, on the left‑hand side of the page, just above the little chart, you note again that:
"Included in total segment expenses discussed above are non‑ILEC operations expenses for 2003 of $580 million as compared with $634.5 million in 2002. Again, this represented a decrease of $54.5 million or 8.6 per cent..."
1LISTNUM 1 \l 13237 And it says:
"...as a result of increasing the proportion of on net traffic, increased competitive data network access discounts and other operating efficiencies, including a lower bad debt expense." (As read)
1LISTNUM 1 \l 13238 Again, if CDNA and CDN was such a big factor, why isn't it being mentioned in these reports?
1LISTNUM 1 \l 13239 MR. GRIEVE: It is being mentioned right there, Mr. Dunbar, "increased competitive data network access discounts." Maybe the people who write the annual report got data instead of digital network access discounts. That is what that is.
1LISTNUM 1 \l 13240 MR. DUNBAR: I would like to turn next to your 2006 report, the last page of the document. In this paragraph, which is second from the top you say:
"The wireline capital budget for 2007 also entails success‑based capital expenditures in central Canada, as we continue to win additional business such as our five‑year contract with the Government of Ontario to provide fully managed network access services. This contract includes building out new infrastructure in the first few years." (As read)
1LISTNUM 1 \l 13241 Does that project include building out access facilities?
1LISTNUM 1 \l 13242 MR. FLEIGER: Pardon me?
1LISTNUM 1 \l 13243 MR. DUNBAR: Does that project with the Ontario government, which you are mentioning there as a major capital expenditure, does that include building out access?
1LISTNUM 1 \l 13244 MR. FLEIGER: Yes, it does, primarily co‑lo's and a small portion of access facilities.
1LISTNUM 1 \l 13245 MR. DUNBAR: Next, I would like to refer to another document which has been distributed to the panel, item 3.
1LISTNUM 1 \l 13246 Mr. Grieve, this is a revised version of a figure that was prepared, I believe, by Dr. Crandall, which was filed on October 5, 2007. The figure in question shows capital expenditures per line over the period 1998 to 2006 for three groups of local exchange carriers. There is an aggregate for four U.S.‑based ILECs, which were BellSouth, SPC, Verizon and QWest, an aggregate for ten major incumbent carriers in the U.K. and Europe, and the third one being TELUS.
1LISTNUM 1 \l 13247 Is that correct?
1LISTNUM 1 \l 13248 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13249 MR. DUNBAR: The information shown in Revised Figure 4 appears to indicate that investment on a per‑line basis for TELUS is higher than the average in both Europe and the average in the United States, for those large carriers that I mentioned, in almost every year, except 1998 and 2000.
1LISTNUM 1 \l 13250 Is that correct?
1LISTNUM 1 \l 13251 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13252 MR. DUNBAR: In 2006 there was a significant increase over 2005.
1LISTNUM 1 \l 13253 MR. GRIEVE: Yes, that's what it shows. This is for the entire wireline business. Not just out‑of‑territory, but the entire wireline business.
1LISTNUM 1 \l 13254 MR. DUNBAR: This doesn't suggest that you are under‑investing; in fact, quite the opposite.
1LISTNUM 1 \l 13255 MR. GRIEVE: I am actually not ‑‑ I think this is the whole ‑‑
1LISTNUM 1 \l 13256 I think this is TELUS as a whole. I am not sure where Dr. Crandall got this information.
1LISTNUM 1 \l 13257 It would include wireless and ‑‑
1LISTNUM 1 \l 13258 MR. ROGERS: Mr. Chairman, this is actually a piece of evidence prepared by Dr. Crandall, and he will be here to speak to the basis of these calculations.
1LISTNUM 1 \l 13259 THE CHAIRPERSON: Yes. I just note that it says "Fixed Line Network", and it doesn't say anything about wireless.
1LISTNUM 1 \l 13260 But we will get an explanation on Monday, I presume.
1LISTNUM 1 \l 13261 MR. DUNBAR: We can get that clarified, but I certainly took Dr. Crandall at his word ‑‑
1LISTNUM 1 \l 13262 MR. GRIEVE: I'm sorry, I missed that, Mr. Dunbar. My eyes aren't what they used to be.
1LISTNUM 1 \l 13263 MR. DUNBAR: Just to put the question again, if Dr. Crandall's chart is correct, this certainly doesn't show that you are under‑investing in fixed‑line services. In fact, it shows that you are investing more per line than those other major carriers in North America and Europe.
1LISTNUM 1 \l 13264 MS YALE: The issue isn't how much we are investing; the issue is the choices about which investments we make. I think our evidence is pretty clear that the choices we make about where to spend our capital dollars are impacted by decisions that we have to confront in relation to the unbundling regime that is currently in place.
1LISTNUM 1 \l 13265 I think you have heard from the Business Panel that we clearly take into account in our modelling exercises and our capital investment choices the price signals in the market associated with the current unbundling regime.
1LISTNUM 1 \l 13266 MR. DUNBAR: I would like to refer you to another statement by Dr. Crandall in his evidence, just to see whether you agree with his statement.
1LISTNUM 1 \l 13267 I would like to refer you to your evidence of July 5, 2007, Appendix D, page 14.
1LISTNUM 1 \l 13268 MR. GRIEVE: This wasn't in your compendium.
1LISTNUM 1 \l 13269 MR. DUNBAR: No, this is in your evidence.
1LISTNUM 1 \l 13270 MS YALE: I'm sorry, what paragraph?
1LISTNUM 1 \l 13271 MR. DUNBAR: The last paragraph, paragraph 30, on page 14.
1LISTNUM 1 \l 13272 THE CHAIRPERSON: Which appendix, Mr. Dunbar?
1LISTNUM 1 \l 13273 MR. DUNBAR: Appendix D.
1LISTNUM 1 \l 13274 THE CHAIRPERSON: "D" as in "Donald"?
1LISTNUM 1 \l 13275 MR. DUNBAR: Yes. It is the supplementary material, Appendix D.
1LISTNUM 1 \l 13276 MR. DUNBAR: I am interested in the very last sentence, which is, as I understand it, the conclusion of Dr. Crandall's piece where he has looked at investment in Europe, the United States and TELUS, and he says that there can be little doubt that the Canadian and U.S. regulatory policies have created a more robust investment environment than the one now present in the EU‑15, in general, and potentially in the U.K., in particular.
1LISTNUM 1 \l 13277 Do you see that?
1LISTNUM 1 \l 13278 MR. GRIEVE: Are you asking if we agree with that?
1LISTNUM 1 \l 13279 MR. DUNBAR: Yes, I am.
1LISTNUM 1 \l 13280 MR. GRIEVE: I have no idea.
1LISTNUM 1 \l 13281 MR. DUNBAR: Thank you.
1LISTNUM 1 \l 13282 Next I would like to turn to Handout 4, which I presented to you, which is a compendium of certain charts out of the Commission's July 2007 Telecommunications Monitoring Report, which is Exhibit 5 in this proceeding.
1LISTNUM 1 \l 13283 In my handout I have included several pages from the Monitoring Report, for ease of reference.
1LISTNUM 1 \l 13284 The first chart that I would like to turn your attention to is on page 31. It is Table 4.1.4. This shows total capital expenditures in Canada within the Canadian telecom industry for each of the years 2002 to 2006, and it indicates that the amount of Cap‑ex has remained relatively the same since 2002, dipping once or twice, but then coming back in 2006 to approximately the same level as in 2002 for incumbent carriers, but almost doubling in 2006 for alternative TSPs.
1LISTNUM 1 \l 13285 Do you see that?
1LISTNUM 1 \l 13286 MR. FLEIGER: Yes, I do.
1LISTNUM 1 \l 13287 MR. DUNBAR: In 2006, subject to check, would you agree that, for all wireline carriers, if we look at the wireline total, we see it increasing in 2006 from $4.2 billion to $5.3 billion, an increase, according to my calculation, of approximately 25 percent?
1LISTNUM 1 \l 13288 Would you agree with that?
1LISTNUM 1 \l 13289 MR. FLEIGER: Yes, I would.
1LISTNUM 1 \l 13290 MR. DUNBAR: Subject to check on my math, anyway.
1LISTNUM 1 \l 13291 MR. FLEIGER: Yes, subject to check.
1LISTNUM 1 \l 13292 MR. DUNBAR: If you look down page 31, you will see that there is a reference to capital intensity, and halfway down the paragraph it states:
"Wireline incumbent TSPs remain relatively constant, in the 19 percent to 22 percent range, whereas the wireline facilities‑based non‑incumbent TSPs initially reduced their capital expenditures as a percentage of revenues in 2003..."
‑‑ and I am reading in ‑‑ but by 2006 they increased it more than threefold, from 11 percent in 2003 to 38 percent in 2006.
1LISTNUM 1 \l 13293 This is for non‑incumbent TSPs, and it is showing a significant increase in investment.
1LISTNUM 1 \l 13294 Do you agree with that?
1LISTNUM 1 \l 13295 MR. FLEIGER: I would. However, subject to check, there doesn't seem to me to be enough data points in here to really draw a conclusion. There are only two data points for non‑incumbent facilities‑based alternative TSPs, 2005 and 2006, so I wouldn't draw very many conclusions or any significant conclusions from that data.
1LISTNUM 1 \l 13296 MR. DUNBAR: Perhaps you could look at the next page, page 32, Figure 4.1.5.
1LISTNUM 1 \l 13297 MR. FLEIGER: Yes, I have that.
1LISTNUM 1 \l 13298 MR. DUNBAR: As I see that, we have data points for each of those years, and we show a drop in 2003 up to 2004, and then a real spike from 2004 to 2006.
1LISTNUM 1 \l 13299 Do you see that?
1LISTNUM 1 \l 13300 The line I am looking at is entitled "Non‑Incumbent Facilities‑Based Alternative TSPs".
1LISTNUM 1 \l 13301 MR. TASKER: Yes, I see that information.
1LISTNUM 1 \l 13302 My assumption on this data ‑‑ although it is the first time I have taken a close look at it ‑‑ is that it represents the significant investment of the cable companies in their access facilities, which is what has happened over the last couple of years.
1LISTNUM 1 \l 13303 MR. DUNBAR: I would like to turn next to Figure 4.2.1 on the next page.
1LISTNUM 1 \l 13304 It is on page 45 of the Monitoring Report, but it is the next page in my handout.
1LISTNUM 1 \l 13305 This shows the total number of alternative TSP local retail lines by type of facility for 2005 and 2006, and the grey‑shaded area is owned, the dark area is leased, and the white area is re‑sold.
1LISTNUM 1 \l 13306 This shows a very significant increase in retail lines owned by carriers, does it not, in 2005 over 2006?
1LISTNUM 1 \l 13307 MR. TASKER: Once again, I believe that is driven almost entirely by the investment by the cable companies, which do not use CDNA services.
1LISTNUM 1 \l 13308 MR. DUNBAR: What we are seeing here is a very significant transition, though, from leased facilities to owned facilities in this period.
1LISTNUM 1 \l 13309 MR. TASKER: Yes, we believe the cable companies do own their own facilities.
1LISTNUM 1 \l 13310 MR. GRIEVE: I wouldn't say that it's a transition, Mr. Dunbar. Cable companies weren't leasing facilities and then went to build.
1LISTNUM 1 \l 13311 MR. DUNBAR: Perhaps we will look at the business market, as well, on the next page, 4.2.2.
1LISTNUM 1 \l 13312 It is Figure 4.2.2 on page 46.
1LISTNUM 1 \l 13313 Here we have residential and business lines. For business lines, this chart indicates that, in 2006, 41 percent of business lines provided by alternative TSP local business lines were owned by carriers.
1LISTNUM 1 \l 13314 So, in the business market, we were up to 41 percent in 2006.
1LISTNUM 1 \l 13315 MR. FLEIGER: Yes, that is what this chart describes.
1LISTNUM 1 \l 13316 MR. DUNBAR: If we look at my final handout, which is No. 5, I have the same figure for 2005.
1LISTNUM 1 \l 13317 This is a one‑page excerpt from the 2006 CRTC Telecommunications Monitoring Report.
1LISTNUM 1 \l 13318 MR. FLEIGER: Yes, I see that.
1LISTNUM 1 \l 13319 MR. DUNBAR: These figures show that in 2005 the number of business lines owned by alternative TSPs stood at 27 percent.
1LISTNUM 1 \l 13320 MR. FLEIGER: I see that.
1LISTNUM 1 \l 13321 MR. DUNBAR: Would you agree that there has been a 50 percent increase in those lines owned by alternative TSPs in the last year?
1LISTNUM 1 \l 13322 If you compare the two charts, we go from 27 percent in 2005 to 41 percent in 2006.
1LISTNUM 1 \l 13323 MR. TASKER: I would suggest that you would need to see a lot of the underlying ‑‑
1LISTNUM 1 \l 13324 These are just percentages, so I would be remiss in concluding that it would be a 50 percent increase without the right information.
1LISTNUM 1 \l 13325 MR. DUNBAR: But you would agree that that's what these charts show, on their face anyway.
1LISTNUM 1 \l 13326 MR. TASKER: I agree that there is a percentage change. I don't agree with what you said, which was the conclusion that they have increased their owned facilities by 50 percent. I think that is a wrong conclusion based on the data we have in front of us.
1LISTNUM 1 \l 13327 MR. DUNBAR: Would you undertake to look at those numbers ‑‑ the underlying data is available ‑‑ to see whether you disagree?
1LISTNUM 1 \l 13328 Are you suggesting that the number of business lines has decreased dramatically?
1LISTNUM 1 \l 13329 MR. FLEIGER: The numbers that are provided in the Monitoring Report, unless I have it wrong, are an aggregate of information that is sent to the Commission by all market participants, so I am not sure how TELUS could engage in an undertaking to dissect this information, because it wouldn't have this information.
1LISTNUM 1 \l 13330 MR. DUNBAR: The data that feeds into these charts is available on the Commission's website, and these are the results of applying that data.
1LISTNUM 1 \l 13331 But if you don't want to agree with that, that's fine.
1LISTNUM 1 \l 13332 MR. FLEIGER: If the information is available, then I can't see any reason why we wouldn't give that undertaking.
1LISTNUM 1 \l 13333 MR. DUNBAR: If you come back and say that you agree, that's fine, but if you disagree, I would like to know what you think the answer is.
1LISTNUM 1 \l 13334 THE CHAIRPERSON: If I understand the undertaking, it is to look at the 2005 Monitoring Report and then advise ‑‑
1LISTNUM 1 \l 13335 MR. DUNBAR: Yes, it would be 2005 and 2006, to see the change.
1LISTNUM 1 \l 13336 Thank you, Mr. Chair, those are my questions.
1LISTNUM 1 \l 13337 THE CHAIRPERSON: One of the questions from Mr. Dunbar was about the role of the Commission in an unmandated period, and you basically suggested that it should just be commercial negotiations.
1LISTNUM 1 \l 13338 Some of the intervenors who appeared before us have suggested that there might be a role for the Commission, at that point, in terms of mediation or arbitration, should those commercial negotiations prove fruitless.
1LISTNUM 1 \l 13339 What is your view on that?
1LISTNUM 1 \l 13340 MR. FLEIGER: What I would like to suggest to the Commission ‑‑ first of all, I have heard many of the parties talk about a hard stop to the transition, whatever that transition is defined to be, and I think that is something that TELUS would very much support. I know others may not support that, but TELUS very much supports the need for there to be direct signals in the marketplace that incent all of the parties to get together and negotiate agreements.
1LISTNUM 1 \l 13341 What I have experienced ‑‑ I can only tell you what I have experienced, on both sides of the table ‑‑ is that, if you go to the bargaining table with a clear desire to reach a conclusion, in 99 percent of cases you will reach that conclusion. You may have to compromise on certain things that you are looking for in order to reach it, but, at the same time, the other party is usually compromising also.
1LISTNUM 1 \l 13342 What I have found in the current environment is that there is not what I would call an equal willingness to reach a conclusion. Parties come to the table and they will put down their terms and conditions in regard to, say, TELUS being an ILEC, and here is what I want, and it has to be these ten things, and if you don't give me one of those, I am going to go to the Commission and I am going to get them to arbitrate this thing, because I know that I will likely get a better outcome there than I will at the negotiating table.
1LISTNUM 1 \l 13343 I would stress to the Commission that it needs to create an environment that fosters negotiations and successful conclusions, and, quite frankly, not make it easy for the parties to come back and always get something arbitrated.
1LISTNUM 1 \l 13344 My fear is that you will have endless cases being brought toward you to reach middle ground on things where the middle ground wasn't even there to begin with, because people were frozen in their position coming to the table in the first place.
1LISTNUM 1 \l 13345 MS YALE: Mr. Chairman, if I could add, I think that another way to put that, just from a public policy perspective, is that, if we are going to move toward reliance on free market forces, we have to let the market work. If parties know that every time there is a dispute the Commission is willing to intervene, then you can bet that there are going to be a lot of interventions, as opposed to saying "This is a market. We are going to allow prices to move to market‑based rates, and we are going to let the market work," and assume the market works, instead of assuming that there is a case of market failure that requires constant intervention.
1LISTNUM 1 \l 13346 Otherwise, I think it will be a self‑fulfilling prophesy that the Commission will be wading in constantly.
1LISTNUM 1 \l 13347 THE CHAIRPERSON: I know that Mr. Dunbar posited that there would be probably no problem with you reaching an agreement with Bell, et cetera, but when you are not both incumbents who have a big territory as a bargaining chip, the negotiations might be different.
1LISTNUM 1 \l 13348 I agree with you, I don't want to see the Commission arbitrating each and every case. We certainly don't need to look for work. But, at the same time, several intervenors have said ‑‑ and you immediately go to the extreme and say in each and every case.
1LISTNUM 1 \l 13349 I was wondering, is there any room anywhere for a safety valve or a halfway house or something so as to give some of the intervenors who appeared before us ‑‑ they seem to be seriously concerned that once you let market forces work, in effect, for whatever reason, they will be totally squeezed out.
1LISTNUM 1 \l 13350 MS YALE: First of all, during the transition, the rates will be tariffed, albeit they will be moving toward compensatory levels.
1LISTNUM 1 \l 13351 So while we advocate that there be negotiations on a discretionary basis during the transition, during the transition the tariffs are the protection.
1LISTNUM 1 \l 13352 After the transition period is over, these facilities, by definition, have been declared non‑essential because there are alternative suppliers, which means that the only game in town isn't the ILEC in question.
1LISTNUM 1 \l 13353 So it seems to me that is why you can rely on market forces because there isn't a single source of supply for the facilities in question.
1LISTNUM 1 \l 13354 CONSEILLERE NOËL : Madame Yale, au sujet des requêtes au CRTC pour déterminer le juste prix, isn't it right that the expedite process has been very active at the onset and then I think people learned from what the CRTC was deciding and we have had much less in the later years?
1LISTNUM 1 \l 13355 And would it be the same if people were coming to the Commission for determination?
1LISTNUM 1 \l 13356 MS YALE: Let me frame my answer in two parts.
1LISTNUM 1 \l 13357 Absolutely yes, that the expedited dispute resolution process works and works well. No quarrel there.
1LISTNUM 1 \l 13358 COMMISSIONER NOËL: I call it the fear of God.
1LISTNUM 1 \l 13359 MS YALE: I guess the issue is that if you have confidence based on the definition that we have proposed, there is more than one supplier of the facility in question, which must be definitionally true in order to deem that facility non essential. Then somebody who is looking for that facility, by definition, has more than one choice of supplier.
1LISTNUM 1 \l 13360 So it is hard to understand why the outcome won't be sufficient protection in that circumstance. If there is only one supplier, then it is essential and there is a tariff in place and it is not forborne.
1LISTNUM 1 \l 13361 So while I agree with you that the process works, what we are saying is that if you don't let the market work, our concern is that the market won't work. If in fact what we are trying to do is create a market for these facilities so that you create the proper incentives to invest in infrastructure in terms of that build/buy decision, the price signals won't work properly if in fact the Commission is setting the prices rather than the market.
1LISTNUM 1 \l 13362 THE CHAIRPERSON: Commissioner Cram.
1LISTNUM 1 \l 13363 COMMISSIONER CRAM: Mr. Grieve, I'm thinking about your test of replicating. It runs in my mind that simply the fact that somebody has built a facility in Indian Head, they would build another facility in Balgonie, where your wife lives or her parents live. And I ask myself ‑‑ we're from Saskatchewan.
1LISTNUM 1 \l 13364 I ask myself if just because somebody was stupid enough to build in Indian Head, no business sense, imprudent, the "build it and they will come" approach, simply because one person was imprudent enough to build it in Indian Head, I don't think that's a good enough reason for me to say that same person would be as imprudent to do it again or another person would be imprudent.
1LISTNUM 1 \l 13365 I'm taking you back to the business case issue that I discussed with Dr. Church on the first day.
1LISTNUM 1 \l 13366 Don't we have to look at that?
1LISTNUM 1 \l 13367 MR. GRIEVE: I think that's what ‑‑ if you look at the way this would operate if the Commission were to say something is an essential facility and then we came and said it is no longer an essential facility because somebody built in Indian Head and therefore they can build in Pense, then it is up to us to go in and make that application. Then people can bring up the question of the whacko businessman in Indian Head.
1LISTNUM 1 \l 13368 I think the fact of the matter here is we don't find that kind of thing. When we look through the facilities that we are mandated to provide today, we actually find people offering alternatives. For example, an Indian Head persona is in Indian Head; it is also in Pense. They are there as cable companies.
1LISTNUM 1 \l 13369 In Alberta in many communities persona is there as well, other cable companies other than Shaw in some of the rural areas. Then we have lots and lots of wireless ISP providers throughout Alberta and now in B.C. as well, serving rural areas that we won't even serve because their technology is so ‑‑ the way they are doing it is more cost‑efficient.
1LISTNUM 1 \l 13370 So while theoretically I can understand what your concern is, in reality I just don't see it.
1LISTNUM 1 \l 13371 COMMISSIONER CRAM: Not to say that anybody in Indian Head is whacko or that GT Telecom was whacko, but they did build it on the premise that "if you build it, they will come". And at the end of the day their business plan was not sustainable.
1LISTNUM 1 \l 13372 So it has happened in telecom.
1LISTNUM 1 \l 13373 MR. GRIEVE: One of the interesting things about the CLEC business, as with any other new business, is that it takes a while for people to figure out what business plan works.
1LISTNUM 1 \l 13374 I know that when Joe Natale arrived at TELUS to run the Business Solutions Group and had to come up with a plan for central Canada ‑‑ Ontario and parts of Quebec ‑‑ that business plan was very carefully thought out on getting very detailed information about where Enterprise customers were, where their branch offices were, how we were going to get there. It wasn't a "build it, they will come". We will build it as we need it.
1LISTNUM 1 \l 13375 It was a different kind of approach than Group Telecom took. It doesn't mean that Group Telecom was whacko; it just meant that that particular business case failed. So nobody is going to try that. Now let's try something else. That's the way these things work.
1LISTNUM 1 \l 13376 COMMISSIONER CRAM: But if we had applied your test in 2001, if this was 2001 and we had GT out there building it, hoping that they would come, and if we did precisely as you suggested to us we do in 2001, we would be in deep trouble.
1LISTNUM 1 \l 13377 MR. GRIEVE: I don't know that you would be in deep trouble because there are lots of other people ‑‑ first of all, Group Telecom's assets are still there in the hands of Rogers ‑‑
1LISTNUM 1 \l 13378 COMMISSIONER CRAM: Yes, they are still on the ground but are they replicable?
1LISTNUM 1 \l 13379 MR. GRIEVE: I believe that they are replicable ‑‑ duplicable. I find that word easier than the word you used.
1LISTNUM 1 \l 13380 We are doing it in places as well. Sometimes we go out to one business in an area, a bank branch or something like that, knowing that having done all of our homework about what each of these communities looks like. So it is possible for us to do it.
1LISTNUM 1 \l 13381 The difficulty we have, though, is that it is hard ‑‑ the very interesting thing is that if people actually have done it today, given the prices that we have for CDN and CDNA, which are really the ones we are talking about here mostly, if they have done it at those prices, you can bet that they will do it at higher prices.
1LISTNUM 1 \l 13382 I'm amazed actually.
1LISTNUM 1 \l 13383 COMMISSIONER CRAM: That then gets me to the CDN and its prices, which only came out in January of '05.
1LISTNUM 1 \l 13384 MR. GRIEVE: The warning was fired in January of 2002 ‑‑
1LISTNUM 1 \l 13385 COMMISSIONER CRAM: You mean June of 2002 with price cap.
1LISTNUM 1 \l 13386 MR. GRIEVE: Yes.
1LISTNUM 1 \l 13387 COMMISSIONER CRAM: So TELUS immediately thought the worst and took a position from there. Is that what you are saying?
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