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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO‑TELEVISION AND
TELECOMMUNICATIONS COMMISSION
TRANSCRIPTION DES AUDIENCES DEVANT
LE CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
Review of regulatory framework for wholesale
services and definition of essential service /
Examen du cadre de réglementation concernant les services
de gros et la définition de service essentiel
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 26, 2007 Le 26 octobre 2007
Transcripts
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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
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Transcription
Afin de rencontrer les exigences de la Loi sur les langues
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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
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participant à l'audience publique.
Canadian Radio‑television and
Telecommunications Commission
Conseil de la radiodiffusion et des
télécommunications canadiennes
Transcript / Transcription
Review of regulatory framework for wholesale
services and definition of essential service /
Examen du cadre de réglementation concernant les services
de gros et la définition de service essentiel
BEFORE / DEVANT:
Konrad von Finckenstein Chairperson / Président
Barbara Cram Commissioner / Conseillère
Andrée Noël Commissioner / Conseillère
Elizabeth Duncan Commissioner / Conseillère
Helen del Val Commissioner / Conseillère
ALSO PRESENT / AUSSI PRÉSENTS:
Marielle Giroux-Girard Secretary / Secrétaire
Robert Martin Staff Team Leader /
Chef d'équipe du personnel
Peter McCallum Legal Counsel /
Amy Hanley Conseillers juridiques
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
140 Promenade du Portage 140, Promenade du Portage
Gatineau, Quebec Gatineau (Québec)
October 26, 2007 Le 26 octobre 2007
- iv -
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
RESUMED: WILLIE GRIEVE 2053 /14653
RESUMED: ROBERT TASKER
RESUMED: DAVE McMAHON
Cross-examination by PIAC 2054 /14656
Cross-examination by Cybersurf 2102 /14956
Cross-examination by Xittel 2143 /15234
AFFIRMED: BRENT MOONEY 2188 /15554
AFFIRMED: JOHN MACDONALD
AFFIRMED: TERESA GRIFFIN-MUIR
AFFIRMED: KELVIN SHEPPARD
AFFIRMED: RON ROUT
AFFIRMED: PAUL BRISBY
AFFIRMED: LEE SELWYN
Cross-examination by The Companies 2188 /15558
- v -
EXHIBITS / PIÈCES JUSTIFICATIVES
No. PAGE / PARA
PIAC-1 Excerpt from Canadian Gazette of 2071 /14759
The first iteration under
Section 8, dated June 17, 2006
PIAC-2 Excerpt from Canadian Gazette of 2071 /14759
the final version of the order
of December 14, 2006, dated
December 27, 2006
CYBERSURF‑4 Paragraph 232 of Decision 2002‑34 2124 /15113
XITTEL‑3 Xittel Tariffs 2157 /15344
CRTC‑9 CRTC 2006 Monitoring Report 2181 /15524
COMPANIES‑16 Toronto Hydro map of Toronto, 2270 /16084
Tab BB
Gatineau, Quebec / Gatineau (Québec)
‑‑‑ Upon resuming on Friday, October 26, 2007
at 0832 / L'audience reprend le vendredi
26 octobre 2007 à 0832
1listnum "WP List 3" \l 12189 THE SECRETARY: Please be seated.
1listnum "WP List 3" \l 12190 THE CHAIRPERSON: Mr. Rogers, are you on?
1listnum "WP List 3" \l 12191 MR. ROGERS: I guess. Thank you, Mr. Chairman. Good morning.
1listnum "WP List 3" \l 12192 We are ready to resume with the TELUS panel. As per the discussions last week, we have a slightly reduced panel.
1listnum "WP List 3" \l 12193 The members today are Mr. Willie Grieve, Mr. Rob Tasker and Mr. Dave McMahon, all of whom were on the panel when the group last appeared. They are ready to resume cross‑examination.
1listnum "WP List 3" \l 12194 THE SECRETARY: I am sorry, Mr. Chair, I will remind our witnesses that they are still under oath.
RESUMED: WILLIE GRIEVE
RESUMED: ROBERT TASKER
RESUMED: DAVE McMAHON
1listnum "WP List 3" \l 12195 THE CHAIRPERSON: Okay, Mr. Janigan, go.
1listnum "WP List 3" \l 12196 MR. JANIGAN: Thank you, Mr. Chair.
EXAMINATION / INTERROGATOIRE
1listnum "WP List 3" \l 12197 MR. JANIGAN: Panel, I would like to take you through the essentials of your position, then attempt to try to true it up with the interests of the residential consumer constituency that we are trying to represent and the likely net effect on that market if the Commission chose to adopt your views.
1listnum "WP List 3" \l 12198 Now, first of all, as I understand your definition of essential services ‑‑ which appears, I believe, in your July the 5th evidence on page 25 and paragraph 60 ‑‑ that the definition of essential facilities, there must be three criteria met in order for a facility to be declared essential: first of all, that it is monopoly controlled, secondly, that competitors require it as an input, and thirdly, that competitors can't duplicate it economically or technically.
1listnum "WP List 3" \l 12199 Am I correct on that?
1listnum "WP List 3" \l 12200 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12201 MR. JANIGAN: Okay. Now, in terms of looking at what these criteria mean, I understand that in your test, TELUS indicates that using concepts of market power dominance or lessening of competition in an essential facilities test is wrong, and I point out page 17 of your evidence.
1listnum "WP List 3" \l 12202 Your supplementary evidence of July the 5th at paragraph 40 seems to give a fairly definitive statement of that in that it is indicated:
"As such, the essential facilities test is entirely focused on whether competition is prevented without access to the facility. Thus, whether competition is lessened substantially or otherwise is irrelevant to the question of whether a facility is essential. Therefore, any test for essential facilities that is predicated on a firm's ability to lessen competition or affirms dominance or market power in the upstream or downstream market is simply incorrect." (As read)
1listnum "WP List 3" \l 12203 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12204 MR. JANIGAN: Okay. And with respect to the qualification of the input, I understand that on page 13 of your supplementary evidence, the test is whether every competitor requires it to compete and as soon as cable enters a market somewhere with the same cost structure of another market where there is mandated access to unbundled loops that these facilities cease to be essential in that market.
1listnum "WP List 3" \l 12205 Am I correct on that?
1listnum "WP List 3" \l 12206 MR. GRIEVE: Just about. Where there is entry in one geographic market, then other similar geographic markets based on this proxy test, similar to what the Competition Bureau talked about, would make those facilities non essential in all of those similar geographic markets and we use the bands to locate or identify those.
1listnum "WP List 3" \l 12207 MR. JANIGAN: So if every competitor doesn't need it to compete, then the facility can't be essential?
1listnum "WP List 3" \l 12208 MR. GRIEVE: That is right.
1listnum "WP List 3" \l 12209 MR. JANIGAN: Okay. Now, I take it this may be the case even if cable hasn't hindered the particular geographic market?
1listnum "WP List 3" \l 12210 MR. GRIEVE: That is right. That is why we have a five‑year transition period ‑‑
1listnum "WP List 3" \l 12211 MR. JANIGAN: Okay.
1listnum "WP List 3" \l 12212 MR. GRIEVE: ‑‑ for the access portion.
1listnum "WP List 3" \l 12213 MR. JANIGAN: Just a collateral question here. Would that mean that you could possibly have forbearance in the wholesale market but no forbearance in a retail market?
1listnum "WP List 3" \l 12214 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12215 MR. JANIGAN: Okay. Now, there are other qualifications on page 25 and para 61 of your July the 5th evidence and some of these other qualifications ‑‑
1listnum "WP List 3" \l 12216 MR. GRIEVE: I am sorry ‑‑
1listnum "WP List 3" \l 12217 MR. JANIGAN: I am sorry, could you turn it up?
1listnum "WP List 3" \l 12218 MR. GRIEVE: What paragraph?
1listnum "WP List 3" \l 12219 MR. JANIGAN: It is paragraph 61 of page 25 ‑‑
1listnum "WP List 3" \l 12220 MR. GRIEVE: Thank you.
1listnum "WP List 3" \l 12221 MR. JANIGAN: ‑‑ of the July 5th evidence.
1listnum "WP List 3" \l 12222 MR. GRIEVE: Okay, thanks.
1listnum "WP List 3" \l 12223 MR. JANIGAN: These are sort of additional sort of qualifications or considerations that the facilities must meet or that the test is sort of expanded to include these kind of qualifications and the first is just because competitors lack scale and scope enough to duplicate doesn't mean that they should have mandated access.
1listnum "WP List 3" \l 12224 MR. GRIEVE: That is right.
1listnum "WP List 3" \l 12225 MR. JANIGAN: Okay. So a small new entrant, I take it, better become large before he gets access ‑‑ it gets access, I should say?
1listnum "WP List 3" \l 12226 MR. GRIEVE: Well, what we are ‑‑ can you point me exactly to the sentence you are talking about? I just want to make sure.
1listnum "WP List 3" \l 12227 MR. JANIGAN: Okay. It is in 61 ‑‑
1listnum "WP List 3" \l 12228 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12229 MR. JANIGAN: ‑‑ and it is actually the first sentence, that:
"In addition to satisfying these three criteria, the competitor's need for the facility and inability to economically duplicate it..." (As read)
1listnum "WP List 3" \l 12230 MR. GRIEVE: Right. Right.
1listnum "WP List 3" \l 12231 MR. JANIGAN:
"...should not be the result of a lack of reasonable scale or scope." (As read)
1listnum "WP List 3" \l 12232 MR. GRIEVE: Right. The idea of the essential facilities doctrine is not to say that something is an essential facility for one competitor in a market but not another competitor. The idea of an essential facility is it is essential for competition and if competition cannot ‑‑ competition and not individual competitors but competition cannot arise without access to it, then it is an essential facility.
1listnum "WP List 3" \l 12233 MR. JANIGAN: But I take it a small new entrant might fail to meet these conditions simply because it is small?
1listnum "WP List 3" \l 12234 MR. GRIEVE: I don't ‑‑ the question here is whether it can be duplicated and the way we look at it, we look across the country in the different areas and we find evidence of duplication in all the major areas so that to the extent that there is duplication, we know it is duplicable under the test. Whether it has been duplicated by a small or a large carrier is not a consideration of ours.
1listnum "WP List 3" \l 12235 MR. JANIGAN: But a new entrant, for example, a small new entrant may require these facilities in order to expand and get larger. I mean isn't your test a bit like the old whine that the banks won't lend you money until you prove that you don't need it?
1listnum "WP List 3" \l 12236 MR. GRIEVE: Well, Mr. Janigan, you know, in every market, small new entrants try to enter and they have various ways of entering.
1listnum "WP List 3" \l 12237 You can use the idea of a small professional firm like an accounting firm or a dentist or something like that. They go, they start their business, they lease a building, they finance their equipment possibly through a lease and they start their business and they grow their business. Eventually, they might buy the building, get more dentists or accountants in the building. That is the way these things work.
1listnum "WP List 3" \l 12238 Our concern with adopting a test for essential facilities that is not an essential facilities test, which is basically a test for what you are going to unbundle and when, is that you end up in a situation where you don't allow competition to arise on the wholesale level.
1listnum "WP List 3" \l 12239 So using the dentistry firm or accounting firm, they never get an opportunity to go to the marketplace to look for something to lease because there are no alternate suppliers of the things that they need.
1listnum "WP List 3" \l 12240 MR. JANIGAN: But in your example, for example, obviously, the scale and the scope of the accounting firm when it came in to lease the office is a lot different from the scale and the scope of the accounting firm when it bought the building?
1listnum "WP List 3" \l 12241 MR. GRIEVE: Right. And the accounting firm could do that because the accounting firm was operating in or was entering into a market or was acquiring assets in a market that it needed to conduct its business, assets that were provided in a competitive market.
1listnum "WP List 3" \l 12242 Our concern about the Commission's approach, the way the Commission has approached unbundling, is that it has unbundled non‑essential facilities and we believe that its policies, as we have said many times, have actually stifled or reduced the opportunities for competition to arise in the facilities market.
1listnum "WP List 3" \l 12243 MR. JANIGAN: But taking your example again, this only works if the accounting firm, for example, had access to small office space to begin with?
‑‑‑ Pause
1listnum "WP List 3" \l 12244 MR. GRIEVE: Well, that is right but you are making the assumption, Mr. Janigan, that if the Commission doesn't order unbundling and doesn't order mandated access that there would never be any access provided to our facilities or other ILECs' facilities and our position is that is simply not the case and it is less and less the case the more you have other suppliers of those facilities in the market.
1listnum "WP List 3" \l 12245 The purpose of our proposal here and the purpose of our transition period is to make sure that the right incentives are created for everyone in the market to build or to lease or to negotiate but that the market determine it, not the regulator, and what you are asking for is a regulated solution that will actually, in our view, stifle the development of that competitive wholesale market.
1listnum "WP List 3" \l 12246 MR. JANIGAN: Okay. But back to your example again, if there are only one or two buildings in the city, presumably, the price that is going to be obtained by the building owner is going to be somewhat higher than what one would anticipate in a competitive market?
1listnum "WP List 3" \l 12247 MR. GRIEVE: Not if that market is open to competition and anybody else can come in and build other buildings.
1listnum "WP List 3" \l 12248 MR. JANIGAN: The other qualification I believe you put, and it is at the tail end of that sentence, is that the rates have to be compensatory as well, that they are being charged for the essential facilities.
1listnum "WP List 3" \l 12249 MR. GRIEVE: Yes. You know, we have used the expression "fully compensatory" since that time but that is our belief, that you have to allow the rates for essential facilities to be at compensatory levels, fully compensatory levels, which I described to the Chair last week.
1listnum "WP List 3" \l 12250 MR. JANIGAN: And that test presumably will be met in a future proceeding which decides upon what will be compensatory rates?
1listnum "WP List 3" \l 12251 MR. GRIEVE: That is right. The Commission in this proceeding has put in scope the question not of what the rates will be but the important first question, which is what are the pricing principles that it should adopt, and we have said that the prices should be based on company‑specific actual long‑run incremental costs or phase II costs plus a mark‑up for fixed common costs and to recover your proportionate share of the embedded cost differential and that should be the pricing principle for ‑‑ the main pricing principle for essential facilities.
1listnum "WP List 3" \l 12252 Dr. Aron can speak in more detail to those.
1listnum "WP List 3" \l 12253 MR. JANIGAN: So after the Commission concludes that proceeding, this particular qualification, I assume, would not be relevant? I mean we are not going to endlessly have to parse or to examine whether or not the rates for facilities are compensatory in your analysis?
1listnum "WP List 3" \l 12254 MR. GRIEVE: Well, if the Commission ‑‑ well, the Commission will make a determination of what the principles are in this proceeding and then I am sure we are going to be into a very interesting proceeding on how to apply those principles.
1listnum "WP List 3" \l 12255 MR. JANIGAN: And after that proceeding is concluded, that will be the end of that test, right?
1listnum "WP List 3" \l 12256 MR. GRIEVE: Whether the rates are compensatory?
1listnum "WP List 3" \l 12257 MR. JANIGAN: Yes.
1listnum "WP List 3" \l 12258 MR. GRIEVE: Yes, if the Commission decided they are going to do compensatory, fully compensatory rates, that will be the end of it.
1listnum "WP List 3" \l 12259 MR. JANIGAN: Okay.
1listnum "WP List 3" \l 12260 THE CHAIRPERSON: Can I just interject?
1listnum "WP List 3" \l 12261 I gather from this you feel that the present rates are not fully compensatory?
1listnum "WP List 3" \l 12262 MR. GRIEVE: That is right.
1listnum "WP List 3" \l 12263 THE CHAIRPERSON: Just in 50 seconds, tell me why you feel they are not compensatory.
1listnum "WP List 3" \l 12264 MR. GRIEVE: I have 50 seconds?
‑‑‑ Laughter / Rires
1listnum "WP List 3" \l 12265 MR. GRIEVE: The Commission over the last, I would say, decade has gone through a process of changing what we believe, and our submission has been consistently changing, phase II costing from being a company‑specific kind of costing mechanism to being one where the Commission has increasingly used proxies or adjusted key parts of the costing elements so that every time one of those is adjusted, the costs go down or the reported costs go down.
1listnum "WP List 3" \l 12266 That doesn't mean the costs of the companies have gone down, it just means that the costs that the Commission has allowed have gone down.
1listnum "WP List 3" \l 12267 Then on top of that, the Commission has changed its test for the mark‑up from a mark‑up that, although different words have been used over time, from a mark‑up that was supposed to allow for an opportunity to recover the proportionate share for each service of the fixed common costs plus what has come to be known the embedded cost differential, the Commission changed that in their price cap, well, actually changed it in a contribution decision and then later changed it for everything in the second price cap decision.
1listnum "WP List 3" \l 12268 It is not clear exactly to us what all the reasons for that were but they have changed those policies. So now the rates are not company‑specific and the mark‑ups are not sufficient, in our view, for essential services or essential facilities.
1listnum "WP List 3" \l 12269 THE CHAIRPERSON: Isn't it a bit of a contradiction that when you talk about whether something is duplicable or not, you say don't be company‑specific, don't look at this for size but take a reasonable approach, i.e., sort of an average normative approach, but when it comes to determining rates, you say go company‑specific?
1listnum "WP List 3" \l 12270 Shouldn't it be one way or the other for both, both for determining its duplicability and for determining what is an appropriate rate? Either you have company‑specific or you take an average of the industry.
1listnum "WP List 3" \l 12271 MR. GRIEVE: Well, I think if you take the company‑specific costs, the way we talk about similar geographic markets is we define them by band. The bands are defined uniformly for costs that are similar as amongst or between companies across the country.
1listnum "WP List 3" \l 12272 So if, for example, you had one company who had higher costs than another company, then the possibility is that those higher costs would result in ‑‑ the likelihood, if they were significantly higher, is that company's services in that geographic area would be in a different band than another company.
1listnum "WP List 3" \l 12273 So, you know, I think that the banding structure itself is supposed to look at the individual costs or the specific costs of the companies and then say, okay, every place that you have costs between, say, $5 and $15, or something like that, we will put that in one band.
1listnum "WP List 3" \l 12274 And so one company might have $5 to $15 in one kind of geographic area and the other in another kind of geographic area, but the costs across those bands would be similar, but you would still be using company‑specific costs to figure out what the costs are in that individual ILEC's territory.
1listnum "WP List 3" \l 12275 THE CHAIRPERSON: Back to you, Mr. Janigan.
1listnum "WP List 3" \l 12276 MR. JANIGAN: Thank you, Mr. Chair.
1listnum "WP List 3" \l 12277 Now, as I understand it, there's one final hurdle that has to be jumped in order for a facility to be essential, and that's on paragraph 62 of your evidence, on page 26. It's noted:
"...however, the Commission should only require mandatory unbundling of an essential facility when it finds such unbundling is in the public interest." (As read)
And it's indicated there that some of the interests, the public interests that would be promoted are things like investment in innovation...
1listnum "WP List 3" \l 12278 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12279 You know, this would be a very good question to ask Dr. Weisman because this really comes out of his evidence. I can give you a little bit of an answer, but it wouldn't go beyond what's in this paragraph.
1listnum "WP List 3" \l 12280 I mean, there are some times when you want to make sure that innovation is not stifled by saying to someone, "If you innovate so well that you find yourself in a position where you really are going to be able to reap a lot of benefits from it, well, then, we are just not going to let you reap those benefits".
1listnum "WP List 3" \l 12281 That puts a chill on innovation.
1listnum "WP List 3" \l 12282 MR. JANIGAN: How do you construct the test on this, in terms of you have already gone through, you know, the first part, your three criteria, then we have got a few more.
1listnum "WP List 3" \l 12283 Now this test, how does the Commission administer this test?
1listnum "WP List 3" \l 12284 MR. GRIEVE: Well, I think Dr. Weisman answered an interrogatory on this. I don't have it in front of me, but, you know, perhaps you could ask him.
1listnum "WP List 3" \l 12285 MR. JANIGAN: Okay.
1listnum "WP List 3" \l 12286 Is it TELUS's position that the converse is also true, that, should the Commission require mandatory unbundling, even if it doesn't meet your test, if it's in the public interest?
1listnum "WP List 3" \l 12287 MR. GRIEVE: Well, I suppose the Commission always has the opportunity to determine that it's in the public interest to mandate the unbundling of non‑essential facilities. Our position is that it's not in the public interest to do that because the evidence has show that it actually stifles investment in facilities.
1listnum "WP List 3" \l 12288 Now, I suppose you could say that the Commission, as they did in 97‑8, could use a transition period, and that's exactly what we have said here is that we need a transition period to go from where we are today and create the right incentives for us to have to move out of the unbundling of non‑essential facilities.
1listnum "WP List 3" \l 12289 But, in theory, certainly the Commission could unbundle non‑essential facilities, at the end of five years we just think it's the wrong policy choice.
1listnum "WP List 3" \l 12290 MR. JANIGAN: Yes. Now, in paragraph 64, on page 27 of your evidence, you concede that nearly all facilities will fail to satisfy one of the three elements of the definition and the analysis will rarely move beyond step one.
1listnum "WP List 3" \l 12291 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12292 MR. JANIGAN: So, effectively, we are dealing with a very, very small group of facilities that will be declared essential?
1listnum "WP List 3" \l 12293 MR. GRIEVE: Right. And not coincidentally, because the test is the same, it is almost identical to the list of facilities the Commission found to be essential in Decision 97‑8
1listnum "WP List 3" \l 12294 MR. JANIGAN: Okay.
1listnum "WP List 3" \l 12295 I would like to deal with your evidence dealing with the effect of the policy direction, and to assist I have taken two excerpts from the Canada Gazette, the first being the first iteration of the order under section 8 of June 17th, 2006, which is being distributed. I think you have a copy of that.
1listnum "WP List 3" \l 12296 MR. GRIEVE: Yes, I do, thank you.
1listnum "WP List 3" \l 12297 MR. JANIGAN: And the second being the final version of December 27th, being the order of December the 14th, 2006.
1listnum "WP List 3" \l 12298 MR. GRIEVE: Yes, I have that.
1listnum "WP List 3" \l 12299 MR. JANIGAN: Okay.
1listnum "WP List 3" \l 12300 THE SECRETARY: Those will be registered as Exhibit Nos. 1 and 2, respectively.
EXHIBIT PIAC‑1: Excerpt from Canadian Gazette of the first iteration under section 8, dated June 17, 2006
EXHIBIT PIAC‑2: Excerpt from Canada Gazette of the final version of the order of December 14,2006, dated December 27, 2006
1listnum "WP List 3" \l 12301 MR. JANIGAN: Now, the TELUS evidence makes it quite clear what it believes the impact of the policy direction of f December 2006 is on the outcome of this proceeding, and I ask you to turn up page 4 and paragraph 7 of your evidence...of your supplementary evidence of July 5th.
1listnum "WP List 3" \l 12302 MR. GRIEVE: Thanks. Hang on a second.
‑‑‑ Pause
1listnum "WP List 3" \l 12303 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12304 MR. JANIGAN: And actually, I'm looking at a quote from the bottom of the page, the previous page, page 3:
"But it is important to focus on the language of the policy direction because it provides further context for the Commission's current proceeding and also because the policy direction is, as a matter of law, binding on the Commission. In other words, the language of the policy direction must be interpreted as legally binding and subject to the same rules of statutory interpretation as would imply to any other law, regulation or statutory instrument." (As read)
1listnum "WP List 3" \l 12305 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12306 MR. JANIGAN: That's the position of TELUS.
1listnum "WP List 3" \l 12307 And as it is binding, as I understand the TELUS position is that the only permissible interpretation of the language of the policy direction is that the issue that the Commission is to determine is solely the extent of the phasing out of mandatory access. The Commission cannot expand the regime of access or keep it the same.
1listnum "WP List 3" \l 12308 MR. GRIEVE: That's what we believe it says.
1listnum "WP List 3" \l 12309 MR. JANIGAN: Okay. And is it your position that even if the Commission found that the objectives of the act would be better met by broadening the terms of the mandated access, the policy direction would not let them do so?
1listnum "WP List 3" \l 12310 MR. GRIEVE: I think that's what the intention of the policy direction is, that the government has found that it is not in the public interest to expand access.
1listnum "WP List 3" \l 12311 MR. JANIGAN: So even if the Commission found that the objectives of the act would be better met by broadening the terms, this policy direction would prevent them from doing so?
1listnum "WP List 3" \l 12312 MR. GRIEVE: I think the policy direction is clear. It says a reliance on market forces and improving incentives to innovate and invest. That's the clear objective of it and I think that the policy direction is clear that expanding mandated access would not be in the public interest so defined.
1listnum "WP List 3" \l 12313 MR. JANIGAN: And TELUS has come to that conclusion that this result follows primarily from the rules of statutory interpretation, that words must be presumed to have a meaning and must be given their ordinary meaning?
1listnum "WP List 3" \l 12314 MR. GRIEVE: Yes. And also, you know, you have to interpret these things in the context of the Telecom Policy Review, which was referred to in the Canada Gazette, as well.
1listnum "WP List 3" \l 12315 MR. JANIGAN: Okay.
1listnum "WP List 3" \l 12316 Now, if we turn up Exhibit 1, which is the first ‑‑
1listnum "WP List 3" \l 12317 MR. GRIEVE: It's the June 17th one?
1listnum "WP List 3" \l 12318 MR. JANIGAN: The June 17th one, that's Exhibit 1, June 17th, and we compare it with Exhibit No. 2, looking at section 1(c)(ii), and that's page 4 ‑‑
1listnum "WP List 3" \l 12319 MR. GRIEVE: Yes, I have it.
1listnum "WP List 3" \l 12320 MR. JANIGAN: ‑‑ of the first exhibit ‑‑
1listnum "WP List 3" \l 12321 MR. GRIEVE: Yes, I have them both.
1listnum "WP List 3" \l 12322 MR. JANIGAN: ‑‑ and page 2 of the second exhibit.
1listnum "WP List 3" \l 12323 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12324 MR. JANIGAN: In the first iteration, it simply says that they will
"...conduct a review of its regulatory framework regarding mandated access to wholesale services, in order to determine the extent to which mandated access to wholesale services that are not essential services should be phased out and the appropriate pricing of mandated services to encourage investment and innovation in network infrastructure."
1listnum "WP List 3" \l 12325 Now we note ‑‑ that's in June ‑‑
1listnum "WP List 3" \l 12326 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12327 MR. JANIGAN: ‑‑ in December, we have, at the end of mandated services, determine the appropriate pricing to mandated services, we have the phrase:
"...which review should take into account the principles of technological and competitive neutrality, the potential for incumbents to exercise market power in the wholesale and retail markets for the service in the absence of mandated access to wholesale services, and the impediments faced by new and existing carriers seeking to develop competing network facilities." (As read)
1listnum "WP List 3" \l 12328 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12329 MR. JANIGAN: If you turn to the Regulatory Impact Analysis Statement, which follows that ‑‑
1listnum "WP List 3" \l 12330 MR. GRIEVE: Page?
1listnum "WP List 3" \l 12331 MR. JANIGAN: Page 5 of that statement ‑‑
1listnum "WP List 3" \l 12332 MR. GRIEVE: Okay.
1listnum "WP List 3" \l 12333 MR. JANIGAN: ‑‑ about three‑quarters of the way down, it says:
"However, in particular, a large number of interested parties suggested changes to subparagraph 1(c)(ii),..."
‑‑ which is the one we have just been dealing with ‑‑
"...a policy direction which proposes a review of the regulatory framework surrounding mandated access to wholesale services to increase innovation, investment and infrastructure‑based competition in the telecommunications industry." (As read)
1listnum "WP List 3" \l 12334 And if you flip over the page, to page 6, it says:
"The Government has taken note of the significant questions raised concerning the implications of subparagraph 1(c)(ii) and the potential market impact of the CRTC's review of its framework governing wholesale services. In particular, amendments to subparagraph 1(c)(ii) in the definitive version of the Order respond to concerns with the review of mandated access to wholesale services.
1listnum "WP List 3" \l 12335 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12336 MR. JANIGAN: So, as you indicated, that in looking at the intent we often look at the legislative evolution of a particular statutory provision, is that correct?
1listnum "WP List 3" \l 12337 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12338 MR. JANIGAN: In this case, the government responded to, in its consultation to comments it has received in this consultation phase, and put in this particular section, which governs the way in which or what the Commission is supposed to take into account upon its review. Would you agree with that?
1listnum "WP List 3" \l 12339 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12340 MR. JANIGAN: Now, in fact, in page 18 of your evidence, paragraph 42, you indicate:
"For these reasons, parties who continue to rely on the definition of essential facilities provided in the draft bulletin or who have included notions of market power, dominance or lessening of competition in the respective definitions have proposed definitions of essential facilities that cannot be supported." (As Read)
My question is ‑‑
1listnum "WP List 3" \l 12341 MR. GRIEVE: Right, right.
1listnum "WP List 3" \l 12342 MR. JANIGAN: ‑‑ if the Commission here is telling us to take into account a market power ‑‑
1listnum "WP List 3" \l 12343 MR. GRIEVE: You mean the Governor in Council?
1listnum "WP List 3" \l 12344 MR. JANIGAN: The Governor in Council. Sorry, what did I say, the Commission?
1listnum "WP List 3" \l 12345 MR. GRIEVE: Yeah.
‑‑‑ LAUGHTER / RIRES
1listnum "WP List 3" \l 12346 MR. JANIGAN: The Governor in Council is telling us to take into account market power, and this policy direction is binding on the Commission. How can you tell the Commission to disregard it in relation to your analysis of essential facilities?
1listnum "WP List 3" \l 12347 MR. GRIEVE: Thanks for that question.
1listnum "WP List 3" \l 12348 First of all, let us be clear of what the direction says. It says:
"To complete a review of its regulatory framework regarding mandated access to determine the extent to which mandated access to wholesales services that are not essential services should be phased out and to determine the appropriate pricing standard." (As Read)
1listnum "WP List 3" \l 12349 So it is a review about mandated access and to phase out and the pricing, okay?
1listnum "WP List 3" \l 12350 MR. JANIGAN: M'hmm.
1listnum "WP List 3" \l 12351 MR. GRIEVE: Normal statutory interpretation would say that ‑‑ then it goes on to say, when you are doing that review that does these three things, take into account the principles of technological and competitive neutrality. In TELUS' proposal we have done that, because we say it is not the facility itself, it is the functionality of the facility that could be provided by any particular technology.
1listnum "WP List 3" \l 12352 The next one, the potential for incumbents to exercise market power in the wholesale and retail markets for the service in the absence of mandated access to wholesale services. The way we took into account the market power, the potential for the exercise of market power in wholesale and retail markets, is we looked at how long the transition period needed to be to create the right incentives to actually have competition in the wholesale market.
1listnum "WP List 3" \l 12353 Then, and the last one, and the impediments faced by new and exiting carriers seeking to develop competing network facilities, and just look on the next page, which I actually thought had ‑‑ anyway, those kinds of impediments, my recollection from the record of that, was things like access to rights of way and that kind of stuff and we have actually dealt with that. The Commission has, you know, quite a sophisticated and well‑tested method of regulating that.
1listnum "WP List 3" \l 12354 So the question that is addressed in the evidence about using market power or market power concepts in the definition of essential facility is a different question and how the Commission takes into account the potential exercise of market power. And we, ourselves as a SILEC, had a concern about making sure the right incentives were created.
1listnum "WP List 3" \l 12355 At the end of the day, you have to remember that the number one purpose for this review is with a view to increasing incentives for innovation and investment in and construction of competing telecommunications network facilities.
1listnum "WP List 3" \l 12356 As you heard us say last week, if you have a loose definition of an essential facility and you've heard that even the strict market power definition, the way the Bureau uses it, has been used by all sorts of parties in various ways. If you have a loose definition of essential facility, then people are going to be able to argue that just about everything is essential.
1listnum "WP List 3" \l 12357 So with a view to increasing incentives for innovation and investment, we looked at what is the correct definition of an essential facility based on the jurisprudence and based on Canadian experience. And how do you take into account this market power concern? We did it through the vehicle of the transition period.
1listnum "WP List 3" \l 12358 MR. JANIGAN: Okay, let us get back to this particular phrase. As I understand it, TELUS' position is that market power is taken into consideration in your evidence by a lengthy transition period.
1listnum "WP List 3" \l 12359 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12360 MR. JANIGAN: But you also criticize other parties for taking it into account in the context of their essential facilities test.
1listnum "WP List 3" \l 12361 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12362 MR. JANIGAN: Surely, that is what the Governor in Council is calling for with respect to this particular view, that market power is taken into account?
1listnum "WP List 3" \l 12363 MR. GRIEVE: Yes, and we took it into account. And you have to remember that the principal purpose of this proceeding is with a view to increasing incentives for innovation and investment. And our position is, and has been for 12 years, that ordering mandated access to non‑essential facilities, and especially if prices are too low, we will end up stifling incentives for investment in construction of facilities.
1listnum "WP List 3" \l 12364 MR. JANIGAN: But if the Commission takes your earlier view, that the words of this policy direction are binding, and the plain and ordinary meaning of this is that market power has to be a part of the analysis, surely that means that all of your expert evidence is directed to overturning the plain wording of this direction.
1listnum "WP List 3" \l 12365 MR. GRIEVE: Absolutely not. In fact, the plain wording of this direction does not ask the CRTC to reconsider its definition of essential facilities at all.
1listnum "WP List 3" \l 12366 No, no, the plain wording of this direction says look at how to phase out the ‑‑ sorry, I am going to read the exact words:
"...the extent to which mandated access to wholesale services that are not essential services should be phased out." (As Read)
1listnum "WP List 3" \l 12367 It doesn't say go and redefine essential services.
1listnum "WP List 3" \l 12368 MR. JANIGAN: Let us accept, for the purpose of this discussion, your initial point about the only thing we can do is phase it out. Okay, let us accept that, okay?
1listnum "WP List 3" \l 12369 MR. GRIEVE: All right.
1listnum "WP List 3" \l 12370 MR. JANIGAN: But the process of phasing it out has to be based on a process that takes into account the exercise of market power. Now you have it into account ‑‑
1listnum "WP List 3" \l 12371 MR. GRIEVE: Exactly. No, no.
1listnum "WP List 3" \l 12372 MR. JANIGAN: ‑‑ by way of your transition period.
1listnum "WP List 3" \l 12373 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12374 MR. JANIGAN: Other people have taken it into account by way of their definition of essential facilities. But you can't tell us that what those other parties have done is contrary to the direction that has been given to us by the Governor in Council.
1listnum "WP List 3" \l 12375 MR. GRIEVE: Well, I mean, that is your view. We can argue about it all day, Mr. Janigan. But my view is that an essential facility is an essential facility. The Commission had a definition going into this. And this direction, if you want to really be plain language about this, this direction does not instruct the Commission to redefine essential services or essential facilities. But it does instruct the Commission to take into account the potential for incumbents to exercise market power in the wholesale and retail markets.
1listnum "WP List 3" \l 12376 MR. JANIGAN: Can we agree that it is likely that the Governor in Council is aware of the difference between market power and monopoly power?
1listnum "WP List 3" \l 12377 MR. GRIEVE: I wouldn't suppose to know what the discussions were at the Governor in Council around this issue. I wouldn't know. But if they wanted a definition that ‑‑ no, you can't speculate, I can't speculate.
1listnum "WP List 3" \l 12378 MR. JANIGAN: Well, presumably it would have been as easy for them to specify that they exercise monopoly power not market power and met your definition, would it not?
1listnum "WP List 3" \l 12379 MR. GRIEVE: But you are assuming that this phrase tacked onto the end that says that while you are doing this review, which is the main thing to increase incentive for innovation and investment in the construction of competing facilities, while you are doing that review, which includes a phase out period or a transition period, have regard to these three things; technological and competitive neutrality, the market power issues and, the third, the impediments.
1listnum "WP List 3" \l 12380 So it is my view that we have fully taken that into account. It may not be your view, but it is certainly my view that we have fully taken it into account and it is a secondary list of considerations, and the first consideration is creating the incentives for innovation and investment.
1listnum "WP List 3" \l 12381 MR. JANIGAN: Well, Mr. Grieve, though, this was a big deal. I mean, obviously, the regulatory impact statement shows that they were responding to comments and made an amendment to their own policy directive to include these principles upon which the Commission would have a review.
1listnum "WP List 3" \l 12382 I mean, I think it is a big deal. We asked them to change a lot of this policy direction and we didn't get a thing changed. So obviously, when they looked at this they thought that this was a significant change.
1listnum "WP List 3" \l 12383 MR. GRIEVE: Well, I think it is a significant change, in that it tells the Commission what specifically, what to take into account in its review. And its review is about determining the extent to which mandated access for wholesales services that are not essential services should be phased out.
1listnum "WP List 3" \l 12384 MR. JANIGAN: Let me ‑‑
1listnum "WP List 3" \l 12385 MR. GRIEVE: Like, I don't know..
1listnum "WP List 3" \l 12386 MR. JANIGAN: Let me push onto the third element of this change, and it uses the term what the Commission has to take into consideration, the impediments faced by new and existing carriers seeking to develop competing network facilities.
1listnum "WP List 3" \l 12387 How does your formulation that if any competitor can duplicate the services not essential, how does that square with the rather expansive phase here, "the impediments faced by new and existing carriers seeking to develop competing network facilities?"
1listnum "WP List 3" \l 12388 MR. GRIEVE: Well, my view of that third one is that it was really focused on things like access to rights‑of‑way and buildings and support structures like conduit and poles and those things. But, you know, other impediments, you mean ‑‑ like, I don't know what other kinds of impediments they might have meant there.
1listnum "WP List 3" \l 12389 MR. JANIGAN: On a regime that might produce more effective competitors.
1listnum "WP List 3" \l 12390 MR. GRIEVE: Well, you know, we have said, as I said, since 1993 ‑‑ you have to remember, Mr. Janigan, that there is one consistent theme that TELUS has been on from the beginning and you have to remember that it was actually TELUS in 1993, not one of the competitors, but TELUS in the reg framework proceeding that proposed opening all the other markets to competition.
1listnum "WP List 3" \l 12391 Long distance had been opened. TELUS got on the stand and said open the local market for competition.
1listnum "WP List 3" \l 12392 The reason was at the time that we knew that competition was coming and it was time to open the market, for technological change was making it possible. And we knew that there would be opportunities for us to expand and opportunities for us to become a better company in a competitive market.
1listnum "WP List 3" \l 12393 We also knew there was no turning back to monopoly even if we wanted to go there.
1listnum "WP List 3" \l 12394 I know you are trying to say well, everyone in this proceeding is coming into this proceeding with their best interests at heart. Certainly it is in our best interest to have a competitive market.
1listnum "WP List 3" \l 12395 Some people have said that we are not acting in our own best interest, but that is a short‑term look. We look at these things in the longer term: how to adapt our company, how to become stronger and better in a competitive market.
1listnum "WP List 3" \l 12396 MR. JANIGAN: In a competitive market wouldn't it be more likely that TELUS would be urging a strategy to minimize competitor strength or to maximize prices for desirable facilities rental?
1listnum "WP List 3" \l 12397 MR. GRIEVE: I'm sorry, say that again.
1listnum "WP List 3" \l 12398 MR. JANIGAN: Wouldn't it be more likely that TELUS would urge a strategy to minimize competitor strength or maximize prices for desirable facilities rental?
1listnum "WP List 3" \l 12399 MR. GRIEVE: You know, it's not in TELUS' best interest to ask for a policy that doesn't get a competitive market and the competitive market that constrains the market power of everyone, or the potential market power of everyone in the market.
1listnum "WP List 3" \l 12400 You know, as an ILEC you might think we have one strategy, as a CLEC another. But we have had one consistent strategy from the beginning and that is creating a healthy competitive market at both the retail and the wholesale level.
1listnum "WP List 3" \l 12401 MR. JANIGAN: There is some agreement that cable has provided the most effective, or maybe the only really effective competition to local service, but it wasn't enabled by mandated access and it doesn't seem to have been deterred by mandated access.
1listnum "WP List 3" \l 12402 Why does it matter if smaller entrants can access facilities if the competition is not strong enough to affect ILEC pricing?
1listnum "WP List 3" \l 12403 MR. GRIEVE: Strong enough to affect ILEC pricing of what?
1listnum "WP List 3" \l 12404 MR. JANIGAN: Of local service, for example.
1listnum "WP List 3" \l 12405 MR. GRIEVE: Of local residential service?
1listnum "WP List 3" \l 12406 MR. JANIGAN: Yes.
1listnum "WP List 3" \l 12407 MR. GRIEVE: We just don't want to be in a position of having access to our facilities mandated in a way that is one‑off month‑to‑month low prices. You can get on the service one month, off the service the next month.
1listnum "WP List 3" \l 12408 It is very difficult for us to administer. It's costly to administer that kind of a process. And it's inefficient for us.
1listnum "WP List 3" \l 12409 So we are looking for a way to get to a competitive market where we can negotiate in the market for people getting access to our facilities. We believe that it will be better if people build their own facilities.
1listnum "WP List 3" \l 12410 MR. JANIGAN: The Commission in your example presumably has to be satisfied that there will be a competitive market for access to the facilities without mandated access, I would assume.
1listnum "WP List 3" \l 12411 MR. GRIEVE: A competitive market? I'm not sure what you mean.
1listnum "WP List 3" \l 12412 MR. JANIGAN: You indicated that you wanted to get to a place where you can negotiate competitively for these facilities rather than have them provided on the basis of a mandate.
1listnum "WP List 3" \l 12413 MR. GRIEVE: Right.
1listnum "WP List 3" \l 12414 MR. JANIGAN: Presumably the Commission has to be satisfied that such a competitive market exists before they depart from the mandate.
1listnum "WP List 3" \l 12415 MR. GRIEVE: No. I think that the Commission needs to trust the market. The direction does say rely on market forces, and the Commission needs to trust the market.
1listnum "WP List 3" \l 12416 We have provided for a five‑year transition period. We do see alternate facilities in the case of cable, but we also see other alternate facilities out there. We believe wireless is a substitute for local wireline fixed line telephone service, and we believe that there are other wireless ‑‑ well, we know that there are other wireless services coming available as we get more and more of that competition from other technologies, including Wi‑Max, which could be used in the residential market, and other wireless providers that we have in Alberta, Alberta MBC, for example, now; that there will be pressure on us and that we will respond in the marketplace.
1listnum "WP List 3" \l 12417 MR. JANIGAN: So your five‑year horizon you believe will take care of any concerns that a competitive market for facilities won't exist?
1listnum "WP List 3" \l 12418 MR. GRIEVE: Yes. We believe that it will create the right incentives over that period to allow competition to arise or allow the right incentives to be created for the ILECs to negotiate contracts with other market participants.
1listnum "WP List 3" \l 12419 MR. JANIGAN: Let me deal with a real world problem here, which was more or less presented by Yak in their evidence.
1listnum "WP List 3" \l 12420 What do you tell Yak customers who have made use of this service that is enabled by mandated access that may be shut out under your proposed access regime?
1listnum "WP List 3" \l 12421 Surely an admonition that this kind of competition is not good for you is probably not going to be effective.
1listnum "WP List 3" \l 12422 MR. GRIEVE: Well, the particular Yak service in question, the 10‑10 service and equal access and those things, in our evidence we have said that those are interconnection arrangements and should be grandfathered.
1listnum "WP List 3" \l 12423 We actually believe that the market is going to make those kinds of services moot in time, but it may not.
1listnum "WP List 3" \l 12424 Dial‑around service, once everyone goes to flat rate calling, what is there to dial around?
1listnum "WP List 3" \l 12425 So we just said those are interconnection services. If that continues, that's great for Yak. They provide a service that is used by specific kinds of customers. It's obviously needed. But over time those customers may be getting flat rate local and toll calling, and then there's nothing to dial around, as I said.
1listnum "WP List 3" \l 12426 MR. JANIGAN: And new entrants presumably then will be taken care of within your five‑year horizon by having new facilities being brought aboard.
1listnum "WP List 3" \l 12427 MR. GRIEVE: Yes, and any new entrants that want to enter during those five years would still have access to the tariffs during that five‑year period, or they could negotiate, or both.
1listnum "WP List 3" \l 12428 MR. JANIGAN: Now, if you are wrong about this dynamics of competition, I take it we are likely stuck with what we have now. Right?
1listnum "WP List 3" \l 12429 MR. GRIEVE: Well, five years is an awfully long time. I don't know why you would say "stuck with what we have now". Consumers are in the best position they have been in, in terms of competitive supply and the potential for competitive supply, ever in the history of telecom in Canada. So I don't know why you would use the word "stuck".
1listnum "WP List 3" \l 12430 MR. JANIGAN: I don't want to debate that with you at the moment.
1listnum "WP List 3" \l 12431 All I'm concerned with is that effectively we would have a duopoly that would effectively be entrenched in the local services market.
1listnum "WP List 3" \l 12432 MR. GRIEVE: I absolutely don't agree that there is a duopoly today in the local services market or that there will be going forward. I know that a lot of people don't believe that wireless service is a substitute, but increasingly more and more all the time, especially in Vancouver and Calgary, we see people who have no home phone.
1listnum "WP List 3" \l 12433 We know that 70 percent of people who have wireless phones ‑‑ I think this was the data ‑‑ use them to make calls from home. They are substitutes.
1listnum "WP List 3" \l 12434 We also have other services coming, as we have said before, and in place now, things like Wi‑Max. So there are other kinds of services out there. Just because it's wireline doesn't mean it's not ‑‑ just because things aren't wireline doesn't mean they are not in the same market.
1listnum "WP List 3" \l 12435 MR. JANIGAN: Mr. Grieve, I'm getting flashbacks to last year, so I think I will conclude my questioning of the panel.
1listnum "WP List 3" \l 12436 Thank you very much, panel. Thank you very much, Mr. Chair.
1listnum "WP List 3" \l 12437 THE CHAIRPERSON: Mr. Grieve, two points of clarification.
1listnum "WP List 3" \l 12438 On Yak, did I understand you correctly that you thought that the 10‑10 service would fall under interconnection and would remain mandated?
1listnum "WP List 3" \l 12439 MR. GRIEVE: Yes, I ‑‑
1listnum "WP List 3" \l 12440 THE CHAIRPERSON: I thought I heard before, last week, that it was your company's suggestion that they would have to be renegotiated; that a negotiated arrangement should replace the mandated service.
1listnum "WP List 3" \l 12441 MR. GRIEVE: That was just the billing and collection portion of it.
1listnum "WP List 3" \l 12442 THE CHAIRPERSON: I see. The billing and collection should be negotiated but the interconnection would remain mandated?
1listnum "WP List 3" \l 12443 MR. GRIEVE: Correct.
1listnum "WP List 3" \l 12444 THE CHAIRPERSON: Okay. Secondly, Mr. Janigan, just talked to you shortly about Order‑in‑Council and, if I understand it, it is your contention that under the wording as it reads right now we can shrink the amount of services mandated but we can't expand it, we couldn't designate something new as being mandated, being essential, et cetera?
1listnum "WP List 3" \l 12445 MR. GRIEVE: That's what I understand, yes.
1listnum "WP List 3" \l 12446 THE CHAIRPERSON: I understand that, but are you referring to this proceeding, or are you referring generally, because the Order‑in‑Council says, "Continue this proceeding...".
1listnum "WP List 3" \l 12447 So, I assumed you were referring to this proceeding, but please correct me if I am wrong.
1listnum "WP List 3" \l 12448 MR. GRIEVE: Yes, I was referring to this proceeding.
1listnum "WP List 3" \l 12449 THE CHAIRPERSON: Okay, thank you.
1listnum "WP List 3" \l 12450 Commissioner Cram.
1listnum "WP List 3" \l 12451 COMMISSIONER CRAM: And I heard you talking about the direction and saying that the added parts were really secondary concerns, so I want to go to what you call your primary concern, Mr. Grieve, and that is:
"...with a view to increasing incentives for innovation and investment." (As read)
1listnum "WP List 3" \l 12452 I don't know any way that we can empirically decide what will increase innovation. I mean, there is no data we can look at saying this increased innovation, this didn't.
1listnum "WP List 3" \l 12453 I mean, we can hear all the doctors of economics, and we are going to, and as we have ‑‑ I have for the last nine years ‑‑ but I am asking for numbers.
1listnum "WP List 3" \l 12454 MR. GRIEVE: Me too.
1listnum "WP List 3" \l 12455 COMMISSIONER CRAM: You know, show me what I can do to increase or decrease innovation.
1listnum "WP List 3" \l 12456 MR. GRIEVE: You know, I'd like you to ask that question of Dr. Wiseman.
1listnum "WP List 3" \l 12457 COMMISSIONER CRAM: Oh, yeah, sure, get me back to the doctor of economics.
1listnum "WP List 3" \l 12458 Thank you.
1listnum "WP List 3" \l 12459 MR. GRIEVE: That's why we have him.
1listnum "WP List 3" \l 12460 COMMISSIONER CRAM: Now, my question one is though, when we are talking about increasing incentives for investment, so, I look at one regulatory regime in the States and you would agree with me that it is far more restricted on access, mandated essential services?
1listnum "WP List 3" \l 12461 MR. GRIEVE: Or liberal, depending on which side of the coin you're coming from. There was a lot more mandated access ‑‑
1listnum "WP List 3" \l 12462 COMMISSIONER CRAM: But then with the ‑‑
1listnum "WP List 3" \l 12463 MR. GRIEVE: ‑‑ but then it has been pulled back, yeah.
1listnum "WP List 3" \l 12464 COMMISSIONER CRAM: Yeah. And if I said to you the only data we have available, which is ILEC spending, shows a reduction in ILEC investment since that has happened, if you were our consultant, what would you tell us then?
1listnum "WP List 3" \l 12465 MR. GRIEVE: You know, I'm not the one to ask this question, I think Bob Crandall would be the one to ask this question.
1listnum "WP List 3" \l 12466 COMMISSIONER CRAM: But if we are looking at empirical data and we are looking at ILEC spending, which is the only data available to us, that would clearly give us a result of one particular type of regulation.
1listnum "WP List 3" \l 12467 And if I looked at ILEC spending in the U.K., would that also give me an indication of your primary purpose of this whole thing, increasing incentives for investment?
1listnum "WP List 3" \l 12468 MR. GRIEVE: You know, you'd have to understand the data itself and I don't know that just looking at that data alone helps you without understanding what else is in there, and that's why, you know, I've suggested that you talk to Drs. Crandall and Wiseman.
1listnum "WP List 3" \l 12469 But, you know, I think you also have to ‑‑ you'd have to look at what the investment was overall in the industry, the investment by CLECs and things like that.
1listnum "WP List 3" \l 12470 That's really what you're looking for, is incentives for innovation and investment in construction of competing telecommunications networks.
1listnum "WP List 3" \l 12471 COMMISSIONER CRAM: So, if I looked at our own system and I look at a doubling of self provisioning in a year in our system now, wouldn't that tell me something about the success of CLEC investment?
1listnum "WP List 3" \l 12472 MR. GRIEVE: Well, you know, we've had some time to try to get to the bottom of that number and, as you know, there was a minor change because of our reporting.
1listnum "WP List 3" \l 12473 And we went back to our wholesale group in Calgary and asked them to tell us whether these numbers in those reports made any sense given their experience in Alberta and British Columbia and they said were not reflective of our experience in Alberta and British Columbia.
1listnum "WP List 3" \l 12474 So, if that's the case, then using the number, that 27 to 41 per cent, and it doesn't matter if the numbers change because it still represents 172,000 self provisioned lines ‑‑ new self provisioned lines in 2006, and we look at that and we go, "tsssk", and we didn't see enough people out there digging trenches in Ontario and Quebec, which is pretty well where it would have had to be.
1listnum "WP List 3" \l 12475 So, we don't know. We think there might be a data issue there, but even if there is no data issue there it certainly proves one thing and that is that there are ‑‑ that these accesses are not essential facilities.
1listnum "WP List 3" \l 12476 And so, you know, it's kind of a two‑edged sword, but we don't see in Alberta and B.C. that transformation from leased to self supplied that that particular piece of information would suggest.
1listnum "WP List 3" \l 12477 And, you know, we don't have access to Bell's information in that we don't know what's gone on in Bell's territory, but it certainly hasn't happened in ‑‑ there's some, you know, some migration from re‑sold like Centrex where people migrate and that's Bell on its Government accounts we think, but then other kinds of competitors, we just don't see those numbers.
1listnum "WP List 3" \l 12478 COMMISSIONER CRAM: They may be digging in Indian Head, I don't know, but...
1listnum "WP List 3" \l 12479 So, what you are really saying though is at the end of the day there is no empirical way by looking at data that we can philosophically drive essentiality to show us ‑‑
1listnum "WP List 3" \l 12480 MR. GRIEVE: You mean mandating it?
1listnum "WP List 3" \l 12481 COMMISSIONER CRAM: ‑‑ absolutely that we can increase innovation or we can increase investment?
1listnum "WP List 3" \l 12482 MR. GRIEVE: I wouldn't ‑‑
1listnum "WP List 3" \l 12483 COMMISSIONER CRAM: The primary...
1listnum "WP List 3" \l 12484 MR. GRIEVE: I wouldn't know that, you'd have to ask the good doctors.
1listnum "WP List 3" \l 12485 COMMISSIONER CRAM: I don't think we'd get a yes or no from them either. Thank you.
1listnum "WP List 3" \l 12486 THE CHAIRPERSON: Okay. If there are no other questions, Madam Secretary, who's next?
1listnum "WP List 3" \l 12487 THE SECRETARY: The next company to cross Cybersurf Corp., counsel Tacit.
1listnum "WP List 3" \l 12488 MR. TACIT: Thank you. I have a package of documents which I'd ask to be distributed, please.
1listnum "WP List 3" \l 12489 MR. GRIEVE: Are these the same ones you gave us last night, or before?
1listnum "WP List 3" \l 12490 MR. TACIT: And the ones you got two days ago ‑‑
1listnum "WP List 3" \l 12491 MR. GRIEVE: Yeah.
1listnum "WP List 3" \l 12492 MR. TACIT: ‑‑ until the end. There are also some portions from the record in accordance with the Commission's instructions.
1listnum "WP List 3" \l 12493 MR. GRIEVE: Okay.
1listnum "WP List 3" \l 12494 Thank you.
1listnum "WP List 3" \l 12495 THE CHAIRPERSON: Okay, Mr. Tacit, proceed.
1listnum "WP List 3" \l 12496 MR. TACIT: Thank you, Mr. Chairman.
EXAMINATION BY: MR. TACIT
1listnum "WP List 3" \l 12497 MR. TACIT: Mr. Grieve, would you agree with me that today the main sources of high‑speed Internet services are the ILECs and the cable companies?
1listnum "WP List 3" \l 12498 MR. GRIEVE: To residential customers ‑‑ well, just generally, yes. I think so, yes.
1listnum "WP List 3" \l 12499 MR. TACIT: Thank you. And would you also agree with me that more and more residential consumers are choosing broad band Internet services over dial‑up?
1listnum "WP List 3" \l 12500 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12501 MR. TASKER: That's correct.
1listnum "WP List 3" \l 12502 MR. TACIT: And is one of the reasons that broad band Internet services are finding favour with consumers that it's possible to do tasks a lot more quickly than it is with dial‑up, for example, downloading software, watching video and so on?
1listnum "WP List 3" \l 12503 MR. TASKER: Yes, of course.
1listnum "WP List 3" \l 12504 MR. TACIT: So, another reason is that broad band Internet connections can also support other services such as VoIP, long distance services, broad band video services such as TELUS IPTV; correct?
1listnum "WP List 3" \l 12505 MR. TASKER: That's correct.
1listnum "WP List 3" \l 12506 MR. TACIT: So, would you agree with me that the bundle is becoming more and more important for consumers today than it used to be, the bundle of services and that that's being enabled by broad band technology?
1listnum "WP List 3" \l 12507 MR. TASKER: I think you're seeing many, many players in the market address the market in very interesting ways in terms of bundling various applications. So, the scope of competition is increasing incredibly in terms of who the players are as a result.
1listnum "WP List 3" \l 12508 MR. TACIT: Okay. But my specific question was: Are bundles increasing significantly as a means ‑‑
1listnum "WP List 3" \l 12509 MR. TASKER: I think my answer was consistent with that, that yes, if what you call bundles, I guess we would term them to be more innovative value add applications of different varieties and they would certainly include things like voice access and Internet access and video and so on and so forth.
1listnum "WP List 3" \l 12510 MR. TACIT: Okay. If I could ask you in that package that I gave you to turn to the page that has the number 6 at the bottom of the page, and this is an interrogatory response from the Companies to a Cybersurf interrogatory that addressed the significance of bundles.
1listnum "WP List 3" \l 12511 And I'd like to focus your attention specifically on the last sentence of the second paragraph which says:
"Investment firm UBS estimated that 90 per cent of households in Bell Canada's traditional territory of Ontario and Quebec will subscribe to bundles by the end of 2008." (As read)
1listnum "WP List 3" \l 12512 MR. GRIEVE: Yes, I see that. Just a little housekeeping for the benefit of those listening.
1listnum "WP List 3" \l 12513 We've been calling out the interrogatory name, so it's the Companies/Cybersurf 12 April, 07‑6.
1listnum "WP List 3" \l 12514 MR. TACIT: Yes, thank you very much.
1listnum "WP List 3" \l 12515 MR. GRIEVE: Okay.
1listnum "WP List 3" \l 12516 MR. TACIT: I appreciate that.
1listnum "WP List 3" \l 12517 MR. GRIEVE: It was also for the benefit of the people behind me.
1listnum "WP List 3" \l 12518 MR. TACIT: No, absolutely, absolutely. Thank you.
1listnum "WP List 3" \l 12519 Would you expect that TELUS' experience is going to be similar to this in 2008?
1listnum "WP List 3" \l 12520 MR. TASKER: I think in a general nature, yes.
1listnum "WP List 3" \l 12521 MR. TACIT: Now, we've already discussed that the Telus test isn't concerned directly with market power but rather the prevention of competition; is that right?
1listnum "WP List 3" \l 12522 MR. GRIEVE: Market power is not part of the test for the essential facilities test that TELUS has proposed in this proceeding and that the Commission has adopted in the past.
1listnum "WP List 3" \l 12523 MR. TACIT: Okay. Now, can you also confirm with me that if a competitor provides DSL service through its own combination of unbundled local ILEC loops, for example, its own DSLAMs co‑located on ILEC premises, that the ability of the competitor to distinguish its DSL service from the ILEC's DSL service is greater with respect to such matters as speed, quality of service and so on? Is that factually true?
1listnum "WP List 3" \l 12524 MR. TASKER: Are you suggesting that they would ‑‑ I am sorry, say that question again, just quickly.
1listnum "WP List 3" \l 12525 MR. TACIT: You have a competitor that leases ILEC unbundled loops ‑‑
1listnum "WP List 3" \l 12526 MR. TASKER: Yes.
1listnum "WP List 3" \l 12527 MR. TACIT: ‑‑ co‑locates its own equipment ‑‑
1listnum "WP List 3" \l 12528 MR. TASKER: Yes.
1listnum "WP List 3" \l 12529 MR. TACIT: ‑‑ and provides its own DSL service over that loop. Is it able to distinguish its service to a greater degree from the ILEC's own DSL service by using that form of competition than simply buying a GAS‑type service or ‑‑
1listnum "WP List 3" \l 12530 MR. TASKER: Oh! I see. There are certainly opportunities for that, albeit minimal. I believe when you compare that to, for example, a cable access and their ability to differentiate, it is an order of magnitude different.
1listnum "WP List 3" \l 12531 MR. TACIT: Well, I didn't ask you to compare it to cable. I am just saying could a competitor have the ability to set its own quality of service for its services, set its own DSL speeds and so on?
1listnum "WP List 3" \l 12532 MR. TASKER: They are limited by ‑‑
1listnum "WP List 3" \l 12533 MR. TACIT: Limited in what way?
1listnum "WP List 3" \l 12534 MR. TASKER: For example, in terms of whatever SLA service level agreement we offer on our unbundled loop, in terms of our ability to restore that in a certain period of time. That is consistent between retail and wholesale but it is a single quality of service that we offer on that.
1listnum "WP List 3" \l 12535 So if, for example, the line is cut, then we offer, for example, maybe a 24‑hour mean time to repair and whether you are a retail customer or service to a wholesale customer, it is the same guaranteed repair time.
1listnum "WP List 3" \l 12536 MR. TACIT: Well, fair enough but we are not talking about the line being cut.
1listnum "WP List 3" \l 12537 I am talking about when the line is operating, would the competitor be in a better position to distinguish his services?
1listnum "WP List 3" \l 12538 MR. TASKER: A better position than...?
1listnum "WP List 3" \l 12539 MR. TACIT: Than if it were buying a GAS‑type service. Would it be in a position ‑‑
1listnum "WP List 3" \l 12540 MR. TASKER: It would have an opportunity.
1listnum "WP List 3" \l 12541 MR. TACIT: ‑‑ to determine its own broadband speeds, its own quality of service?
1listnum "WP List 3" \l 12542 MR. TASKER: It would have the ability to differentiate. I would suggest it may also be behind what we are doing on our GAS‑type service.
1listnum "WP List 3" \l 12543 MR. TACIT: Behind in what way?
1listnum "WP List 3" \l 12544 MR. TASKER: In terms of whatever facilities we are offering on our ‑‑ sorry, just hang on a second.
‑‑‑ Pause
1listnum "WP List 3" \l 12545 MR. TASKER: Just a clarification here. The limitation is based on the DSLAM equipment that you are using.
1listnum "WP List 3" \l 12546 MR. TACIT: Right.
1listnum "WP List 3" \l 12547 MR. TASKER: And so, for example, if our GAS service is offering ‑‑ is using one type of DSLAM that may be superior, for example, then what ‑‑
1listnum "WP List 3" \l 12548 MR. TACIT: But it could be inferior too compared to what the competitor chooses?
1listnum "WP List 3" \l 12549 MR. TASKER: It could be.
1listnum "WP List 3" \l 12550 MR. TACIT: Okay. And the competitor would be also in a position in that scenario to provide its own bundle of services, correct, including VoIP and IPTV?
1listnum "WP List 3" \l 12551 MR. TASKER: Yes, of course.
1listnum "WP List 3" \l 12552 MR. TACIT: Okay. Would you agree with me that the ILECs and cable companies appear to be in a constant race to increase broadband speeds on their networks in order to provide new services in bundles?
1listnum "WP List 3" \l 12553 MR. TASKER: Yes, no question, we are in quite a competitive race with the cable companies.
1listnum "WP List 3" \l 12554 MR. TACIT: Okay, thank you.
1listnum "WP List 3" \l 12555 Now, I would like to switch topics for a minute and look at how the TELUS test for essential facilities could be operationalized and I am looking specifically now at paragraphs 72 and 73 of the TELUS supplementary evidence, the main supplementary evidence of July 5th. This is at pages 30 and 31. If you could turn there with me, please.
‑‑‑ Pause
1listnum "WP List 3" \l 12556 MR. TASKER: Okay, we have them here.
1listnum "WP List 3" \l 12557 MR. TACIT: Now, what TELUS is doing here, as I understand it, is providing an example of how it would apply its test to certain residential exchange loops in rural areas and then concludes that they are not essential.
1listnum "WP List 3" \l 12558 I would like to just read paragraphs 72 and 73 quickly here.
1listnum "WP List 3" \l 12559 Paragraph 72 says:
^^"Furthermore, independent internet service offers service in bands E to G, making available to customers in bands E to G access independent voice services which also duplicate TELUS' residential exchange loop functionality." (As read)
1listnum "WP List 3" \l 12560 Now, just stopping there for a minute, you would agree with me that in order to have an access independent voice service it is necessary first to have a broadband platform; correct?
1listnum "WP List 3" \l 12561 MR. GRIEVE: That is right.
1listnum "WP List 3" \l 12562 MR. TACIT: Okay. And then paragraph 73 says:
^^"The fact that local loop facilities are supplied by cable carriers in bands E and F and that the same functionality can be obtained from wireless carriers in bands E to G or access independent VoIP service providers in bands E to G demonstrates that residential exchange local loops or their functionality have been economically and technically duplicated. Therefore, TELUS residential exchange local loops in rural areas are not essential and the analysis is concluded." (As read)
1listnum "WP List 3" \l 12563 Do you ‑‑
1listnum "WP List 3" \l 12564 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12565 MR. TACIT: That is TELUS' evidence; correct?
1listnum "WP List 3" \l 12566 MR. GRIEVE: Yes.
1listnum "WP List 3" \l 12567 MR. TACIT: Would you agree with me that nowhere in this analysis is TELUS looking at the residential service bundle as whole, you are just looking at local service; correct?
1listnum "WP List 3" \l 12568 MR. GRIEVE: Yes, that is right. If the facility can be duplicated or the functionality of the facility can be duplicated for one or two services, it can certainly have ‑‑ you know, there is potential for it to be used for other services as well. But yes, we are just looking at basically voice service here.
1listnum "WP List 3" \l 12569 MR. TACIT: And we can agree that right now the wireless platform isn't being used in any kind of broad way as a substitute for the residential service bundle, is it?
1listnum "WP List 3" \l 12570 MR. GRIEVE: Residential service bundle? Well, there is internet access with wireless.
1listnum "WP List 3" \l 12571 MR. TACIT: Yes, but if I am at home, if I want to download and browse, I am not likely to pull out my ‑‑ if I have my computer and I have my wireless, I am not likely to sit there ‑‑
1listnum "WP List 3" \l 12572 MR. TASKER: Well, for example, I have a close friend of mine whose parents live on a rural farm in Alberta and if they want to surf the internet, right now the only way they have to do that is through a wireless ISP.
1listnum "WP List 3" \l 12573 MR. TACIT: But for most consumers, that is not the experience?
1listnum "WP List 3" \l 12574 MR. TASKER: No, but that is a huge geography and if they can do it there, they can certainly have that option anywhere in the province or in the country, for that matter.
1listnum "WP List 3" \l 12575 MR. TACIT: So according to the duplicability test of TELUS, you are saying because certain people in certain areas may have to do it that way and are able to do it that way, then it is a non‑essential facility ‑‑
1listnum "WP List 3" \l 12576 MR. TASKER: Well, I think it has been shown that as a result of the ILECs and the cablecos not having the ability to get there soon enough, the innovation and the incentive for other players to step up to the plate was proven to take effect.
1listnum "WP List 3" \l 12577 MR. TACIT: Well, we have seen the earlier testimony confirming the figures in the CRTC Monitoring Report that the incumbents, the ILECs and cable BDUs account for 95.6 percent of all high‑speed internet services as of ‑‑
1listnum "WP List 3" \l 12578 MR. TASKER: What is interesting is if you look at the percentage of cable companies' voice access three years ago, what percentage would that be and we are looking at a five‑year transition plan. So the fact that wireless is a very small percentage at this point, I don't think it is fair to say that it is not material in terms of the effectiveness of that type of competition.
1listnum "WP List 3" \l 12579 MR. TACIT: So what you are really asking the Commission then to do is to bet on the development of wireless in making its decision?
1listnum "WP List 3" \l 12580 MR. TASKER: Not only wireless, that is for sure, but I am using that as a great example.
1listnum "WP List 3" \l 12581 MR. GRIEVE: Well, the other important point ‑‑
1listnum "WP List 3" \l 12582 THE CHAIRPERSON: Mr. Tacit, where are you going with this? I am sorry, I don't follow your line of questioning at all.
1listnum "WP List 3" \l 12583 MR. TACIT: Okay.
1listnum "WP List 3" \l 12584 THE CHAIRPERSON: Are you trying to establish that bundles is a separate market?
1listnum "WP List 3" \l 12585 MR. TACIT: Yes.
1listnum "WP List 3" \l 12586 THE CHAIRPERSON: Okay.
1listnum "WP List 3" \l 12587 MR. TACIT: And you give the same example for residential local loops; is that correct?
1listnum "WP List 3" \l 12588 MR. GRIEVE: I am sorry ‑‑
1listnum "WP List 3" \l 12589 MR. TACIT: I am sorry. At paragraphs 61 and 62 of that same evidence, you have a similar ‑‑ you reach a similar conclusion in the case of urban residential local loops, is that right, based on pretty much similar considerations?